This Registration Statement also constitutes Post-Effective Amendment No. 1 to
Registration Statement No. 333-61149
As filed with the Securities and Exchange Commission on April 30, 1999
Registration Statement No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TELSCAPE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Texas 4813 75-2433637
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
2700 Post Oak Boulevard, Suite 1000 Todd M. Binet
Houston, Texas 77056 Chief Financial Officer
(713) 968-0968 Telscape International, Inc.
(Address, including zip code, and 2700 Post Oak Boulevard, Suite 1000
telephone number, including area Houston, Texas 77056
code, of registrant's principal (713) 968-0968
executive offices) (Name, address, including zip code,
and telephone number, including
area code, of agent for service)
Copies to:
Morris F. DeFeo, Jr., Esq.
Swidler Berlin Shereff Friedman, LLP
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
(202) 424-7500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------
Title of Amount to be Proposed Maximum Proposed Amount
shares to be Registered (1) Offering Price Maximum of
Registered Per Share (2) Aggregate Registration
Offering Price Fee (3)
- ------------------------------------------------------------------------------
Common Stock 964,326 $6.563 $6,328,871.54 $153.09
par value
$0.001 per
share
- ------------------------------------------------------------------------------
(1) Pursuant to Rule 429 of the Securities Act, the prospectus included
herein also covers 910,430 shares of common stock from a previous registration
statement on Form S-1(No. 333-61149), declared effective by the SEC on
November 5, 1998, as to which a registration fee has previously been paid.
This registration statement is deemed to constitute Post-Effective Amendment
No. 1 to the earlier registration statement
(2) Estimated solely for purposes of calculating the registration fee. In
accordance with Rule 457(c) of Regulation C, the estimated price for such
shares of common stock was based on the average of the high and low reported
prices on the Nasdaq National Market on April 26, 1999.
(3) The Registrant has previously paid the registration fee for 910,430
shares of common stock registered under this registration statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 30, 1999
TELSCAPE INTERNATIONAL, INC.
964,326 SHARES
COMMON STOCK
------------------------
This prospectus relates to the possible offer and sale from time to time of up
to 964,326 shares of our common stock, par value $.001 per share, by the
selling stockholders identified on page 24 of this prospectus. The selling
stockholders advised us that they, acting as principals for their own account,
directly or through agents, dealers or underwriters that they may designate,
may sell their shares of common stock from time to time on terms that will be
determined at the time of sale. The selling stockholders will sell their
shares through customary brokerage channels, negotiated transactions or a
combination of these methods at fixed prices that may be changed, at market
prices then prevailing or at negotiated prices then obtainable. To the extent
required, we will provide:
- the number of shares that will be sold,
- the names of the selling stockholders,
- the purchase price,
- the public offering price,
- the name of any agent, dealer or underwriter, and
- the amount of any offering expenses, applicable commissions or
discounts and any other material information regarding a
particular offer in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration
statement of which this prospectus is a part.
Each selling stockholder reserves the right to accept and, together with
its agents, to reject in whole or in part, any proposed purchase of its
shares.
Since the shares registered by the registration statement are being
offered on a delayed or continuous basis as permitted by Rule 415 of the
Securities Act of 1933, we are not able to include in this prospectus
information about the price to the public of the shares or the proceeds to the
selling stockholders. The selling stockholders and any brokers or dealers
executing selling orders on their behalf may be deemed "underwriters" within
the meaning of the Securities Act, in which event the usual and customary
selling commissions which may be paid to the brokers or dealers may be deemed
to be underwriting commissions under the Securities Act. The aggregate
proceeds to the selling stockholders from the sale of the shares will be the
purchase price of the shares sold less any discounts or commissions. We can
give you no assurance that any or all of the shares that we register will be
sold.
We will not receive any of the proceeds from the shares of common stock
sold by the selling stockholders. We will, however, bear certain expenses
incident to their registration. Further information concerning the selling
stockholders and the shares of common stock that will be sold can be found in
the "Selling Stockholders" and "Plan of Distribution" sections of this
prospectus. Information concerning the selling stockholders may change from
<PAGE>
<PAGE>
time to time. To the extent required, any changes will be set forth in an
accompanying prospectus supplement or if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
Our common stock is traded on the Nasdaq National Market under the
symbol "TSCP." On April 26, 1999, the last reported sale price for our common
stock on the Nasdaq National Market was $6.563 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date
on the front of this prospectus.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction where the
offer of sale is not permitted.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The date of this prospectus is _____, 1999.
----------------------------<PAGE>
<PAGE>
TABLE OF CONTENTS
Where You Can Find More Information 3
Forward-Looking Statements 4
The Company 7
Risk Factors 8
Use of Proceeds 19
Description of Capital Stock 19
Selling Stockholders 24
Plan of Distribution 25
Legal Matters 26
Experts 26
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and
copy any materials that we have filed with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. We file information electronically with the SEC.
The SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of the SEC's Internet site is
http://www.sec.gov. You also may inspect copies of these materials and other
information about us at the following regional offices of the SEC: CitiCorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. The SEC allows us to
"incorporate by reference" the information we file with the SEC, which means
that we can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part
of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 before the termination of the offering of the shares made under
this prospectus:
(i) Our annual report on Form 10-K for the fiscal year ended
December 31, 1998, as filed with the SEC on March 31, 1999; and
(ii) The description of our common stock, par value $0.001 per
share, contained in our registration statement on Form 8-A (Registration No.
000-24622) filed with the SEC on August 3, 1994, as amended August 9,1994,
under Section 12 of the Exchange Act.
(iii) Our proxy statement on Form 14-A for our annual meeting of
stockholders, as filed with the SEC on April 29, 1999.
We will provide without charge to each person who requests it in writing a
copy of any or all of the documents incorporated by reference in this
prospectus, except the exhibits to those documents (unless the exhibits are
specifically incorporated by reference in the documents). You should direct
requests for these copies to Investor Relations at 2700 Post Oak Boulevard,
Suite 1000, Houston, Texas 77056, or by telephone at (713) 968-0968. This
prospectus is part of a registration statement we filed with the SEC. The
prospectus and any accompanying prospectus supplement do not contain all of
the information included in the registration statement. We have omitted
certain parts of the registration statement in accordance with the rules and
regulations of the SEC. For further information, we refer you to the
registration statement, including its exhibits and schedules. Statements
contained in this prospectus and any accompanying prospectus supplement about
the provisions or contents of any contract, agreement or any other document
referred to are not necessarily complete. For each of these contracts,
agreements or documents filed as an exhibit to the registration statement, we
refer you to the actual exhibit for a more complete description of the matters
involved. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the front of
those documents.
FORWARD-LOOKING STATEMENTS
In addition to historical information, we have made forward-looking statements
in this prospectus and in the documents incorporated by reference in this
prospectus, such as those pertaining to our capital resources and result of
operations. "Forward-looking statements" are projections, plans, objectives or
assumptions about the Company. Forward-looking statements involve numerous
risks and uncertainties, and you should not place undue reliance on such
statements since there can be no assurance that the events or circumstances
reflected in these statements will actually occur. Forward-looking statements
can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative
thereof or other variations thereof or comparable terminology, or by
discussions of strategy, plans or intentions. Forward-looking statements are
necessarily dependent on assumptions, data or methods that may be incorrect or
imprecise and they may be incapable of being realized. The following factors,
among others, could cause actual results and future events to differ
materially from those set forth or contemplated in the forward-looking
statements that we make: our ability to implement our growth strategy,
improve our financial performance, expand our infrastructure, develop new
products and services, expand our sales force, expand our customer base and
enter international markets. Our success also may also be affected by the
risks that we face, including changes in the business environment in which we
operate, changes in the telecommunications industry and the economy generally,
the competition that we face, changes in the service offerings available in
the market, our ability to enter developing markets, manage rapid growth,
manage international operations, maintain effective information systems,
consummate acquisitions or enter into joint ventures with companies on terms
acceptable to us, develop of our network, as well as adapt to regulatory
developments that could cause our actual results to vary materially from the
future results indicated, expressed or implied, in our forward-looking
statements. See "Risk Factors." Our success also depends upon economic trends
generally, including interest rates, income tax laws, governmental regulation,
legislation, population changes and those risk factors discussed in this
prospectus under the heading "Risk Factors." Readers are cautioned not to
place undue reliance on forward-looking statements, which reflect management's
analysis only. We assume no obligation to update forward-looking statements.
<PAGE>
<PAGE>
THE COMPANY
GENERAL
We are a fully integrated international telecommunications carrier. We were
founded in 1992 as Polish Telephones and Microwave, and in November 1996, we
changed our name to Telscape International, Inc. We believe our new name more
accurately reflects our overall strategy. We are based in the United States
and supply international voice, video and data services, using our own
facilities and/or the facilities of other telecommunications companies,
principally between the United States and Latin America. In addition, we
provide a full range of voice, video and data telecommunications services in
Mexico to major public and private sector customers. We also provide
telecommunications services using satellites to customers in the United States
and Latin America.
We believe that we are well-positioned to capitalize on the opportunities
presented by the large and growing international telecommunications services
market. We intend to expand significantly our telecommunications operations
that use our own equipment and transmission lines over the next twelve months.
We also intend to broaden our service offerings in markets where we have
established, or expect to establish, a significant presence.
The Mexican government has granted some of our Mexican subsidiaries the
authority to provide data, voice and video services in Mexico. In addition, in
June 1998, the Mexican government granted Telereunion S.A. de C.V., one of our
affiliates, a 30-year, carrier license which allows Telereunion to construct
and operate its own network in Mexico. Telereunion is one of only 16
companies that was granted a license like this by the Mexican government. We
own approximately 65% of the economic interests and 49% of the voting
interests of Telereunion. In addition, three of our directors who are Mexican
citizens, own an additional 18% of the voting interests and 2% of the economic
interests in Telereunion. Therefore, together with the three directors, we
control 67% of the economic interests and voting interests of Telereunion.
Under Mexican law, foreign investors may own more than a majority of the
economic interests in a concessionaire, the Mexican term for a licensee, but
may not own more than 49% of the voting ownership of any concessionaire. To
deliver our services, we, through Telereunion, intend to construct a network
in Mexico and to carry long distance traffic in Mexico using this new network.
Our new network will consist of a combined fiber-optic and microwave long
distance network, and will connect the United States, the Gulf region of
Mexico and targeted Mexican cities. We believe that this network will allow
us to enhance our service offerings to business customers in Mexico and to
reduce our cost of terminating international traffic in Mexico.
We intend to capitalize on the growth in the Latin American telecommunications
market by providing international long distance services to and from targeted
Latin American countries. We also intend to position ourselves in Mexico as a
provider of both domestic and international long distance services and a
company that provides its services over its own facilities. We believe that
expanding our owned and leased transmission facilities in Mexico and Latin
America will allow us to increase the percentage of minutes of
telecommunications traffic carried on our network. We believe this will
enable us to increase margins and profitability and ensure the quality of our
service for both international and domestic long distance traffic.
<PAGE>
<PAGE>
We believe that using our own network and the networks of other carriers with
whom we establish operating agreements our planned network in Mexico, when
complete, will link 47 cities and towns and will enable us to provide service
to approximately 90% of the population in Mexico. Our new Mexican network is
the first step of our strategy to become a combined voice, video and data
telecommunications service provider for the Mexican market. Our Mexican
network will provide us with a significant amount of capacity from which we
can provide cost-effective services and grow our existing retail and wholesale
international voice, video and data long distance telecommunications services
business on both sides of the U.S.-Mexico border. We expect to begin the
construction of our Mexican network in the second quarter of 1999.
We have selected Lucent Technologies Inc. to engineer, furnish and install our
Mexican network. In addition, Lucent signed a commitment letter to provide us
with up to $40 million in long term financing. This $40 million includes $34
million to use towards the purchase of Lucent's products and services and $6
million to use to repay other financial obligations we have.
STRATEGY
We intend to become a leading provider of high quality, competitively priced
international long distance services between the United States and Latin
America, and a leading provider of international long distance services,
domestic long distance services and combined voice and data telecommunications
services to customers in Mexico and other targeted countries in Latin America.
The key elements of our strategy are:
- expand our network facilities;
- expand the scale and scope of our retail business;
- build brand awareness;
- provide our customers with an integrated suite of service
offerings;
- expand our Latin American presence; and
- pursue strategic alliances, joint ventures and acquisitions.
Our ability to implement the business strategy depends on many factors,
including the availability of financing, economic and regulatory conditions in
our markets and competition. Our business strategy may not be successful.
-----------------------
Our principal executive offices are located at 2700 Post Oak Boulevard, Suite
1000, Houston, Texas 77056, and our telephone number is (713) 968-0968.
<PAGE>
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS DOCUMENT BEFORE YOU DECIDE WHETHER TO PURCHASE OUR COMMON STOCK. THE
RISKS SET FORTH BELOW ARE IN ADDITION TO RISKS THAT APPLY TO MOST BUSINESSES,
INCLUDING RISKS OF COMPETITION, INABILITY TO COLLECT RECEIVABLES AND RELIANCE
ON OUR KEY EMPLOYEES.
OUR HOLDING COMPANY STRUCTURE COULD INHIBIT OUR ABILITY TO GENERATE FUNDS
We are a holding company and our principal assets are our ownership interests
in our subsidiaries that provide telecommunications services in the United
States, Mexico and several other countries in Central and South America. As a
holding company, most of the funds that we use to meet our cash needs come
from dividends, intercompany loans and other permitted payments from our
direct and indirect subsidiaries. We also have, to a lesser extent, our own
credit arrangements. Our U.S. operating subsidiaries' ability to pay
dividends, repay intercompany loans or make other distributions to us may be
restricted by, among other things:
- their availability of funds;
- the terms of their various credit arrangements;
- the terms of any agreements we enter into with the minority
owners of certain subsidiaries, joint venture partners or
entities selling assets or businesses to us; and
- statutory and other legal restrictions, including restrictions
on the repatriation of money from foreign jurisdictions.
Any dividends, intercompany loan payments or other distributions or payments
from our operating subsidiaries may have adverse tax consequences.
Additionally, several of our subsidiaries are organized in jurisdictions
outside the United States, and we do not have direct control over some of
these subsidiaries. If any of our subsidiaries are unable to or fail to pay us
dividends, make intercompany loans or make any other distributions, our
ability to make principal and/or interest payments on our indebtedness and,
utilize cash flow from one subsidiary to cover shortfalls in working capital
of another subsidiary would be restricted, which could have a material adverse
effect upon our financial condition and results of operations. As of April
26, 1999, we had approximately $13.2 million of secured indebtedness.
WE EXPECT TO EXPERIENCE NET LOSSES
We intend to incur costs over the next few years as we develop and expand our
network, expand our marketing and sales organization and introduce new
telecommunications services. Furthermore, our operations in new target
markets could experience negative cash flows until we establish an adequate
customer base and related operating revenues. Our investment in our Mexican
network may not immediately generate revenue because of factors that are
outside of our control, such as:
- delays in negotiating acceptable interconnection agreements
with Telefonos de Mexico, the former monopoly carrier in
Mexico;
- delays in negotiating rights-of-way for completion of our
Mexican network; and
- delays in construction of our Mexican network.
<PAGE>
<PAGE>
As a result of the above factors, we expect to incur net losses over the next
few years. We must substantially increase our net cash flow in order to meet
our debt service obligations.
OUR CASH FLOW MAY NOT PERMIT US TO REPAY OUR INDEBTEDNESS
Our ability to grow and generate revenues will depend primarily on our ability
to expand the capacity of our network. This, in turn, will depend upon our
ability to attract and retain customers and experienced and qualified
personnel. We may not achieve or sustain a positive cash flow or profits from
our operating activities in the future. As a result, we may not be able to
repay our debts as they come due or fulfill our working capital requirements.
WE MUST EFFECTIVELY EXPAND AND OPERATE OUR NETWORK
Because our success largely depends on our ability to deliver low-cost,
uninterrupted, international and domestic long distance communications
services, our operations depend on our ability to integrate new and emerging
technologies and equipment into our network and to successfully expand our
network.
WE FACE RISKS OF NETWORK FAILURE AS WE EXPAND OUR NETWORK. NEW TECHNOLOGIES
MAY INCREASE THE RISK THAT OUR SYSTEM COULD FAIL AND STRAIN OUR NETWORK. OUR
ABILITY TO ENTER SUCCESSFULLY NEW MARKETS THEREFORE, HAS AND MAY BE DELAYED BY
TECHNICAL SPECIFICATIONS AND OTHER BARRIERS TO ENTRY THAT EXIST IN A MARKET.
ADDITIONALLY, OUR NETWORK AND OPERATIONS FACE RISKS THAT WE CANNOT CONTROL,
SUCH AS THE RISK OF DAMAGE TO SOFTWARE AND HARDWARE RESULTING FROM:
- fire;
- power loss;
- natural disasters; and
- general transmission failures caused by other factors outside
our control.
In the past, our switching equipment has failed, which temporarily prevented
our customers from using our services. We cannot assure you that our
equipment will not fail in the future. Any failure of our network or other
systems or hardware that causes significant interruptions to our operations
could:
- damage our reputation;
- result in a loss of customers; and
- harm our ability to retain and obtain subscribers and
customers, which could have a material adverse effect on our
ability to generate revenues.
To date, we have not experienced significant quality problems. As a result of
our anticipated network expansion, however, we may, from time to time
experience problems that will affect the quality of the voice and data
transmitted over our network. We purchase capacity on other carriers' networks
to provide redundancy in the event of technical difficulties with our network.
As a result, we rely on the transmission quality of other carriers' networks.
WE FACE RISKS OF NETWORK FAILURE IN OPERATING OUR NETWORK
To increase revenues, we must expand the capacity of our network and eliminate
bottlenecks that may develop from time to time on our network. Our ability to
continue to expand, operate and develop our network will depend on, among
other factors, our ability to: <PAGE>
<PAGE>
- obtain switch sites in our targeted markets;
- interconnect with the local public switched telephone network
and/or other carriers;
- obtain necessary licenses that permit us to terminate and
originate traffic;
- obtain access to or ownership of transmission facilities that
link our switches to other network switches; and
- open new offices in target markets.
By expanding our network, we will incur additional fixed operating costs that
typically exceed, particularly with international transmission lines, the
revenues attributable to the transmission capacity funded by such costs until
we generate additional traffic volume for such expanded capacity. We may not
be able to expand our network in a cost effective manner or operate the
network efficiently.
To provide our customers with connectivity to countries where we do not own or
lease network facilities, we enter into agreements with other carriers to
terminate our traffic in those countries. To the extent we purchase transit
and termination capacity from other carriers, we rely upon other carriers'
networks. Whenever we are required to route traffic over a non-primary choice
carrier due to technical difficulties or capacity shortages with our network
or our primary choice carrier, those calls are more costly to us and could
result in lower transmission quality. If we fail to operate, manage or
maintain our network properly or to select other carriers to provide high
quality services when carrying our calls, our customers may divert all or a
portion of their calls to other carriers, which could have a material adverse
effect on our business, financial condition and results of operations.
As part of our plan to provide coverage from the United States to Mexico and
other targeted Latin American markets where fiber optic capacity cannot be
acquired at all or on acceptable terms, we acquired satellite transmission
equipment by purchasing California Microwave's Services Division. We did not
have significant experience in operating satellite transmission facilities
prior to this acquisition, and any problems that arise from our operation or
maintenance of these facilities could materially adversely affect our ability
to provide telecommunications services to the regions that these facilities
serve. If we are not able to restore service quickly or to secure other
capacity on acceptable terms, our failure to maintain or operate our
facilities could have a material adverse effect on our business, financial
condition or results of our operations.
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR
BUSINESS
Our total outstanding indebtedness as of April 26, 1999 was approximately
$18.8 million, including $13.2 million of secured indebtedness. We will
continue to incur a significant amount of indebtedness in the future. This
indicates that we must substantially increase our net cash flow in order to
meet our debt service obligations.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- limit our ability to obtain additional financing for working
capital, capital expenditures, debt service requirements and
other general corporate purposes;<PAGE>
<PAGE>
- require us to dedicate a substantial portion of our cash flow
from operations, if any, to payments on our indebtedness,
thereby reducing our funds available for other purposes,
including working capital, capital expenditures, acquisitions
and general corporate purposes;
- make us more vulnerable to economic downturns, limiting our
ability to withstand competitive pressures and reduce our
flexibility in responding to changing business and economic
conditions;
- limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
- place us at a competitive disadvantage compared to our
competitors that have less debt; and
- limit, along with the financial and other restrictive
covenants in our outstanding indebtedness, our ability to
borrow additional funds.
Because we must substantially increase our net cash flow in order to meet our
debt service obligations, we cannot assure you that we will be able to meet
such obligations. If we cannot generate sufficient cash flow or otherwise
obtain funds necessary to make required payments on our indebtedness, or if we
otherwise fail to comply with the various covenants governing our
indebtedness, we will be in default under the terms of our indebtedness. If we
are in default, the holders of our indebtedness may accelerate the maturity of
the specific indebtedness which could cause us to default on other debt
obligations.
WE MUST OBTAIN ADDITIONAL FUNDING SUFFICIENT FOR OUR CAPITAL NEEDS
Through the end of 1999, we intend to invest approximately $50 million for
infrastructure, including approximately $38.5 million towards construction of
our Mexican network and approximately $11.5 million to acquire switching and
transmission facilities and enhance our service platforms. Our development and
expansion of our network facilities, together with acquisitions and joint
ventures to enter into new markets or expand in existing markets, funding of
our working capital needs and investment in our management information
systems, will require significant investments. We believe that we must obtain
sufficient capital to fund planned capital expenditures and anticipated
losses. We cannot assure you, however, that we will be able to obtain
sufficient capital for existing planned expansion or future expansion. The
need for additional financing for future expansion will depend on factors such
as:
- the rate and extent of our international expansion;
- our increased investment in ownership rights in fiber optic
cable;
- our acquisition of new businesses; and
- increased sales and marketing expenses.
In addition, our actual future capital requirements will depend upon many
factors that are not within our control, including competitive conditions,
particularly with respect to our ability to attract incremental traffic or
acquire new operations at favorable prices, and regulatory or other government
actions. In the event that our plans or assumptions change or prove to be
<PAGE>
<PAGE>
inaccurate, then some or all of our development and expansion plans, including
our Mexican network, could be delayed or abandoned, or we could be required to
seek additional financing.
We intend to raise required additional capital from public or private equity
or debt sources. We cannot assure you that we will be able to obtain
additional financing or, if obtained, that we will be able to do so on a
timely basis or on terms favorable. In addition, if we raise additional funds
through the incurrence of debt, we would likely become subject to additional
restrictive financial covenants. In the event that we are unable to obtain
such additional capital or are unable to obtain additional capital on
acceptable terms, we may be required to reduce the scope of our expansion,
which could materially and adversely affect our business, results of
operations and financial condition and our ability to compete.
THE CONSTRUCTION COSTS OF THE MEXICAN NETWORK MAY BECOME PROHIBITIVE
Our ability to build our new network in Mexico is essential to our future
success. We intend to develop and construct our new network in the Gulf region
of Mexico. Our Mexican network will include the states of Tamaulipas and
Veracruz on the eastern coast of Mexico, and extend into the central region
through the state of Puebla. We expect to complete our Mexican network over
the course of approximately 9 months. There are certain risks associated with
our successful development of the Mexican network, including:
- costs could be more than we expect;
- we may complete the network later than when we expect;
- we lack experience in developing a similar network;
- we may not be able to obtain necessary rights of way;
- we may not be able to effectively manage the construction of
the new fiber routes;
- competitors may develop a comparable network in Mexico prior to
the completion of our network, which would greatly diminish the
demand for our services; and
- we depend significantly on third party contractors for the
network's construction.
Although we do not anticipate any extreme difficulty in acquiring the
necessary rights-of-way or in managing the network construction, we cannot
assure you that we will be able to construct and initiate operation of the
Mexican network without significant delays, or within our budget or at all.
Difficulties or delays with respect to any of the above risks may
significantly delay or prevent our completion of the Mexican network, which
would have a material adverse effect on us.
OUR STRATEGIC ALLIANCES, INVESTMENTS AND ACQUISITIONS HAVE RISKS
As part of our business strategy, we enter into strategic alliances and
acquire and make investments in companies that complement our current
operations. Many of these are foreign companies located in Mexico and Latin
America. All strategic alliances, investments and acquisitions are
accompanied by risks.
Strategic alliances, investments and acquisitions with foreign companies pose
unique risks. In many Latin American countries, including Mexico, foreign
investors like us may be prohibited from owning a majority interest in any
local entity, such as Telereunion, that provides telecommunications services.
As a result, we may not control entities that represent a substantial portion
of our investments and operations. <PAGE>
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We may experience similar risks when we expand through joint ventures. We may
not have a majority interest in, or control of the board of directors of, any
local operating entities or their operations or assets. There is also a risk
that:
- a minority or majority interest owner or our joint venture
partner or partners may have economic, business or legal
interests or goals that conflict with ours; and
- we may be required to fulfill obligations of our joint venture
partners if they are unable to meet their obligations.
The consideration we pay for acquisitions may materially and adversely affect
our liquidity. We may compete with other companies for acquisitions, some of
which will be larger and have greater financial resources. We also may need
to incur further indebtedness in order to finance acquisitions and, as a
result, may be unable to service our other indebtedness. The terms of some of
our outstanding indebtedness, however, limits our ability and our
subsidiaries' ability to incur additional indebtedness to finance
acquisitions. We cannot assure you that we will be successful in consummating
acquisitions, and if we are unsuccessful, such acquisitions may limit our
ability to grow internally.
OUR BUSINESS IN MEXICO PRESENTS UNIQUE RISKS
A significant portion of our assets and revenues are and will be located in
Mexico. Our business, therefore, is affected by prevailing conditions in the
Mexican economy and is, to a significant extent, vulnerable to economic
downturns and changes in government policies. The Mexican government exercises
significant influence over many aspects of the Mexican economy. Accordingly,
the Mexican government's actions and the policies established by legislative,
executive or judicial authorities in Mexico may affect the Mexican economy.
Any government action could have material adverse effects on private sector
entities in general and on us in particular. We cannot assure you that future
economic, political or diplomatic developments in or affecting Mexico will
not:
- impair our business, results of operations, financial
condition and liquidity (including our ability to obtain
financing);
- materially and adversely affect the market price of our
securities (including the shares of our common stock); or
- negatively affect our ability to meet our obligations.
NEW MEXICAN EXCHANGE CONTROLS COULD HARM US. In recent years, the Mexican
economy has suffered balance of payment deficits and shortages in foreign
exchange reserves. The Mexican government does not currently restrict Mexican
or foreign persons or entities from converting pesos to dollars or
transferring dollars outside Mexico. If the Mexican government institutes a
restrictive exchange control policy in the future, it would affect our ability
to convert pesos into dollars and make intercompany distributions from our
Mexican subsidiaries to us. This could have a material adverse effect on our
business and financial condition and our ability to service our dollar
denominated liabilities.
DEVELOPMENTS IN OTHER EMERGING MARKET COUNTRIES MAY POSE RISKS TO THE PRICE OF
OUR COMMON STOCK. Prices of securities of companies with significant Mexican
operations may be, to varying degrees, influenced by economic and market
conditions in other emerging market countries. Investors' reactions to<PAGE>
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economic developments in one country may effect the prices of securities of
issuers in other countries, including Mexico. We cannot assure you that events
in emerging market countries will not materially and adversely affect our
securities, including our common stock.
WE MUST ADEQUATELY MANAGE OUR GROWTH
We expect our business and our network to continue to grow and expand,
specifically, in and to Latin America. We expect our network growth to
significantly strain our management, operational and financial resources and
increase demands on our systems and controls. To manage our growth
effectively, we must improve our operational and financial systems and
controls, purchase and utilize other transmission facilities and expand, train
and manage our employee base. Inaccuracies in our traffic forecasts could
result in insufficient or excessive transmission facilities and
disproportionate fixed expenses. We cannot assure you that:
- we will be able to develop our Mexican network;
- we will expand within our target markets at our presently
planned rate; or
- that the existing regulatory barriers to our expansion will be
reduced or eliminated.
As we proceed with our development there will be additional demands on our
customer support, billings systems and support, sales and marketing and
administrative resources and network infrastructure. We cannot assure you
that our operating and financial control systems and infrastructure will be
adequate to maintain and effectively manage future growth. If we fail to
continue to upgrade our administrative, operating and financial control
systems or if unexpected expansion difficulties emerge, our business, results
of operations and financial condition could be materially adversely affected.
A FAILURE IN OUR MANAGEMENT INFORMATION SYSTEMS COULD ADVERSELY AFFECT
OPERATIONS
We are dependent upon our information systems and switching equipment to:
- provide service to our customers;
- manage our network;
- collect billing information; and
- perform other vital functions.
We are particularly dependent upon our billing and collection system,
especially with respect to our prepaid card and wholesale long distance
businesses, because of their high transaction volumes. We have in the past and
may in the future experience technical difficulties with our hardware or
software, which would affect our ability to bill our customers. If we are
unable to bill and collect receivables from our customers because of problems
with our information systems, our cash flows could be interrupted which could
materially adversely affect our business, financial condition or results of
operations.
MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE WITH PROVIDERS THAT HAVE GREATER
RESOURCES. The international and national telecommunications industry is
highly competitive and subject to rapid change precipitated by advances in
technology and regulation. Many of our competitors are significantly larger
and have: <PAGE>
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- substantially greater financial, technical and marketing
resources;
- larger networks;
- a broader portfolio of services;
- strong name recognition and "brand" loyalty;
- long-standing relationships with our target customers; and
- economies of scale that can result in a lower relative cost
structure for transmission and related costs.
These competitors include, among others, AT&T, MCI WorldCom, Inc. and Sprint
Communications, Inc., which provide long distance services in the United
States; Telefonos de Mexico S.A. de C.V. ("Telmex"), concessionaires and other
registered value-added services providers in Mexico; as well as Post,
Telephone and Telegraph operators and emerging competitors in other Latin
American markets where we intend to compete.
We anticipate that the formation of global alliances among large
telecommunications providers will cause additional competition. Recent
examples of such alliances include AT&T's alliance with Unisource, "Uniworld;"
Cable & Wireless Plc's recent alliance with Italy's STET/Telecom Italia, which
focuses focus on the Latin American and European regions; WorldCom, Inc.'s
recent merger with MCI Communications, and subsequent alliance with Telefonica
de Espana; Sprint's alliance with Deutsche Telekom and France Telecom, known
as "Global One," and the joint venture between Sprint and Telmex.
Consolidation in the telecommunications industry may create even larger
competitors with greater financial and other resources. These mergers and
alliances could create increased competition in the telecommunications
services market and potentially reduce the number of customers that purchase
wholesale international long distance services from us.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE WITH OTHER PREPAID CARD PROVIDERS.
In our prepaid card business we currently compete with all first tier
telecommunications carriers as well as with emerging multinational carriers
such as Star Telecommunications Inc., RSL Communications, Ltd. and IDT
Corporation. Many of these carriers have greater financial resources than we
do. Additionally, some of our current competitors are or could be our
customers for wholesale international services. Our business would be
materially adversely affected if a significant number of these customers limit
or cease doing business with us for competitive or other reasons.
COMPETITION COULD HARM US. International telecommunications providers like
ourselves compete on the basis of price, customer service, transmission
quality and breadth of service offerings. Our carrier and prepaid card
customers are especially price sensitive. Many of our larger competitors enjoy
economies of scale that can result in lower termination and network costs.
This could cause significant pricing pressures within the international
communications industry. In recent years, prices for international and other
telecommunications services continue to decrease as competition continues to
increase in most of the markets in which we currently compete or intend to
compete. We believe competition will intensify as new entrants increase as a
result of the new competitive opportunities created by the Telecommunications
Act of 1996, implementation by the Federal Communications Commission of the
United States' commitment to the World Trade Organization, and privatization,
deregulation and changes in legislation and regulation in many of our foreign
target markets. We cannot assure you that we will be able to compete
successfully in the future, or that such intense competition will not have a
material adverse effect on our business, financial condition and results of
operations.
<PAGE>
COMPETITION IN MEXICO. Mexican regulatory authorities have granted
concessions to 16 companies, including Telmex and Telereunion, to construct
and operate public, long distance telecommunications networks in Mexico. Some
of these new competitive entrants have as their partners major U.S.
telecommunications providers including AT&T (Alestra), MCIWorldcom (Avantel)
and Bell Atlantic Corp. (Iusatel). Mexican regulatory authorities have also
granted concessions to provide local exchange services to several
telecommunications providers, including without limitation, Telmex and
Telefonia Inalambrica del Norte S.A. de C.V., Megacable Comunicaciones de
Mexico and several of Mexico's long distance concessionaires. We compete or
will compete to provide services in Mexico with numerous other systems
integration, value-added and voice and data services providers, some of which
focus their efforts on the same customers we target. In addition to these
competitors, recent and pending deregulation in Mexico may encourage new
entrants.
Moreover, while the WTO Agreement could create opportunities to enter new
foreign markets, the United States' and other countries' implementation of the
WTO Agreement could result in new competition from Post, Telephone and
Telegraph operators previously banned or limited from providing services in
the United States. For example, the FCC granted the Sprint/Telmex joint
venture authority, subject to various conditions, to enter the United States
market and to provide resold international switched services between the
United States and Mexico. This and other competitive developments could
result in increased competition, which could materially and adversely effect
our business, financial condition and results of operations.
OUR MEXICAN FACILITIES-BASED LICENSE POSES RISKS
Our Mexican concession is regulated by the Mexican government. The Mexican
government could grant similar concessions to our competitors, or affect the
value of our concession. In addition, the Mexican government also has (1)
authority to temporarily seize all assets related to the Mexican concession in
the event of natural disaster, war, significant public disturbance or threats
to internal peace and for other reasons of economic or public order and (2)
the statutory right to expropriate any concession and claim all related assets
for public interest reasons. Although Mexican law provides for compensation in
connection with losses and damages related to temporary seizure or
expropriation, we cannot assure you that the compensation will be adequate or
timely.
The Mexican concession contains several restraints. Specifically, it limits
the scope and location of our Mexican network and minimum capital infusion
requirements. The minimum capital requirements require Telereunion to have
approximately $1.0 million in contributed capital upon commencement of
operations and approximately $40.0 million of invested capital upon completion
of its first 12 months of operations. We cannot assure you that:
- we will be able to obtain financing;
- if we obtain financing it will be in a timely manner or on
favorable terms; or
- we will be able to comply with the Mexican concession's
conditions.
If we fail to comply with the terms of the concession, the Mexican government
may terminate it without compensation to us. A termination would prevent us
from engaging in our proposed business.
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GOVERNMENT REGULATION SIGNIFICANTLY AFFECTS OUR BUSINESS
As an international carrier we are subject to varying degrees of regulation in
each jurisdiction where we provide service. National and local laws and
regulations and the interpretation and enforcement of such laws and
regulations differ significantly among the jurisdictions in which we operate
and intend to operate.
We provide our services to the maximum extent we believe is permissible under
applicable laws and regulations. We may, therefore:
- provide services or use transmission methods that are found to
violate the laws and/or regulations of a specific country;
- lose or fail to obtain necessary approvals or make filings
subsequently found to be required under a specific law or
regulation; or
- be subject to fines, penalties, confiscation of facilities and
equipment or other sanctions, including being denied the
ability to offer our products and services.
If any of these events occur, it could have a material adverse effect on our
business, financial condition and results of operations. Additionally, future
regulatory, judicial or legislative changes in any or all of the markets in
which we operate or intend to operate could have a material adverse effect on
the operation of our business.
WE DEPEND ON DISTRIBUTORS AND SERVICE PROVIDERS FOR SALES OF OUR PREPAID CARDS
WE DEPEND ON DISTRIBUTORS. We depend on distributors in the United States to
sell our Telefiesta prepaid cards for international long distance
telecommunications services. Most of our distributors also sell the services
or products of other companies. Accordingly, we cannot assure you that these
distributors will devote sufficient efforts to promoting and selling our
services, or that we will be able to find capable distributors in any of our
new markets. The failure of these distributors to effectively distribute our
prepaid cards would substantially impair our ability to generate revenues from
the sales of these prepaid cards, which could have a material adverse effect
on our business, financial condition or results of operations.
WE DEPEND ON OTHER SERVICE PROVIDERS. We have entered into service agreements
with service providers to provide the switching platform and
telecommunications services related to our prepaid cards. We have installed
our own prepaid card switching platform in Houston, Texas which provides some,
but not all, of the switching platform and telecommunications services related
to our prepaid cards. We cannot, however, assure you that we will ever have
all of our prepaid cards serviced on our own switching platform . Until our
platforms are technologically and operationally sufficient to service all of
our prepaid card business, we will continue to utilize third parties to
provide platforms for our prepaid card services. The deterioration or
termination of our relationships with our platform service providers could
have a material adverse effect upon our revenue growth, cost structure,
service quality, brand name recognition, network diversity, results of
operations and financial condition.
In May 1998, one of our wholesale long distance customers who accounted for
approximately 26% of our wholesale revenues and 7% of overall revenues filed a
petition for relief under Chapter 11 of the U.S. Bankruptcy Code.
Additionally, an affiliate of this customer provided our prepaid switching
<PAGE>
<PAGE>
services and platform and arranged for other carriers to provide
telecommunications services for the prepaid cards. We had paid the affiliate
for the telecommunications services at the time the prepaid cards were
activated, and because we continued to provide service to our prepaid card
customers by working directly with the underlying service providers, we
ultimately paid for the telecommunications services a second time. The overall
impact of the bankruptcy filing to our earnings, including additional prepaid
card services cost, the write-off of uncollectible receivables and the lost
margin contribution from the loss of a wholesale customer, resulted in a
reduction of operating income by approximately $2.0 million in the second
quarter of 1998. Although we do not expect this bankruptcy to have a material
impact on our operating results for 1999, we can provide no assurance to that
regard.
WE ARE DEPENDENT UPON OPERATING AGREEMENTS WITH FOREIGN OPERATORS FOR OUR
WHOLESALE LONG DISTANCE BUSINESS
Our wholesale long distance business and our ability to terminate and receive
return traffic in foreign countries is substantially dependent on our ability
to enter into operating agreements with Post, Telephone and Telegraph
operators and, depending on the country's state of deregulation, emerging
carriers. Our business also depends on our ability to enter into
interconnection agreements to terminate traffic with the Post, Telephone and
Telegraph operator in each of the countries where we have operating
facilities.
We believe that we would not be able to serve our customers at competitive
prices without these operating and interconnection agreements. Termination of
the agreements by our foreign carriers or Post, Telephone and Telegraph
operators, therefore, would have a material adverse effect on our business.
Moreover, we cannot assure you that we will be able to enter into additional
operating or interconnection agreements in the future. This could limit our
ability to increase our revenues and create a profit.
FOREIGN GOVERNMENT CONTROL OF OUR INTERNATIONAL OPERATIONS COULD EFFECT OUR
BUSINESS
A significant portion of our operations, employees and assets are located in
Mexico and a key component of our growth strategy is to expand into
international markets, particularly in Latin America. Our success depends
upon our ability to compete with a variety of other telecommunications
providers including the respective Post, Telephone and Telegraph operator in
each country in which we operate. We believe that Post, Telephone and
Telegraph operators generally have certain competitive advantages. In many
international markets, the government telecommunications provider controls
access to the local networks, enjoys better brand name recognition and
customer loyalty and possesses significant operational economies, including a
larger local network and operating agreements with other Post, Telephone and
Telegraph operators. Post, Telephone and Telegraph operators also generally
have competitive advantages due to their close ties with national regulatory
authorities, which have, in some instances, shown reluctance to adopt policies
and grant regulatory approvals that would result in increased competition for
the local Post, Telephone and Telegraph operator.
Our pursuit of international service may require significant investments for
extended periods of time before we realize a return, if any, on our
investments. We may need to commit significant financial resources to obtain
<PAGE>
<PAGE>
licenses in certain target countries and we may not experience positive net
returns in those markets for extended periods of time, if ever. In addition,
we may not be able to obtain the permits and licenses that we require to
operate, obtain access to local transmission facilities or markets or sell and
deliver competitive services in these markets.
There are also certain risks to conducting business internationally that could
have a material adverse effect on our strategy to open additional offices in
foreign countries and our ability to repatriate net income from foreign
markets.
These risks may include:
- unexpected changes in regulatory requirements;
- value-added tax, tariffs, customs, duties and other trade
barriers;
- difficulties in staffing and managing foreign operations;
- problems in collecting accounts receivable;
- political risks;
- fluctuations in currency exchange rates;
- foreign exchange controls which restrict or prohibit
repatriation of funds;
- technology export and import restrictions or prohibitions;
- delays from customs brokers or government agencies;
- seasonal reductions in business activity during the summer
months and/or during the last two weeks of December in certain
parts of the world; and
- potentially adverse tax consequences resulting from operating
in multiple jurisdictions with different tax laws.
WE ARE SUBJECT TO FOREIGN CURRENCY EXCHANGE RATES
Although our sales have generally been denominated in U.S. dollars, some of
our recent contracts are denominated in foreign currencies, and specifically,
in pesos. Any decrease in the value of the U.S. dollar in relation to foreign
currencies may materially and adversely affect our sales to international
customers and our cost of procuring, installing and maintaining equipment
abroad. As we expand our international operations and/or begin to denominate
prices in foreign currencies, we will be exposed to increased risks of
currency fluctuation.
For example, from December 1994 through December 1996, Mexico experienced an
economic crisis which included:
- exchange rate instability;
- a devaluation of the peso;
- high inflation;
- high domestic interest rates;
- negative economic growth (on a cumulative basis);
- a reduction of international capital flow to both the private and
public sectors;
- reduced consumer purchasing power; and
- high unemployment.
Any similar future crisis, including any devaluation of the peso, could
materially and adversely effect our financial position and results of
operation.
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<PAGE>
We generally purchase equipment for capital improvements in U.S. dollars and
substantially all of our indebtedness is denominated in U.S. dollars. We
believe that less than 10% of our revenues are currently transacted in pesos.
Declines in the peso's value relative to other currencies will result in
foreign exchange losses and increases in the peso cost of our capital
expenditures. In 1993, 1994, 1995, 1996, 1997 and 1998, we experienced net
foreign exchange losses (gains) of ($14,000), ($18,000), $2,000, ($161,000),
$126,000 and $639,000, respectively, as a result of the effect of the peso
devaluation.
We may incur in the future non-peso-denominated indebtedness. In order to
construct our Mexican network, we anticipate that we will generate additional
peso-denominated receivables from the provision of domestic and international
long distance services originating in Mexico. As our peso-denominated revenues
increase, our foreign exchange risk will also increase.
We do not currently hedge against the risk of exchange rate fluctuation, but
may in the future choose to limit our foreign currency risk exposure through
the purchase of forward foreign exchange contracts or similar hedging
strategies. We cannot assure you that any foreign currency hedging strategy
would be successful in avoiding exchange-related losses or that it would not
exacerbate any exchange-related losses.
WE ARE DEPENDENT UPON FACILITIES-BASED CARRIERS FOR LEASED CAPACITY
We transmit telephone calls made by our customers primarily over lines that we
lease from other long distance carriers, many of which are, or may become, our
competitors. Our ability to maintain and expand our business depends upon our
maintenance of favorable relationships with these carriers. Although we
believe that our relationships with these carriers are satisfactory, in
general, the deterioration or termination of our relationship(s) with one or
more of these carriers could have a material adverse effect upon our cost
structure, service quality, network diversity, results of operations and
financial condition.
In addition, because we currently obtain most of our transmission capacity on
a per-call, or usage, basis, we are vulnerable to possible unanticipated price
increases and service cancellations. Customer usage rates generally are less
than the rates we charge our customers for connecting calls through these
lines. Increased competition, however, may force us to reduce the rates we
charge our customers, which may result in reduced or, in certain
circumstances, negative margins for some of our services. As our traffic
volume increases between particular international markets, we expect to cease
using variable usage arrangements and to enter into fixed monthly or longer-
term leasing arrangements. If we enter into fixed-cost lease arrangements and
incorrectly project traffic volume in a particular geographic area, we may not
generate sufficient additional revenue to offset the higher fixed costs.
Regulatory proposals are pending that may permit the Regional Bell Operating
Companies and other local exchange carriers to charge us to lease transmission
lines. This could have a material adverse effect on our margins, business,
financial condition and results of operations. Additionally, if the FCC lifts
pricing controls, we will need to negotiate contracts with these vendors,
which could result in substantial legal and administrative expense and a
different cost structure for our services.
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RAPID CHANGES IN TECHNOLOGY COULD PLACE US AT A COMPETITIVE DISADVANTAGE
The markets that we service are characterized by:
- rapidly changing technology;
- evolving industry standards;
- emerging competition; and
- the frequent introduction of new services, software and other
products.
Our success partially depends upon our ability to enhance existing products,
software and services and to develop new products, software and services that
meet changing customer requirements on a timely and cost-effective basis. We
cannot assure you that we can successfully identify new opportunities and
develop and bring new products, software and services to the market in a
timely and cost effective manner. We also can not assure you that the
products, software, services or technologies that others develop will not
render our products, software, services or technologies non-competitive or
obsolete. Furthermore, there is no guarantee that products, software or
service developments or enhancements we introduce will achieve or sustain
market acceptance or that they will effectively address the compatibility and
interoperability issues raised by technological changes or new industry
standards.
RISKS ASSOCIATED WITH NEW AND UNCERTAIN MARKETS COULD ADVERSELY AFFECT OUR
BUSINESS
Many of the overseas markets where we currently market or intend to market
telecommunications services are undergoing dramatic changes. As a result of
privatization and deregulation, a new competitive environment is emerging in
which major telephone, media and utility companies are entering the
telecommunications market and forming new alliances which are radically
changing the landscape of international and domestic telephone services. We
expect open markets for telecommunications services to evolve in other parts
of the world as well. While we focus on exploiting the imbalances brought
about by deregulation, we frequently enter new markets in which we are unable
to predict how the regulatory environments of such markets will evolve. We
cannot assure you that changes in the marketplace and new strategic alliances
among companies with greater resources than those we possess will not
materially and adversely affect our ability to: (1) continue our efforts to
increase our overseas telecommunications customer base and traffic volume or
(2) recover the costs of building out our international telecommunications
switching and transmission infrastructure.
A DEFAULT UNDER EXISTING AGREEMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OPERATIONS
Certain of our subsidiaries have entered into financing agreements with
equipment lessors to purchase switching equipment. These agreements permit the
lessors to accelerate the entire unpaid balance of amounts loaned and to
foreclose on the equipment upon default. Consequently, any failure by these
subsidiaries to make timely payments or to comply with the agreements'
covenants could materially adversely affect our business, as well as our
ability to provide services through the use of these switches.
Additionally, if we default on any covenant provided for under our revolving
credit facility with Southwest Bank of Texas, N.A. or in future financing
arrangements, and we are unable to obtain a waiver for such default, the <PAGE>
<PAGE>
lenders could terminate these financing arrangements. Termination of one or
more of our financing arrangements could have a material adverse effect on our
working capital or our ability to expand our business or execute our business
plan.
WE ARE DEPENDENT UPON PROPRIETARY RIGHTS FOR OUR OPERATIONS
We rely on a combination of patents, copyrights, trademarks, trade secret laws
and on contractual restrictions to establish and protect our technology and
trade names. We believe that "Telscape" and the "Telefiesta" prepaid cards,
as well as the names and logos associated with our other services and products
have achieved significant brand awareness among our targeted markets.
We intend to protect and defend our name, servicemarks and trademarks in the
United States and internationally. We have registered the "Telefiesta" mark,
have acquired trademark registration in Mexico for "telereunion" and have
filed for protection of the "Telscape" name and logo. We are not aware of any
third party challenges to the validity of our trademarks or trademark
applications, or of any claim by a third party of trademark or patent
infringement, or of other claims with respect to our products, marks,
registrations or applications for registration. However, we cannot assure you
that:
- our pending or future trademark applications will result in any
trademark registrations;
- we will be able to prevent misappropriation of our technology or
proprietary rights;
- challenges or claims for our proprietary rights will not be asserted
in the future;
- we will have sufficient funds to withstand such challenges or claims,
regardless of their merit;
- our competitors will not independently develop substantially
equivalent or superior technologies; or
- patents will not be issued to other carriers which relate to
technologies currently incorporated in our services and products.
Our inability to protect our proprietary rights or continue to use our marks,
and the substantial costs and diversion of management resources incurred in
defending or pursuing any claims relating to proprietary rights, could have a
material adverse effect on our business, financial condition or results of
operations. Furthermore, parties challenging the validity of our trademarks
or claiming patent infringement could secure a judgment against us awarding
substantial damages, as well as injunctive or other equitable relief. This
could block our ability to provide services or products in the United States
or other countries, and could have a material adverse effect on our business,
financial condition or results of operations.
THE YEAR 2000 PROBLEM COULD CAUSE EQUIPMENT FAILURES AND SERVICE DISRUPTIONS
The Year 2000 problem is the result of computer programs that were designed to
use two digits rather than four to specify the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in miscalculations or major
system failures which could cause disruptions in our operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar normal business activities. In anticipation of
the year 2000 problem , we have developed a plan to review internally
developed or externally purchased or licensed software. We have also <PAGE>
<PAGE>
developed a plan to review with our key vendors and service providers their
software, for compliance with year 2000 processing requirements. Any failure
of our own systems or of the systems of other companies on whose services we
depend or with whom our systems interface to be year 2000 compliant could
materially and adversely affect our ability to operate and retain customers
and could impose significant costs on us.
USE OF PROCEEDS
We will not receive any of the proceeds from the offer and sale by the selling
stockholders of the shares of our common stock, nor will any proceeds be
available for use by us or for our benefit. We will pay the expenses incurred
in registering the shares of common stock covered by this prospectus.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 shares of common stock,
5,000,000 shares of preferred stock and 1,000,000 shares of series A preferred
stock.
The statements under this caption are brief summaries of certain material
provisions of our certificate of incorporation and by-laws. These summaries
do not purport to be complete, and are subject to, and are qualified in their
entirety by reference to, such documents.
COMMON STOCK
As of April 26, 1999, there were 6,425,342 shares of common stock outstanding
that were held of record by approximately 87 stockholders. In addition, as of
April 26, 1999, Telscape had issued options and warrants to purchase a total
of 3,442,022 shares of common stock that are currently exercisable within 60
days of the date of this filing.
Holders of our common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to the rights of the holders of
the shares of our outstanding preferred stock, holders of our common stock are
entitled to receive ratably any dividends that our board of directors may from
time to time declare out of funds legally available therefor. In the event of
the liquidation, dissolution or winding up of our company, whether voluntary
or involuntary, holders of our common stock are entitled to share ratably in
all assets legally available for distribution, if any, remaining after the
payment or provision for the payment of all our debts and other liabilities
and the payment and setting aside for payment of any preferential amount due
to the holders of shares of our outstanding preferred stock. Our common stock
has no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series. The board is authorized to fix the
rights, preferences, privileges and restrictions of the preferred stock,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
any action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of our company
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and may adversely affect the voting and other rights of the holders of our
common stock. The issuance of preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of our common
stock, including the loss of voting control to others. At present, we have no
preferred stock outstanding and we have no plans to issue any preferred stock.
SERIES A PREFERRED STOCK
Our board of directors has the authority to issue up to 1,000,000 shares of
series A preferred stock in one or more series. The series A preferred stock:
- participates equally with each share of common stock in all
dividends;
- is redeemable, in whole or in part, at our option;
- is convertible, at the holder's option, into one fully paid and
non-assessable share of common stock;
- is entitled to one vote for each share with the same voting
rights as if each such share were one share of common stock;
and
- in the event of any liquidation, dissolution or winding up of
the affairs of our company, after payment of all of our
liabilities, entitles the holder thereof to receive, prior to
any payments to the holders of common stock, out of our
remaining net assets, an amount in cash equal to all other
shares of series A preferred stock, but not more than the
amount of consideration originally paid for such shares.
At present we have no plans to issue any of the series A preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION,
BYLAWS AND TEXAS LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Our Amended and Restated Certificate of Incorporation provides that the
members of our board of directors are elected annually or as otherwise
provided by resolution. Provisions of our bylaws and our Amended and Restated
Certificate of Incorporation provide that the stockholders may amend the
bylaws or certain provisions of our Amended and Restated Certificate of
Incorporation only with the affirmative vote of 67% of the outstanding shares
of our capital stock. These provisions of the Amended and Restated Certificate
of Incorporation and bylaws could discourage potential acquisition proposals
and could delay or prevent a change in control of our company. These
provisions are intended to enhance the likelihood of continuity and stability
in the composition of the board of directors and in the policies formulated by
the board of directors and to discourage certain types of transactions that
may involve an actual or threatened change of control of our company. The
provisions are designed to reduce the vulnerability of our company to an
unsolicited acquisition proposal. The provisions also are intended to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, also may inhibit fluctuations in
the market price of our shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in our management.
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TEXAS BUSINESS COMBINATION LAW
We are subject to Part 13 of the Texas Business Corporation Act, which,
subject to certain exceptions, prohibits a Texas corporation from engaging in
any business combination with any affiliated stockholder, or any affiliate or
associate of the affiliated stockholder, for a period of three years following
the date that such stockholder became an affiliated stockholder, unless (i)
the business combination or the purchase or acquisition of shares made by the
affiliated stockholder on the affiliated stockholder's share acquisition date
is approved by the board of directors of the issuing public corporation before
the affiliated stockholder's share acquisition date; or (ii) the business
combination is approved, by the affirmative vote of the holders of at least
two-thirds of the outstanding voting shares of the issuing public corporation
not beneficially owned by the affiliated stockholder or an affiliate or
associate of the affiliated stockholder, at a meeting of stockholders and not
by written consent, duly called for that purpose not less than six months
after the affiliated stockholder's share acquisition date.
Part 13 defines "business combination" to include:
(a) any merger, share exchange, or conversion of an issuing public corporation
or a subsidiary with:
(i) an affiliated stockholder;
(ii) a foreign or domestic corporation or other entity that is, or after
the merger, share exchange, or conversion would be, an affiliate or associate
of the affiliated stockholder; or
(iii) another domestic or foreign corporation or other entity, if the
merger, share exchange, or conversion is caused by an affiliated stockholder,
or an affiliate or associate of an affiliated stockholder, and as a result of
the merger, share exchange, or conversion Part 13 does not apply to the
surviving corporation or other entity;
(b) a sale, lease, exchange, mortgage, pledge, transfer, or other
disposition, in one transaction or a series of transactions, including an
allocation of assets pursuant to a merger, to or with the affiliated
stockholder, or an affiliate or associate of the affiliated stockholder, of
assets of the issuing public corporation or any subsidiary that:
(i) has an aggregate market value equal to 10% or more of the aggregate
market value of all the assets, determined on a consolidated basis, of the
issuing public corporation;
(ii) has an aggregate market value equal to 10% or more of the aggregate
market value of all the outstanding common stock of the issuing public
corporation; or
(iii) represents 10% or more of the earning power or net income, determined on
a consolidated basis, of the issuing public corporation;
(c) the issuance or transfer by an issuing public corporation or a subsidiary
to an affiliated stockholder or an affiliate or associate of the affiliated
stockholder, in one transaction or a series of transactions, of shares of the
issuing public corporation or a subsidiary, except by the exercise of warrants
or rights to purchase shares of the issuing public corporation offered, or a
share dividend paid, pro rata to all stockholders of the issuing public
corporation after the affiliated stockholder's share acquisition date;
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(d) the adoption of a plan or proposal for the liquidation or dissolution of
an issuing public corporation proposed by, or pursuant to any agreement,
arrangement, or understanding, whether or not in writing, with an affiliated
stockholder or an affiliate or associate of the affiliated stockholder older;
(e) a reclassification of securities, including a reverse share split or a
share split up, share dividend, or other distribution of shares, a
recapitalization of the issuing public corporation, a merger of the issuing
public corporation with a subsidiary or pursuant to which the assets and
liabilities of the issuing public corporation are allocated among two or more
surviving or new domestic or foreign corporations or other entities, or any
other transaction whether or not with, into, or otherwise involving the
affiliated stockholder, proposed by, or pursuant to an agreement, arrangement,
or understanding, whether or not in writing, with an affiliated stockholder or
an affiliate or associate of the affiliated stockholder that has the effect,
directly or indirectly, of increasing the proportionate ownership percentage
of the outstanding shares of a class or series of voting shares or securities
convertible into voting shares of the issuing public corporation that is
beneficially owned by the affiliated stockholder or an affiliate or associate
of the affiliated stockholder, except as a result of immaterial changes due to
fractional share adjustments; or
(f) the direct or indirect receipt by an affiliated stockholder or an
affiliate or associate of the affiliated stockholder of the benefit of a loan,
advance, guarantee, pledge, or other financial assistance or a tax credit or
other tax advantage provided by or through the issuing public corporation,
except proportionately as a stockholder of the issuing public corporation.
Part 13 defines an affiliated stockholder as a person, other than the issuing
public corporation or a wholly owned subsidiary of the issuing public
corporation, that is the beneficial owner of 20% or more of the outstanding
voting shares of the issuing public corporation or that, within the preceding
three-year period, was the beneficial owner of 20% or more of the then
outstanding voting shares of the issuing public corporation. For the purpose
of determining whether a person is an affiliated stockholder, the number of
voting shares of the issuing public corporation considered outstanding
includes shares considered beneficially owned by that person under Subdivision
(3) of Part 13, but does not include other unissued voting shares of the
issuing public corporation that may be issuable pursuant to an agreement,
arrangement, or understanding, or on exercise of conversion rights, warrants,
or options, or otherwise.
CONVERTIBLE DEBENTURES AND WARRANTS
On May 1, 1998, May 28, 1998 and June 30, 1998, we issued $3,000,000,
$1,000,000 and $1,000,000, respectively, in convertible debentures to Deere'
Park Capital Management, LLC. The debentures each mature three years from
their respective closing. In addition, the debentures are convertible by the
holder into shares of our common stock at a price equal to the lesser of (a)
$26.00 per share, $29.00 per share and $26.00 per share, respectively, or (b)
a price equal to the average of the three highest of the five lowest closing
prices of the common stock for the 20 trading days preceding the conversion
date. If the common stock trades below $15.00 per share, $16.66 per share and
$15.00 per share, respectively, for three consecutive trading days, we may
redeem all or part of the debentures at 107% of face value plus any accrued
interest in the event the holder elects to convert. Our obligations to make
interest payments on the debentures terminates if the price of common stock
closes for twenty consecutive trading days at or above $30.00 per share,
<PAGE>
$33.50 per share or $30.00 per share, respectively, adjusted, without
limitation, for any stock splits or combinations. We are required to pay an
exit fee in connection with any prepayment of principal to be made under the
debentures, which varies depending upon the date of payment.
In connection with the debentures we issued to Deere Park, we issued warrants
to Deere Park to purchase an aggregate of:
- - 8,952 shares of common stock at an exercise price of $16.76 per share;
- - 2,427 shares of common stock at $20.60 per share; and
- - 6,382 shares of common stock at $15.67 per share.
The warrants are each subject to adjustment for stock splits and other share
adjustments and each have a term of three years which expires November 6,
2002.
On May 29, 1998 we issued to Gordon Brothers Capital, LLC $5,000,000 in
convertible debentures maturing one year from closing. The debentures are
convertible into shares of our common stock at a price equal to the lesser of
(a) $29.00 per share or (b) a price equal to the average of the three highest
of the five lowest closing prices of the common stock for the 20 trading days
preceding the conversion date. If the common stock trades below $16.66 per
share for three consecutive trading days, we may redeem all or part of the
debentures at 107% of face value plus any accrued interest in the event the
holder elects to convert. Our obligation to make interest payments on the
debentures terminates if the price of common stock closes for 20 consecutive
trading days at or above $33.50 per share, adjusted, without limitation, for
any stock splits or combinations. We are required to pay an exit fee in
connection with any prepayment of principal to be made under the debentures
which varies depending upon the date of payment.
In connection with the debentures we issued to Gordon Brothers, we issued
warrants to Gordon Brothers to purchase an aggregate of 12,136 shares of
common stock at an exercise price of $20.60 per share. The warrants have a
term of three years which expires November 6, 2002.
On October 26, 1998, we entered into agreements with the holders of Deere
Park's convertible debentures and Gordon Brothers to restructure these
debentures
Under the terms of the restructuring with Gordon Brothers, Gordon Brothers
agreed to fix the conversion price at $15.00 per share. In return, we agreed
to reduce the strike price on 12,136 warrants we issued to Gordon Brothers in
connection with the original funding from $20.60 to $15.00 per share.
Under the terms of the restructuring with Deere Park, Deere Park agreed to fix
the conversion price at $15 per share until May 1, 1999. Beyond this date, the
conversion price will revert to a "floating" price for the term of the
debentures unless it is further restructured. In return, we agreed to issue an
additional 8,000 warrants to Deere Park at $8.50 per share. In addition, in
October, 1998, we repaid $1,000,000 of the convertible debentures issued to
Deere Park at 107% plus accrued interest.<PAGE>
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Also in connection with the issuance of the convertible debentures to Deere
Park and Gordon Brothers, we issued to the placement agent, warrants to
purchase 65,722 shares of common stock with exercise prices ranging from
$15.81 to $20.00 per share, respectively. The warrants have a term of two
years, which expires November 6, 2001.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is American Stock
Transfer, 40 Wall Street, 46th Floor, New York, NY 10005 (718) 921-8275.
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SELLING STOCKHOLDERS
We provide below the following information for each selling stockholder:
- name;
- the aggregate number of shares of common stock beneficially
owned by the respective selling stockholder as of the date
hereof; and
- the aggregate number of shares of common stock that the
respective selling stockholder may offer and sell pursuant to
this prospectus.
Because the selling stockholders may sell all or a portion of their shares at
any time and from time to time after the date hereof, we can not estimate the
number of shares of common stock that each selling stockholder may retain upon
completion of the offering under this prospectus. Information concerning the
selling stockholders may change. To the extent required, we will provide any
additional or changed information regarding any selling stockholder in a
prospectus supplement or, if appropriate, a post-effective amendment to the
registration statement of which this prospectus is a part. The following
information is based upon information furnished to us by or on behalf of the
selling stockholders.
Name of Number of Shares Owned Number of Shares
Selling Stockholder Before Offering (1) Being Registered
- --------------------- -------------------- -----------------
Deere Park Capital Management, LLC 352,452 (2) 352,452 (2)
Gordon Brothers Capital, LLC 312,256 (3) 312,256 (3)
Coast Partners Securities, Inc. 155,000 (4) 155,000 (4)
Preferred Capital Markets, Inc. 65,722 (5) 65,722 (5)
Thomas M. Swartwood 20,000 (6) 19,000 (6)
Glenn S. Cushman 6,000 (7) 6,000 (7)
Jack M. Fields, Jr. 4,717 4,717
Robert E. Chamberlain, Jr. 99,000 49,179
None of the selling stockholders have been in positions with us with the
exception of Mr. Jack M. Fields, Jr., who has been a member of the board of
directors since November 30, 1998.
(1) Information set forth in the table regarding the selling stockholder
is provided to the best of our knowledge based on information furnished to us
by each selling stockholder and/or available to us through our stock ledgers
or inquiries to brokers.
(2) Includes 326,691 shares of common stock issuable upon exercise of
Deere Park's convertible debentures and 25,761 shares of common stock issuable
upon exercise of warrants that have vested.
(3) Includes 300,120 shares of common stock issuable upon exercise of
Gordon Brothers' convertible debentures and 12,136 shares of common stock
issuable upon exercise of warrants that have vested.
(4) Includes 155,000 shares of common stock issuable upon the exercise of
warrants that may be exercisable within 60 days of this filing.
(5) Includes 65,722 shares of common stock issuable upon the exercise of
warrants that have vested.
(6) Includes 19,000 shares of common stock issuable upon the exercise of
warrants that have vested.
(7) Includes 6,000 shares of common stock issuable upon the exercise of
warrants that have vested.
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PLAN OF DISTRIBUTION
The selling stockholders may sell all or a portion of the shares that are
offered by this prospectus from time to time while the registration statement
of which this prospectus is a part is effective. The selling stockholders
have advised us that the shares may be sold on terms that will be determined
at the time of such sale through customary brokerage channels, negotiated
transactions or a combination of these methods, at fixed prices that may be
changed, at market prices then prevailing or at negotiated prices then
obtainable. We cannot give any assurance that the selling stockholders will
sell any or all of the shares offered hereby. Each selling stockholder
reserves the right to accept and, together with its agents from time to time,
to reject in whole or in part any proposed purchase of the shares. We will
receive no portion of the proceeds from the sale of the shares of our common
stock. The aggregate proceeds to the selling stockholders from the sale of the
shares will be the purchase price of such shares minus any discounts or
commissions.
The selling stockholders advised us that they, acting as principals for their
own account, may sell shares from time to time directly to purchasers or
through agents, dealers or underwriters that they will designate from time to
time and that may receive compensation in the form of underwriting discounts,
commissions or concessions from the selling stockholders and the purchasers of
the shares for whom they may act as agent. The SEC may deem the selling
stockholders and any agents, broker-dealers or underwriters that participate
with the selling stockholders in the distribution of the shares to be
"underwriters" within the meaning of the Securities Act. If this occurs, any
discounts, commissions or concessions that the broker-dealers, agents or
underwriters receive any profit on the resale of the shares purchased by them
may be deemed to be underwriting discounts or commissions under the Securities
Act.
A selling stockholder may elect to engage a broker or dealer to effect sales
of the shares in one or more of the following transactions:
- block trades where the broker or dealer attempts to sell the
shares as agent but to facilitate the transaction may position
and resell a portion of the block of shares as principal,
- purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus, and
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
In effecting sales, brokers and dealers engaged by a selling stockholder may
arrange for other brokers or dealers to participate. Broker-dealers may agree
with the selling stockholder to sell a specified number of such shares at a
stipulated price, and, to the extent such broker-dealer is unable to do so
acting as agent for a selling stockholder, to purchase as principal any unsold
shares at the price required to fulfill the broker-dealer commitment to such
selling stockholder. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and sales to and through other broker-
dealers, including transactions of the nature described above) in the over-
the-counter market or otherwise at prices and on terms then prevailing at the
time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such shares commissions as described above. To
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the extent required, the number of shares to be sold, the names of the selling
stockholders, the purchase price, the public offering price, the name of any
agent, dealer or underwriter, the amount of any offering expenses, any
applicable commissions or discounts and any other material information with
respect to a particular offer will be set forth in an accompanying prospectus
supplement or, if appropriate, a post-effective amendment to the registration
statement of which this prospectus is a part.
The shares originally issued by us contained legends as to their restricted
transferability. These legends will not be necessary when the shares are sold
pursuant to, and during the effectiveness of, the registration statement of
which this prospectus is a part. Upon the transfer by the selling stockholders
of any of the shares, we will issue new certificates representing such shares
to the transferee, free of any such legends.
Under the Exchange Act, any person engaged in the distribution of the shares
may not simultaneously bid for or purchase securities of the same class for a
period of at least two business days prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation, the rules
contained in Regulation M, in connection with the transactions in the shares
during the effectiveness of the registration statement of which this
prospectus is a part. The foregoing may affect the marketability of the common
stock and any market making activities with respect to the common stock.
To comply with the securities laws of certain states, if applicable, the
shares will be sold in such states only through registered or licensed brokers
or dealers. In addition, in certain states the shares may not be offered or
sold unless they have been registered or qualified for sale in such state or
an exemption from the registration or qualification requirement is available
and is complied with.
Each selling stockholder has certain registration rights with respect to the
shares that it owns. Notwithstanding such rights, we have voluntarily filed
the registration statement of which this prospectus is a part. We are required
to maintain the effectiveness of such registration statement until such time
as all the shares have been sold pursuant hereto or are no longer outstanding.
We will bear all expenses relating to this registration, other than
underwriting discounts and commissions and fees and disbursements of counsel
to the selling stockholders.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of our common
stock covered by this prospectus will be passed upon for us by Gardere Wynne
Sewell & Riggs, LLP, Houston, Texas.
EXPERTS
The consolidated financial statements incorporated by reference in this
prospectus of Telscape and its subsidiaries appearing in our Annual Report on
Form 10-K for the years ended December 31, 1998 and 1997 have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their reports incorporated herein by reference,
and are incorporated herein by reference in reliance upon such reports given
upon the authority of said firm as experts in accounting and auditing.
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF OUR COMPANY
SINCE THE DATE HEREOF NOR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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964,326 Shares
TELSCAPE
INTERNATIONAL, INC.
Common Stock
------------------
PROSPECTUS
-------------------
, 1999
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below sets forth the various costs and expenses, other than
underwriting discounts and commissions, to be incurred by the registrant in
connection with the issuance and distribution of the securities being
registered. All amounts shown represent estimates except the SEC's
registration fee.
SEC Registration fee $153.09
Accounting fees and expenses $2,000.00
Legal fees and expenses (estimated) $25,000.00
Miscellaneous 1,000.00
Total $28,153.09
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's by-laws provide that it shall indemnify and advance expenses to
its directors, officers, employees, agents or to any other persons serving at
the request of the registrant in such capacities in a manner and to the maximum
extent permitted by applicable state or federal law.
The registrant's Articles of Incorporation provide that it 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, arbitrative or investigative, any appeal in such an
action, suit, or proceeding, and any inquiry or investigation that could lead to
such an action, suit or proceeding (whether or not by or in the right of the
registrant), by reason of the fact that he is or was a director or officer of
the registrant, or is or was serving at the request of the registrant as a
director or officer, against all judgments, penalties (including excise and
similar taxes), fines, settlements and reasonable expenses (including attorneys'
fees and court costs) actually and reasonably incurred by him in connection with
such action, suit or proceeding to the fullest extent permitted by any
applicable law, and such indemnity shall inure to the benefit of the heirs,
executors and administrators of any such person so indemnified. The right to
indemnification under the registrant's Articles of Incorporation is a contract
right and shall include, with respect to directors and officers, the right to be
paid by the registrant the expenses incurred in defending any such proceeding in
advance of its disposition; provided, however, that, the payment of such
expenses incurred by a director or officer in advance of the final disposition
of a proceeding shall be made only upon delivery to the registrant of (i) a
written affirmation by such director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification under the
registrant's Articles of Incorporation or otherwise and (ii) a written
undertaking by or on behalf of such director or officer to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under the registrant's Articles of Incorporation
or otherwise. The indemnification and advancement of expenses provided by, or
granted pursuant to, the registrant's Articles of Incorporation shall not be
deemed exclusive of any right to which those seeking indemnification or
advancement of expenses may be entitled under
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any law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Persons who are not directors or officers of the registrant may be similarly
indemnified in respect of such service to the extent authorized at any time by
the registrant's board of directors. The registrant maintains liability
insurance over its directors and officers in the covered amount of $5 million
and may purchase further insurance or make other arrangements for such
obligations to the extent permitted by the Texas Business Corporation Act.
ITEM 16. EXHIBITS.
Exhibit
Number Description
- -------- ------------
4.1 Form of Certificate evidencing Common Stock (Incorporated
herein by reference to Exhibit 4.1 to the Company's
Registration Statement No. 33-80542-D)
4.2 Form of Warrant Agreement between American Stock Transfer
& Trust Company and the Company (Incorporated herein by
reference to Exhibit 4.2 to the Company's Registration
Statement No. 33-80542-D)
4.3 Form of Warrant Certificate evidencing the Warrants
(Incorporated herein by reference to Exhibit 4.3 to the
Company's Registration Statement No. 33-80542-D)
5.1 Form of Opinion regarding legality
23.1 Consent of BDO Seidman, LLP
24.1 Power of Attorney (on signature page)
ITEM 17. UNDERTAKINGS
(a) Rule 415 Offering
The undersigned registrant hereby undertakes:
- - To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1) To include a prospectus required by section 10(a)(3) of the
Securities Act;
(2) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimate
maximum offering range may be reflected in the form of <PAGE>
<PAGE>
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
However, subparagraphs (i) and (ii) do not apply if the information required
to be included in a post-effective amendment by those paragraphs is contained
in the periodic reports filed by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) Filings Incorporating Subsequent Exchange Act Documents by Reference
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Indemnification for Liability
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby further undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the 26th day of April
1999.
Telscape International, Inc.
By: /s/ E. SCOTT CRIST
------------------------------
E. Scott Crist,
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below hereby constitutes and appoints E. Scott Crist and Todd M. Binet, and
each of them, as his attorneys-in-fact and agent, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact, and
each of them, and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact, or
each of them, and agents or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the date indicated.
/s/ E. Scott Crist Chief Executive Officer April 26, 1999
- ------------------- (Principal Executive Officer
E. Scott Crist and Director)
/s/ Manuel Landa
- ------------------- Chief Operating Officer
Manuel Landa and Director April 26, 1999
/s/ Oscar Garcia
- --------------------
Oscar Garcia Director April 27, 1999
/s/ Ricardo Orea
- ---------------------
Ricardo Orea Director April 27, 1999
/s/ Darrel O. Kirkland
- ----------------------
Darrel O. Kirkland Director April 26, 1999
/s/Jack M. Fields, Jr.
- -----------------------
Jack M. Fields, Jr. Director April 27, 1999
/s/Todd M. Binet
- -----------------------
Todd M. Binet President, April 27, 1999
Chief Financial Officer
Secretary, Treasurer and
Director (Principal
Financial and Accounting Officer)
[Letterhead of Gardere Wynne Sewell & Riggs, LLP]
April 30, 1999
Telscape International, Inc.
2700 Post Oak Boulevard, Suite 1000
Houston, Texas 77056
Re: REGISTRATION STATEMENT ON FORM S-3
Gentlemen:
As set forth in the Registration Statement (the "Registration Statement") on
Form S-3 to be filed by Telscape International, Inc., a Texas corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), relating to the
registration of 994,338 shares (the "Shares") of the Company's common stock,
par value $.001 per share ("Common Stock") to be sold by certain stockholders
listed in the Registration Statement, certain legal matters in connection with
the Common Stock are being passed upon for the Company by us. This opinion is
being furnished to you in accordance with the requirements of Item 16 of Form
S-3 and Item 601(b)(5)(i) of Regulation S-K for filing as Exhibit 5.1 to this
Registration Statement.
In our capacity as your special Texas counsel in connection with rendering
this opinion, we have examined the Articles of Incorporation, as amended, and
Bylaws, as amended, of the Company and the originals, or copies certified or
otherwise identified, of corporate records of the Company, including minute
books of the Company as furnished to us by the Company, certificates of public
officials and of representatives of the Company, statutes and other
instruments and documents as a basis for the opinion hereinafter expressed.
In giving this opinion, we have relied upon certificates of officers of the
Company with respect to the accuracy of the material factual matters contained
in such certificates.
We have assumed the authenticity and completeness of all records, certificates
and other instruments submitted to us as originals, the conformity to original
documents of all records, certificates and other instruments submitted to us
as copies, the authenticity and completeness of the originals of those
records, certificates and other instruments submitted to us as copies and the
correctness of all statements of fact contained in all records, certificates
and other instruments that we have examined.
Based on the foregoing, and having regard for such legal considerations as we
have deemed relevant, we are of the opinion that, (i) with respect to that
portion of the Shares which have been issued, such Shares are duly authorized,
validly issued, fully paid and non-assessable and (ii) with respect to that
portion of the Shares which have been reserved for issuance pursuant to
convertible debentures, warrants or otherwise, such Shares are duly authorized
and reserved for and, either are validly issued, fully paid and non-assessable
or when issued upon conversion of convertible debentures or exercise of
warrants, in each case in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable.<PAGE>
<PAGE>
The foregoing opinion is limited to the federal laws of the United States of
America and the Texas Business Corporation Act, and we are expressing no
opinion as to the effect of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Act, the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, or Item 509 of
Regulation S-K.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implications or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
Gardere Wynne Sewell & Riggs, L.L.P.
By: /s/ Eric A. Blumrosen
---------------------------------
Eric A. Blumrosen
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBIC ACCOUNTANTS
Telscape International, Inc.
Houston, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
February 22, 1999, relating to the consolidated financial statements of
Telscape International, Inc. and subsidiaries appearing in the Company's
annual report on Form 10-K for the year ended December 31, 1998.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
Houston, Texas
April 30, 1998
