As filed with the Securities and Exchange Commission on December 8, 1999
Registration Statement No. 333-91271
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT
NO. 1 TO
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:
Sean P. McGuinness, Esq.
Kimberly A. Rosenthal, 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: [ ]
<PAGE>
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 OFFERING PRICE MAXIMUM OF
REGISTERED PER SHARE (1) AGGREGATE REGISTRATION
OFFERING PRICE FEE
- --------------------------------------------------------------------------------
Common Stock
par value
$0.001 per
share 783,338 $9.625 $7,539,628 $2,096.02
================================================================================
(1) 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 December 6, 1999.
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>
PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1999
TELSCAPE INTERNATIONAL, INC.
783,338 SHARES
COMMON STOCK
------------------------
This prospectus relates to the possible offer and sale from time to time of up
to 783,338 shares of our common stock, par value $.001 per share, by the
selling stockholders identified on page 27 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 time to time.
<PAGE>
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 December 6, 1999, the last reported sale price for our common stock
on the Nasdaq National Market was $9.813 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.
----------------------------
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TABLE OF CONTENTS
Where You Can Find More Information 3
Forward-Looking Statements 4
Our Company 5
Risk Factors 7
Use of Proceeds 22
Description of Capital Stock 23
Selling Stockholders 26
Plan of Distribution 27
Legal Matters 29
Experts 29
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) 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;
(ii) Our annual report on Form 10-K for the fiscal year ended
December 31, 1998, as filed with the SEC on March 31, 1999;
(iii) Our proxy statement on Form 14-A for our annual meeting of
stockholders, as filed with the SEC on April 29, 1999;
(iv) Our quarterly report on Form 10-Q for the quarter ended March
31, 1999, as filed with the SEC on May 17, 1999;
(v) Our quarterly report on Form 10-Q for the quarter ended June 30,
1999, as filed with the SEC on August 16, 1999;
(vi) Our report on Form 8-K, as filed with the SEC on September 20, 1999;
and
(vii) Our quarterly report on Form 10-Q for the quarter ended September
30, 1999, as filed with the SEC on November 15, 1999.
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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 our Investor Relations department 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 our 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 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 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
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reflect management's analysis only. We assume no obligation to update
forward-looking statements.
THE COMPANY
GENERAL
We are a U.S. based, fully integrated communications company. We supply voice,
video, data and Internet services principally to and from Latin America.
Telereunion, S.A. de C.V., one of our subsidiaries, is building a
state-of-the-art fiber optic network in Mexico that will reach the vast majority
of the Mexican population. We also own and operate a satellite teleport facility
in Silicon Valley, CA, which delivers an array of telecommunications services to
customers throughout North, Central and South America. In addition, we provide a
full range of network solutions services and products in Mexico to major public
and private sector customers. We recently launched EnableCOMMERCE.com, an
electronic commerce strategy, which takes advantage of many of our core
competencies.
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 a 30-year, long-distance
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. To deliver our services, we,
through Telereunion, are constructing a network in Mexico to carry voice, video,
data and Internet services. Our new network will consist of fiber-optic and
microwave components, 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 and reduce our costs.
We intend to capitalize on the growth in the Latin American telecommunications
market by providing voice, video, data and Internet services to and from
targeted Latin American countries. 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 help ensure the quality of our
service for both international and domestic long distance traffic.
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We are presently building our network in Mexico through a combination of
tactics:
- we are building our own physical facilities in the Eastern Gulf
region of the country of Mexico, and
- we are establishing operating agreements and/or exchanging some
of our fiber optic capacity with other carriers.
We believe that our planned network in Mexico, when complete, will link 22
cities and towns and will enable us to provide service to the majority of the
population in Mexico. The completion of our new Mexican network will further our
strategy of becoming a leading provider of voice, video, data and Internet
services in the Latin American 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,
data and Internet business on both sides of the U.S.-Mexico border. We began
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. On August 27, 1999, we, along with our subsidiaries,
Telereunion, S.A. de C.V., Telereunion International, S.A. de C.V., Telereunion,
Inc., Telscape USA, Inc., MSN Communications, Inc., Interlink Communications,
Inc., TSCP International, Inc., Vextro de Mexico, S.A. de C.V., Servicios
Corporativos, Telscape de Mexico, S.A. de C.V., N.S.I.S.A. de C.V., Lan and Wan,
S.A. de C.V. and M.S. Noticias y Telecomunicaciones, S.A. de C.V. signed a
credit agreement with Lucent ("Credit Agreement").
The Credit Agreement provides for up to $40 million in financing. We borrowed
$23.9 million under the Credit Agreement on August 27, 1999, of which $9.0
million was applied to repay short-term debt and restore working capital and
$14.9 million to pay for costs directly related to construction of the network
and incidental to closing the Credit Agreement. Subsequent loans under the
Credit Agreement are subject to the satisfaction of certain conditions
precedent, one of which has not been satisfied as of the date of this filing.
In May 1999, we signed an interconnection agreement with Telefonica de El
Salvador, a subsidiary of Telefonica de Espana, to provide international
telecommunications services to and from El Salvador. Also in May 1999, we
entered into an agreement with Avantel, S.A. to exchange fiber optic capacity in
Mexico.
RECENT DEVELOPMENTS
On November 23, 1999, we signed a letter of intent to merge with Pointe
Communications Corporation, a provider of a wide array of telecommunications and
network services in the United States and Latin America. We have agreed in
principle with Pointe to an all-stock transaction. We believe that the proposed
merger will enhance our ability to become a major competitive provider of
bundled communications services in the U.S. Hispanic and Latin American markets.
The consummation of the merger is contingent, among other things, on the
completion of due diligence, the execution of a definitive merger agreement and
our ability to obtain the approval of our stockholders. We can provide you with
no assurance that the merger will be consummated, and if consummated, that it
will be beneficial to our business, results of operations and financial
condition and our ability to compete.
STRATEGY
We plan to expand our role to become a leading provider of high quality,
competitively priced voice, video, data and Internet services between the United
States and Latin America, and plan to become a leading provider of voice, video,
data and Internet services in Mexico upon the completion of our network in
Mexico. 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, our ability to recruit the management talent required to implement
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our business plan, competition, and other factors external to the company. 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.
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.
WE HAVE A NEED FOR ADDITIONAL CAPITAL
We need additional capital to fund our losses from operations, to meet our
obligations and to fund capital expenditures principally associated with the
build out of our network in Mexico. We are attempting to raise additional funds.
We have entered into a loan agreement with Lennox Invest, Ltd, for $10,000,000.
Each individual funding under the loan agreement is to be evidenced by a
promissory note maturing 180 days from its respective funding. A total of $1.5
million, which bears interest at 10% per annum, has been funded through this
facility to date. We must pay interest on each note at the maturation of the
respective note. For every $1,000,000 advanced under the loan agreement, we are
obligated to issue a three-year warrant to Lennox to acquire 35,714 shares of
our common stock at an exercise price of $7.00 per share. For every $1,000,000
that is outstanding for more than one month, we are obligated to issue an
additional three-year warrant to acquire 35,714 shares of our common stock. For
every $1,000,000 that is outstanding for more than two months, we are obligated
to issue a third three-year warrant to acquire 35,714 shares of our common
stock. The collateral provided for under the loan agreement consists of our
common stock owned directly or indirectly by certain members of management
provided on a formula basis based on the level of borrowings outstanding under
the loan agreement and the market value of our common stock. The agreement
provides that either party may terminate it after Lennox advances $3.0 million
to us according to a predetermined funding schedule. Because Lennox did not fund
all $3.0 million according to the funding schedule, we notified Lennox on
November 30, 1999 that we were terminating the agreement. We must repay the $1.5
million that was advanced pursuant to the loan agreement within 180 days from
the date of the funding. In connection with our borrowings of $1.5 million
under the loan agreement, we have issued Lennox warrants to purchase (i) 35,714
shares at $7.00 per share and (ii) 35,714 shares at $7.00 per share. We are
actively seeking to raise required additional capital from public or private
equity and/or debt sources. 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 inaccurate, then some or all of our development and expansion plans,
including our Mexican network, could be delayed or abandoned.
We currently have no firm arrangements with respect to additional financing. We
cannot guarantee that additional financing will be available to us on
commercially reasonable or acceptable terms or on terms that would not be
substantially dilutive to stockholders, if at all. Any equity or debt
financings, if available at all, may impact our operations and, in the case of
equity financings or strategic investments, may result in dilution to existing
stockholders. In addition, if we raise additional funds through the incurrence
of debt, we would likely become subject to additional restrictive financial
covenants. If we fail to secure necessary financing we expect it would have a
material adverse impact on our business, our ability to continue our operations
and our stock price.
We are also exploring various strategic investment alternatives, including
acquisitions, mergers and/or a sale of our company. We do not know if we will be
able to identify any future joint ventures, acquisitions, mergers or strategic
alliances or that, if identified, we will be able to successfully finance and
complete these transactions. Additionally, if we decide a sale of our company is
in the best interest of our stockholders, we can not assure you that we will be
able to find a suitable buyer or that, if found, we will be able to successfully
complete the sale. A failure to identify or finance future transactions may
impair our ability to continue our operations. In addition, to finance these
transactions, it may be necessary for us to raise additional funds through
public or private financings and we can not assure you that we will be able to
do so.
In the event that we are unable to obtain such additional capital or are unable
to obtain additional capital on acceptable terms, or if we are unable to find a
suitable strategic investment alternative, we may be required to reduce the
scope of our Mexican network buildout, which could materially and adversely
affect our business, results of operations and financial condition and our
ability to compete.
On November 23, 1999, we signed a letter of intent to merge with Pointe
Communications Corporation, a provider of a wide array of telecommunications and
network services in the United States and Latin America, in an all-stock
transaction. We believe that the proposed merger will enhance our ability to
become a major competitive provider of bundled communications services in the
U.S. Hispanic and Latin American markets. The consummation of the merger is
contingent, among other things, on the completion of due diligence and the
execution of a definitive merger agreement. We can provide you with no assurance
that the merger will be consummated, and that if consummated, the merger will be
beneficial to our business, results of operations and financial condition and
our ability to compete.
As of September 30, 1999, we have a working capital deficit of approximately
$27.0 million. Of this $27.0 million, approximately $12.0 million represents
accounts payable incurred in connection with the construction of the Mexican
Network, $5.1 million represents long term debt reclassified as short term debt
due to a covenant default and $3.2 million represents other network
expenditures classified as short term obligations. We plan to finance the $12.0
million under the Lucent credit agreement subject to certain conditions
precedent being met.
In order to address our need for capital, we are also exploring various
strategic investment alternatives. We do not know if we will be able to identify
any future joint ventures, acquisitions, mergers or strategic alliances or that,
if identified, we will be able to successfully execute these transactions. A
failure to identify or execute future transactions may impair our ability to
continue our operations. In addition, to execute these transactions, it may be
necessary for us to raise additional funds through public or private financings
and we cannot assure you that we will be able to do so.
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In the event that we are unable to obtain such additional capital or are unable
to obtain additional capital on acceptable terms, or if we are unable to find a
suitable strategic investment alternative, our business, results of operations,
financial condition and our ability to compete could be adversely affected.
WE EXPECT TO EXPERIENCE NET LOSSES
We intend to incur costs, we expect to experience continuing net losses and we
could suffer capital dilution over the next few years as we develop and expand
our network, expand our marketing and sales organization and introduce new
telecommunications services. Additionally, our operations in new target markets
have experienced and could continue to experience negative cash flows until we
establish an adequate customer base and related operating revenues. Furthermore,
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 construction of our Mexican network;
- operational delays caused by our inability to obtain additional
financing in a timely fashion; and
- operational delays caused by our inability to meet the
conditions precedent to additional fundings under the Lucent
facility.
Through the nine months ended September 30, 1999, we experienced a net loss of
$9.6 million. As a result of the above factors, we expect to continue to incur
net losses over the next several quarters.
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR
BUSINESS
Our total outstanding indebtedness as of September 30, 1999 was approximately
$37.5 million, including $34.7 million of secured indebtedness. Because we will
continue to incur a significant amount of indebtedness in the future, 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;
- limit our ability to fulfill our working capital requirements;
- 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
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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.
We may not achieve or sustain a positive cash flow or profits from our operating
activities in the future. 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.
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.
WE MUST EFFECTIVELY EXPAND AND OPERATE OUR NETWORK
Because our success and our ability to grow and increase revenues largely
depends on our ability to deliver low-cost, uninterrupted, international and
domestic voice, video, data and Internet services, our operations depend on our
ability to integrate new and emerging technologies and equipment into our
network and to successfully expand our network. Our ability to continue to
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expand, operate and develop our network will depend on, among other factors, our
ability to:
- 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
- attract and retain customers and experienced and qualified
personnel; 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 business
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.
WE FACE RISKS OF NETWORK FAILURE IN OPERATING 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;
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- 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.
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 are developing our new network in the Gulf region of Mexico. Our
Mexican network will cover the states of Tamaulipas and Veracruz on the eastern
coast of Mexico, and extend into the central region through the state of Puebla.
Some of the geographical areas in which we are constructing our network have
suffered from unusually heavy rainfall and caused some delays in construction
of our network. We expect to complete construction of our network towards the
end of 1999 and, barring any significant delays, begin operating the network
late in the first quarter of 2000 or early in the second quarter of the year
2000. 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 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 difficulty 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.
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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. All strategic alliances, investments and acquisitions are
accompanied by numerous risks, including, without limitation:
- difficulties in assimilating the operations, personnel, products,
technologies and financial, computer, payroll and other systems
of an acquired businesses;
- diversion of resources from our existing businesses, including
potential distraction of our management team;
- entering geographic and business markets in which we have little
or no prior experience;
- unanticipated liabilities or contingencies of acquired
businesses;
- dilution to existing shareholders if we use stock to acquire
businesses;
- amortization of goodwill from acquired businesses, which will
reduce our earnings per share; and
- the potential loss of key employees or customers.
Many of these are foreign companies located in Mexico and Latin America.
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.
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
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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 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, our pricing and costing models, or
other types of errors or inaccuracies could result in insufficient or excessive
transmission facilities and disproportionate fixed expenses or deterioration of
our services' profitability. 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
- 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
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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:
- 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
on the Latin American and European regions; WorldCom, Inc.'s merger with MCI
Communications, and subsequent alliance with Telefonica de Espana; Sprint's
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alliance with Deutsche Telekom and France Telecom, known as "Global One".
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. The prepaid card industry to
Mexico is also marked by numerous smaller competitors. In recent months, the
competition for these services has increased and we believe many of our
competitors are selling at losses. Continued competition at this level will make
it very difficult for us to match prices which could adversely impact our sales
and have a material adverse effect on the financial condition of the Company.
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.
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
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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 has minimum invested capital
requirements and specific debt to equity requirements. In addition, the terms of
the Mexican concession originally required us to begin operations by June 3,
1999. Although we obtained an extension of this date until December 3, 1999, we
cannot assure you that:
- we will be able to obtain financing to finish the Mexican
network;
- if we obtain financing it will be in a timely manner or on
favorable terms;
- we will be able to obtain an extension of the date of which
we were required to begin operations, 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.
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
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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 CALLING
CARDS
We depend on distributors in the United States and Mexico to sell our prepaid
calling cards for international and domestic 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
calling cards. We have installed our own prepaid calling card switching
platforms in Houston, Texas and in Mexico that provide some, but not all, of the
switching platform and telecommunications services related to our prepaid
calling cards. We cannot, however, assure you that we will ever have all of our
prepaid calling cards serviced on our own switching platforms. Until our
platforms are technologically and operationally sufficient to service all of our
prepaid calling card business, we will continue to utilize third parties to
provide platforms for our prepaid calling 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.
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 or carrier agreements with other carriers. We
believe that we would not be able to serve our customers at competitive prices
without these operating and interconnection agreements. Termination of these
agreements by these carriers, 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.
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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
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
Mexican pesos. Any decrease in the value of the U.S. dollar in relation to
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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 Mexican peso, could
materially and adversely effect our financial position and results of operation.
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 Mexican pesos.
Declines in the Mexican peso's value relative to other currencies will result in
foreign exchange losses and increases in the Mexican 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 Mexican
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 Mexican 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.
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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.
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
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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:
- continue our efforts to increase our overseas telecommunications
customer base and traffic volume or
- 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. We are not in compliance
with certain financial covenants under lease agreements with a finance company
that funded $5.6 million in equipment for us earlier this year. We have secured
a waiver from the finance company of their rights under the agreement to enforce
default provisions due to non compliance with these financial covenants for the
third quarter of 1999. We have also agreed that should the lender in the Lennox
facility decide to terminate the Lennox facility prior to funding the entire
$10.0 million amount of the facility, the finance company may declare a default
under the agreement and accelerate the maturity date. The amounts outstanding
under this facility of $5.6 million have been classified as current in the
financial statements as of September 30, 1999. We may have to request additional
waivers from the finance company due to non compliance with financial covenants
in future quarters. We cannot guarantee that the finance company would provide
us with additional waivers in which case they could enforce the default
provisions and accelerate the maturity date. Should that be the case, there is
no guarantee that we would be able to obtain a replacement facility. A default
under this agreement could trigger cross defaults with several of our other
obligations totaling $31.3 million at September 30, 1999.
The Credit Agreement with Lucent contains significant covenants of us and our
subsidiaries including, but not limited to: (a) affirmative covenants with
respect to compliance with laws, inspection rights, performance of other
obligations, delivery of financial statements and other information, pledge of
after-acquired property, and associated agreements requiring the registrant's
Mexican subsidiaries to apply certain monies to debt repayment, (b) negative
covenants restricting their ability to incur or create (with certain exceptions)
liens, debt and capitalized lease obligations, and otherwise restricting (with
customary exceptions) mergers or consolidations, disposal of assets,
investments, payments of dividends and distributions, modification of material
contracts, changes in the nature of the business conducted, prepayment or
redemption of debt, creation of partnerships and new subsidiaries and
transactions with affiliates; and (c) financial covenants (including, among
others, minimum total debt to total capitalization, total debt to consolidated
EBITDA, maximum annual capital expenditures through the maturity date and
minimum consolidated EBITDA to consolidated debt service obligations. If we
default on any covenant provided for under the Credit Agreement and we are
unable to obtain a waiver for such default, the lender under the Credit
Agreement could terminate their financing agreement with us. Termination of one
or more of our financing agreements 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" and "Telereunion"
prepaid calling 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
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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
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.
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<PAGE>
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 December 6, 1999, there were 7,484,795 shares of common stock outstanding
(including 83,359 shares of treasury stock) that were held of record by
approximately 90 stockholders. In addition, as of December 6, 1999, Telscape
had issued options and warrants to purchase a total of 3,761,946 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
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;
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- 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.
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,
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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;
(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
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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.
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.
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
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information is based upon information furnished to us by or on behalf of the
selling stockholders.
NAME OF NUMBER OF SHARES NUMBER OF SHARES
SELLING OWNED BEFORE BEING
STOCKHOLDER OFFERING (1) REGISTERED
- ---------------- ------------------ -------------------
Engmann Options, Inc. 391,669 391,669
MDNH Partners, L.P. 391,669 391,669
(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.
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
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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
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
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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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783,338 Shares
TELSCAPE
INTERNATIONAL, INC.
Common Stock
------------------
PROSPECTUS
-------------------
, 1999
<PAGE>
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 $2,096.02
Accounting fees and expenses (estimated) $5,000.00
Legal fees and expenses (estimated) $5,000.00
Miscellaneous 1,000.00
----------
Total $13,096.02
==========
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
<PAGE>
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 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
- -------- ------------
3.1 - Articles of Incorporation of the Registrant, as amended (filed as
Exhibit 3.1 to the Company's Registration Statement No. 33-80542-D
and incorporated herein by reference)
3.2 - Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the
Company's Registration Statement No. 33-80542-D and incorporated
herein by reference)
3.3 - Articles of Incorporation of Polish Microwave, Inc. (filed as
Exhibit 3.3 to the Company's Registration Statement No. 33-80542-D
and incorporated herein by reference)
3.4 - Bylaws of Polish Microwave, Inc. (filed as Exhibit 3.4 to the
Company's Registration Statement No. 33-80542-D and incorporated
herein by reference)
3.5 - Contract of Limited Liability Company of DTS/ZWUT (filed as
Exhibit 3.5 to the Company's Registration Statement No. 33-80542-D
and incorporated herein by reference)
4.1 - Form of Certificate evidencing Common Stock (filed as Exhibit 4.1
to the Company's Registration Statement No. 33-80542-D and
incorporated herein by reference)
4.2 - Form of Warrant Agreement between American Stock Transfer & Trust
Company and the Company (filed as Exhibit 4.2 to the Company's
Registration Statement No. 33-80542-D and incorporated herein by
reference)
4.3 - Form of Warrant Certificate evidencing the Warrants (filed as
Exhibit 4.3 to the Company's Registration Statement No. 33-80542-D
and incorporated herein by reference)
4.4 - Form of Statement of the establishment of the Series B non-voting,
nonparticipating Preferred Stock (filed as Exhibit 4.1 to the
Company's Report
<PAGE>
on Form 10-QSB for the quarter ended March 31, 1996 and
incorporated herein by reference)
+5.1 - Form of Opinion regarding legality
10.1 - Form of Representative's Warrants (filed as Exhibit 10.8 to the
Company's Registration Statement No. 33-80542-D and incorporated
herein by reference)
10.2 - Warrant Agreement between the Company and S.P. Krishna Murthy
(filed as Exhibit 10.13 to the Company's Report on Form 10-KSB for
the year ended December 31, 1995 and incorporated herein by
reference)
10.3 - Form of Series A Common Stock Warrant (filed as Exhibit 10.4 to
the Company's Report on Form 10-QSB for the quarter ended March
31, 1996 and incorporated herein by reference)
10.4 - Form of Series B Common Stock Warrant (filed as Exhibit 10.5 to
the Company's Report on Form 10-QSB for the quarter ended March
31, 1996 and incorporated herein by reference)
10.5 - Form of Employment Agreement for Manuel Landa, Ricardo Orea Gudino
and Oscar Garcia Mora (filed as Exhibit 10.6 to the Company's
Report on Form 10- QSB for the quarter ended March 31, 1996 and
incorporated herein by reference)
10.6 - Form of Non-Qualified Stock Option Certificate and Agreement, as
amended, for Manuel Landa, Ricardo Orea Gudino and Oscar Garcia
Mora (filed as Exhibit 10.7 to the Company's Report on Form 10-QSB
for the quarter ended March 31, 1996 and incorporated herein by
reference)
10.7 - Form of Series A Common Stock Warrant dated May 17, 1996 between
the Company and Manuel Landa, Ricardo Orea Gudino, Oscar Garcia
Mora and Christopher Efird (filed as Exhibit 10.1 to the Company's
Report on Form 8-K dated June 3, 1996 and incorporated herein by
reference)
10.8 - Employment Agreement for E. Scott Crist (filed as Exhibit 10.1 to
the Company's Report on Form 10-QSB for the quarter ended
September 30, 1996 and incorporated herein by reference)
10.9 - Employment agreement for Todd Binet (filed as Exhibit 10.29 to the
Company's Report on Form 10-KSB for the year ended December 31,
1996 and incorporated herein by reference)
10.10 - Form of Promissory Note dated July 1, 1997, between Telereunion
and Jose Luis Apan Wong, Raul de la Parra Zavala and Alejandro
Apan Wong (filed as Exhibit 10.4 to the Company's Current Report
on Form 8-K dated August 5, 1997 and incorporated herein by
reference)
10.11 - Form of Common Stock Warrant dated July 1, 1997, between the
Company and Jose Luis Apan Wong, Raul de la Parra Zavala and
Alejandro Apan Wong (filed as Exhibit 10.4 to the Company's
Current Report on Form 8-K dated August 5, 1997 and incorporated
herein by reference)
10.12 - Stock Purchase Agreement dated July 1, 1997, by and among the
Company, Telscape USA, Inc., Telereunion and Jose Luis Apan Wong,
Raul de la Parra Zavala and Alejandro Apan Wong (filed as Exhibit
10.4 to the Company's Current Report on Form 8-K dated August 5,
1997 and incorporated herein by reference)
<PAGE>
10.13 - Stock Purchase Agreement dated October 1, 1997, by and among
Telscape USA, Inc., Telereunion, Inc. and Jose Martin Pena Nunez,
Carlos Joaquin De Lara Y Campos, Jorge Pena Nunez, Martha
Teresita Martin Del Campo Gutierrez (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated October 15, 1997 and
incorporated herein by reference)
10.14 - Stock Purchase Agreement dated January 22, 1998, by and among the
Company; MSN Communications, Inc.; Stuart Newman and Michael
Newman, together with Form of Promissory Note dated January 23,
1998 in the principal amount of $375,000 payable to Stuart Newman
attached as Exhibit B-1 and Form of Promissory Note dated January
23, 1998 in the principal amount of $375,000 payable to Michael
Newman attached as Exhibit B-2 (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated February 6, 1998 and
incorporated herein by reference)
10.15 - Stock Purchase Agreement dated May 18, 1998, by and among Telscape
International, Inc., California Microwave, Inc. and California
Microwave Services Divisions, Inc. together with a Form of Supply
Agreement between California Microwave, Inc. and California
Microwave Services Division, Inc. as Exhibit B (Incorporated
herein by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated June 9, 1998)
10.16 - Securities Purchase Agreement between Deere Park Capital
Management, LLC and Telscape International, Inc. dated as of May
1, 1998; Registration Rights Agreement dated as of May 1, 1998
between Telscape International, Inc. and Deere Park Capital
Management, LLC; Form of Convertible Debenture for $3,000,000
dated May 1, 1998; Form of Stock Purchase Warrant to Purchase
8,952 shares of Common Stock of Telscape International, Inc. dated
May 12, 1998 (all filed as Exhibit 4.4 to the Company's Report on
Form 10Q for the quarter ended March 31, 1998 and incorporated
herein by reference)
10.17 - Form of Convertible Debenture in the principal amount of
$1,000,000 between Deere Park Capital Management, LLC and Telscape
International, Inc. dated as of May 28, 1998 and a form of Stock
Purchase Warrant to Purchase 2,427 shares of Common Stock of
Telscape International, Inc. dated May 28, 1998 (Incorporated
herein by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K dated June 9, 1998)
10.18 - Securities Purchase Agreement dated May 29, 1998 by and between
Telscape International, Inc. and Gordon Brothers Capital, LLC;
together with a Form of Convertible Debenture in the principal
amount of $5,000,000 payable to Gordon Brothers Capital, LLC
attached as Exhibit A; a Form of Stock Purchase Warrant for Gordon
Brothers, LLC for 12,136 shares of Common Stock of Telscape
International, Inc. attached as Exhibit B; and a Registration
Rights Agreement by and between Gordon Brothers Capital, LLC and
Telscape International, Inc. attached as Exhibit C (Incorporated
herein by reference to Exhibit 10.4 to the Company's Current
Report on Form 8-K dated June 9, 1998)
+10.18.1 - Amendment to Securities Purchase Agreement by and between Deere
Park Capital, LLC and Telscape International, Inc. dated as of
April 30, 1999, Schedule 1 representing the form of the Amended
and Restated Convertible Subordinated Debenture, and Exhibit A
representing the form of the Conversion Notice.
10.19 - Equity Purchase Agreement by and between INTERLINK Communications
Holding Co., Inc. and each of Telscape International, Inc., E.
Russell Hardy, Stephen Strohman, Monty J. Moore, and Salvador
Giblas dated as of May 19, 1998
<PAGE>
(Incorporated herein by reference to Exhibit 10.5 to the Company's
Current Report on Form 8-K dated June 9, 1998)
10.20 - Form of Employment Agreement by and between California Microwave
Services Division, Inc. and E. Russell Hardy dated as of May 18,
1998 (Incorporated herein by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K dated June 9, 1998)
10.21 - Form of Employment Agreement by and between California Microwave
Services Division, Inc. and Stephen Strohman dated as of May 18,
1998 (Incorporated herein by reference to Exhibit 10.7 to the
Company's Current Report on Form 8-K dated June 9, 1998)
10.22 - Form of Employment Agreement by and between California Microwave
Services Division, Inc. and Monty J. Moore dated as of May 18,
1998 (Incorporated herein by reference to Exhibit 10.8 to the
Company's Current Report on Form 8-K dated June 9, 1998)
10.23 - Form of Consulting Agreement by and between California Microwave
Services Division, Inc. and Salvador Giblas dated as of May 18,
1998 (Incorporated herein by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K dated June 9, 1998)
10.24 - Loan Agreement between Telscape USA, Inc. and MSN Communications,
Inc. and Southwest Bank of Texas dated May 19, 1998 (Incorporated
herein by reference to Exhibit 10.24 to the Company's Registration
Statement No. 333- 60271) Registration Rights Agreement by and
between Coast Partners Securities, Inc. and Telscape
International, Inc. attached as Exhibit 4.
10.25 - Outside Directors Stock Option Plan of the Polish Telephones and
Microwave Corporation (Incorporated herein by reference to Exhibit
10.24 to the Company's Registration Statement No. 333-60271)
10.26 - Form of Financing Agreement by and between the Company and
Newbridge Financial Services Networks dated as of December 7, 1998
(Incorporated herein by reference to Exhibit 10.26 to the
Company's Report on Form 10-K for the year ended December 31,
1998)
10.27 - Form of Financing Agreement by and between the Company and NTFC
Capital Corporation dated as of January 11, 1999 (Incorporated
herein by reference to Exhibit 10.27 to the Company's Report on
Form 10-K for the year ended December 31, 1998)
+10.27.1 - First Amendment to Loan and Security Agreement by and between the
Company and NTFC Capital Corporation dated as of April 20, 1999.
10.28 - Form of Securities Purchase Agreement by and between the Company
and Kendu Partners and MDNH Partners, L.P. dated as of December
18, 1998, and Exhibit B to this agreement representing the Form of
Registration Rights Agreement (Incorporated herein by reference to
Exhibit 10.28 to the Company's Report on Form 10-K for the year
ended December 31, 1998)
+10.28.1 - Stock Purchase Agreement by and among the Company, Kendu Partners,
Inc. and Engmann Options, Inc., dated as of December 31, 1998 and
form of Assignment and Assumption Agreement related thereto.
+10.28.2 - Amendment No. 1 to Securities Purchase Agreement by and among the
Company, Engmann Options, Inc. and MDNH Partners, L.P. dated as of
March 15, 1999.
<PAGE>
+10.28.3 - Letter amendment to Securities Purchase Agreement by and among the
Company, Engmann Options, Inc. and MDNH Partners, L.P. dated as of
July 28, 1999.
10.29 - Form of Securities Purchase Agreement by and between Telscape
International, Inc., INTERLINK Communications, Inc. and Cahill,
Warnock, Strategic Partners Fund, L.P. dated as of May 5, 1999,
Exhibit A representing the form of the Increasing Rate Secured
Promissory Note, Exhibit B representing the form of Warrant, and
Exhibit C representing the Security Agreement.(Incorporated herein
by reference to Exhibit 10.29 to the Company's Report on Form 10-Q
for the quarter ended March 31, 1999)
10.30 - Form of Securities Purchase Agreement by and between Telscape
International, Inc., INTERLINK Communications, Inc. and Cahill,
Warnock, Strategic Partners Fund, L.P. dated as of June 18, 1999,
Exhibit A representing the form of the Increasing Rate Secured
Promissory Note, Exhibit B representing the form of Warrant, and
Exhibit C representing the Security Agreement and Amendment No. 1
to Securities Purchase Agreement. (Incorporated herein by
reference to Exhibit 10.30 to the Company's Report on Form 10-Q
for the quarter ended June 30, 1999)
10.31 - Securities Purchase Agreement dated July 19, 1999 by and between
Telscape International, Inc., Telscape USA, Inc., TSCP
International, Inc., MSN Communications, Inc. and Lucent
Technologies Inc., together with a Form of Demand Note in the
principal amount of $3,000,000 payable to Lucent Technologies Inc.
attached as Exhibit A; a Form of Stock Purchase Warrant for Lucent
Technologies Inc. for 85,000 shares of Common Stock of Telscape
International, Inc. attached as Exhibit B; and a Security
Agreement by and between Telscape International, Inc., Telscape
USA, Inc., MSN Communications, Inc., TSCP International, Inc. and
State Street Bank and Trust Company attached as Exhibit C.
(Incorporated herein by reference to Exhibit 10.31 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1999)
10.32 - Credit Agreement dated August 27, 1999 by and between Telscape
International, Inc. Telereunion S.A. de C.V., Telereunion
International, S.A de C.V., Telereunion, Inc., Telscape USA, Inc.,
MSN Communications, Inc., Interlink Communications, Inc., TSCP
International, Inc., Vextro De Mexico S.A. de C.V., Servicios
Corporativos, Telscape de Mexico S.A. de C.V., N.S.I. S.A. de
C.V., Lan and Wan S.A. de C.V., MS Noticias y Telecommunicaciones,
S.A. de C.V. and Lucent Technologies Inc. (Incorporated herein by
reference to Exhibit 10.1 to the Company's Report on Form 8-K
dated September 20, 1999)
10.33 - Loan Agreement dated October 22, 1999, by and between Telscape
International, Inc. and Lennox Invest Ltd., Promissory Note
dated October 22, 1999 in the principal amount of $1,060,000
payable to Lennox Invest, Ltd., Stock Pledge Agreement dated
October 22, 1999, and Warrant Certificate issued to Lennox
Invest, Ltd. to purchase 35,714 shares of Common Stock of
Telscape International, Inc. dated October 22, 1999. (Incorporated
herein by reference to Exhibit 10.33 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1999).
*23.1 - Consent of BDO Seidman, LLP
- ----------------
* Filed herewith
+ Previously filed
<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 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
<PAGE>
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>
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 8th day of December
1999.
Telscape International, Inc.
By: /s/ E. SCOTT CRIST
------------------------------
E. Scott Crist,
Chief Executive Officer
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 December 8, 1999
- ----------------------- (Principal Executive Officer
E. Scott Crist and Director)
* Chief Operating Officer December 8, 1999
- ----------------------- and Director
Manuel Landa
* Director December 8, 1999
- -----------------------
Oscar Garcia
* Director December 8, 1999
- -----------------------
Ricardo Orea
* Director December 8, 1999
- -----------------------
Darrel O. Kirkland
<PAGE>
* Director December 8, 1999
- -----------------------
Jack M. Fields, Jr.
/s/ TODD M. BINET President, Chief Financial December 8, 1999
- ----------------------- Officer Secretary, Treasurer
Todd M. Binet and Director (Principal
Financial and Accounting Officer)
* E. Scott Crist and Todd M. Binet, by signing their names hereto, sign this
document on behalf of each of the persons so indicated above pursuant to
powers of attorney duly executed by such persons and filed with the Securities
and Exchange Commission.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC 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
December 7, 1999
