SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20459
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of April 16, 2003
Commission File Number: 001-13464
Telecom Argentina STET-France Telecom S.A.
(Translation of registrant’s
name into English)
Alicia Moreau de Justo, No. 50, 1107
Buenos Aires, Argentina
(Address of principal executive
offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
| Form 20-F | X | Form 40-F |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
| Yes | No | X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
| Yes | No | X |
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
| Yes | No | X |
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
Telecom Argentina STET-France Telecom S.A.
TABLE OF CONTENTS
| Item | ||
| 1. | Telecom Argentina STE- France Telecom S.A. Offer to Purchase for Cash Medium Term Notes and Financial Credit Facilities |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Telecom Argentina STET-France Telecom S.A. | ||
| Date: April 16, 2003 | By: | /s/ Christian Chauvin |
| Name: Christian Chauvin Title: Vice-President |
||
ITEM 1
Telecom Argentina STET-France Telecom S.A.
Invites the holders of its
US$200,000,000 Series C Medium Term Notes Due 2002
(ISIN No. US87923AE01, CUSIP No. 879273AE0)
US$100,000,000 Series E Medium Term Notes Due 2005 (ISIN No. XS0076226942)
Euro 250,000,000 Series 1 Medium Term Notes Due 2003 (ISIN No. XS0109260686)
Euro 190,000,000 Series 2 Medium Term Notes Due 2004 (ISIN No. XS0131485624)
Euro 200,000,000 Series I Medium Term Notes Due 2004 (ISIN No. XS0096148779)
Euro 250,000,000 Series K Medium Term Notes Due 2002 (ISIN No. XS0099123712)
Itl.400,000,000,000 Series F Medium Term Notes Due 2007 (ISIN No. XS0076689024)
Itl.400,000,000,000 Series H Medium Term Notes Due 2008 (ISIN No. XS0084707313)
(together, the "Notes")
and
Indebtedness under credit facilities with financial creditors (the "Credit
Facility Debt" and together with the Notes, the "Debt Instruments") to submit,
in a "Modified Dutch Auction", offers to sell such Debt Instruments for cash, at
a price not greater than 50% nor less than 43.5% of the outstanding principal
amount of such Debt Instruments
THE INVITATION AND THE RELATED WITHDRAWAL RIGHTS WILL EXPIRE AT 4:00 P.M., NEW
YORK CITY TIME, 5:00 P.M., BUENOS AIRES TIME, ON MAY 16, 2003 (THE "EXPIRATION
DATE"), UNLESS THE INVITATION IS EXTENDED OR EARLIER TERMINATED.
The Invitation
Telecom Argentina STET-France Telecom S.A., a sociedad anonima organized under
Argentine law ("Telecom", the "Company", "us" or "we"), hereby invites (the
"Invitation") the holders of its Debt Instruments listed above to submit one or
more offers to sell their Debt Instruments, at a price not greater than the
Maximum Purchase Price (as defined below) nor less than the Minimum Purchase
Price (as defined below) pursuant to the terms and conditions set forth herein
and in the letter of transmittal (the "Letter of Transmittal") for the tender
of Notes and the bid letter (the "Bid Letter") for the tender of the Credit
Facility Debt.
The Company will pay consideration up to an amount equal to the equivalent of
US$260 million (calculated based on the exchange rates quoted by Bloomberg L.P.
as of 5:00 p.m., New York City time, on the second Business Day (as defined
below) following the Expiration Date) in the aggregate for the Debt Instruments
(the "Maximum Offer Consideration"). If we purchase Debt Instruments at the
Minimum Purchase Price for the Maximum Offer Consideration, then we will
purchase the equivalent of US$598 million principal amount of Debt Instruments.
If we purchase Debt Instruments at the Maximum Purchase Price for the Maximum
Offer Consideration, then we will purchase the equivalent of US$520 million
principal amount of Debt Instruments. In the event that we receive tenders for
an amount of Debt Instruments with an aggregate purchase price greater than the
Maximum Offer Consideration, tenders will be prorated as described below.
Accordingly, we may accept for purchase less than all of the tendered Notes of
any particular series and less than all of the tendered Credit Facility Debt.
We are inviting each holder of Debt Instruments to submit an offer to sell its
Debt Instruments, which offer we refer to as a tender, pursuant to a "Modified
Dutch Auction", which means that the Company will select the single lowest
purchase price specified by the holders (the "Purchase Price") that will enable
the Company to purchase an aggregate amount of Debt Instruments properly
tendered and not properly withdrawn for consideration equal to the Maximum
Offer Consideration (or, if Debt Instruments are properly tendered and not
properly withdrawn for an aggregate purchase price less than the Maximum Offer
Consideration, all of such tendered Debt Instruments).
All Debt Instruments properly tendered and accepted for purchase pursuant to
the Invitation will be acquired at the same Purchase Price (expressed as a
percentage of principal amount of Debt Instruments), upon the terms and subject
to the conditions of this Invitation, including the proration terms described
herein. In the event that the aggregate purchase price for the amount of Debt
Instruments properly tendered and not properly withdrawn pursuant to the
Invitation prior to the Expiration Date at or below the Purchase Price exceeds
the Maximum Offer Consideration then, subject to the terms and conditions of
this Invitation, the Company will accept for purchase first, all such Debt
Instruments properly tendered and not properly withdrawn at prices below the
Purchase Price and, thereafter, such Debt Instruments properly tendered and not
properly withdrawn at the Purchase Price on a pro rata basis. Notes not
accepted for purchase pursuant to the terms of the Invitation will be returned
promptly following the Expiration Date.
In order to tender your Debt Instruments, you must comply with the procedures
for tendering set forth herein. Holders of Notes must complete the related
Letter of Transmittal and holders of Credit Facility Debt must complete the
related Bid Letter.
Aggregate Principal
Amount of
Currency in which Maximum Purchase Minimum Purchase Outstanding Debt in
Debt Instrument is Maximum Purchase Price as a % of Minimum Purchase Price as a % of Such Currency as of
Denominated Price Principal Price Principal December 31, 2002
----------------------- ------------------- ---------------- ------------------- ---------------- -------------------
U.S. Dollar US$500 per US$1,000 50% US$435 per US$1,000 43.5% US$930 million
principal amount principal amount
Euro (and E500 per E1,000 50% E435 per E1,000 43.5% E1,342 million
predecessor principal amount principal amount
currencies)
Japanese Yen Y500 per Y1,000 50% Y435 per Y1,000 43.5% Y14,402 million
principal amount principal amount
Argentine Peso P$500 per P$1,000 50% P$435 per P$1,000 43.5% P$65 million
principal amount principal amount
See "Risk Factors" beginning on page 16 for a discussion of certain factors
that should be considered in evaluating the Invitation.
The Invitation is not conditioned on any minimum amount of Debt Instruments
being tendered. The Invitation is, however, subject to certain conditions which
are described herein.
Any questions or requests for assistance may be directed to Morgan Stanley &
Co. Incorporated and its affiliates (the "Dealer Manager") at the address and
telephone numbers set forth on the back cover of this document. MBA Banco de
Inversiones S.A. (the "Argentine Dealer Manager") will act as dealer manager in
Argentina only. The Dealer Manager and the Argentine Dealer Manager are
sometimes hereinafter referred to as the "Dealer Managers". You may also direct
requests for additional copies of this document, the Letter of Transmittal and
the Bid Letter to Georgeson Shareholder Communications Inc. (in the United
States and Argentina) or GSC Proxitalia SpA (in Europe) (collectively, the
"Information Agents"). Beneficial owners should contact their brokers, dealers,
banks, trust companies or other nominees for assistance concerning the
Invitation. Mellon Investor Services LLC is acting as custodian for the
Invitation (the "Custodian").
Information relating to the Invitation is also available via "MCM
CorporateWatch" on Bloomberg pages MCM7877 and MCM7878 and Telerate pages 64152
and 64153.
The Dealer Managers for the Invitation are:
MORGAN STANLEY MBA BANCO DE INVERSIONES S.A.
April 16, 2003
Debt Instruments that are not properly tendered by holders and purchased by
Telecom pursuant to the Invitation will continue to represent debt obligations
of Telecom and will not be modified by the Invitation. Debt Instruments
properly tendered and accepted for payment pursuant to the Invitation will not
accrue interest after the Payment Date (as defined below) unless Telecom
defaults in the payment of the Purchase Price.
SUBJECT TO APPLICABLE SECURITIES LAWS, THE TERMS SET FORTH HEREIN, THE TERMS
AND CONDITIONS OF THE INDENTURES GOVERNING THE NOTES AND THE DOCUMENTATION
GOVERNING THE CREDIT FACILITY DEBT, TELECOM RESERVES THE RIGHT (A) TO WAIVE ANY
AND ALL CONDITIONS TO OR EXTEND THE INVITATION, OR (B) TO OTHERWISE AMEND THE
INVITATION IN ANY RESPECT. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL OR
WILL NOT EXERCISE ITS RIGHT TO EXTEND OR AMEND THE INVITATION OR WAIVE ANY OF
THE INVITATION CONDITIONS.
Note holders who are resident in Italy should not use this document as a source
of information or for instructions on how to tender Notes. A separate document
(the "Italian Invitation Document") describing the terms of the Invitation and
the appropriate procedures for Italian residents wishing to tender Notes has
been prepared in Italian. If you are a Note holder and are resident in Italy,
you should contact the broker, dealer trust company or other nominee through
which you hold Notes or GSC Proxitalia SpA to obtain a copy of the Italian
Invitation Document which, among other things, contains important tax
information and instructions regarding tendering procedures for your Notes.
Any beneficial owner of any Notes desiring to tender Notes pursuant to the
Invitation should promptly contact the broker, dealer, bank, trust company or
other nominee through which such beneficial owner holds the Notes, and instruct
such nominee to tender the Notes on such beneficial owner's behalf pursuant to
the procedures described in Annex A, Information for Tendering Holders of the
Notes, in the section entitled "Procedures for Tendering Notes". Any holder of
Credit Facility Debt desiring to tender Credit Facility Debt pursuant to the
Invitation should follow the procedures described in Annex B, Information for
Tendering Holders of the Credit Facility Debt, in the section entitled
"Procedures for Tendering Credit Facility Debt".
If you do not specify a price at which you wish to have your Debt
Instruments purchased, you will be deemed to have specified the Minimum
Purchase Price, which could result in your Debt Instruments being purchased at
the Minimum Purchase Price.
The Invitation does not constitute an invitation in any jurisdiction in which,
or to or from any person to or from whom, it is unlawful to make such
invitation under applicable securities laws. The delivery of this document
shall not under any circumstances create any implication that the information
contained herein is correct as of any time subsequent to the date hereof, or
that there has been no change in the information set forth herein or in any
attachments hereto or in the affairs of the Company or any of its affiliates
since the date hereof.
We do not make any recommendation to any holder as to whether to tender or
refrain from tendering any or all of such holder's Debt Instruments and we have
not authorized any person to make any such recommendation. Holders are urged to
evaluate carefully all information in this document, consult their own
investment and tax advisors and make their own decisions as to whether to
tender Debt Instruments, and, if so, the principal amount of Debt Instruments
to tender and the price at which to tender.
THIS DOCUMENT AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND/OR BID LETTER
CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE
WITH RESPECT TO A TENDER OF DEBT INSTRUMENTS PURSUANT TO THE INVITATION. NO
PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
IN CONNECTION WITH THE INVITATION OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED HEREIN AND IN THE LETTER OF TRANSMITTAL AND/OR BID
LETTER. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUSTEES UNDER THE
INDENTURES GOVERNING THE
1
NOTES, THE ESCROW AGENT, THE CUSTODIAN, THE DEALER MANAGERS, THE INFORMATION
AGENTS OR ANY OF THEIR RESPECTIVE AFFILIATES.
Solely for the convenience of the reader, this document contains translations
of certain amounts from various currencies to U.S. dollars using exchange rates
in effect as of December 31, 2002, unless otherwise stated. See "Currency of
Presentation".
Telecom makes no representation concerning whether the terms and conditions of
any of the documents governing the Credit Facility Debt permit the holder of
such Credit Facility Debt to participate in the Invitation. Each holder of
Credit Facility Debt wishing to participate in the Invitation should review the
governing documents relating to its Credit Facility Debt to be tendered and
consult its legal counsel and/or professional advisors concerning its
participation in the Invitation. For Credit Facility Debt outstanding under
multi-party or syndicated loan agreements, the consent of parties other than
Telecom and the tendering holder may be required. In order to tender their
Credit Facility Debt, tendering holders are required to represent that all such
required consents and/or agreements have been obtained. See Annex B,
Information for Tendering Holders of Credit Facility Debt, in the section
entitled "Procedures For Tendering Credit Facility Debt."
2
TABLE OF CONTENTS
SUMMARY ...................................................................... 4
RISK FACTORS ................................................................ 16
FORWARD LOOKING STATEMENTS .................................................. 26
INFORMATION ABOUT THE COMPANY ............................................... 28
CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET DATA ........................ 35
THE INVITATION............................................................... 36
CURRENCY OF PRESENTATION..................................................... 46
WHERE YOU CAN FIND MORE INFORMATION.......................................... 46
ANNEX A-INFORMATION FOR TENDERING HOLDERS OF THE NOTES ......................A-1
PROCEDURES FOR TENDERING NOTES ..............................................A-1
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS..............................A-6
MATERIAL ARGENTINE TAX CONSIDERATIONS........................................A-8
ANNEX B-INFORMATION FOR TENDERING HOLDERS OF THE CREDIT FACILITY
DEBT ........................................................................B-1
PROCEDURES FOR TENDERING CREDIT FACILITY DEBT ...............................B-1
3
SUMMARY
This summary highlights selected information relevant to the Invitation and may
not contain all of the information that is important to you. To understand the
Invitation fully and for a more complete description of the terms of the
Invitation, you should read carefully this entire document and the documents we
have referred to in this document.
Telecom Argentina STET-France Telecom S.A.
Telecom Argentina STET-France Telecom S.A., a sociedad anonima organized under
Argentine law, with headquarters located at Alicia Moreau de Justo 50
(C1107AAB) Buenos Aires, Argentina, provides public telecommunications services
in Argentina, in particular fixed-line local, national and international long
distance services, as well as data transmission and access to Internet service,
and through our subsidiaries, we provide mobile telecommunications services and
publish telephone directories.
As a consequence of a number of developments, including the deterioration of
the economic environment in Argentina, the devaluation and volatility of the
Argentine peso (the "peso", or "P$"), the conversion into pesos of our rates at
the ratio of P$1.00 = US$1.00 and uncertainties surrounding the adjustment of
our regulated rates, in the first half of 2002 we announced the suspension of
payments of principal and interest on our financial debt obligations.
We are making the Invitation in order to reduce the principal amount of our
outstanding indebtedness and our ongoing debt service obligations, and to
provide holders of the Debt Instruments the opportunity to reduce their
holdings of the Debt Instruments in exchange for cash. We intend to cancel any
Notes and any portions of Credit Facility Debt that we accept for payment.
Except as described under "The Invitation-Accrued Interest", all accrued but
unpaid interest, as well as any other amounts outstanding relating to the Debt
Instruments that we accept for payment, will also be cancelled.
The Debt Instruments constitute all of our unconsolidated financial
indebtedness, which as of December 31, 2002 included:
o approximately US$1,595 million aggregate outstanding principal amount of
Notes;
o approximately US$886 million aggregate outstanding principal amount of
Credit Facility Debt owed to financial institutions relating to working
capital loans, debt issuances and trade financings; and
o approximately US$147 million aggregate accrued but unpaid interest on the
Notes and Credit Facility Debt.
The Debt Instruments are denominated in various currencies. As of December 31,
2002, the principal amount of our outstanding financial indebtedness, by
currency of denomination, was as follows: approximately US$930 million, E1,342
million, (yen)14,402 million and P$65 million. Throughout this document, these
amounts have been translated into U.S. dollars at the rates specified in
"Currency of Presentation" solely for the convenience of the reader, using
exchange rates in effect as of December 31, 2002.
If we purchase Debt Instruments at the Minimum Purchase Price for the Maximum
Offer Consideration our aggregate outstanding principal on the Notes and Credit
Facility Debt would be reduced by the equivalent of US$598 million, or 24.1%,
from the amount outstanding at December 31, 2002.
4
If we purchase Debt Instruments at the Maximum Purchase Price for the Maximum
Offer Consideration our aggregate outstanding principal on the Notes and Credit
Facility Debt would be reduced by the equivalent of US$520 million, or 21.0%,
from the amount outstanding at December 31, 2002.
In addition to the financial indebtedness described above, we also have
commercial debt obligations, which include trade payables and operating lease
obligations ("Commercial Debt Obligations"). Generally, we have been paying our
Commercial Debt Obligations as they become due and intend to remain current in
these obligations. We are not extending the Invitation to holders of our
Commercial Debt Obligations.
We are currently working with our financial advisors to develop a comprehensive
plan to restructure any outstanding financial indebtedness that is not accepted
for purchase pursuant to the Invitation and have recently furnished a proposed
plan to restructure all of our outstanding financial indebtedness to an ad hoc
committee formed by certain of our creditors for its consideration. See
"Information About the Company".
On the Expiration Date (as defined below) we intend to make partial interest
payments to all holders of Debt Instruments (regardless of whether they
participate in the Invitation) as set forth herein under "The
Invitation-Accrued Interest".
Concurrently with the Invitation, our subsidiary Telecom Personal (of which we
own 99.99%) is inviting holders of its financial indebtedness to submit offers
to sell such financial indebtedness to Telecom Personal pursuant to a "Modified
Dutch Auction" tender offer procedure. Telecom Personal intends to pay as
consideration up to an amount equal to US$45 million for such financial
indebtedness. On the date on which Telecom Personal's tender offer expires,
Telecom Personal intends to make a partial interest payment to all holders of
its financial indebtedness (regardless of whether they participate in Telecom
Personal's proposed tender offer). As of December 31, 2002, Telecom Personal
had approximately US$621 million unconsolidated aggregate principal amount of
outstanding financial indebtedness (US$19 million of this debt represents a
loan to Telecom Personal from Telecom) and had also guaranteed approximately
US$43 million of financial indebtedness of Nucleo S.A., its Paraguayan
subsidiary.
The Invitation
The Invitation .................. We are inviting holders of our Debt
Instruments to submit offers to sell (which
offers we refer to as tenders) for cash:
A) The following notes issued by Telecom (the
"Notes"):
----------------------------------------------
US$200,000,000 Series C| ISIN No. US87923AE01,
Medium Term Notes | CUSIP No. 879273AE0
Due 2002 |
----------------------------------------------
US$100,000,000 Series E| ISIN No. XS0076226942
Medium Term Notes |
Due 2005 |
----------------------------------------------
Euro 250,000,000 | ISIN No. XS0109260686
Series 1 Medium Term |
Notes Due 2003 |
----------------------------------------------
5
----------------------------------------------
Euro 190,000,000 | ISIN No. XS0131485624
Series 2 Medium Term |
Notes Due 2004 |
----------------------------------------------
Euro 200,000,000 | ISIN No. XS0096148779
Series I Medium Term |
Notes Due 2004 |
----------------------------------------------
Euro 250,000,000 | ISIN No. XS0099123712
Series K Medium Term |
Notes Due 2002 |
----------------------------------------------
Itl. 400,000,000,000 | ISIN No. XS0076689024
Series F Medium Term |
Notes Due 2007 |
----------------------------------------------
Itl. 400,000,000,000 | ISIN No. XS0084707313
Series H Medium Term |
Notes Due 2008 |
----------------------------------------------
The aggregate principal amount of the
outstanding Notes at December 31, 2002 was
approximately US$1,595 million (not including
accrued but unpaid interest or any other
amounts outstanding relating to the Notes).
We will pay consideration up to the Maximum
Offer Consideration for the Debt Instruments.
This means that if we receive tenders for an
amount of Debt Instruments with an aggregate
purchase price greater than the Maximum Offer
Consideration, tenders will be prorated as
described below.
B) Telecom's credit facilities with financial
creditors:
In addition to the holders of the Notes, the
Invitation is being extended to financial
creditors under our existing credit
facilities. Our indebtedness under these
facilities aggregated approximately US$886
million in principal amount (the "Credit
Facility Debt") at December 31, 2002 (not
including accrued but unpaid interest or any
other amounts outstanding relating to the
Credit Facility Debt). Participation by the
holders of the Credit Facility Debt will be
on the same economic terms as participation
by the holders of the Notes but will be
subject to terms and conditions particular to
the relevant Credit Facility Debt as set
forth herein and in the Bid Letters.
In the event that we receive tenders for an
amount of Debt Instruments with an aggregate
purchase price greater than the Maximum Offer
Consideration, tenders will be prorated as
described below.
6
The Invitation is not being extended to
holders of our Commercial Debt Obligations.
Price Range.................... The Minimum Purchase Price and Maximum
Purchase Price for the Debt Instruments for
each currency in which our Debt Instruments
are denominated is as follows:
Aggregate Principal
Amount of
Currency in which Maximum Purchase Minimum Purchase Outstanding Debt in
Debt Instrument is Maximum Purchase Price as a % of Minimum Purchase Price as a % of Such Currency as of
Denominated Price Principal Price Principal December 31, 2002
----------------------- ------------------- ---------------- ------------------- ---------------- -------------------
U.S. Dollar US$500 per US$1,000 50% US$435 per US$1,000 43.5% US$930 million
principal amount principal amount
Euro (and E500 per E1,000 50% E435 per E1,000 43.5% E1,342 million
predecessor principal amount principal amount
currencies)
Japanese Yen Y500 per Y1,000 50% Y435 per Y1,000 43.5% Y14,402 million
principal amount principal amount
Argentine Peso P$500 per P$1,000 50% P$435 per P$1,000 43.5% P$65 million
principal amount principal amount
If we purchase the Debt Instruments at the
Minimum Purchase Price for the Maximum Offer
Consideration, we will purchase the
equivalent of US$598 million principal amount
of Debt Instruments. If we purchase the Debt
Instruments at the Maximum Purchase Price for
the Maximum Offer Consideration, we will
purchase the equivalent of US$520 million
principal amount of Debt Instruments.
Procedures for Specifying
the Price .................... In accordance with the instructions in the
Letter of Transmittal or Bid Letter, holders
desiring to tender their Debt Instruments
pursuant to the Invitation may either:
o specify in the applicable section the
price (in multiples of 2.50 (0.25%) per
1,000 (in the applicable currency)
principal amount) at which such Debt
Instrument is being tendered, which price
must not be less than the Minimum Purchase
Price nor greater than the Maximum
Purchase Price; or
o not specify a price, in which case the
holder will be deemed to have specified
the Minimum Purchase Price in respect of
the Debt Instrument being tendered.
"Modified Dutch Auction"
Procedure and Purchase
Price........................ Under the "Modified Dutch Auction" procedure:
o We will accept Debt Instruments properly
tendered (and not properly withdrawn)
pursuant to the Invitation in the order of
the lowest to highest tender prices
specified or deemed to have been specified
by tendering holders
7
within the purchase price range and will
select a clearing price (the "Purchase
Price"), which will be the single lowest
price so specified by the holders that
will not be greater than the Maximum
Purchase Price and not less than the
Minimum Purchase Price, that will enable
us to purchase an aggregate principal
amount of Debt Instruments properly
tendered and not properly withdrawn for
consideration equal to the Maximum Offer
Consideration (or, if Debt Instruments are
properly tendered and not properly
withdrawn for an aggregate purchase price
less than the Maximum Offer Consideration,
all of such Debt Instruments).
o We will pay the same Purchase Price
(expressed as a percentage of principal
amount of Debt Instruments) for all Debt
Instruments properly tendered and accepted
by us pursuant to the Invitation. The
Purchase Price, expressed as a percentage
of principal amount of Debt Instruments,
will be the same for both Notes and Credit
Facility Debt.
If you wish to maximize the chance that your
Debt Instruments will be purchased, you
should either (i) check the box in the Letter
of Transmittal (for holders of Notes) or in
the Bid Letter (for holders of Credit
Facility Debt) indicating that you will
accept the Minimum Purchase Price, or (ii)
not specify a price, in which case you will
be deemed to have specified the Minimum
Purchase Price in respect of the Debt
Instruments being tendered. You should
understand that this election or lack of
election could result in your Debt
Instruments being purchased at the Minimum
Purchase Price.
Proration ...................... In the event that the aggregate purchase
price for the amount of Debt Instruments
properly tendered (and not properly
withdrawn) pursuant to the Invitation prior
to the Expiration Date at or below the
Purchase Price exceeds the Maximum Offer
Consideration then, subject to the terms and
conditions of the Invitation, we will accept
Debt Instruments for purchase and payment as
follows:
First, we will accept for purchase and
payment all Debt Instruments properly
tendered (and not properly withdrawn) at
prices below the Purchase Price.
Next, we will accept for purchase and payment
Debt Instruments that are properly tendered
(and not properly withdrawn) at the Purchase
Price on a pro rata basis.
8
In order to ensure that tendered Debt
Instruments denominated in different
currencies are prorated on an equal basis,
before calculating the amount of Debt
Instruments to be prorated, the Custodian
will convert Debt Instruments tendered in
currencies other than U.S. dollars into U.S.
dollars at the applicable exchange rates
quoted by Bloomberg L.P. as of 5:00 p.m., New
York City time, on the second business day in
Buenos Aires and New York City (such day a
"Business Day") following the Expiration
Date. These exchange rates will also be used
by the Custodian to determine the aggregate
amount of Debt Instruments to be accepted for
purchase after proration, which amount will
be converted from U.S. dollars back to their
original currency of denomination.
In all cases, we will make appropriate
adjustments to avoid purchases of Notes in
principal amounts not representing integral
multiples of the Notes' original
denominations. Any tendered Notes not
purchased due to proration will be promptly
returned to the holder thereof.
As a result of proration, we may accept for
purchase less than all of the tendered Notes
of any particular series.
Expiration Date ................ 4:00 p.m., New York City time, 5:00 p.m.,
Buenos Aires time, on May 16, 2003, unless
the Invitation is extended or earlier
terminated.
Payment Date .................. The payment date (the "Payment Date") for the
Invitation will be a Business Day promptly
after the Expiration Date.
Source of Funds ................ The source of funds required for us to
consummate the Invitation will be available
cash. The maximum amount of funds available
to purchase the Debt Instruments pursuant to
the Invitation is the equivalent of
approximately US$260 million (calculated
based on the exchange rates quoted by
Bloomberg L.P. as of 5:00 p.m., New York City
time, on the second Business Day following
the Expiration Date). The Company has
obtained the necessary approvals from the
Banco Central of the Republic of Argentina
(the "Central Bank") to purchase and apply
the relevant currencies in an amount equal to
the Maximum Offer Consideration. Funds in an
amount equal to the Maximum Offer
Consideration have been transferred in trust
to the Escrow Agent (as defined below), who
will hold such funds to guarantee any
payments to be made pursuant to the
Invitation.
Conditions to the Invitation ... Our obligation to accept for purchase, and to
pay for, Debt Instruments properly tendered
(and not properly withdrawn)
9
pursuant to the Invitation is subject to a
number of conditions which we may, in our
sole discretion, waive. See "The
Invitation-Conditions to the Invitation".
These conditions include, among other things:
o Following the commencement of the
Invitation, there shall not have been any
action, suit or proceeding threatened
(which threat is documented) or pending
that might adversely affect the
Invitation.
o Following the commencement of the
Invitation, we shall not have determined
that the acceptance for payment of, or
payment for, some or all of the Debt
Instruments would violate any law or
regulation or be illegal or constitute a
breach of the terms and conditions of the
relevant Debt Instrument, or be in
conflict with any order, statute, law,
rule, regulation, executive order, decree,
or judgment of any court, agency,
governmental or administrative authority
having jurisdiction over us or the
Invitation.
o The approval of the Central Bank for the
conversion of pesos to other currencies
and for the payment of the Purchase Price
outside of Argentina shall remain valid
and effective until the payment is made.
o Should, following the commencement of the
Invitation, a new approval be required in
order to conduct or consummate the
transactions contemplated in the
Invitation, or for the conversion of pesos
to other currencies or for the payment of
the Purchase Price outside of Argentina,
such approval shall be obtained and shall
remain valid and effective until the
payment is made.
o Following the commencement of the
Invitation, there shall not have occurred,
at a domestic or international level, any
circumstance or event which could cause a
material adverse change in our financial
or economic condition, or that of our
group, in comparison with our financial
condition as of December 31, 2002.
o Following the commencement of the
Invitation, there shall not have occurred
any material adverse change in our
business, financial conditions in
Argentina, Italy or the United States or
in the financial markets in Argentina,
Italy or the United States (or in any
other international financial market).
o Following the commencement of the
Invitation, there shall not have occurred
any commencement of a new
10
outbreak of war or armed hostilities, a
material escalation of war or armed
hostilities (in Iraq or otherwise), or
other national or international crisis
directly or indirectly relating to
Argentina, Italy or the United States.
Termination, Waivers,
Extensions, Amendments ......... Subject to applicable securities laws and the
terms and conditions set forth in the
Invitation, we expressly reserve the right
(but will not be obligated), to (i) terminate
the Invitation if any of the conditions to
the Invitation are not met, (ii) waive any of
the conditions to the Invitation, (iii)
extend the Invitation, (iv) amend the terms
of the Invitation or (v) modify the
consideration offered in the Invitation.
Procedures for Tendering Notes... If you desire to tender Notes pursuant to the
Invitation you should do the following:
o if you are a direct participant in DTC,
tender your notes through DTC, which will
verify the tenders and execute a
book-entry delivery of the tendered Notes
to the Custodian's account at DTC through
the Automated Tender Offer Program, known
as "ATOP", maintained by DTC, by which you
and the beneficial owner on whose behalf
you are acting agree to be bound by the
Letter of Transmittal (although a Letter
of Transmittal need not accompany tenders
effected through ATOP) and DTC will then
send an agent's message to the Custodian
for its acceptance; or
o if you are a direct participant in
Euroclear or Clearstream, Luxembourg,
either:
- comply with the procedures established by
Euroclear or Clearstream, Luxembourg, as
applicable, or
- arrange for your Notes to be held through
a DTC participant and comply with the
procedures specified above for direct
participants in DTC; or
o if you are a beneficial owner of Notes
that are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee, instruct such
broker, dealer, commercial bank, trust
company or other nominee to tender your
Notes pursuant to the procedures of such
custodial entity; or
o if you do not hold your Notes through an
account with DTC, Euroclear or
Clearstream, Luxembourg, or a broker,
dealer, commercial bank, trust company or
other
11
nominee, contact the Information Agents or
Dealer Managers for assistance in
submitting your tender.
We believe that Euroclear and Clearstream,
Luxembourg will (a) collect from their direct
participants instructions to participate in
the Invitation (with respect to Notes held by
them on behalf of their direct participants)
and (b) forward those instructions to their
respective custodian banks at DTC, who, in
turn, will process these instructions in
accordance with the procedures for direct
participants in DTC. Euroclear and
Clearstream, Luxembourg may impose additional
deadlines in order to properly process these
instructions. If you hold Notes directly or
indirectly through Euroclear or Clearstream,
Luxembourg, you are required to become aware
of any such deadlines.
See Annex A, Information for Tendering
Holders of the Notes, in the section entitled
"Procedures for Tendering Notes".
Procedures for Tendering Credit
Facility Debt................. If you desire to tender Credit Facility Debt
pursuant to the Invitation you should
complete the Bid Letter and deliver it to the
Custodian prior to the Expiration Date.
The agreements and/or instruments governing
the Credit Facility Debt, which we refer to
as the governing documents, may restrict or
prohibit the transactions contemplated by the
Invitation. In the case of Credit Facility
Debt outstanding under agreements that may be
amended solely by the consent of the
tendering holder and us, to the extent that
we accept the tender of Credit Facility Debt,
upon such acceptance, the governing documents
for such Credit Facility Debt will be deemed
to be immediately and automatically amended
to permit the transactions contemplated by
the Invitation.
In the case of Credit Facility Debt
outstanding under multiparty or syndicated
credit agreements, the consent of parties
other than the tendering holder and us may be
required in order to permit the transactions
contemplated by the Invitation. Holders of
Credit Facility Debt outstanding under
multi-party or syndicated credit agreements
should consult their own legal counsel and
contact the relevant agent bank, if any, with
respect to the relevant provisions of the
governing documents relating to its Credit
Facility Debt. Telecom has provided the agent
bank for each of its syndicated credit
agreements with a form of amendment which may
be executed by the required parties to such
Credit Facility Debt in
12
order to permit the transactions contemplated
by the Invitation.
See Annex B, Information for Tendering
Holders of the Credit Facility Debt, in the
section entitled "Procedures for Tendering
Credit Facility Debt".
Withdrawal of Tenders .......... Tenders of Debt Instruments may be withdrawn
at any time prior to the Expiration Date.
Debt Instruments Not Accepted
For Purchase.................... Debt Instruments that are not purchased
pursuant to the Invitation will remain
outstanding.
As a result of any purchase of Notes in
connection with the Invitation, the aggregate
principal amount of the Notes outstanding, as
well as the number of holders of the Notes,
will be reduced. This may adversely affect
the liquidity of, and the market price for,
the Notes that remain outstanding after the
consummation of the transactions contemplated
by the Invitation.
Acceptance of Tendered Debt
Instruments and Payment ........ Upon the terms of and subject to the
satisfaction or the waiver of the conditions
to the Invitation (including, if the
Invitation is extended or amended, the terms
and conditions of any such extension or
amendment) and applicable law, we will accept
for purchase, and thereby become obligated to
pay the Purchase Price in respect of, all
Debt Instruments properly tendered (and not
properly withdrawn) pursuant to the
Invitation at or below the Purchase Price
prior to the Expiration Date, subject to
proration. Only eligible holders of Debt
Instruments whose Debt Instruments are
accepted for purchase will receive the
Purchase Price. Payment of the Purchase Price
for Debt Instruments accepted for purchase
will be made by the Custodian with funds
provided by the Escrow Agent (as defined
below).
Cancellation of Debt Instruments
Accepted For Purchase .......... To the extent that we accept tendered Debt
Instruments for purchase, on the Payment Date
we will cancel all Notes and portions of
Credit Facility Debt purchased by us pursuant
to the Invitation. Upon the cancellation of
the purchased Notes and Credit Facility Debt,
such Notes and portions of Credit Facility
Debt shall cease to be outstanding and our
obligations to pay principal and any accrued
but unpaid interest, as well as any other
outstanding amounts with respect to such Debt
Instruments, shall terminate.
13
Accrued Interest ............... On the Expiration Date we intend to pay to
all holders of Debt Instruments (regardless
of whether they tender Debt Instruments
pursuant to the Invitation):
o all accrued but unpaid interest on all of
our outstanding Debt Instruments, to and
including June 24, 2002 (without giving
effect to any penalties or post-default
increases); and
o 30% of all accrued but unpaid interest
(without giving effect to any penalties or
post-default increases) on the outstanding
principal of all of our outstanding Debt
Instruments for the period beginning on
June 25, 2002 and ending on December 31,
2002
provided, that we reserve the right not to
make this interest payment if the Invitation
is terminated prior to the Expiration Date.
This accrued interest payment will be made to
all holders of Debt Instruments of record as
of April 30, 2003.
We do not intend to pay interest on our
existing Debt Instruments for any period
after December 31, 2002.
The accrued interest will not be included
when we apply the "Modified Dutch Auction"
procedure to determine the aggregate
principal amount of Debt Instruments that we
purchase. Under no circumstances will any
additional interest be payable because of any
delay in the transmission of funds to the
holders of purchased Debt Instruments or
otherwise.
Tax Matters .................... For a discussion of certain tax matters
relevant to holders of Notes, see Annex A,
Information for Tendering Holders of the
Notes, in the sections entitled "Material
U.S. Federal Income Tax Considerations" and
"Material Argentine Tax Considerations".
Tendering holders should be aware that U.S.
tax rules may require them to recognize
ordinary income with respect to interest and
at the same time recognize capital loss,
which cannot be used to offset that interest
income. Holders are urged to consult their
tax advisors regarding the U.S. federal
income tax consequences of the tender.
Dealer Managers ................ Morgan Stanley & Co. Incorporated and its
affiliates. MBA Banco de Inversiones S.A.
will act as dealer manager in Argentina only.
Information Agents ............. Georgeson Shareholder Communications Inc. (in
the United State and Argentina) or GSC
Proxitalia SpA (in Europe).
14
Custodian ...................... Mellon Investor Services LLC
Escrow Agent ................... Deutsche Bank, S.A.
Processing Fee ................. A fee (the "Processing Fee") will be paid to
certain banks and financial institutions for
processing tenders of Notes accepted for
purchase where the aggregate principal amount
of Notes tendered by the Note holder is less
than or equal to the equivalent of US$100,000
in the relevant currency (calculated based on
the exchange rates quoted by Bloomberg L.P.
as of 5:00 p.m., New York City time, on the
second Business Day following the Expiration
Date). The Processing Fee in respect of Notes
accepted for purchase will be paid to the
bank or financial institution (each, a
"Processor"), if any, designated by the
beneficial owner of such Notes and will be
equal to 0.25% of the aggregate principal
amount of the Notes in respect of which such
designation is made. Notwithstanding the
above, the Processing Fee shall not exceed
the equivalent of US$250,000 (in the relevant
currency) for any bank or financial
institution and its affiliates, for
processing tenders of Notes. No Processing
Fee will be available to banks or financial
institutions for tendering or assisting in
tenders of Credit Facility Debt.
No Processing Fee will be paid with respect
to Notes that are not accepted for purchase
by us.
Beneficial owners will be able to designate
Processors in the accompanying Letter of
Transmittal. In order for any Processor to
receive the Processing Fee, the Processing
Fee Form contained in the Letter of
Transmittal must be completed and sent to the
Custodian at the address set forth on the
back cover of the Letter of Transmittal prior
to the Expiration Date even if such
beneficial owner's Notes are tendered through
DTC's ATOP procedures.
15
RISK FACTORS
RISK FACTORS RELATING TO PARTICIPATING IN THE INVITATION
The purchase of the Debt Instruments contemplated by the Invitation may be
delayed or may not occur and tendered Debt Instruments may not be
transferred
We are not obligated to accept the Debt Instruments tendered pursuant to
the Invitation unless and until all conditions to the Invitation, including,
without limitation, the requirement that we obtain all necessary government
consents and approvals, and the absence of litigation, are satisfied. See "The
Invitation- Conditions to the Invitation". While we intend to seek all required
government consents and approvals prior to the Expiration Date, additional
approvals or other action may be required.
We cannot predict whether we will be required to delay the acceptance for
purchase or the payment for the Debt Instruments tendered pursuant to the
Invitation pending the outcome of such matters, and there can be no assurance
that all approvals and other actions, if needed, will be obtained or taken.
Accordingly, the holders that tender their Debt Instruments pursuant to
the Invitation may have to wait longer than expected to receive their cash or
to learn whether their Debt Instruments will or will not be accepted pursuant
to the Invitation, during which time those holders of Debt Instruments will not
be able to effect transfers of such Debt Instruments without properly
withdrawing their tenders first.
We may restructure our Debt Instruments on economic terms that are more or
less favorable to holders than the terms of the Invitation
We are working to achieve a consensual restructuring of our financial
indebtedness. We have furnished a proposed plan to restructure all of our
outstanding financial indebtedness to an ad hoc committee formed by certain of
our creditors (the "Committee") for its consideration (the "Proposal"). See
"Information About the Company". However, we cannot assure you that any of the
alternatives contemplated in the Proposal will be implemented as proposed, or
at all. We reserve the right to amend the Proposal, discontinue any
negotiations regarding the Proposal or to take further or different actions to
achieve our restructuring goals. The restructuring alternatives in the
Proposal, as well as any other actions aimed to restructure our indebtedness,
are subject to numerous risks and uncertainties, including but not limited to
uncertainties relating to the results of the transactions contemplated by the
Invitation, our business and financial position, the economic and political
conditions in Argentina, inflation and exchange rate risks, regulatory
approvals, our ability to amend or modify our regulated rates and the outcome
of our negotiations with the Committee and/or other creditors.
In addition, our subsidiary, Telecom Personal (of which we own 99.99%),
has developed a comprehensive restructuring proposal for its financial
indebtedness that is not tendered pursuant to a separate invitation conducted
by Telecom Personal ("Telecom Personal's Proposal"). See "Information About the
Company-Telecom Personal's Proposed Restructuring Plan". Telecom Personal's
Proposal is subject to uncertainties similar to those affecting our Proposal,
except that Telecom Personal faces the additional risk that certain of its
licenses and permits may be revoked if Telecom Personal files for a
reorganization proceeding ("concurso preventivo"). The completion of the
restructuring transactions contemplated by the Proposal is conditioned upon the
completion of the transactions contemplated by Telecom Personal's Proposal and
vice versa.
Whether or not we reach a successful restructuring of our financial
indebtedness through the Proposal, in the future we may refinance our
outstanding Debt Instruments, in negotiated transactions or otherwise, on
economic terms that are more or less favorable to holders of our Debt
Instruments than the terms of the Invitation.
We may have to terminate or delay the Invitation and/or the Proposal if
any of our creditors seeks to attach our assets or requests our bankruptcy
Although our goal is to achieve a consensual restructuring, we cannot
assure you that we will be successful in refinancing our outstanding financial
indebtedness after completion of the Invitation. It is
16
possible that one or more of our creditors may seek to attach our assets prior
to the time that we complete the transactions contemplated in the Invitation
and/or the proposed restructuring. In addition, if a claim is filed requesting
our bankruptcy ("quiebra") by one or more of our creditors, we may seek the
assistance of the Argentine courts by filing for concurso preventivo or we may
seek a prepackaged agreement ("acuerdo preventivo extrajudicial") with our
creditors.
We have been advised by our Argentine counsel that if we are forced into
quiebra by one or more of our creditors, holders of our financial indebtedness,
including holders of Debt Instruments, should expect the following:
o A court-appointed trustee will manage our business under the
supervision of the Argentine court which will be subject to input
from, but will not be bound by, the opinion of a committee of our
creditors. In this respect, if the court considers that the
interruption of the provision of an essential public service may
cause severe damage to the creditors and the banks, the court may
authorize the Company to continue providing such public service.
o All of our obligations will become due and payable immediately.
o Existing judicial claims from creditors, including trade creditors,
will be considered by an Argentine court and the proceedings relating
to such claims will be stayed. Holders of our Debt Instruments
therefore may not be able to control the process, and their interests
shall be treated in accordance with Argentine bankruptcy law, taking
into account the interests of all creditors as a whole.
o Holders of our Debt Instruments will lose any rights of set-off
against us that they had prior to the quiebra.
o Holders of our Debt Instruments might have to wait for an extended
period of time before the quiebra proceedings are completed, and
during such period we could lose significant value.
o Under the Argentine court's supervision, the trustee will identify
all of our assets and liabilities, liquidate our assets and
distribute the proceeds from such liquidation among all our creditors
in the preferential order set forth under Argentine bankruptcy law.
o Foreign currency-denominated claims will be mandatorily converted
into pesos at the exchange rate of the date on which the quiebra is
declared or at maturity, if maturity occurred before the quiebra was
declared.
o Interest on our debts, including on the Debt Instruments, will cease
to accrue.
o If we are forced into quiebra, the Argentine government will revoke
our license to provide telecommunications services, including
fixed-line telephony services.
o If our license to provide fixed-line telephony services is revoked,
our controlling shareholder may be forced to transfer the shares and
capital contributions in trust to the relevant regulatory entity, who
will sell such shares and capital contributions in an auction. If
this occurs, the proceeds of the sale minus fees, expenses, taxes
and/or penalties will be delivered to the controlling shareholder.
Once the shares and the capital contributions have been awarded to a
new entity in the auction, a new license will be issued. During such
period of time the regulatory entity may appoint one or more
operators to temporarily provide the services formerly provided by
us. Any such operator will be paid out of the proceeds of the sale of
the shares.
We have been advised by our Argentine counsel that in order to reorganize
our financial indebtedness under a concurso preventivo, we would need to obtain
the approval of the majority of our unsecured creditors representing two-thirds
of our liabilities filed in the concurso preventivo proceedings and admitted by
the Argentine court. During the period of the concurso preventivo, the holders
of our financial indebtedness, including holders of Debt Instruments, should
expect the following:
o With the exception of a limited number of transactions that would
require court approval (which approval will be subject to input from,
but will not be bound by, the opinion of a committee of our
17
creditors), we would continue to be in charge of the management of
our business while under the supervision of a trustee.
o All of our obligations will become due and payable immediately.
o Existing judicial claims from creditors, including trade creditors,
will be considered by an Argentine court and the proceedings relating
to such claims will be stayed. Holders of our Debt Instruments
therefore may be unable to control the process, and their interests
may be given less weight by the Argentine court when considered in
comparison with the interests of all creditors as a whole.
o The claims of holders of our Debt Instruments will be restructured on
terms that cannot be predicted at this time, but they could be more
or less favorable than the terms being offered pursuant to the
Invitation.
o For purposes of calculating the required majority, restructured
claims will be denominated in pesos to calculate outstanding debt and
determine the relative position of each creditor at the exchange rate
as of the date of the bankruptcy trustee's filing of its report
discussing each proof of claim.
o Holders of our Debt Instruments may have to wait for an extended
period of time before the concurso preventivo proceedings are
completed, and during such period we could lose significant value.
o Interest on our debts, including on the Debt Instruments, will cease
to accrue.
o Our assets would be protected against claims by our creditors,
including but not limited to attempts to attach or liquidate our
assets.
o No payments of principal or interest can be made by us to our
creditors.
o Holders of our Debt Instruments will lose any rights of set-off
against us that they had prior to the concurso preventivo.
o If the concurso preventivo fails, holders of our Debt Instruments
will be left with a claim in a quiebra.
We have been advised by our Argentine counsel that we may also reorganize
our financial indebtedness pursuant to an acuerdo preventivo extrajudicial if
we are able to obtain the approval of the majority of our creditors
representing two-thirds of the total liabilities of the Company and a court
endorsement. Such an agreement would have a binding effect on all of our
creditors, including those that reject or do not execute such agreement. Any
monetary claims against us would be suspended by the Argentine courts at the
time such agreement is filed for endorsement.
If any of our creditors attaches our assets or forces us into quiebra, or
if we have to seek court protection through a concurso preventivo or an acuerdo
preventivo extrajudicial prior to completion of the Invitation or the
implementation of the Proposal, we may be required to terminate or delay the
Invitation and/or the Proposal, as the case may be.
Bankruptcy laws may limit the ability of the tendering holders to retain
the payment received for the Debt Instruments
The cash payments made to the tendering holders of Debt Instruments
contemplated in the Invitation could be declared ineffective if we are forced
into quiebra. Depending on the date when we became insolvent, an Argentine
court may determine that certain payments constitute an unlawful preference.
Payments made within a period of up to two years prior to a bankruptcy judgment
(the "Suspect Period") may be subject to being declared ineffective, thereby
causing any such payments to be transferred back to the Argentine court.
Although our Argentine counsel believes that the cash payments made to
holders of Debt Instruments pursuant to the Invitation would not be declared
ineffective according to Argentine bankruptcy law, we cannot assure you that if
we are forced into quiebra, the cash payments made pursuant to the Invitation
will not be declared ineffective by an Argentine court analyzing our dealings
during the Suspect Period.
18
We may purchase any remaining Debt Instruments not tendered pursuant to
the Invitation on terms that may be more or less favorable to holders of
our Debt Instruments than the terms of the Invitation
In the future we may refinance all of our outstanding financial
indebtedness, in negotiated transactions or otherwise, on economic terms that
are more or less favorable to holders of our Debt Instruments than the terms of
the Invitation. Specifically, holders of our financial indebtedness may be
invited to submit offers to sell their financial indebtedness for cash, or we
may purchase financial indebtedness in the open market, in each case, at prices
that may be in excess of the Maximum Purchase Price or below the Minimum
Purchase Price. In addition, we may pay principal and interest on all of our
financial indebtedness. We may also launch an exchange offer for bonds or other
financial indebtedness. Any such measures may have a positive impact on the
value of the Debt Instruments. Our decision to take any such action will depend
in each case on various factors, including but not limited to applicable
interest rates, the amount of financial indebtedness purchased by the Company
in any prior transaction and the economic, business, political, environmental
or other conditions in Argentina, Italy, the United States or elsewhere.
RISK FACTORS RELATING TO YOUR INVESTMENT IN TELECOM
If your Debt Instruments are not properly tendered pursuant to the
Invitation and accepted for purchase by us, you will continue to bear the risks
associated with an investment in Telecom, an Argentine company. In addition to
the risk factors discussed below, please see "Item 3-Key Information-'Risk
Factors'" in our Annual Report on Form 20-F for the fiscal year ended December
31, 2001, for a discussion of the risks associated with Argentine companies and
with Telecom in particular.
Risk Factors Relating to the Current Economic Crisis in Argentina and its
Effects on Telecom
Overview
Substantially all of our property, operations and customers are located in
Argentina and most of our indebtedness is denominated in U.S. dollars and
Euros. Accordingly, our financial condition and results of operations depend to
a significant extent on economic and political conditions prevailing in
Argentina and on rates of exchange between the peso and such other currencies.
As detailed below, the Argentine economy has experienced a severe recession as
well as a political crisis, and the abandonment of U.S. dollar-peso parity has
led to significant devaluation of the peso against major international
currencies. These conditions have and will continue to adversely affect our
financial position and results of operations and may continue to impair our
ability to make payments of principal and/or interest on our outstanding
indebtedness.
Recent political and economic instability in Argentina have paralyzed
commercial and financial activities
Since the second half of 1998, the Argentine economy has been in a
recession that has caused real gross domestic product to decrease by 3.9% in
1999, by 0.8% in 2000 and by 4.4% in 2001.
In 2001, Argentina experienced increased capital flight, decreased
economic activity and continuing political infighting. As the recession caused
tax revenue to drop, the public sector relied increasingly on financing from
local, and to a lesser extent foreign, banks, effectively foreclosing private
sector companies from bank financing. Consequently, the creditworthiness of the
public sector began to deteriorate while interest rates increased to record
highs.
Severe political and economic uncertainty and speculation about the
eventual abandonment of the convertibility law, which fixed the exchange rate
at one peso per U.S. dollar (the "Convertibility Law"), following the expected
default by the Argentine government, generated numerous deposit withdrawals in
the banking sector. On December 3, 2001, the Argentine government effectively
froze bank deposits and introduced exchange controls restricting capital
outflows. The measures were designed to preserve the banking sector from
collapse, because under the Convertibility Law, the Central Bank's ability to
issue pesos in order to provide liquidity was restricted. Although the deposit
freeze was announced as a temporary measure, it was perceived as a further
paralysis of the economy and it worsened the political, social and economic
crises.
19
After his appointment on January 1, 2002, President Duhalde and the
Argentine government undertook a number of far-reaching initiatives, including:
o amending the Convertibility Law, with the resulting devaluation of
the peso;
o suspending payments of principal and interest on certain of
Argentina's sovereign debt;
o converting domestic U.S. dollar-denominated debts into
peso-denominated debts at a one-to-one exchange rate;
o converting U.S. dollar-denominated bank deposits into
peso-denominated bank deposits at an exchange rate of P$1.40 per U.S.
dollar;
o restructuring bank deposits and restrictions on transfers abroad;
o amending the Central Bank's charter to allow it to print currency in
excess of the amount of the foreign reserves it holds, make
short-term advances to the federal government and provide financial
assistance to financial institutions with liquidity constraints or
solvency problems; and
o requiring the obligatory sale by all banks of all their foreign
currency held in Argentina to the Argentine Central Bank at an
exchange rate of P$1.40 per U.S. dollar (this initiative is currently
suspended).
The rapid and radical nature of changes in the Argentine social,
political, economic and legal environment, including the Argentine Supreme
Court's decision declaring the conversion of U.S. dollardenominated deposits
into pesos unconstitutional, have created significant uncertainty. As a result,
commercial and financial activities in Argentina decreased significantly in
2002, further aggravating the economic recession that precipitated the current
crisis. Real gross domestic product dropped by an estimated 10.9% in 2002, and
the unemployment rate rose to 17.8% as of October 31, 2002.
Elections for a new president are scheduled for April 27, 2003 and it
remains unclear what the outcome of those elections will be and how that
outcome will affect the composition of the Argentine government, the laws it
promulgates and the economy. The new presidential term begins in May 2003.
Argentina's insolvency and default on its public debt have aggravated the
current financial crisis
As of December 2001, Argentina's federal gross public debt was
approximately US$144,000 million. As of September 2002, Argentina's total
public debt was approximately US$129,794 million. On December 23, 2001, the
Argentine government declared the suspension of payments on certain of
Argentina's sovereign debt. Furthermore, the ensuing paralysis of economic
activity had caused tax collections to drop dramatically in U.S. dollar terms.
The Argentine government has not yet reached a comprehensive restructuring
agreement with its creditors. The Argentine government's insolvency, its
default and its inability to obtain financing can be expected to affect
significantly the private sector's ability to restore economic growth in the
long term, and may result in deeper recession, higher inflation and
unemployment and greater social unrest. As a result, our business, financial
condition and results of operations will likely be materially and adversely
affected.
The devaluation of the peso creates greater uncertainty as to Argentina's
economic future
On January 6, 2002, the Argentine government enacted Public Emergency Law
No. 25,561 and applicable regulations, including Decree No. 293/02
(collectively, the "Public Emergency Law"), putting an end to ten years of U.S.
dollar-peso parity under the Convertibility Law and eliminating the requirement
that the Central Bank's reserves in gold, foreign currency and foreign
currency-denominated bonds be at all times equivalent to not less than 100% of
the pesos in circulation plus the peso deposits of the financial sector with
the Central Bank. The Public Emergency Law grants the Executive Branch of the
Argentine government the power to set the system that will determine the
exchange rate between the peso and foreign currencies and to issue regulations
related to the foreign exchange market. In early January 2002, the Executive
Branch established a temporary dual exchange rate system, a fixed rate for
transactions subject to Central Bank
20
approval, and import and export transactions at an exchange rate of P$1.40 per
U.S. dollar and a floating rate to be freely determined by the market for all
other transactions.
On January 11, 2002, after the Central Bank ended a banking holiday that
it had imposed with some interruptions since December 21, 2001, the exchange
rate began to float for the first time since April 1991. Heightened demand for
scarce U.S. dollars caused the U.S. dollar to trade well above the P$1.40 per
U.S. dollar rate used by the government. On February 8, 2002, the Executive
Branch eliminated the dual exchange rate in favor of a single floating rate for
all transactions. As of April 11, 2003, the peso-U.S. dollar exchange rate was
approximately P$2.90 = US$1.00.
The Argentine government's ability to honor its foreign debt obligations
has been materially and adversely affected by the devaluation of the peso, as
peso-denominated tax revenues constitute the primary source of its earnings,
while most of its financial liabilities are U.S. dollar-denominated. The
adoption of austere fiscal measures which would be required to repay the
Argentine government's debt and to balance its budget after the devaluation
could lead to further social unrest and political instability.
Argentina has found few opportunities to effectively raise capital in the
international markets amid sustained lack of investor confidence in Argentina's
ability to make payments due on its sovereign debt and in the Argentine economy
generally. The devaluation of the peso and accompanying economic policy
measures were intended by the Argentine government to redress the effects of
unemployment and to stimulate economic growth. However, the success of such
measures is predicated on the ability of the Argentine government to elicit
confidence among the local and international financial and business communities
in the sustainability of its reforms, the recovery of liquidity in the banking
sector, the stability of the peso at current exchange levels (which have been
supported in part by the Central Bank interventions in the exchange market) and
the absence of significant inflation. Without such confidence, investment is
likely to retract, economic activity is likely to contract further,
unemployment could increase beyond current levels, tax revenue could drop and
the fiscal deficit could widen.
There can be no assurance that the political environment and social
conditions currently prevailing in Argentina will enable the government to
implement such measures over time or to announce and implement others required
by international investors and multilateral credit agencies, or that such
measures, if announced and implemented, will be found to be satisfactory by
international investors and multilateral credit agencies such that new credit
will be made available to both the public and private sectors in Argentina.
Consequently, adverse economic conditions in the Argentine economy are likely
to continue to impair our business and financial condition and results of
operations.
There is risk that the Argentine financial system will collapse
Although deposits in the Argentine banking system had been declining for a
number of years, in the last quarter of 2001 a significant amount of deposits
were withdrawn from Argentine financial institutions as a result of increasing
political instability and uncertainty. This run on deposits had a material
adverse effect on the Argentine financial system as a whole. For the most part,
banks suspended the disbursement of new loans and focused on collection
activities to be able to pay their depositors. However, the general
unavailability of external or local credit created a liquidity crisis which
triggered numerous payment defaults in the public and private sectors, which in
turn have undermined the ability of many Argentine banks to pay their
depositors.
To prevent a run on the U.S. dollar reserves of local banks, on December
3, 2001, the government of President De la Rua restricted the amount of money
that account holders could withdraw from banks. Subsequently, the government of
President Duhalde released a schedule stating how and when such deposits would
become available. These restrictions, with certain modifications, are still in
place today. In addition, on February 4, 2002, pursuant to Emergency Decree No.
214, the Argentine government announced the conversion of all foreign
currency-denominated deposits into peso-denominated deposits, and set the
exchange rate for this conversion at P$1.40 per U.S. dollar, and announced the
issuance by the government of U.S. dollar-denominated bonds that, at the option
of depositors, may be exchanged for the converted deposits. Despite these
restrictions, on April 25, 2002, pursuant to Law 25,587, the Argentine
government announced another banking freeze in order to prevent further
withdrawals from the financial system. Furthermore, on
21
June 3, 2002, the Argentine government published Decree No. 905 in the Official
Gazette which set forth the requirements with which the deposit holders must
comply in order to exercise the option to swap their deposits for the bonds
referred to above, and the terms and conditions of these bonds.
While the restriction on bank withdrawals and the mandatory conversion of
U.S. dollar deposits to pesos have shielded banks from a further massive
withdrawal of deposits, they have also led to a significant decrease in
commercial and financial activities, diminished spending and greatly increased
social unrest resulting in widespread public protests. On February 1, 2002, the
Argentine Supreme Court declared some of the measures adopted by the government
to prevent withdrawals of deposits unconstitutional. The government has
continued to enforce these restrictions, although it has relaxed some of the
limitations to permit certain withdrawals. The solvency of the Argentine
financial system is currently in jeopardy, and the system's failure would have
a material and adverse effect on the prospects for economic recovery and
political stability.
On March 5, 2003, the Argentine Supreme Court declared the conversion of
U.S. dollar-denominated deposits into pesos unconstitutional. The case
concerned a US$247 million deposit of the Argentine Province of San Luis in
Banco de la Nacion Argentina, a bank wholly owned by the Argentine government.
Although the decision is binding only on the parties to the case, Argentine
Supreme Court decisions are generally adhered to by lower Argentine courts. In
several places the ruling indicates that cases brought by other depositors are
similar to the one under analysis by the Supreme Court. Therefore, the decision
may be followed in cases brought by depositors. The Argentine government has
not yet determined how and to what extent it will grant financial assistance to
the banks that might be ordered to pay U.S. dollars in connection with writs of
"amparo" initiated by depositors to obtain the return of their deposits in U.S.
dollars or in pesos at the prevailing exchange rate at the time of the payment.
Failing such financial assistance, or absent any other solution to the cascade
of law suits that financial institutions may be exposed to, such as a
compulsory rescheduling of deposits, the entire financial system may collapse.
Likewise, the granting of financial assistance to financial institutions may
cause inflation, which could have dramatic and unpredictable consequences on
the Argentine economy.
On April 1, 2003, the Executive Branch of the Argentine government passed
Decree 739/03, providing that depositors may elect to be paid in cash and/or
government bonds according to the amount of their deposits.
The Central Bank has imposed restrictions on the transfer of funds outside
of Argentina, which could prevent us from making payments on our external
debt
From December 3, 2001 until January 2, 2003, the Argentine government
imposed a number of monetary and currency exchange control measures that
included restrictions on the free disposition of funds deposited with banks and
tight restrictions on transferring funds abroad, with certain exceptions for
transfers related to foreign trade and other authorized transactions. Effective
January 2, 2003, the Central Bank's prior authorization for the transfer of
funds abroad in order to make payments of principal and/or interest will be
required if certain substantial conditions are not met, as set out in
Comunicacion "A" 3843 dated December 26, 2002, as amended by Comunicacion "A"
3866 dated January 16, 2003, by Comunicacion "A" 3880 dated February 13, 2003,
by Comunicacion "A" 3895 dated March 13, 2003 and by Comunicacion "A" 3909
dated March 27, 2003.
There can be no assurance that the Central Bank will not once again
require its prior authorization for the transfer of funds abroad for principal
or interest payments by us to our foreign creditors. While we have obtained
authorization from the Central Bank to make payments pursuant to the Invitation
prior to June 30, 2003, there can be no assurance that such authorization will
be extended if, for any reason, the Payment Date for the Invitation occurs
after June 30, 2003.
Our results of operations have been, and may continue to be, materially
adversely affected by the devaluation of the peso and the economic
conditions currently prevailing in Argentina
We realize substantially all of our revenues in Argentina in pesos and, as
a result, the devaluation of the peso has had a material adverse effect on the
U.S. dollar value of our earnings and our ability to service our
22
debt which is largely denominated in U.S. dollars. In addition, the devaluation
of the peso has had a material adverse effect on our financial condition, as
our largely peso-denominated assets have depreciated accordingly against our
largely foreign currency-denominated indebtedness. Any further depreciation of
the peso against the U.S. dollar will correspondingly increase the amount of
our debt in pesos, with further adverse effects on our results of operation and
financial condition. As of December 31, 2002, consolidated current assets were
lower than current liabilities by P$9,564 million.
Our revenues consist, in part, of monthly basic charges, measured service
charges and other charges which are based on units denominated as "pulses". The
rates charged by us were, until recently, expressed in U.S. dollars and
adjusted twice annually according to the U.S. Consumer Price Index. Through the
Public Emergency Law, the Argentine government eliminated all "indexing
adjustments" in rates for public works and services, and mandated that the
rates previously subject to indexing adjustments be "pesified" at a rate of
P$1.00 = US$1.00. Therefore, despite the fact that the peso no longer has
parity with the U.S. dollar, we are currently being forced to charge rates to
our customers as if parity between the two currencies were still in effect. We
are currently in negotiations with the Argentine government regarding the rates
that we may charge in the future.
The devaluation of the peso and the "pesification" of certain rates as
well as general recessionary conditions in Argentina have had and continue to
have a significant impact on our net income. The current recession coupled with
a rise in inflation in 2002 has led to a reduction of wages in real terms
across all class sectors of the Argentine population. This reduction has
resulted and may continue to result in reduced usage of our services, a
deterioration in the collection of accounts receivable, and a consequent
reduction in our revenues and cash inflows.
Substantial inflation has occurred following the amendment of the
Convertibility Law, thereby further impacting our revenues
Since the devaluation of the peso, consumer price inflation in Argentina
has risen significantly, reaching 40.9% in the year 2002. If future rates are
not adjusted to account for inflation in Argentina, this could have a material
adverse effect on our financial condition and results of operations.
The current economic environment in Argentina and the adverse conditions
in the capital markets of Argentina have impaired our ability to service
our debt obligations
In managing our liabilities and anticipating our liquidity requirements,
we expected that we would meet our short- and long-term debt obligations and
short-term capital expenditures through internally-generated funds, third-party
financing and access to capital markets. However, in light of recent economic
developments in Argentina, we have been unable to access the capital markets
and these third-party financing sources are currently not available in amounts
sufficient to enable us to refinance our debt obligations. In addition, as a
result of the devaluation and volatility of the peso and the "pesification" of
certain of our rates at a rate of P$1.00 = US$1.00, our internally-generated
funds alone are not sufficient to meet our debt obligations. Furthermore, the
current economic environment in Argentina may worsen in the short term, and
further harm our ability to meet our current and future debt obligations.
As a result of the factors described above, on April 2, 2002, we announced
the suspension of principal payments on our outstanding financial indebtedness
as well as the outstanding financial indebtedness of our Argentine
subsidiaries. On June 24, 2002, as a consequence of the continuing devaluation
and volatility of the peso, lower net cash flows being generated in the current
economic environment in Argentina and the uncertain timetable for resolving
discussions with the Argentine government concerning adjustment of regulated
rates, we announced the suspension of interest payments on our outstanding
financial indebtedness. Although we are working to develop a debt restructuring
plan, no assurance can be given that successful restructuring efforts will
occur and enable us to extend our current liabilities and remain a going
concern or that, absent any available legal or contractual remedies, we will
not be forced into quiebra or file for concurso preventivo.
23
Uncertainties resulting from the current economic situation in Argentina
and recent changes to regulations affecting us give rise to a substantial
doubt as to our ability to remain a going concern
As a result of the current economic situation in Argentina and recent
modifications to regulations affecting us, as further described under the risk
factors discussed above, we cannot assure that we will be able to obtain
financial resources to repay or refinance our debt or that the outcome of the
pending renegotiation of rates with the government will not have a material
adverse effect on our financial condition or results of operations.
Risk Factors Relating to Telecom
Our inability to service our debt obligations has caused certain of our
creditors to exercise their right to accelerate our indebtedness to them
On April 2, 2002, we announced the suspension of principal payments on our
outstanding financial indebtedness as well as the outstanding financial
indebtedness of our Argentine subsidiaries, and on June 24, 2002, we announced
the suspension of interest payments on our outstanding financial indebtedness.
As a result of these suspensions, our creditors generally have the right to
accelerate the maturity of our indebtedness to them and to demand payment of
the full amounts payable under their respective Debt Instruments. Certain of
our creditors and creditors of Telecom Personal, including members of the
Committee, have exercised their rights to accelerate their maturity. Although,
to our knowledge, our creditors have not generally sought to enforce their
demands in the courts to date, the enforcement of such acceleration notices
against us would impair our ability to continue as a going concern. In
addition, if we are not successful in refinancing our outstanding financial
indebtedness, we will continue to be significantly limited in our ability to
meet our debt service obligations. See "Information About the Company".
Rate adjustments could adversely affect our revenues
Because of the current economic crisis, and in accordance with the Public
Emergency Law, in January 2002, rates for basic telephone and long distance
services as well as for interconnection rates were converted to pesos and fixed
at an exchange rate of P$1.00 = US$1.00. We are currently in negotiations with
the Argentine government regarding the rates we may charge in the future.
According to the Public Emergency Law, while undertaking these negotiations,
the government must consider the effect of these rates on the competitiveness
of the general economy, the quality of the services, the investment plans,
consumer protection and accessibility of the services, and our profitability.
We are unable to predict the outcome of these negotiations and the rate scheme
which will be applied in the future. Moreover, we are unable to predict whether
the Argentine government, as a result of the current rate renegotiations, will
impose additional capital expenditure or investment requirements on
telecommunications companies, including us, and if such spending requirements
are imposed, whether we will be able to meet those requirements.
Rate restrictions and reductions of some scope and magnitude may continue
for a number of years and may reduce revenues from basic services and other
services. While we intend to continue to strive to control operating costs and
improve productivity, those efforts may not offset, in whole or in part, the
decline in operating margins that may result from mandatory rate freezing or
reductions measured in U.S. dollar terms.
Our creditors may be unable to attach certain of our assets to secure a
judgment
Argentine courts will not enforce any attachment with respect to property
which is located in Argentina and determined by the court to be dedicated to
the provision of essential public services. A substantial portion of our assets
may be considered to be dedicated to the provision of an essential public
service. If an Argentine court were to make such a determination with respect
to certain of our assets, those assets would not be subject to attachment,
execution or other legal process and our creditors may not be able to realize a
judgment against our assets.
24
We may be subject to measures by the Argentine government which may impose
an obligation to provide telecommunications services without compensation
In June 2002, the Argentine House of Representatives approved a proposal
known as the "Polino Proposal" which declared a state of emergency for the
following users of basic telephony services (the "Polino Beneficiaries"): (i)
residential customers, (ii) small- and medium-sized companies and (iii)
not-for-profit organizations. The Polino Proposal provides that (i) the
operators shall restore any services currently suspended for any defaults in
payments by the Polino Beneficiaries, (ii) the operators shall waive any
penalties applicable to late payments for services and shall refinance any
amounts due by the Polino Beneficiaries (operators must allow a minimum of 12
and a maximum of 36 installments for the payments of any amounts due) and (iii)
the operators shall accept bonds issued by the federal government, Argentine
provinces or the City of Buenos Aires as method of payment. Operators that do
not comply with the measures described above will be subject to fines of up to
five times the value of the monthly charges for the basic telephony to the
affected Polino Beneficiary. The Polino Proposal currently proposes that the
measures described above shall be applicable for a term of 180 calendar days
after its enactment. The effectiveness of the Polino Proposal is subject to
approval by the Senate and promulgation by the Executive Branch of the
Argentine government.
As of the date of this document, the Polino Proposal has neither been
vetoed nor passed by the Executive Branch nor considered and approved by the
Senate. It has, however, been approved by the Chamber of Deputies. The
effectiveness of the Polino Proposal or any similar measure adopted by any
governmental authority would have a significant impact on our results of
operations.
Risk Factors Relating to Notes Not Accepted for Purchase
The purchase of Notes tendered pursuant to the Invitation may result in
reduced liquidity of remaining Notes
Our purchase of Notes tendered pursuant to the Invitation will reduce the
amount of Notes that might otherwise trade publicly as well as the number of
holders of the Notes, which may adversely affect the liquidity of, and the
market price for, the Notes that remain outstanding after the consummation of
the transactions contemplated by the Invitation.
Risk Factors Relating to Investing in Argentine Companies
Future Argentine government policies will likely significantly affect the
economy as well as the operations of the telecommunications industry
The Argentine government has historically exercised significant influence
over the economy, and telecommunications companies in particular have operated
in a highly regulated environment. Due to the current Argentine crisis, the
Argentine government has promulgated numerous, far-reaching and, at times,
inconsistent laws and regulations affecting the economy as well as
telecommunications companies in particular. We cannot assure you that laws and
regulations currently governing the economy or the telecommunications industry
will not continue to change in the future, particularly in light of the
continuing economic crisis, or that any changes will not adversely affect our
business, financial condition or results of operations as well as our ability
to honor our foreign currency-denominated debt obligations.
Due to the current social and political crisis, companies in Argentina
also face the risk of civil and social unrest, strikes, expropriation,
nationalization, forced renegotiation or modification of existing contracts,
and changes in taxation policies, including royalty and tax increases and
retroactive tax claims. In addition, investments in Argentine companies may be
further affected by changes in laws and policies of the United States affecting
foreign trade, taxation and investment.
25
FORWARD LOOKING STATEMENTS
Certain information included in this document contains information that is
forward looking, including but not limited to:
o the impact of the emergency laws and subsequent related laws enacted
by the Argentine government;
o the Company's plans to restructure its outstanding financial
indebtedness;
o the Company's expectations for its future performance, revenues,
income, earnings per share, capital expenditures, dividends,
liquidity and capital structure;
o the impact of rate changes on revenues; and
o the effects of operating in a competitive environment.
Forward looking statements may also be identified by words such as
"believes", "expects", "anticipates", "projects", "intends", "should", "seeks",
"estimates", "future" or similar expressions. Such forward looking information
involves risks and uncertainties that could significantly affect expected
results. The risks and uncertainties include, but are not limited to:
o uncertainties relating to political and economic conditions in
Argentina;
o uncertainties relating to the restructuring of the Company's
financial indebtedness;
o inflation and exchange rate risks;
o the impact of the emergency laws enacted by the Argentine government
which resulted in the amendment of the Convertibility Law;
o the devaluation of the peso;
o restrictions on the ability to exchange pesos into foreign
currencies;
o the adoption of a restrictive currency transfer policy;
o the conversion into pesos of rates charged for certain public
services;
o the elimination of indexes to adjust rates charged for certain public
services;
o the possible adjustment to the Company's rates;
o the Executive Branch's announced intention to renegotiate the terms
of the concessions granted to public service providers, including the
Company;
o nationalization;
o the impact of regulatory reform and changes in the regulatory
environment in which the Company operates; and
o the effects of competition.
Due to extensive and rapid changes in laws and economic and business
conditions in Argentina, it is difficult to predict the impact of these changes
on our financial condition. Other relevant factors may include, but are not
limited to:
o the current and ongoing recession in Argentina;
o inflationary pressure and reduction in consumer spending; and
o the outcome of certain legal proceedings.
26
These forward looking statements are based upon a number of assumptions
and other important factors that could cause our actual results, performance or
achievements to differ materially from our future results, performance or
achievements expressed or implied by such forward looking statements.
Readers are encouraged to consult our Annual Report on Form 20-F for the
fiscal year ended December 31, 2001, and our periodic filings made on Form 6-K,
which are filed with or furnished to the United States Securities and Exchange
Commission (the "SEC"). See "Where You Can Find More Information".
We undertake no obligation to make any revision to the forward looking
statements contained in this document or to update them to reflect events or
circumstances occurring after the date of this document.
27
INFORMATION ABOUT THE COMPANY
Telecom Argentina STET-France Telecom S.A., a sociedad anonima organized
under Argentine law, with headquarters located at Alicia Moreau de Justo 50
(C1107AAB) Buenos Aires, Argentina, provides public telecommunications services
in Argentina, in particular fixed-line local, national and international long
distance services, as well as data transmission and access to Internet service,
and through our subsidiaries, we provide mobile telecommunications services and
publish telephone directories.
As a consequence of a number of developments, including the deterioration
of the economic environment in Argentina, the devaluation and volatility of the
peso, the conversion into pesos of our rates at the ratio of P$1.00 = US$1.00
and uncertainties surrounding the adjustment of our regulated rates, in the
first half of 2002 we announced the suspension of payments of principal and
interest on our financial debt obligations.
We are making the Invitation in order to reduce the principal amount of
our outstanding indebtedness and our ongoing debt service obligations, and to
provide holders of the Debt Instruments the opportunity to reduce their
holdings of Debt Instruments in exchange for cash. We intend to cancel any
Notes and portions of Credit Facility Debt that we accept for payment. Except
as described under "The Invitation-Accrued Interest", all accrued but unpaid
interest, as well as any other amounts outstanding relating to the Debt
Instruments that we accept for payment, will also be cancelled.
The Debt Instruments constitute all of our unconsolidated financial
indebtedness, which as of December 31, 2002 included:
o approximately US$1,595 million aggregate outstanding principal amount
of Notes;
o approximately US$886 million aggregate outstanding principal amount
of Credit Facility Debt owed to financial institutions relating to
working capital loans, debt issuances and trade financings; and
o approximately US$147 million aggregate accrued but unpaid interest on
the Notes and Credit Facility Debt.
The Debt Instruments are denominated in various currencies. As of December
31, 2002, the principal amount of our outstanding financial indebtedness, by
currency of denomination, was as follows: approximately US$930 million, E1,342
million, (yen)14,402 million and P$65 million. Throughout this document, these
amounts have been translated into U.S. dollars at the rates specified in
"Currency of Presentation" solely for the convenience of the reader, using
exchange rates in effect as of December 31, 2002.
If we purchase Debt Instruments at the Minimum Purchase Price for the
Maximum Offer Consideration our aggregate outstanding principal on the Notes
and Credit Facility Debt would be reduced by the equivalent of US$598 million,
or 24.1%, from the amount outstanding at December 31, 2002. If we purchase Debt
Instruments at the Maximum Purchase Price for the Maximum Offer Consideration
our aggregate outstanding principal on the Notes and Credit Facility Debt would
be reduced by the equivalent of US$520 million, or 21.0%, from the amount
outstanding at December 31, 2002.
In addition to the financial indebtedness described above, we also have
commercial debt obligations, which include trade payables and operating lease
obligations ("Commercial Debt Obligations"). We have been paying our Commercial
Debt Obligations as they become due and intend to remain current in these
obligations. We are not extending the Invitation to holders of our Commercial
Debt Obligations.
Proposed Restructuring Plan
In addition to making the Invitation, we are working with our financial
advisors to develop a comprehensive plan to restructure our outstanding
financial indebtedness that is not accepted for purchase pursuant to the
Invitation.
Since June 2002, we have been engaged in discussions and negotiations with
an ad hoc committee formed by seven of our lenders under our Credit Facility
Debt (the "Committee"), including discussions on alternative proposals to
effect a restructuring of our financial indebtedness. These discussions and
negotiations have focused on, among other things, the level of debt to be
issued to such creditors and rates of interest
28
thereon, the structure and terms of any equity-linked instrument to be issued
to creditors, the amount of equity capital that creditors would receive and the
extent, if any, to which any of the new debt obligations would be
collateralized. We are also having discussions and negotiations with
representatives of certain of our bondholders.
We have recently furnished a revised plan for the restructuring of all of
our outstanding financial indebtedness (the "Proposal") to the Committee for
its consideration. Although the Committee has not approved the Proposal, the
Proposal reflects comments and concerns expressed by the Committee in the
course of discussions with them. We intend to continue discussions and
negotiations with the Committee with a view toward reaching an agreement on a
mutually acceptable plan. There can be no assurance we will reach an agreement
with the Committee, or that if such agreement is reached, it will be acceptable
to the number of creditors required to implement such debt restructuring plan.
Additionally, such plan would be subject to receiving the appropriate
regulatory approvals.
Under our current Proposal, we would restructure our outstanding financial
indebtedness by exchanging outstanding Debt Instruments for new debt
obligations with new payment terms and for equity related securities. The new
debt obligations would be denominated in the same currency as the Debt
Instruments being exchanged. Under the Proposal we would present two different
consideration packages and permit our creditors to elect to exchange their Debt
Instruments for the consideration alternative preferred by them, subject to
certain limits on the maximum aggregate principal amount of debt subscribing to
each option, as set forth below (in equivalent U.S. dollars):
The proposed new Telecom obligations would be comprised of:
o US$609 million aggregate principal amount of new senior debt
instruments with mandatory amortizations from 2004 through 2008, an
average life of 3.7 years and bearing interest at LIBOR+250 basis
points per annum, subject to a cap of 6% ("Senior Debt 1");
o US$776 million aggregate principal amount of new senior debt
instruments with mandatory amortizations from 2010 through 2015, an
average life of 10.5 years and bearing interest at LIBOR+50 basis
points per annum, subject to a cap of 3% ("Senior Debt 2");
o US$96 million aggregate principal amount of new senior debt
instruments with maturity in 2015 and bearing interest at LIBOR+50
basis points per annum, subject to a cap of 3% ("Senior Debt 3");
o Non-voting preferred shares of Telecom convertible at the holders'
option (subject to a limited nonconversion period) into common shares
of Telecom (the "Convertible Preferred Shares"). The Convertible
Preferred Shares and the common shares to be issued upon conversion
of the Convertible Preferred Shares (the "New Common Shares") would
contain limitations on accumulation to be included in the by-laws of
the Company. The issuance of the Convertible Preferred Shares and the
New Common Shares would be subject to shareholders' and regulatory
approvals. The Convertible Preferred Shares to be issued to Telecom's
creditors would be convertible into New Common Shares representing
22.5% of the common shares of Telecom.
Senior Debt 1 and Senior Debt 3 would be mandatorily prepayable based on
excess cash, with Senior Debt 3 prepayable in full prior to any prepayments on
Senior Debt 1. Under the Proposal:
o Up to US$1,208 million aggregate principal amount of debt could be
exchanged for consideration comprised of (i) US$336 million aggregate
principal amount of Senior Debt 1, (ii) US$776 million aggregate
principal amount of Senior Debt 2 and (iii) US$96 million aggregate
principal amount of Senior Debt 3 ("Option A").
o Up to US$806 million aggregate principal amount of debt could be
exchanged for consideration comprised of (i) US$273 million aggregate
principal amount of Senior Debt 1 and (ii) Convertible Preferred
Shares convertible into New Common Shares representing 22.5% of the
common shares of Telecom ("Option B").
29
In the event that any option is oversubscribed, Telecom would allocate
oversubscriptions into the undersubscribed option.
Nortel Inversora S.A. ("Nortel") is Telecom's principal shareholder and as
of the date of this document, owned all of Telecom's Class A Ordinary Shares
(51% of Telecom's total capital stock) and approximately 8.4% of Telecom's
Class B Ordinary Shares which, in the aggregate, represents approximately
54.74% of Telecom's total capital stock. It is proposed that the conversion of
Convertible Preferred Shares into New Common Shares would be subject to the
execution of a shareholders' agreement with Nortel. The terms and the parties
to such agreement have not been decided yet.
If we issue Convertible Preferred Shares pursuant to the Proposal, we will
be required to obtain approval from the Secretary of Communications of
Argentina ("Secretaria de Comunicaciones"). We cannot assure you that we will
be able to obtain such approval. If we are not able to obtain the necessary
approval we may take alternative actions to achieve our restructuring goals,
although we cannot predict what such actions might be or the success thereof.
We cannot assure you that any of the alternatives contemplated in the
Proposal will be implemented as proposed, or at all. We reserve the right to
amend the proposal, discontinue any negotiations regarding the proposal or to
take further or different actions to achieve our respective restructuring
goals. The restructuring alternatives in the Proposal, as well as any other
actions aimed to restructure our indebtedness, are conditioned on our purchase
of an aggregate principal amount of Debt Instruments for up to the Maximum
Offer Consideration pursuant to the Invitation, and subject to numerous risks
and uncertainties, including but not limited to uncertainties relating to our
business and financial position, the economic and political conditions in
Argentina, inflation and exchange rate risks, regulatory approvals, our ability
to amend or modify our regulated rates and the outcome of our negotiations with
our creditors.
Although the Committee has not endorsed the terms of the Proposal, we
intend to work with the Committee and our other creditors in order to reach
agreement on a mutually acceptable restructuring plan. However, in the event
that none of the alternatives contemplated in the Proposal are approved and no
alternative restructuring plan is approved, we may be forced to seek the
assistance of the Argentine courts by filing for a reorganization proceeding
("concurso preventivo") under which all of our outstanding financial
indebtedness would be restructured, or we may seek a prepackaged agreement
("acuerdo preventivo extrajudicial") with our creditors.
The terms of a concurso preventivo may be less favorable to holders of our
Debt Instruments than the terms of the Proposal. A concurso preventivo may
extend for a greater period of time than a reorganization as contemplated under
the Proposal. During such time we may be susceptible to fluctuations in
economic, business, political, environmental or other conditions in Argentina,
Italy, the United States or elsewhere.
In order to reorganize our financial indebtedness under a concurso
preventivo, we would need to obtain the approval of the majority of our
unsecured creditors representing two-thirds of our liabilities filed in the
concurso preventivo proceedings and admitted by the Argentine court. In
calculating this majority, the financial indebtedness subject to the
restructuring will be converted into pesos (calculated at the exchange rate in
effect on the date when the trustee files a report accepting or rejecting the
claims of our creditors under the concurso preventivo).
During the period of the concurso preventivo, (i) monetary claims against
us would suspended by the Argentine courts, (ii) our assets would be protected
against claims by our creditors, including but not limited to attempts to
attach or liquidate our assets, (iii) creditors would lose any set-off rights
against us, (iv) interest on our indebtedness would cease to accrue, (v) no
payments of principal or interest can be made by us to our creditors and (vi)
with the exception of a limited number of transactions that would require court
approval, we would continue to be in charge of the management of our business
while under the supervision of a trustee. See "Risk Factors" for further
detail.
We have been advised by our Argentine counsel that we may also reorganize
our financial indebtedness pursuant to an acuerdo preventivo extrajudicial if
we are able to obtain the approval of the majority of our creditors
representing two-thirds of the total liabilities of the Company and a court
endorsement. Such an
30
agreement would have a binding effect on all of our creditors, including those
that reject or do not execute such agreement. Any monetary claims against us
would be suspended by the Argentine courts at the time such agreement is filed
for endorsement.
In the event that we cannot file for a concurso preventivo or an acuerdo
preventivo extrajudicial, we may be forced into bankruptcy by one or more of
our creditors. If we are forced into bankruptcy by one or more of our
creditors, a court-appointed trustee will take control of the management of our
business. During the bankruptcy proceeding, the trustee will identify all of
our assets and liabilities, will liquidate our assets and will distribute the
proceeds from such liquidation among all our creditors in the preferential
order prescribed by the Argentine bankruptcy law. Furthermore, if we are
declared bankrupt, the Argentine government will revoke our license to provide
fixed-line telephony services. See "Risk Factors" for further detail.
In the future we may refinance all of our outstanding financial
indebtedness, in negotiated transactions or otherwise, on economic terms that
are more or less favorable to holders of our Debt Instruments than the terms of
the Invitation. Specifically, holders of our financial indebtedness may be
invited to submit offers to sell their financial indebtedness for cash, or we
may purchase financial indebtedness in the open market, in each case, at prices
that may be in excess of the Maximum Purchase Price or below the Minimum
Purchase Price. In addition, we may pay principal and interest on all of our
financial indebtedness. We may also launch an exchange offer for bonds or other
financial indebtedness. Any such measures may have a positive impact on the
value of the Debt Instruments. Our decision to take any such action will depend
in each case on various factors, including but not limited to applicable
interest rates, the amount of financial indebtedness purchased by the Company
in any prior transaction and the economic, business, political, environmental
or other conditions in Argentina, Italy, the United States or elsewhere.
Telecom Personal's Proposed Restructuring Plan
Concurrently with the Invitation, Telecom Personal (of which we own
99.99%) is inviting holders of its direct financial indebtedness to submit
offers to sell such financial indebtedness to Telecom Personal pursuant to a
"Modified Dutch Auction" procedure. Telecom Personal intends to pay as
consideration up to an amount equal to US$45 million for such financial
indebtedness. Telecom Personal has also engaged in discussions and negotiations
with the Committee regarding a debt restructuring plan, which relates to the
financial indebtedness of Telecom Personal that is not tendered pursuant to
such invitation ("Telecom Personal's Proposal"). As of December 31, 2002,
Telecom Personal had approximately US$621 million unconsolidated aggregate
principal amount of outstanding financial indebtedness (US$19 million of this
debt represents a loan to Telecom Personal from Telecom) and had guaranteed
approximately US$43 million of financial indebtedness of Nucleo S.A., its
Paraguayan subsidiary.
Under Telecom Personal's Proposal, Telecom Personal would restructure its
outstanding financial indebtedness by exchanging outstanding credit facility
debt for new obligations with new payment terms and for Convertible Preferred
Shares. The new debt obligations would be denominated in the same currency as
the debt instruments being exchanged. Under Telecom Personal's Proposal it
would present two consideration packages and permit its creditors to elect to
exchange their credit facility debt for the consideration alternative preferred
by them, subject to certain limits on the maximum aggregate principal amount of
debt subscribing to each option, as set forth below (in equivalent U.S.
dollars).
The proposed new Telecom Personal obligations would be comprised of:
o US$201 million aggregate principal amount of new senior debt
instruments issued by Telecom Personal with mandatory amortizations
from 2004 through 2008, an average life of 4.1 years and bearing
interest at LIBOR+250 basis points per annum, subject to a cap of 6%
("Personal Senior Debt 1");
o US$146 million aggregate principal amount of new senior debt
instruments issued by Telecom Personal with mandatory amortizations
from 2010 through 2015, an average life of 10.5 years and bearing
interest at LIBOR+50 basis points per annum, subject to a cap of 3%
("Personal Senior Debt 2");
31
o US$22 million aggregate principal amount of new senior debt
instruments issued by Telecom Personal with maturity in 2015 and
bearing interest at LIBOR+50 basis points per annum, subject to a cap
of 3% ("Personal Senior Debt 3");
o Convertible Preferred Shares convertible into New Common Shares
representing 7.5% of the common shares of Telecom.
Personal Senior Debt 1 and Personal Senior Debt 3 would be mandatorily
prepayable based on excess cash flows, with Personal Senior Debt 3 prepayable
in full prior to any prepayments on Personal Senior Debt 1.
Under the current Telecom Personal Proposal:
o Up to US$246 million aggregate principal amount of debt could be
exchanged for consideration comprised of (i) US$78 million aggregate
principal amount of Personal Senior Debt 1, (ii) US$146 million
aggregate principal amount of Personal Senior Debt 2 and (iii) US$22
million aggregate principal amount of Personal Senior Debt 3
("Personal Option A").
o Up to US$301 million aggregate principal amount of debt could be
exchanged for consideration comprised of (i) US$123 million aggregate
principal amount of Personal Senior Debt 1 and (ii) Convertible
Preferred Shares convertible into New Common Shares representing 7.5%
of the common shares of Telecom ("Personal Option B").
In the event that any option is oversubscribed, Telecom Personal would
allocate oversubscriptions into the undersubscribed option.
Telecom Personal's Proposal has not been endorsed by the Committee and is
subject to uncertainties similar to those affecting our Proposal except that if
Telecom Personal files for concurso preventivo, certain of its licenses may be
revoked, transferred back to the regulatory entity and sold in a public
auction. The completion of the restructuring transactions contemplated by our
Proposal are conditioned upon the completion of the transactions contemplated
by Telecom Personal's Proposal and vice versa.
Recent Developments
Argentina continues to experience political and economic instability.
Since December 31, 2001, Argentina has had five different Presidents, and
presidential elections are now scheduled for April 27, 2003. The federal
government and most of the provincial governments have not been able to
complete a restructuring of their financial debt obligations and have an
aggregate of approximately US$131,000 million of outstanding financial
indebtedness.
The regulatory framework for public service companies in Argentina, such
as Telecom, continues to be subject to significant uncertainties. In January
2002 the government issued the Public Emergency Law, freezing and prohibiting
the indexation of public service rates. As a result, public services contracts
were effectively converted into pesos, causing a significant disparity between
the revenue generated by such contracts and our debt service obligations, which
are generally denominated in foreign currencies. We are continuing to negotiate
with the Argentine government regarding the rates that we may charge in the
future but the Argentine government has not yet approved any rate increases for
telecommunications providers and has extended the negotiation period until
April 2003.
We have commenced a number of operational restructuring efforts designed
to strengthen our balance sheet, reduce our financial leverage and enhance our
profitability and liquidity. These efforts have included, but are not limited
to, the implementation of a new organizational structure, labor force
reductions, improved collection policies and a significant reduction in capital
expenditures.
Despite our operational restructuring efforts, the effects of the
devaluation and the absence of offsetting rate adjustments have led to a
significant reduction in cash flow in constant pesos. As a result of the
devaluation, our leverage increased substantially, from a debt/EBITDA ratio of
2.62 for the year ended December 31, 2001 to 5.96 for the year ended December
31, 2002. As a result, we have been unable to make our mandatory financial debt
service payments as scheduled, and a restructuring of our outstanding financial
indebtedness will be required. We realize substantially all of our revenues in
Argentina in pesos and, as a result, the devaluation of the peso has had a
material adverse effect on the U.S. dollar value of our earnings
32
and our ability to service our debt which is largely denominated in U.S.
dollars. In addition, the devaluation of the peso has had a material adverse
effect on our financial condition, as our largely peso-denominated assets have
depreciated accordingly against our largely foreign currency-denominated
indebtedness. Our total liabilities as of December 31, 2001 amounted to P$7,092
million (expressed in constant pesos as of December 31, 2002). As of December
31, 2002, such amount was P$11,165 million.
For the fiscal year ended December 31, 2002, we had a consolidated net
loss of P$4,354 million compared to consolidated net income of P$99 million for
the fiscal year ended on December 31, 2001. This decrease was mainly due to the
devaluation and subsequent volatility of the peso and our inability to increase
public service rates after the government issued the Public Emergency Law
(effectively converting public service contracts into pesos), the decrease in
traffic in our basic telephony business and the declines in both traffic and
average revenue per user in the mobile telecommunications business. In
addition, the decrease reflects the inflation adjustments described below.
During the fiscal year ended December 31, 2002, consolidated net revenues
decreased 43% to P$3,983 million from P$7,004 million during the fiscal year
ended December 31, 2001. The decrease in consolidated net revenues was mainly
due to the inflation adjustment of the figures as of December 31, 2001 and the
freezing and prohibition on indexation of public service rates by the
government.
Total cost of services provided, administrative expenses and selling
expenses for the fiscal year ended December 31, 2002 decreased by 31% to
P$4,185 million from P$6,105 million for the fiscal year ended December 31,
2001, mainly due to the inflation adjustment of the figures as of December 31,
2001 and cost reduction plans that we implemented.
In the first quarter of 2003, we continued to operate our business in a
similar fashion to that of the fiscal year ended 2002. Our revenues, EBITDA and
operating profit, and their respective margins, evidenced similar trends to
those seen in the last quarter of the fiscal year ended December 31, 2002, and
we continued our efforts to reduce operating expenses and capital expenditures.
In addition, the peso continued to appreciate against the U.S. dollar and Euro,
which had a positive impact on our financial and holding results. These
factors, as well as the continued suspension of payments of principal and
interest on our financial debt obligations, resulted in a positive cash flow.
During the first quarter of 2003, we negotiated with our vendors and
suppliers over our outstanding Commercial Debt Obligations in order to mitigate
the impact of the depreciation of the peso and the increase in wholesale
prices. As a result of these negotiations, we reduced our accounts payable by
approximately 64%.
If we purchase Debt Instruments pursuant to the terms of the Invitation at
the Maximum Purchase Price for the Maximum Offer Consideration, (i) the
cancellation of 70% of the accrued and unpaid interest on the cancelled Debt
Instruments for the period beginning on June 25, 2002 and ending on December
31, 2002 would represent an estimated gain of US$12 million and (ii) the
interest (calculated at an average rate based on the current interest rates
applicable to the Debt Instruments) that would have accrued on the cancelled
Debt Instruments for the fiscal year ended December 31, 2003 would represent an
estimated gain of US$34 million. This would result in an annual estimated gain
of US$46 million for the fiscal year ended December 31, 2003.
If we purchase Debt Instruments pursuant to the terms of the Invitation at
the Minimum Purchase Price for the Maximum Offer Consideration, (i) the
cancellation of 70% of the accrued and unpaid interest on the cancelled debt
instruments for the period beginning on June 25, 2002 and ending on December
31, 2002 would represent an estimated gain of US$14 million and (ii) the
interest that would have accrued on the cancelled Debt Instruments for the
fiscal year ended December 31, 2003 would represent an estimated gain of US$39
million. This would result in an annual estimated gain of US$53 million for the
fiscal year ended December 31, 2003.
Notwithstanding, such estimated gains may be offset by losses that may
occur during the 2003 fiscal year.
Therefore, assuming that we purchase Debt Instruments for the Maximum
Offer Consideration and that interest rates remain unchanged, and without
taking into account any steps in connection with the debt
33
restructuring process that we intend to undertake, the reduction of interest
that would otherwise be payable annually by us on the cancelled Debt
Instruments would be estimated to be between US$34 and US$39 million.
Summary Financial Data
The financial information set forth below may not contain all of the
financial information that you should consider when making a decision to tender
pursuant to the Invitation. You should carefully read the documents mentioned
in the section entitled "Where You Can Find More Information".
Our year end financial data relating to the fiscal years ended December
31, 2001 and 2002 set forth below have been derived from financial statements
audited by Pistrelli Henry Martin, y Asociados, a member firm of Ernst & Young
International, our independent auditors.
We prepare our financial statements in conformity with Argentine GAAP,
which differs in significant respects from U.S. GAAP.
The financial information contained herein as of and for the fiscal years
ended December 31, 2001 and 2002 reflects adjustments for inflation. In 1995,
the Argentine government issued Decree No. 316/95, establishing that financial
statements for Argentine companies shall not include restatement for inflation
beyond August 31, 1995. In July 2002, the Argentine government issued Decree
No. 1269/02 reestablishing the accounting for inflation in financial
statements. The CNV, through Resolution No. 415/02, adopted this procedure.
Consequently, the financial information contained herein is restated in
constant pesos since January 1, 2002 in accordance with accounting standards.
However, on March 25, 2003, the Argentine government issued Decree No. 664,
forbidding adjustments for inflation and instructing regulatory agencies to
pass resolutions to this effect. On April 10, 2003, the CNV issued Resolution
441 stating that as of March 1, 2003, companies regulated by the CNV were not
to adjust financial statements for inflation, and should include a note to
their financial statements stating that information had only been adjusted for
inflation up until February 28, 2003. The issue is still subject to further
debate in the Argentine accounting industry.
34
CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET DATA
As of and for the
Year Ended
December 31
-----------------
2002 2001
---- ----
(P$ millions)(1)
INCOME STATEMENT DATA
Net revenues .................................... 3,983 7,004
Cost of services provided ....................... (2,872) (3,598)
------ ------
GROSS PROFIT .................................... 1,111 3,406
------ ------
Administrative expenses ......................... (279) (537)
Selling expenses ................................ (1,034) (1,970)
------ ------
OPERATING (LOSS)/PROFIT ......................... (202) 899
------ ------
Equity income from related companies ............ (23) (6)
Amortization of goodwill ........................ (10) (18)
Financial and holding results ................... (5,263) (503)
Other incomes and expenses ...................... (175) (129)
Tax on Bank debits and credits .................. -- (33)
------ ------
RESULTS FROM ORDINARY OPERATIONS ................ (5,673) 210
------ ------
Taxes on income ................................. 1,294 (111)
Minority interest ............................... 25 --
------ ------
NET (LOSS)/INCOME ............................... (4,354) 99
====== ======
EBITDA (*) ...................................... 1,873 2,709
------ ------
As a % of Net Revenues .......................... 47% 39%
------ ------
(*) EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) =
OPERATING PROFIT + DEPRECIATION+ AMORTIZATION. Telecom presents EBITDA
because such data is used by certain investors to measure a company's
ability to service debt and fund capital expenditure; it is included
herein for convenience only. EBITDA is not a measure of performance under
either Argentine GAAP or U.S. GAAP and should not be considered as an
alternative to net income as a measure of liquidity. EBITDA as it is used
by Telecom may differ from similarly titled measures reported by other
companies.
CONSOLIDATED BALANCE SHEET
Cash, equivalents and investments ................... 1,405 458
Trade receivables ................................... 596 1,479
Other current assets ................................ 91 694
------ ------
TOTAL CURRENT ASSETS ................................ 2,092 2,631
------ ------
Trade receivables ................................... 1 8
Fixed assets ........................................ 9,618 10,535
Other non-current assets ............................ 1,136 1,278
------ ------
TOTAL NON-CURRENT ASSETS ............................ 10,755 11,821
------ ------
TOTAL ASSETS ........................................ 12,847 14,452
====== ======
Accounts payable .................................... 391 1,071
Loans ............................................... 11,053 2,533
Other current liabilities ........................... 212 378
------ ------
TOTAL CURRENT LIABILITIES ........................... 11,656 3,982
------ ------
Accounts payable .................................... -- 24
Loans ............................................... 144 4,559
Other non-current liabilities ....................... 199 696
------ ------
TOTAL NON-CURRENT LIABILITIES ....................... 343 5,279
------ ------
TOTAL LIABILITIES ................................... 11,999 9,261
------ ------
Minority interest ................................... 1 26
Temporary differences from translation .............. 36 --
------ ------
Shareholders' equity ................................ 811 5,165
------ ------
TOTAL LIABILITIES AND EQUITY ........................ 12,847 14,452
====== ======
(1) Figures are expressed in constant pesos as of December 31, 2002.
35
THE INVITATION
Background and Purpose of the Invitation
As a consequence of a number of developments, including the deterioration
of the economic environment in Argentina, the devaluation and volatility of the
peso, the conversion into pesos of Telecom's rates at the ratio of P$1.00 =
US$1.00 and uncertainties surrounding the adjustment of our regulated rates, in
the first half of 2002 we announced the suspension of payments of principal and
interest on our financial debt obligations.
We are making the Invitation in order to reduce the principal amount of
our outstanding indebtedness and our ongoing debt service obligations, and to
provide holders of the Debt Instruments the opportunity to reduce their
holdings of the Debt Instruments in exchange for cash. We intend to cancel any
Notes and any portions of Credit Facility Debt that we accept for payment. The
Invitation is not being extended to holders of our Commercial Debt Obligations.
For information relating to the business of the Company, see "Information About
the Company".
Terms of the Invitation
Invitation; Maximum and Minimum Purchase Prices and Maximum Offer
Consideration. Upon the terms and subject to the conditions of the Invitation
(including, if the Invitation is amended or extended, the terms and conditions
of any amendment or extension), holders of our outstanding Debt Instruments may
submit offers to sell their Debt Instruments at a price determined by a
"Modified Dutch Auction" procedure and within a purchase price range not less
than the Minimum Purchase Price nor greater than the Maximum Purchase Price,
each as set forth below. The Company will pay consideration up to an amount
equal to the equivalent of US$260 million (calculated based on the exchange
rates quoted by Bloomberg L.P. as of 5:00 p.m., New York City time, on the
second Business Day following the Expiration Date) in the aggregate for the
Debt Instruments (the "Maximum Offer Consideration"). The Company therefore may
accept for purchase less than all of the tendered Debt Instruments.
Aggregate Principal
Amount of
Currency in which Maximum Purchase Minimum Purchase Outstanding Debt in
Debt Instrument is Maximum Purchase Price as a % of Minimum Purchase Price as a % of Such Currency as of
Denominated Price Principal Price Principal December 31, 2002
----------------------- ------------------- ---------------- ------------------- ---------------- -------------------
U.S. Dollar US$500 per US$1,000 50% US$435 per US$1,000 43.5% US$930 million
principal amount principal amount
Euro (and predecessor E500 per E1,000 50% E435 per E1,000 43.5% E1,342 million
currencies) principal amount principal amount
Japanese Yen Y500 per Y1,000 50% Y435 per Y1,000 43.5% Y14,402 million
principal amount principal amount
Argentine Peso P$500 per P$1,000 50% P$435 per P$1,000 43.5% P$65 million
principal amount principal amount
We will pay consideration up to the Maximum Offer Consideration for the
Debt Instruments. If we purchase Debt Instruments at the Minimum Purchase Price
for the Maximum Offer Consideration, then we will purchase the equivalent of
US$598 million principal amount of Debt Instruments. If we purchase Debt
Instruments for the Maximum Offer Consideration at the Maximum Purchase Price,
then we will purchase the equivalent of US$520 million principal amount of Debt
Instruments. In the event that we receive tenders for an amount of Debt
Instruments with an aggregate purchase price greater than the Maximum Offer
Consideration, tenders will be prorated as described below. Accordingly, we may
accept for purchase less than all of the tendered Notes of any particular
series and less than all of the credit facilities comprising our Credit
Facility Debt.
The Purchase Price paid in respect of accepted tenders will be in the same
currency as the currency in which the relevant Debt Instrument is denominated;
provided, however, that the Purchase Price for any of our Debt Instruments
denominated in Italian lira will be paid in Euros. For purposes of determining
the Purchase
36
Price for such Debt Instruments, we have converted the principal amount of
these Debt Instruments to Euros at a rate of Itl. 1,936.27 = E1.00, the fixed
rate established by the European Council of Ministers.
The Purchase Price will be the lowest price specified by the holders,
which will not be greater than the Maximum Purchase Price and not less than the
Minimum Purchase Price, that will enable us to purchase an aggregate principal
amount of Debt Instruments properly tendered and not properly withdrawn for
consideration equal to the Maximum Offer Consideration (or, if Debt Instruments
are properly tendered and not properly withdrawn for an aggregate purchase
price less than the Maximum Offer Consideration, all of such Debt Instruments).
All Debt Instruments properly tendered and accepted for purchase pursuant to
terms of the Invitation will be acquired at the same Purchase Price (expressed
as a percentage of principal amount of Debt Instruments).
The Debt Instruments constitute all of our unconsolidated financial
indebtedness, which as of December 31, 2002 included:
o approximately US$1,595 million aggregate outstanding principal amount
of Notes;
o approximately US$886 million aggregate outstanding principal amount
of Credit Facility Debt owed to financial institutions relating to
working capital loans, debt issuances and trade financings;
o approximately US$147 million aggregate accrued but unpaid interest on
the Notes and Credit Facility Debt.
The Debt Instruments are denominated in various currencies. As of December
31, 2002, the principal amount of our outstanding financial indebtedness, by
currency of denomination, was as follows: approximately US$930 million, E1,342
million, (yen)14,402 million and P$65 million. Throughout this document, these
amounts have been translated into U.S. dollars at the rates specified in
"Currency of Presentation" solely for the convenience of the reader, using
exchange rates in effect as of December 31, 2002.
If we purchase Debt Instruments at the Minimum Purchase Price for the
Maximum Offer Consideration our aggregate outstanding principal on the Notes
and Credit Facility Debt would be reduced by the equivalent of US$598 million,
or 24.1%, from the amount outstanding at December 31, 2002. If we purchase Debt
Instruments at the Maximum Purchase Price for the Maximum Offer Consideration
our aggregate outstanding principal on the Notes and Credit Facility Debt would
be reduced by the equivalent of US$520 million, or 21.0%, from the amount
outstanding at December 31, 2002.
"Modified Dutch Auction" Procedure; Purchase Price. Under the "Modified
Dutch Auction" procedure:
o Holders may submit offers to sell Debt Instruments for cash, which
offers we call "tenders", that:
o specify a minimum purchase price for cash at which such Debt
Instruments are being tendered; or
o do not specify a minimum purchase price. These Debt Instruments
will be deemed tendered at the Minimum Purchase Price.
o We will accept Debt Instruments properly tendered (and not properly
withdrawn) pursuant to the Invitation in the order of the lowest to
the highest offer prices specified or deemed to have been specified
by tendering holders within the purchase price range and will select
a clearing price (the "Purchase Price"), which will be the single
lowest price so specified by the holders that will not be greater
than the Maximum Purchase Price and not less than the Minimum
Purchase Price, that will enable us to purchase an aggregate
principal amount of Debt Instruments properly tendered and not
properly withdrawn for consideration equal to the Maximum Offer
Consideration (or, if Debt Instruments are properly tendered and not
properly withdrawn for an aggregate purchase price less than the
Maximum Offer Consideration, all of such Debt Instruments).
o We will pay the same Purchase Price (expressed as a percentage of
principal amount of Debt Instruments) for all Debt Instruments that
we accept, including those Debt Instruments tendered without
specifying an offer price (which will be deemed to be tendered at the
Minimum Purchase Price) and those Debt Instruments tendered that
specify an offer price less than the Purchase Price,
37
subject to the conditions of the Invitation. We will pay the same
Purchase Price (expressed as a percentage of principal amount of Debt
Instruments) for both Notes and Credit Facility Debt.
Proration. In the event that the aggregate purchase price for the amount
of Debt Instruments properly tendered (and not properly withdrawn) pursuant to
the Invitation prior to the Expiration Date at or below the Purchase Price
exceeds the Maximum Offer Consideration then, subject to the terms and
conditions of the Invitation, we will accept Debt Instruments for purchase and
payment as follows:
First, we will accept for purchase and payment all such Debt Instruments
properly tendered (and not properly withdrawn) at prices below the Purchase
Price.
Next, we will accept for purchase and payment Debt Instruments that are
properly tendered (and not properly withdrawn) at the Purchase Price on a pro
rata basis.
In order to ensure that tendered Debt Instruments denominated in different
currencies are prorated on an equal basis, before calculating the amount of
Debt Instruments to be prorated, the Custodian will convert Debt Instruments
tendered in currencies other than U.S. dollars into U.S. dollars at the
applicable exchange rates quoted by Bloomberg L.P. as of 5:00 p.m., New York
City time, on the second Business Day following the Expiration Date. These
exchange rates will also be used by the Custodian to determine the aggregate
amount of Debt Instruments to be accepted for purchase after proration, which
amount will be converted from U.S. dollars back to their original currency of
denomination.
In all cases, we will make appropriate adjustments to avoid purchases of
Notes in principal amounts not representing integral multiples of the Notes'
original denominations.
Holders may submit tenders for any and all Notes of each series. Assuming
proration, we will purchase less than all of the Notes of each series tendered.
Any Notes tendered pursuant to the Invitation but not purchased, including
Notes tendered at prices greater than the Purchase Price and Notes not
purchased because of proration, will be returned to the tendering holders at
our expense promptly following the earlier of the date on which we announce the
acceptance of the tenders pursuant to the Invitation, the Purchase Price and
the results of proration (the "Announcement Date") or the date on which the
Invitation is terminated. We will announce this information by press release in
Argentina, Italy, Luxembourg and the United States as soon as practicable after
such Expiration Date or termination date. Holders may obtain such preliminary
information from us and may be able to obtain such information from the Dealer
Managers. Rule 14e-l(c) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires that we pay the consideration offered to Note
holders or return the Notes deposited pursuant to the tender offer promptly
after the termination or withdrawal of the tender offer.
Conditions. Our obligation to accept for purchase, and to pay for, Debt
Instruments properly tendered pursuant to the Invitation is conditioned on the
satisfaction of the conditions set forth below under "-Conditions to the
Invitation". If by the Expiration Date any or all of such conditions have not
been satisfied, we reserve the right (but will not be obligated) to (1)
terminate the Invitation, (2) extend or otherwise amend the Invitation in any
respect by giving oral or written notice of such amendment to the Custodian and
Information Agents and making public disclosure of such extension or amendment
to the extent required by law, or (3) waive any or all of the conditions for
acceptance of the Debt Instruments, subject to compliance with applicable
securities laws, and purchase Debt Instruments properly tendered pursuant to
the Invitation.
Expiration Date. The Invitation will expire at 4:00 p.m., New York City
time, 5:00 p.m., Buenos Aires time, on May 16, 2003, unless the Invitation is
extended or earlier terminated.
Termination; Waiver; Extension; Amendment. Subject to applicable
securities laws and the terms and conditions set forth in the Invitation, we
expressly reserve the right (but will not be obligated), at any time or from
time to time, prior to the Expiration Date, regardless of whether or not any of
the events set forth below
38
under "-Conditions to the Invitation" shall have occurred or shall have been
determined by us to have occurred, to:
o terminate the Invitation if any of the conditions to the Invitation
are not met;
o waive any of the conditions to the Invitation;
o extend the Invitation;
o modify the consideration offered in the Invitation;
o not accept Debt Instruments tendered pursuant to the Invitation as a
result of an invalid tender; or
o otherwise amend the Invitation in any respect. The rights reserved by
us in this paragraph are in addition to our rights to terminate the
Invitation described below under "-Conditions to the Invitation".
We cannot assure you that we will exercise our right to amend or extend
the Invitation. Irrespective of any extension or amendment to the Invitation,
all Debt Instruments previously tendered pursuant to the Invitation and not
accepted for purchase or properly withdrawn will remain subject to the
Invitation and may be accepted thereafter for payment by us.
If we make a material change in the terms of the Invitation or the
information concerning the Invitation or waive a material condition of the
Invitation, we will disseminate additional materials relating to the Invitation
and we may extend the Invitation to the extent required by law. In addition, we
may, if we deem appropriate, extend the Invitation for any other reason.
Furthermore, if the Maximum Offer Consideration is increased or decreased, the
Invitation will remain open for at least 10 Business Days from the date we
first give notice of such increase or decrease to holders of Debt Instruments
subject to the Invitation, by press release or otherwise.
If for any reason the acceptance for purchase of, or (whether before or
after any Debt Instruments have been accepted for purchase pursuant to the
Invitation) the payment for, Debt Instruments subject to the Invitation is
delayed or if we are unable to accept for purchase or pay for Debt Instruments
pursuant to the Invitation, then, without prejudice to our rights under the
Invitation, tendered Debt Instruments may not be withdrawn and tendered Notes
may be retained by the Custodian and Information Agents on our behalf (subject
to Rule 14e-l(c) under the Exchange Act with respect to tenders of Notes.
Any extension, amendment or termination of the Invitation by us will be
followed as promptly as practicable by an announcement of such extension,
amendment or termination. Without limiting the manner in which we may choose to
make such announcement, we will not, unless otherwise required by law, have any
obligation to advertise or otherwise communicate any such announcement other
than by making a public press release or such other means of announcement as we
deem appropriate.
We do not make any recommendation to any holder as to whether to tender or
refrain from tendering any or all of such holder's Debt Instruments and we have
not authorized any person to make any such recommendation. Holders are urged to
evaluate carefully all information in this document, consult their own legal,
investment and tax advisors and make their own decisions as to whether to
tender Debt Instruments, and, if so, the principal amount of Debt Instruments
to tender and the price at which to tender.
Acceptance of Debt Instruments for Payment
Upon the terms and subject to the satisfaction or the waiver of the
conditions to the Invitation (including, if the Invitation is extended or
amended, the terms and conditions of any such extension or amendment) and
applicable law, we will accept for purchase, and thereby become obligated to
pay the Purchase Price in respect of, all Debt Instruments properly tendered
(and not properly withdrawn) pursuant to the Invitation at or below the
Purchase Price prior to the Expiration Date, subject to proration.
We will be deemed to have purchased, and thereby become obligated to pay
for, properly tendered Debt Instruments that are subject to the Invitation, if,
as and when we give oral or written notice to the Custodian of
39
our acceptance of such Debt Instruments for purchase pursuant to the
Invitation. In all cases, payments for Debt Instruments purchased pursuant to
the Invitation will be made in cash out of funds deposited in trust with the
Escrow Agent (as defined herein).
We expressly reserve the right, in our sole discretion and subject to Rule
l4e-l(c) under the Exchange Act in the case of tenders of Notes, to delay
acceptance for payment of, or payment for, Debt Instruments in order to comply,
in whole or in part, with any applicable law. See "-Conditions to the
Invitation". In all cases, payment of consideration by the Custodian to holders
of Debt Instruments tendered and accepted for purchase pursuant to the
Invitation will be made only after timely receipt by the Custodian of (a) in
the case of the Notes only, timely confirmation of a book-entry transfer of
such Notes into the Custodian's account at DTC pursuant to the procedures set
forth in Annex A, Information for Tendering Holders of the Notes, in the
section entitled "Procedures for Tendering Notes", (b) the Letter of
Transmittal or the Bid Letter for the tenders of Notes or Debt Credit
Facilities, as the case may be, properly completed and duly executed (or a
manually signed facsimile thereof) pursuant to the procedures set forth in
Annex B, Information for Tendering Holders of the Credit Facility Debt, under
the section entitled "Procedures for Tendering Credit Facility Debt" and (c)
any other documents required by the Letter of Transmittal or Bid Letter, as the
case may be, or the Invitation.
If the Invitation is terminated or withdrawn, or if tendered Debt
Instruments subject to the Invitation are not accepted for purchase, no
consideration will be paid or payable to holders of those Debt Instruments. Any
tendered Notes that are not purchased pursuant to the Invitation for any reason
will be returned, without expense, to the tendering holder (or, in the case of
Notes tendered by book-entry transfer, those Notes will be credited to the
account maintained at DTC, Euroclear or Clearstream, Luxembourg from which
those Notes were delivered) unless otherwise requested by such holder under
"Special Payment Instructions" in the enclosed Letter of Transmittal, promptly
following the Expiration Date or termination of the Invitation.
Tendering holders of Debt Instruments will not be obligated to pay
brokerage fees or commissions or, except as set forth in the Letter of
Transmittal with respect to the Notes, transfer taxes on the purchase of Debt
Instruments by us pursuant to the Invitation. If you own Debt Instruments
through a broker or other nominee and your broker or other nominee tenders on
your behalf, your broker or other nominee may charge a fee for doing so. You
should consult your broker or other nominee to determine whether any charges
will apply.
We will pay all fees and expenses of the Dealer Managers, the Custodian
and the Information Agents in connection with the Invitation. We will also pay
a Processing Fee, as described below, to certain banks and financial
institutions for processing tenders of the Notes. See "-Processing Fee".
Cancellation of Debt Instruments Accepted for Purchase
To the extent that we accept tendered Debt Instruments for purchase, on
the Payment Date we will cancel all Notes and Credit Facility Debt purchased by
us pursuant to the Invitation. Upon the cancellation of the purchased Notes and
Credit Facility Debt, such Debt Instruments shall cease to be outstanding and
our obligations to pay principal and any accrued but unpaid interest (except as
described below under "-Accrued Interest"), as well as any other outstanding
amounts with respect to such Debt Instruments, shall terminate.
Accrued Interest
On the Expiration Date, in addition to the purchase of the Debt
Instruments and the payment of the Purchase Price, we intend to pay to all
holders of Debt Instruments (regardless of whether they tender Debt Instruments
pursuant to the Invitation) (i) all accrued but unpaid interest (without giving
effect to any penalties or post-default increases) on all of our outstanding
Debt Instruments, to and including June 24, 2002, and (ii) 30% of all accrued
but unpaid interest (without giving effect to any penalties or post-default
increases) on the outstanding principal of all of our outstanding Debt
Instruments, for the period beginning on June 25, 2002 and ending on December
31, 2002 provided, that we reserve the right not to make this interest payment
if the Invitation is terminated prior to the Expiration Date.
40
This accrued interest payment will be made to all holders of Debt
Instruments of record as of April 30, 2003.
We do not intend to pay interest on our existing Debt Instruments for any
period after December 31, 2002.
The accrued interest will not be included when we apply the "Modified
Dutch Auction" procedure to determine the aggregate principal amount of Debt
Instruments that we purchase. Under no circumstances will any additional
interest be payable because of any delay in the transmission of funds to the
holders of purchased Debt Instruments or otherwise.
Source and Amount of Funds
The maximum amount of funds available to purchase the Debt Instruments
pursuant to the Invitation is the equivalent of approximately US$260 million.
We expect to fund our purchase of Debt Instruments hereunder from our available
cash. We have obtained the necessary approvals from the Central Bank to
purchase the relevant currencies required to pay the Maximum Offer
Consideration and apply such currencies to the purchase of Debt Instruments
tendered pursuant to the Invitation. See "-Purpose of the Invitation". Funds in
an amount approximating the Maximum Offer Consideration have been transferred
in trust to the Escrow Agent, who will hold such funds to guarantee any
payments to be made pursuant to the Invitation.
Conditions to the Invitation
The Invitation is not conditioned on any minimum amount of Debt
Instruments being tendered. Notwithstanding any other provisions of the
Invitation and in addition to (and not in limitation of) our rights to extend
and/or amend the Invitation, we shall not be required to accept for purchase or
pay for Debt Instruments properly tendered pursuant to the Invitation and may
amend or extend the Invitation or delay or refrain from accepting for purchase,
or paying for, any such Debt Instruments, if any of the following conditions
are not satisfied:
(1) the approval of the Central Bank for the conversion of pesos to
other currencies and for the payment of the Purchase Price outside of
Argentina shall remain valid and effective until the payment is made;
(2) should, following the commencement of the Invitation, a new
approval be required in order to conduct or consummate the transactions
contemplated in the Invitation, or for the conversion of pesos to other
currencies or for the payment of the Purchase Price outside of Argentina,
such approval shall be obtained and shall remain valid and effective until
the payment is made;
(3) following the commencement of the Invitation, there shall not
have been any action, suit or proceeding threatened (which threat is
documented) or instituted by, or found to be pending before, any court,
agency, governmental or administrative authority, and no judgment, order
or injunction shall have been entered or enforced or found to have been
entered or enforced by any such authorities which (i) challenges or seeks,
directly or indirectly, to make illegal, or to delay, restrain, prohibit
or to otherwise adversely affect the Invitation, the acquisition of Debt
Instruments tendered pursuant to the Invitation, or the establishment of
the trust with and the holding of funds by the Escrow Agent, or (ii) seeks
to declare us bankrupt or insolvent or seeks our reorganization under
supervision or protection of the courts or (iii) could materially
adversely affect our actual or prospective financial or economic condition
(or negatively affect our business and assets), our revenues, or that of
our group, in comparison with our financial condition as of December 31,
2002;
(4) following the commencement of the Invitation, there shall not
have been any approval withheld or revoked, or any statute, rule or
regulation proposed, enacted, enforced or invoked, nor any enforcement
action threatened (which threat is verifiable) or taken, with respect to
the Invitation or us or any of our subsidiaries which might directly or
indirectly result in any of the consequences referred to in paragraph (3)
above;
41
(5) following the commencement of the Invitation, we shall not have
determined that the acceptance for payment of, or payment for, some or all
of the Debt Instruments would violate any law or regulation or be illegal
or constitute a breach of the terms and conditions of the relevant Debt
Instrument, or be in conflict with any order, statute, law, rule,
regulation, executive order, decree, or judgment of any court, agency,
governmental or administrative authority having jurisdiction over us or
the Invitation;
(6) following the commencement of the Invitation, there shall not
have occurred, at a domestic or international level, any circumstance or
event which could cause a material adverse change in our financial or
economic condition, or that of our group, in comparison with our condition
as of December 31, 2002;
(7) following the commencement of the Invitation, a tender or
exchange offer with respect to our common stock or Debt Instruments, or a
merger or acquisition proposal for us shall not have been announced and we
shall not have learned that a person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act), other than Nortel Inversora S.A.,
shall have proposed to acquire beneficial ownership of more than 5% of the
outstanding shares of our common stock, or any new group (as defined
above) shall have been formed that beneficially owns more than 5% of the
outstanding shares of our common stock;
(8) following the commencement of the Invitation, there shall not
have occurred any of the following circumstances or events, which could
have a material adverse effect on the Invitation, our business and assets,
or on our (or our group's) actual or prospective financial or economic
condition or revenues in comparison with our financial condition as of
December 31, 2002: (a) any general suspension or limitation (whether or
not mandatory) in the trading, clearing, transfer, settlement or payment
systems relating to securities and debt instruments in Argentina, Italy or
the United States, in either the regulated markets or the over-the-counter
market, (b) a moratorium (whether or not mandatory) affecting the banking
system in Argentina, Italy or the United States or affecting the extension
of credit by banks or other lending institutions in Argentina, Italy or
the United States, or any other event that is reasonably likely to cause
any of the consequences referred to above, (c) a commencement of a new
outbreak of war or armed hostilities, a material escalation of war or
armed hostilities (in Iraq or otherwise), or other national or
international crisis directly or indirectly relating to Argentina, Italy
or the United States, (d) any material adverse change in political or
economic conditions in Argentina, Italy or the United States or in the
financial markets of Argentina, Italy or the United States (or in any
other international financial market) or (e) a material change in the
Argentine, European, Japanese or U.S. currency exchange rates or a general
suspension of or material limitation on the markets therefor;
(9) following the commencement of the Invitation, none of the holders
of the Notes, the trustees under the indentures pursuant to which the
Notes were issued, the lenders or agents under the agreements pursuant to
which the Credit Facility Debt was issued nor any other creditor of the
Company, shall have objected in any respect to, or taken any action that
challenges the making of the Invitation or the purchase of Debt
Instruments pursuant to the Invitation, or that could have a material
adverse effect on our ability to consummate the transactions contemplated
in the Invitation or to complete a consensual restructuring of our
outstanding indebtedness; or
(10) Telecom Personal's invitation to holders of its financial
indebtedness (as described above) shall have been consummated and shall
not have been suspended or terminated merely at the discretion of Telecom
Personal and not as a result of specified actions or circumstances outside
of the control of Telecom Personal or us.
The foregoing conditions are for our sole benefit and we may waive any
such failure, in whole or in part, at any time and from time to time in our
sole discretion.
42
If any of the foregoing conditions to the Invitation shall not have been
satisfied, subject to the termination and withdrawal rights as described above,
we may:
o return tendered Notes to the holders who tendered them;
o return offers submitted under Credit Facility Debt Bid Letters;
o extend the Invitation and retain all tendered Notes until the
Expiration Date, as extended, of the extended Invitation;
o amend the Invitation in any respect by giving written notice of such
amendment to the Custodian; or
o waive satisfaction of any or all of the conditions to the Invitation.
Our failure at any time to exercise any of the foregoing rights will not
be deemed a waiver of any other right, and each right will be deemed an ongoing
right which may be asserted at any time and from time to time.
Withdrawal of Tenders
You may withdraw tenders of Debt Instruments at any time prior to the
Expiration Date in accordance with the procedures described in Annex A,
Information for Tendering Holders of the Notes, and Annex B, Information for
Tendering Holders of the Credit Facility Debt, in the sections entitled
"Procedures for Tendering Notes-Withdrawal of Tenders" and "Procedures for
Tendering Credit Facility Debt-Withdrawal of Tenders", as the case may be. We
may extend, at our discretion, the Expiration Date.
If, for any reason whatsoever, acceptance for payment of, or payment of
the Purchase Price in respect of, any Debt Instruments tendered pursuant to the
Invitation is delayed (whether before or after our acceptance for payment of
Debt Instruments) or we are unable to accept for payment or pay the Purchase
Price in respect of the Debt Instruments tendered pursuant to the Invitation,
we may retain our right to purchase the Debt Instruments and (without prejudice
to our rights set forth herein) instruct the Custodian to retain tendered
Notes, and such Debt Instruments may not be withdrawn (subject to Rule 14e-1(c)
under the Exchange Act in the case of Notes).
A permitted withdrawal of tendered Debt Instruments may not be rescinded,
and any Debt Instruments properly withdrawn will thereafter be deemed not
properly tendered. However, properly withdrawn Debt Instruments may be
re-tendered, by again following one of the appropriate procedures described in
Annex A, Information for Tendering Holders of the Notes, or Annex B,
Information for Tendering Holders of the Credit Facility Debt, in the sections
entitled "Procedures for Tendering Notes" or "Procedures for Tendering Credit
Facility Debt", as the case may be, at any time prior to the Expiration Date.
The Dealer Managers, Custodian and Information Agents and Escrow Agent
Dealer Managers. We have retained Morgan Stanley & Co. Incorporated and
its affiliates (the "Dealer Manager") to act as dealer manager in connection
with the Invitation. We have retained MBA Banco de Inversiones S.A. (the
"Argentine Dealer Manager") to act as dealer manager in connection with the
Invitation in Argentina only. The Dealer Manager and the Argentine Dealer
Manager are sometimes hereinafter referred to as the "Dealer Managers". In
their capacity as Dealer Managers, Morgan Stanley & Co. Incorporated and its
affiliates and MBA Banco de Inversiones S.A. may contact holders regarding the
Invitation and may request brokers, dealers and other nominees to forward the
Invitation and related materials to holders of the Debt Instruments (including
the beneficial holders of the Notes).
Pursuant to a dealer manager agreement, we have agreed to pay Morgan
Stanley & Co. Incorporated and its affiliates and MBA Banco de Inversiones S.A.
fees for their services as financial advisors and as Dealer Managers in
connection with the Invitation. In addition, we will reimburse the Dealer
Managers for their reasonable out-of-pocket expenses, including the reasonable
fees and expenses of their legal counsel. We have also agreed to indemnify the
Dealer Managers against certain liabilities under U.S. federal or state law
caused by, relating to or arising out of the Invitation.
43
From time to time the Dealer Managers may trade our securities for their
own account or for the account of their customers and, accordingly, may hold
long or short positions in the Notes at any time. From time to time, MBA Banco
de Inversiones S.A. has provided investment banking and other services to us
for customary compensation.
The Custodian and the Information Agents. We have retained Mellon Investor
Services LLC to act as the Custodian, and Georgeson Shareholder Communications
Inc. (in the United States and Argentina) and GSC Proxitalia SpA (in Europe) to
act as the Information Agents, in connection with the Invitation. All
deliveries, correspondence and questions sent or presented to the Custodian or
the Information Agents relating to the Invitation should be directed to the
addresses or telephone numbers set forth on the back cover of this document.
We will pay the Custodian and the Information Agents reasonable and
customary compensation for their services in connection with the Invitation,
plus reimbursement for out-of-pocket expenses. We will indemnify the Custodian
and the Information Agents against certain liabilities and expenses in
connection therewith, including liabilities under U.S. federal securities laws.
Requests for information or additional copies of this document and the
Letter of Transmittal or Bid Letter should be directed to the Information
Agents or the Dealer Managers.
The Escrow Agent. We have retained Deutsche Bank, S.A. to act as Escrow
Agent to hold the funds to guarantee payment of offers accepted under the
Invitation.
We will pay the Escrow Agent reasonable and customary compensation for
their services in connection with the Invitation, plus reimbursement for
out-of-pocket expenses. We will indemnify the Escrow Agent against certain
liabilities and expenses in connection therewith, including liabilities under
U.S. federal securities laws.
Processing Fee
A fee (the "Processing Fee") will be paid to certain banks and financial
institutions for processing tenders of the Notes accepted for purchase where
the aggregate principal amount of Notes tendered by the Note holder is less
than or equal to the equivalent of US$100,000 in the relevant currency
(calculated based on exchange rates quoted by Bloomberg L.P. as of 5:00 p.m.,
New York City time, on the second Business Day following the Expiration Date).
The Processing Fee in respect of Notes accepted for purchase will be paid to
the bank or financial institution (each, a "Processor"), if any, designated by
the beneficial owner of such Notes in the accompanying Letter of Transmittal
and will be equal to 0.25% of the aggregate principal amount for which Notes in
respect of which such designation is made are duly tendered. No Processing Fee
will be paid with respect to Notes that are not accepted for purchase by us.
Beneficial owners will be able to designate Processors in the accompanying
Letter of Transmittal. In order for any Processor to receive the Processing
Fee, the Processing Fee Form contained in the Letter of Transmittal must be
completed and sent to the Custodian at the address set forth on the back cover
of the Letter of Transmittal prior to the Expiration Date even if such
beneficial owner's Notes are tendered through DTC's ATOP procedures. A bank or
financial institution that is a direct participant in DTC, Euroclear or
Clearstream, Luxembourg and executes a Letter of Transmittal in respect of
Notes of which it is the beneficial owner is permitted to designate itself to
receive the Processing Fee. No Processing Fee will be paid in respect of any
Notes for which no Processor is designated. Notwithstanding the above, the
Processing Fee shall not exceed the equivalent of US$250,000 (in the relevant
currency) for any bank or financial institution and its affiliates, for
processing tenders of Notes. No Processing Fee will be available to banks and
financial institutions for tendering or assisting in the tenders of Credit
Facility Debt.
We will cause the Processing Fee to be delivered to DTC, which will be
required to undertake to distribute the Processing Fee within a reasonable time
after the Payment Date to such persons as appropriate. Neither the Company nor
the Dealer Managers nor the Custodian will be responsible for making such
distribution or for ensuring that DTC makes such distribution. If information
is incomplete or we are unable to verify the Processor's eligibility, then no
such fee shall be paid. No person in the United States may receive
44
the Processing Fee unless such person is a member of the National
Association of Securities Dealers, Inc. or a bank legally authorized to receive
such fees.
Fees and Expenses
Tendering holders of Notes will not be obligated to pay brokers' fees or
commissions of the Dealer Managers or, except as set forth in the Letter of
Transmittal or Bid Letter (as applicable), transfer taxes on our purchase of
Debt Instruments pursuant to tenders made pursuant to the Invitation. We will
pay all fees and expenses of the Dealer Managers, the Custodian, the
Information Agents and the Escrow Agent in connection with the Invitation.
If you own Debt Instruments through a broker or other nominee and your
broker or other nominee tenders on your behalf, your broker or other nominee
may charge a fee for doing so. You should consult your broker or other nominee
to determine whether any charges will apply.
Brokers, dealers, commercial banks and trust companies will be reimbursed
by us for customary mailing and handling expenses incurred by them in
forwarding material to their customers. We will not pay any fees or commissions
to any broker, dealer or other person (other than the Dealer Managers and the
Custodian) in connection with the solicitation of offers to sell Debt
Instruments pursuant to the Invitation.
Miscellaneous
We are not making the Invitation in any jurisdiction where doing so is not
in compliance with the laws of such jurisdiction. If we become aware of any
jurisdiction where the making of the Invitation would not be in compliance with
such laws, the Invitation will not be made to (nor will tenders be accepted
from or on behalf of) the holders of Debt Instruments residing in such
jurisdiction.
No person has been authorized to give any information or to make any
representation on our behalf that is not contained in the Invitation or in the
related Letter of Transmittal or Bid Letter (as applicable), and, if given or
made, such information or representation should not be relied upon. Neither we
nor the Custodian, the trustees under the indentures governing the Notes, the
Dealer Managers, the Information Agents, the Escrow Agent nor any of their
affiliates make any representation to any holder as to whether or not to tender
such holder's Debt Instruments. Holders must make their own decision as to
whether to tender their Debt Instruments.
45
CURRENCY OF PRESENTATION
Solely for the convenience of the reader, this document contains
translations of certain amounts from various currencies to U.S. dollars, using
exchange rates in effect as of December 31, 2002, unless otherwise indicated.
These translations should not be construed as representations that the amounts
of such currencies actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at the rate indicated. Unless otherwise indicated,
such U.S. dollar amounts have been translated at the following exchange rates:
US$1.00 = E0.9517
US$1.00 = P$3.37
US$1.00 = Y118.74
Source: The exchange rates for the Euro and Japanese yen were taken from
Composite (Ldn), and the exchange rate for the peso was taken from Banco de la
Nacion Argentina, each represents the spot rate quoted by Bloomberg L.P. as of
December 31, 2002.
Some of our Debt Instruments were originally denominated in Italian lira.
We have converted the principal amount of these Debt Instruments to Euros at a
rate of Itl. 1,936.27 = E1.00, the fixed rate established by the European
Council of Ministers.
WHERE YOU CAN FIND MORE INFORMATION
We file annual and special reports with the SEC. You may read and copy any
document that we file at the public reference rooms of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain information on the operation of the
public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site at www.sec.gov, from which you can access our
filings.
You should review these documents, particularly our annual report on Form
20-F for the fiscal year ended December 31, 2001, and the Form 6-Ks that
contain our quarterly earnings releases, in order to find out additional
information regarding our business and our financial condition and operating
results. Any information contained in this document concerning the provisions
of any document filed with the SEC is not necessarily complete, and reference
is made to the copy of the document filed.
You may obtain additional information on the Company, including our
financial information, at www.cnv.gov.ar.
46
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ANNEX A
INFORMATION FOR TENDERING HOLDERS OF THE NOTES
PROCEDURES FOR TENDERING NOTES
The submission of an offer to sell, which we refer to as a tender, by a
holder of Notes pursuant to the Invitation and subsequent acceptance of such
tender by us pursuant to one of the procedures set forth below will constitute
a binding agreement between such holder and us with respect to the Invitation
in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
The method of delivery of Notes and Letter of Transmittal, any required
signature guarantees and all other required documents, including delivery
through DTC and any acceptance of an Agent's Message (as defined below)
transmitted through ATOP, is at your election and risk and, except as otherwise
provided in the Letter of Transmittal, delivery will be deemed made only when
actually received by the Custodian. If delivery is by mail, we suggest that you
use properly insured, registered mail with return receipt requested, and that
you mail your Letter of Transmittal sufficiently in advance of the Expiration
Date to permit delivery to the Custodian prior to the Expiration Date. Notes
may be tendered and will be accepted for purchase only in principal amounts
representing integral multiples of their denominations.
Description of Notes Tendered. In accordance with the instructions
contained in the enclosed Letter of Transmittal, in order to tender your Notes
pursuant to the Invitation you must properly indicate the aggregate principal
amount for each series of Notes being tendered pursuant to the Invitation in
the section therein captioned "Description of Notes Tendered".
Specification of Price. In accordance with the instructions contained in
the Letter of Transmittal, holders desiring to tender their Notes pursuant to
the Invitation must properly indicate (a) the Notes being tendered therewith
and (b) either:
o in the section therein captioned "Price at Which Notes are Being
Tendered", specify the price (in multiples of US$2.50 or E2.50
(0.25%) per US$1,000 or E1,000 principal amount) at which the Notes
are being tendered, which price cannot be lower than the Minimum
Purchase Price or higher than the Maximum Purchase Price; or
o not specify a price, in which case the holder will be deemed to have
specified the Minimum Purchase Price in respect of Notes being
tendered and to accept the Purchase Price determined by us in
accordance with the terms of the Invitation.
In accordance with the instructions contained in the Letter of
Transmittal, you may tender different portions of the principal amount of your
Notes (in integral multiples of the Notes' original denominations only) at
different prices; however, you may not specify prices for an aggregate
principal amount of Notes in excess of the aggregate principal amount of Notes
that you hold. The same Notes cannot be tendered at more than one price. To
tender Notes properly, only one price within the applicable purchase price
range (or no price) must be specified in the appropriate section in the Letter
of Transmittal. If more than one price is specified you will be deemed to have
tendered your Notes at the lowest price specified.
Tendering Without Specifying a Price. As described above, you may tender
Notes pursuant to the Invitation without specifying an offer price in respect
of any or all of such Notes. If you tender Notes without specifying the offer
price and your Notes are accepted, you will receive the Purchase Price, subject
to proration. You should understand that this lack of election could result in
your Notes being purchased at the Minimum Purchase Price.
Tender of Notes Held Through a Custodial Entity. If your Notes are
registered in the name of or held in book-entry form through a custodial
entity, such as a broker, dealer, commercial bank, trust company or other
nominee and you wish to tender Notes pursuant to the Invitation, you should
instruct such holder to tender your Notes and deliver the Letter of Transmittal
on your behalf pursuant to the procedures of such custodial entity.
Instructions to the Letter of Transmittal are enclosed in the materials
provided along with this
A-1
document which you may use to instruct the custodial entity to tender your
Notes. If you wish to tender such Notes yourself, you must, prior to completing
and executing the Letter of Transmittal and delivering your Notes, either make
appropriate arrangements to register ownership of the Notes in your name, have
Notes in book-entry form held directly by you or follow the procedures
described in the immediately following paragraph. The transfer of record
ownership may take considerable time.
Tender of Notes Held Through DTC. To effectively tender Notes that are
held through DTC pursuant to the Invitation, DTC participants must
electronically transmit their acceptance through ATOP. Upon receipt of such
holder's acceptance through ATOP, DTC will edit and verify the acceptance and
send an Agent's Message (as defined herein) to the Custodian for its
acceptance. Delivery of tendered Notes must be made to the Custodian pursuant
to the book-entry delivery procedures set forth below.
An "Agent's Message" is a message, transmitted by DTC to and received by
the Custodian and forming part of a book-entry confirmation, which states that
DTC has received an express acknowledgement from a participant tendering Notes
that the participant, and the beneficial owner on whose behalf such participant
is acting, have received and agreed to be bound by the terms of the Letter of
Transmittal and that we may enforce the agreement against the participant and
such beneficial owner. A Letter of Transmittal need not accompany tenders
effected through ATOP.
Although delivery of Notes may be effected pursuant to the Invitation
through book-entry transfer into the Custodian's account at DTC, an Agent's
Message in connection with a book-entry transfer, and any other required
documents, must, in any case, be transmitted to and received by the Custodian
prior to the Expiration Date in connection with the tender of such Notes.
Delivery of documents to DTC does not constitute delivery to the Custodian.
Tender of Notes Held Through Euroclear or Clearstream, Luxembourg. If you
are a direct participant in Euroclear or Clearstream, Luxembourg, you must
either:
o comply with the procedures established by Euroclear or Clearstream,
Luxembourg, as applicable; or
o arrange for your Notes to be held through a DTC participant and
comply with the procedures specified above for direct participants in
DTC.
We believe that Euroclear and Clearstream, Luxembourg will (a) collect
from their direct participants instructions to participate in the Invitation
(with respect to Notes held by them on behalf of their direct participants) and
(b) forward these instructions to their respective custodian banks at DTC, who,
in turn, will process these instructions in accordance with the procedures for
direct participants in DTC. Euroclear and Clearstream, Luxembourg may impose
additional deadlines in order to properly process these instructions. If you
hold Notes directly or indirectly through Euroclear or Clearstream, Luxembourg,
you are required to become aware of any such deadlines.
Notes Not Held Through DTC, Euroclear or Clearstream, Luxembourg. If you
do not hold your Notes directly or indirectly through an account with DTC,
Euroclear or Clearstream, Luxembourg (together, the "Book-Entry Transfer
Facilities") contact the Information Agents or Dealer Managers for assistance
in submitting your tender.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program (a "Medallion Signature Guarantor"), unless the Notes
tendered are tendered and delivered:
o by a registered holder of Notes (or by a participant in DTC whose
name appears on a security position listing as the owner of such
Notes) who has not completed the box entitled "Special Payment
Instructions" on the Letter of Transmittal; or
o for the account of a member firm of a registered national securities
exchange, a member of the NASD or a commercial bank or trust company
having an office or correspondent in the United States (each of the
foregoing being referred to as an "Eligible Institution").
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If the Notes are registered in the name of a person other than the signer
of the Letter of Transmittal or if Notes not accepted for payment or not
tendered are to be returned to a person other than the registered holder, then
the signature on the Letter of Transmittal accompanying the tendered Notes must
be guaranteed by a Medallion Signature Guarantor as described above. See the
Instructions to the Letter of Transmittal.
Effect of the Letter of Transmittal. Subject to and effective upon our
acceptance for purchase of and payment for Notes tendered thereby, by executing
and delivering a Letter of Transmittal pursuant to the Invitation, you:
o irrevocably sell, assign and transfer to us, or upon our order our
nominee, all right, title and interest in and to all Notes tendered
by you; and
o irrevocably constitute and appoint the Custodian as your true and
lawful agent and attorney-in-fact (with full knowledge that the
Custodian also acts as our agent) with respect to any such tendered
Notes, with full power of substitution and resubstitution (such power
of attorney being deemed to be an irrevocable power coupled with an
interest) to:
o deliver certificates representing such Notes, or transfer
ownership of such Notes, on the account books maintained by any
of the Book-Entry Transfer Facilities, together, in any such
case, with all accompanying evidences of transfer and
authenticity, to or upon our order;
o present such Notes for transfer on the security register for the
Notes; and
o receive all benefits or otherwise exercise all rights of
beneficial ownership of such Notes (except that the Custodian
will not have the rights to, or control over, funds from us,
except as our agent, for the Purchase Price for any Notes
tendered pursuant to the Invitation that are purchased by us),
all in accordance with the terms of the Invitation.
Letter of Transmittal Representations, Warranties and Covenants of
Tendering Holders. Following the Expiration Date and subject to and effective
upon Telecom's acceptance for purchase and payment of the principal amount of
the Notes tendered pursuant to the Letter of Transmittal, you, or the Eligible
Institution, broker, dealer, bank, trust company or other nominee tendering on
your behalf, shall be deemed, among other things, to:
o irrevocably sell, assign and transfer to or upon our order, or our
nominee, all right, title and interest in and to, and any and all
claims in respect of or arising or having arisen as a result your
status as a holder of, all Notes tendered pursuant to the Letter of
Transmittal, such that thereafter you shall have no contractual or
other rights or claims in law or equity against us or any fiduciary,
trustee, fiscal agent or other person connected with the Notes
arising under, from or in connection with such Notes;
o waive any and all rights with respect to the Notes tendered thereby
(including, without limitation, any existing or past defaults and
their consequences in respect of such Notes) or the Invitation and
documents related thereto; and
o release and discharge us and the trustee under the indenture pursuant
to which the Notes were issued from any and all claims you may have,
now or in the future, arising out of or related to the Notes tendered
thereby, including, without limitation, any claims that you are
entitled to receive additional principal or interest payments with
respect to the Notes tendered thereby (other than as expressly
provided in this document and Letter of Transmittal) or to
participate in any redemption or defeasance of the Notes tendered
thereby.
In addition, you shall be deemed to represent, warrant and agree that:
o you have received and reviewed this document;
o you are the beneficial owner (as defined below) of, or a duly
authorized representative of one or more such beneficial owners of,
the Notes tendered thereby and you have full power and authority to
execute the Letter of Transmittal;
o you own the Notes being tendered, free and clear of any liens,
charges, claims, encumbrances, interests and restrictions of any
kind, and when the Notes are accepted by us, we will acquire good,
indefeasible and unencumbered title to such Notes, free and clear of
all liens, charges, claims,
A-3
encumbrances, interests and restrictions of any kind, and, in the
case of Argentine holders, marital consent has been obtained, if
applicable, in accordance with the terms of section 1277 of the
Argentine Civil Code;
o you will not sell, pledge, hypothecate or otherwise encumber or
transfer any Notes tendered thereby from the date of the Letter of
Transmittal and agree that any purported sale, pledge, hypothecation
or other encumbrance or transfer will be void and of no effect;
o in evaluating the Invitation and in making your decision whether to
participate therein by submitting the Letter of Transmittal and
tendering your Notes, you have made your own independent appraisal of
the matters referred to herein and in any related communications and
are not relying on any statement, representation or warranty, express
or implied, made to you by us or the Dealer Managers other than those
contained in the Invitation (as supplemented to the Expiration Date);
o you agree to execute any further documents and give any further
assurances that may be required in connection with any of the
foregoing, in each case on and subject to the terms and conditions
set out or referred to in the Invitation;
o the submission of the Letter of Transmittal to the Custodian shall,
subject to the Invitation becoming unconditional in all respects in
accordance with its terms and conditions, constitute the irrevocable
appointment of the Custodian as your attorney and/or agent, and an
irrevocable instruction to such attorney and/or agent to complete and
execute all or any form(s) of transfer and/or other document(s) at
the discretion of such attorney and/or agent in relation to the Notes
tendered by you in favor of us or such other person or persons as
they may direct, and to deliver such form(s) of transfer and/or other
document(s) in the attorney's and/or agent's discretion and/or the
certificate(s) and/or other document(s) of title relating to such
Notes' registration and to execute all such other documents and to do
all such other acts and things as may be in the opinion of such
attorney or agent necessary or expedient for the purpose of, or in
connection with, the acceptance of the Invitation, and to vest in us
or our nominees such Notes; and
o that the terms and conditions of the Invitation shall be deemed to be
incorporated in, and form a part of, the Letter of Transmittal, which
shall be read and construed accordingly.
The representations and warranties and agreements that you make in
tendering Notes shall be deemed to be repeated and reconfirmed on and as of the
Expiration Date and the Payment Date. For purposes of the Invitation, the
"beneficial owner" of any Notes shall mean any holder that exercises sole
investment discretion with respect to such Notes.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Notes pursuant to any of the procedures described above and the form
and validity (including time of receipt of notices of withdrawal) of all
documents will be determined by us, in our sole discretion, which determination
will be final and binding. We reserve the absolute right to reject any or all
tenders of any Notes determined by us not to be in proper form or if the
acceptance of or payment for such Notes may, in the opinion of our counsel, be
unlawful. We also reserve the absolute right, in our sole discretion, to waive
or amend any condition to the Invitation that we are legally permitted to waive
or amend, or to waive any defect or irregularity in any tender of Notes of any
particular holder, whether or not similar defects or irregularities are waived
in the case of other holders. None of Telecom, the Custodian, the Dealer
Managers, the Information Agents, the Escrow Agent or any other person will be
under any duty to give notice of any defects or irregularities in tenders of
Notes or will incur any liability to holders for failure to give any such
notice.
Our interpretation of the terms and conditions of the Invitation
(including the Letter of Transmittal and the instructions thereto) will be
final and binding.
Compliance with "Short Tendering" Rule. It is a violation of Rule 14e-4
under the Exchange Act for a person, directly or indirectly, to tender Notes
for his own account unless the person so tendering (1) has a net long position
equal to or greater than the aggregate principal amount or principal amount at
maturity, as
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applicable, of the Notes being tendered and (2) will cause such Notes to be
delivered in accordance with the terms of the Invitation. Rule l4e-4 provides a
similar restriction applicable to the tender or guarantee of a tender on behalf
of another person.
A tender of Notes pursuant to the Invitation under any of the procedures
described above will constitute a binding agreement between the tendering
holder and us with respect to the tender upon the terms and subject to the
conditions of the Invitation, including the tendering holder's acceptance of
the terms and conditions of the Invitation, as well as the tendering holder's
representation and warranty that (1) such holder has a net long position in the
Notes being tendered pursuant to the Invitation within the meaning of Rule
l4e-4 under the Exchange Act and (2) the tender of such Notes complies with
Rule 14e-4.
No tender will be deemed to have been properly made until all defects or
irregularities in such tender have been cured or waived. None of us, the Dealer
Managers, the Custodian, the Information Agents, the Escrow Agent or any other
person will be under any duty to give notification of any defects or
irregularities in any tender of any Notes or notice of withdrawal, or incur any
liability for failure to give any such notification.
PLEASE SEND ALL MATERIALS TO THE CUSTODIAN AND NOT TO THE COMPANY, THE
INFORMATION AGENTS OR THE DEALER MANAGERS.
Withdrawal of Tenders
You may withdraw your tender of Notes pursuant to the Invitation at any
time prior to the Expiration Date in accordance with the procedures described
below. We may extend, at our discretion, the Expiration Date.
If, for any reason whatsoever, acceptance for payment of, or payment for,
any Notes tendered pursuant to the Invitation is delayed (whether before or
after our acceptance for payment of Notes) or we are unable to accept for
payment or pay for the Notes tendered pursuant to the Invitation, we may
(without prejudice to our rights set forth herein) instruct the Custodian to
retain tendered Notes, and such Notes may not be withdrawn subsequent to the
Expiration Date (subject to Rule 14e-1(c) under the Exchange Act).
For a withdrawal of Notes tendered pursuant to the Invitation to be
effective, a written or facsimile transmission notice of withdrawal must be
received by the Custodian prior to the Expiration Date at its address set forth
on the back cover of this document. Any such notice of withdrawal must (1)
specify the name of the person who tendered the Notes to be withdrawn, (2)
contain a description of the aggregate principal amount represented by such
Notes and (3) be signed by the holder of such Notes in the same manner as the
original signature on the Letter of Transmittal by which such Notes were
tendered (including any required signature guarantees) or be accompanied by
evidence sufficient to the Custodian that the person withdrawing the tender has
succeeded to the beneficial ownership of the Notes. If the Notes to be
withdrawn have been delivered or otherwise identified to the Custodian, a
signed notice of withdrawal is effective immediately upon the Custodian's
receipt of such written or facsimile notice of withdrawal, even if physical
release is not effected.
Any permitted withdrawal of tendered Notes may not be rescinded, and any
Notes properly withdrawn will thereafter be deemed not properly tendered.
However, you may re-tender properly withdrawn Notes by again following one of
the appropriate procedures described above at any time prior to the Expiration
Date.
Any Notes that have been tendered pursuant to the Invitation but that are
not purchased will be returned to the holder thereof without cost to such
holder as soon as practicable following the earlier to occur of the Expiration
Date or the date on which the Invitation is terminated.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by us, in our sole
discretion (which determination shall be final and binding). None of us, the
Custodian, the Dealer Managers, the Information Agents or any other person will
be under any duty to give notice of any defects or irregularities in any notice
of withdrawal or will incur any liability for failure to give any such notice.
A-5
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material U.S. federal income tax
consequences to U.S. holders of Notes held as capital assets (generally,
property held for investment) who tender their Notes pursuant to the
Invitation. This summary is not a complete description of all the consequences
of a tender pursuant to the Invitation and does not address any other tax
consequences that might be applicable to a holder of the Notes, such as tax
consequences arising under the tax laws of any state, locality or foreign
jurisdiction. Further, this discussion does not address all aspects of U.S.
federal income taxation that may be relevant to particular holders of Notes in
light of their personal circumstances and does not deal with holders of Notes
subject to special tax rules including, for example, holders who have not
purchased the Notes for cash or who have held them for less than 45 days,
foreign holders, financial institutions, certain expatriates, dealers in
securities, traders that mark to market, holders who hold their Notes as part
of a hedge, appreciated financial position, straddle or conversion transaction,
insurance companies, persons whose functional currency is not the U.S. dollar,
pass-through entities or tax-exempt entities.
If a partnership holds Notes, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding Notes, you should
consult your tax advisor.
As used herein, a "U.S. holder" means a beneficial owner of a Note who is,
for U.S. federal income tax purposes:
o A citizen or resident of the United States;
o A corporation (or an entity taxable as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of the
United States or of any political subdivision thereof; or
o An estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source.
The discussion of the U.S. federal income tax considerations below is
based on currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the applicable Treasury Regulations promulgated and
proposed under the Code, judicial decisions and administrative interpretations,
all of which are subject to change, possibly with retroactive effect. Because
individual circumstances may differ, you are urged to consult your tax advisor
with respect to your particular tax situation and the particular tax effects of
any state, local, foreign or other tax laws and possible changes in the tax
laws.
Consequences to U.S. Holders Tendering Notes Pursuant to the Invitation
The receipt of cash for Notes pursuant to the Invitation will be a taxable
transaction for U.S. federal income tax purposes. The tax consequences of such
receipt may vary depending upon the particular circumstances of the U.S.
holder. In general, a U.S. holder who receives cash for Notes pursuant to the
Invitation will recognize gain or loss, if any, for U.S. federal income tax
purposes equal to the difference between (i) the amount realized in exchange
for the Notes tendered less any amounts attributable to accrued interest that
have not been reflected in the U.S. holder's adjusted tax basis in the Notes
and (ii) such holder's adjusted tax basis in such Notes. A U.S. holder's
adjusted tax basis for a Note is generally the price such holder paid for the
Note, increased by the original issue discount and market discount, if any,
previously included in such holder's income and reduced (but not below zero) by
any amortized bond premium which a U.S. holder has previously elected to deduct
from taxable income on an annual basis and payments other than payments of
stated interest that are unconditionally payable at least annually at a single
fixed rate. In general, market discount is the excess, if any, of the principal
amount of a Note over the U.S. holder's tax basis in such Note at the time of
acquisition (unless the amount of such excess is less than a specified de
minimis amount, in which case market discount is considered to be zero). In
general, bond premium on a Note equals the excess, if any, of the purchase
price of the Note over the amount payable at maturity of the Note (other than
stated interest thereon).
A-6
Except as provided below, any gain or loss recognized on a tender of a
Note will generally give rise to capital gain or loss and will be long-term
capital gain or loss if at the time the tender is accepted the U.S. holder's
holding period on the Note for U.S. federal income tax purposes is more than
one year. Individuals who realize long-term capital gain pursuant to the
Invitation are eligible for reduced rates of taxation with respect to that
gain. The deductibility of capital losses is subject to limitations. A U.S.
holder who has acquired a Note with market discount will generally be required
to treat a portion of any gain recognized on acceptance of the tender of the
Note as ordinary income to the extent of the market discount accrued to the
date of the disposition, less any accrued market discount income previously
reported as ordinary income.
A U.S. holder that recognizes a loss for federal income tax purposes by
reason of its tender of Notes should consult its tax advisor regarding the
possible application of the disclosure and listing rules to the tender.
Treatment of Accrued Interest. Amounts received by a U.S. holder in
respect of interest on the Notes including any amounts attributable to accrued
interest that have not been reflected in the U.S. holder's adjusted tax basis
in the Notes will be taxable as ordinary income. Additionally, U.S. tax rules
provide that a portion of the Purchase Price may first be allocated to accrued
but unpaid interest that has not been reflected in the U.S. holder's adjusted
tax basis in the Notes and be taxed as ordinary income. As a result, tendering
holders could recognize ordinary income on the portion of the Purchase Price
allocated to accrued but unpaid interest and at the same time recognize capital
loss to the extent that the difference between the Purchase Price and amount
allocated to accrued but unpaid interest is less than the holder's adjusted
basis. On the other hand, holders may be able to take the position under
current law that the entire Purchase Price should be treated as an amount
realized (and no portion be treated as ordinary interest income) with respect
to the Notes. Holders are urged to consult their tax advisors regarding the
appropriate treatment for U.S. federal income tax purposes of the Purchase
Price.
Foreign Currency Notes. The rules applicable to notes that are denominated
in a currency or currency unit other than the U.S. dollar (which we refer to as
"foreign currency notes") could require some or all of the gain or loss on the
sale, exchange or other disposition of a foreign currency note to be
recharacterized as ordinary income or loss. The rules applicable to foreign
currency notes are complex and their application may depend on the holder's
particular U.S. federal income tax situation. U.S. holders are urged to consult
their own tax advisors regarding the U.S. federal income tax consequences of
the ownership and disposition of foreign currency notes and the possible
application of the disclosure and listing rules to the tender.
Information Reporting and Backup Withholding
A U.S. holder whose Notes are tendered and accepted for payment by the
Company may be subject to backup withholding with respect to such payments
received, unless such holder (i) is a corporation or other exempt recipient
and, when required, establishes its exemption from backup withholding or (ii)
provides its correct taxpayer identification number ("TIN"), certifies that it
is not currently subject to backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
Backup withholding tax is not an additional federal income tax. Rather,
the federal income tax liability of persons subject to backup withholding tax
will be offset by the amount of tax withheld. If backup withholding tax results
in an overpayment of U.S. federal income tax, a refund or credit may be
obtained from the IRS, provided the required information is furnished.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS OR ANY
OTHER CONSIDERATIONS OF THE TENDER OF NOTES PURSUANT TO THE INVITATION.
THUS, HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE TENDER TO THEM, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED
CHANGES IN THE TAX LAWS.
A-7
MATERIAL ARGENTINE TAX CONSIDERATIONS
The following is a general summary of the material Argentine tax
consequences to holders of Notes who tender their Notes pursuant to the
Invitation. This summary is not a complete description of all the tax
consequences of a tender pursuant to the Invitation and does not address any
other tax consequences that might be applicable to a holder of the Notes, such
as tax consequences arising under the tax laws of any state, locality or
foreign jurisdiction. Further, this discussion does not address all aspects of
Argentine taxation that may be relevant to particular holders of Notes in light
of their personal circumstances and does not deal with holders of Notes subject
to special tax rules.
While this summary is deemed to reflect a reasonable interpretation of the
laws and regulations in force on the date of the Invitation, there can be no
assurance that the Argentine tax authorities or the courts responsible for the
application of such laws and regulations will agree with this interpretation,
or that no changes will be introduced in these laws or regulations in the
interpretation thereof by tax authorities or courts. Because individual
circumstances may differ, you are strongly urged to consult your tax advisor
with respect to your particular tax situation and the particular tax effects of
any state, local, foreign or other tax laws and possible changes in the tax
laws and regulations. For the purpose of this section we assume that the Notes
were issued in accordance with Law No. 23,576, as amended (the "Negotiable
Obligations Law"), and qualify for tax exempt treatment under Article 36 of
such Law (the "Article 36 Conditions") and the Article 36 Conditions are
maintained.
Consequences to Holders Tendering Notes Pursuant to the Invitation
Income Tax
Provided that Article 36 Conditions were met and are maintained, Argentine
resident and non-resident individuals (as defined in Argentine Income Tax Law,
"AITL") and non-Argentine entities (as defined in AITL) are not subject to
income tax on capital gains arising from the sale or other disposition of the
Notes. Even if Article 36 Conditions are not met, Decree No. 2,284 ratified by
Law No. 24,307, states that foreign beneficiaries are not subject to the income
tax on capital gains derived from the sale or other disposition of the Notes,
and Section 20, Subsection w) of AITL established that Argentine resident
individuals, except for certain individuals, are exempt from capital gains
derived from the sale or disposition of the Notes.
Decree No. 1,076 of July 2, 1992, as amended by Decree No. 1,157 of July
15, 1992, both of which were ratified by Law No. 24,937 of December 30, 1993
(the "Decree"), eliminated the exemption described above with respect to
taxpayers subject to tax adjustment for inflation rules pursuant to Title VI of
the AITL (such as entities organized or incorporated under Argentine Law and
local branches of non-Argentine entities (together, the "Argentine Entities")),
who are subject to taxes on capital gains on the sale or other disposition of
the Notes, in general, at a rate of 35%. The Argentine Entities will recognize
a gain or a loss, if any, for Argentine income tax purposes equal to the
difference between (i) the cash received in exchange for the Notes tendered and
(ii) such holder's tax valuation of such Notes.
Value Added Tax
To the extent the Notes comply with Article 36 Conditions, any benefit
related to the issuance, subscription, transfer, amortization and cancellation
of the Notes are exempt from value added tax.
Personal Asset Tax
Individuals domiciled and undivided estates located in Argentina or abroad
must include securities, such as the Notes, in order to determine their tax
liability for the Personal Assets Tax. There is a nontaxable amount of
P$102,300 with respect to individuals and undivided estates located in
Argentina. The taxable basis is either the market value in the case of listed
securities or acquisition cost plus accrued and unpaid interest and exchange
rate differentials, in the case of unlisted securities, in both cases at
December 31 of each year. The tax is levied at the rate of 0.5% to the extent
the value of the assets exceed the non-taxable amount and
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such excess is less than P$200,000. The rate of the tax is 0.75% where the
excess over the non-taxable amount is greater than P$200,000.
Although Notes directly held by individuals domiciled and undivided
estates located outside Argentina would technically be subject to the Personal
Assets Tax, the Personal Assets Tax Law sets forth no method or procedure for
the collection of such tax in respect of securities, including the Notes, that
are directly held by such individuals or undivided estates, if any, at a 0.75%
rate. The Personal Assets Tax is not applicable in respect of securities held
by (i) legal entities domiciled in Argentina, and (ii) legal entities not
domiciled in Argentina (a "foreign legal entity") provided such foreign legal
entity does not fall within the legal presumption described in the following
paragraph.
Although the tax is levied only upon securities held by individuals
domiciled in, or undivided estates located in, Argentina, the Personal Assets
Tax establishes an irrefutable legal presumption that any securities issued by
Argentine private issuers, which are directly owned ("titularidad directa") by
a foreign legal entity that (i) is located in a country which does not require
shares or private securities to be held in registered form and (ii) pursuant to
its legal nature or its bylaws has established that (a) its principal business
is investing outside its country of organization and/or (b) is not able to
perform certain activities in its own country or make certain investments
permitted pursuant to the laws of such country, are deemed to be owned by
individuals domiciled in, or undivided estates located in Argentina and,
therefore, subject to the Personal Assets Tax. In such cases the law imposes
the obligation to pay the Personal Assets Tax at an aggregate rate of 1.5% on
the Argentine private issuer, as substitute obligor ("Substitute Obligor"). The
Personal Assets Tax Law also authorizes the Substitute Obligor to seek recovery
of the amount so paid, without limitation, by way of withholding or by
foreclosing on the assets that gave rise to such payment. There are certain
cases in which this presumption is not applicable.
The exchange of the Notes for cash will imply:
o Individuals domiciled or undivided estates located in Argentina: the
substitution of a taxable asset (the "Notes") for another taxable
asset (the cash).
o Individuals domiciled and undivided estates located abroad: to the
extent the cash is not considered an asset located in Argentina, the
Personal Asset Tax is not applicable.
o Foreign Legal Entities: the Personal Asset Tax is not applicable.
Tax on Presumed Minimum Income
Legal Entities organized or domiciled in Argentina ("Argentine Legal
Entities") holding the Notes will be subject to a tax on presumed minimum
income. The tax is calculated at a rate of 1%, applied on the value of the
assets of Argentine Legal Entities. Income tax is creditable against Tax on
Presumed Minimum Income, the excess, if any can be carried over for ten fiscal
years. The exchange of the Notes for cash will imply the substitution of a
taxable asset (the "Notes") for another taxable asset (the cash).
Tax on Debits and Credits in Bank Accounts
Tax on Debits and Credits in Bank Accounts applies to debits and credits
in checking accounts opened in Argentine financial entities regulated by Law
No. 21,526, as amended (the "Argentine Financial Entities Law") and to other
transactions that, due to their special nature and characteristics, are similar
or could be used in substitution of a checking account. Therefore, credits or
debits in bank accounts opened in an entity regulated by the Argentine
Financial Entities Law would be subject to this tax unless a particular
exemption is available. The general applicable rate is 0.6%.
Turnover Tax (Tax on Gross Revenues)
Turnover tax is a local tax levied on gross revenues derived from the
habitual performance of any type of business activities carried on within the
respective local jurisdiction. Each jurisdiction applies different tax
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rates. In the City of Buenos Aires, profits arising from any transaction
performed with the Notes issued according to the Negotiable Obligations Law are
exempt from this tax. In the Province of Buenos Aires, an equivalent exemption
applies to the extent Article 36 Conditions have been met.
Stamp and Transfer Tax
Stamp and transfer taxes are local taxes. Each jurisdiction applies
different tax rates. No stamp tax shall be payable by holders of the Notes
under Article 35 of the Negotiable Obligations Law in the City of Buenos Aires.
No Argentine transfer tax is applicable to the sale or transfer of the Notes.
Consequences to Holders Regarding Payment of Interest
See the tax treatment of interest payments according to the terms and
conditions of the issuance of each Note. Please note that:
Tax on Interest Paid by Issuers of Negotiable Obligations ("obligaciones
negociables") and Certain Borrowers
This tax is not applicable since July 1, 2002.
Income Tax Withholding
Provided that Article 36 Conditions were met and are maintained, Argentine
resident and non-resident individuals (as defined in AITL) and non-Argentine
entities (as defined in AITL) are not subject to income tax on interest paid
under the Notes.
The Decree eliminated the exemption described above with respect to
Argentine Entities, which are subject to income tax under the Notes, in
general, at a rate of 35%. A 35% withholding on account of the final tax
liability is imposed on the payments to Argentine entities except Argentine
financial entities regulated by Law No. 21,526.
Tax on Debits and Credits in Bank Accounts
The Tax on Debits and Credits in Bank Accounts applies to debits and
credits in checking accounts opened in Argentine financial entities regulated
by Law No. 21,526, as amended (the "Argentine Financial Entities Law") and to
other transactions that, due to their special nature and characteristics, are
similar or could be used in substitution of a checking account. Therefore,
credits or debits in bank accounts opened in an entity regulated by the
Argentine Financial Entities Law would be subject to this tax unless a
particular exemption is available. The general applicable rate is 0.6%.
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL ARGENTINE TAX CONSIDERATIONS OR ANY OTHER
CONSIDERATIONS OF THE TENDER OF NOTES PURSUANT TO THE INVITATION. THUS, HOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE TENDER TO THEM.
A-10
ANNEX B
INFORMATION FOR TENDERING HOLDERS OF THE CREDIT FACILITY DEBT
PROCEDURES FOR TENDERING CREDIT FACILITY DEBT
The submission of an offer to sell, which we refer to as a tender, by a
holder of Credit Facility Debt pursuant to the Invitation and subsequent
acceptance of such tender by us pursuant to the procedures set forth below will
constitute a binding agreement between such holder and us with respect to the
Invitation in accordance with the terms and subject to the conditions set forth
herein and in the Bid Letter.
If you desire to tender your Credit Facility Debt pursuant to the
Invitation you should complete the Bid Letter and deliver it to the Custodian
prior to the Expiration Date. The method of delivery of the Bid Letter and all
other required documents is at your election and risk and, except as otherwise
provided in the Bid Letter, delivery will be deemed made only when your Bid
Letter is actually received by the Custodian. If delivery is by mail, we
suggest that you use properly insured, registered mail with return receipt
requested, and that you mail your Bid Letter sufficiently in advance of the
Expiration Date to permit delivery to the Custodian on or prior to such date.
Amendments to Credit Facility Debt. In extending the Invitation to holders
of Credit Facility Debt, we make no representation with respect to whether the
terms of the Invitation are permitted under the terms of, or are consistent
with, the terms of any specific facilities comprising the Credit Facility Debt.
The documents and/or agreements governing your Credit Facility Debt, which we
refer to as the governing documents, may among other things restrict the
transfer or assignment of the Credit Facility Debt, specify minimum
denominations for transfer or assignment, provide for sharing of recoveries
with other participants and require notice to or consent of other parties in
connection with the transactions of the sort contemplated by the Invitation
including, but not limited to, the purchase of such Credit Facility Debt and
the cancellation thereof. For Credit Facility Debt outstanding under agreements
that may be amended solely by the consent of the tendering holder and us
(written or otherwise), the Bid Letter provides that upon our acceptance of the
tender of Credit Facility Debt, the governing documents for such Credit
Facility Debt will be deemed to be immediately and automatically amended to
permit the transactions contemplated herein, including but not limited to the
purchase and cancellation of such Credit Facility Debt by Telecom. No fees
shall be payable by Telecom with respect to the purchase of any Credit Facility
Debt. See "Bid Letter Representations, Warranties and Covenants of Tendering
Holders" below.
Multi-party or Syndicated Credit Facility Debt. For Credit Facility Debt
outstanding under multi-party or syndicated credit agreements, the consent of
parties other than the tendering holder and Telecom may be required in order to
permit the transactions contemplated by the Invitation. Holders of Credit
Facility Debt outstanding under multi-party or syndicated credit agreements
should consult their own legal counsel and contact the relevant agent bank, if
any, with respect to the relevant provisions of the governing documents
relating to such Credit Facility Debt.
In the Bid Letter, tendering holders of Credit Facility Debt outstanding
under multi-party or syndicated credit agreements or any other governing
document that require the consent and/or agreement of parties other than the
tendering holder are required to represent that all such required consents
and/or agreements have been obtained. See "Bid Letter Representations,
Warranties and Covenants of Tendering Holders" below. In order to facilitate
participation of holders of Credit Facility Debt in the Invitation, we have
provided the agent bank for each of our syndicated credit agreements with a
form of amendment which may be executed by the required parties to such Credit
Facility Debt in order to permit the transactions contemplated by the
Invitation. Although the terms of such agreements vary depending on the terms
of the relevant governing documents, the amendments generally provide that the
applicable governing documents will be amended to the extent necessary to:
o permit (i) the holder to tender all or a portion of its Credit
Facility Debt pursuant to the terms of the Invitation and (ii)
Telecom to purchase and cancel such tendered Credit Facility Debt (or
portions thereof) purchased pursuant to the terms and conditions of
this document, with the result that
B-1
thereafter the principal so purchased and all amounts payable in
respect thereof shall cease to be outstanding, in each case in
accordance with the terms described in this document and without
reference to any minimum or other requirement as to principal amount;
o provide that no lender shall be required to share with any other
lender the proceeds of the sale to Telecom of all or a portion of its
loans; and
o provide that (i) Telecom will not become a lender and will not be
entitled to any distributions in respect of any Credit Facility Debt
(or portions thereof) purchased pursuant to the Invitation and (ii)
no fees shall be payable by Telecom with respect to the purchase of
any Credit Facility Debt.
Holders of syndicated Credit Facility Debt who wish to participate in the
Invitation are encouraged to contact the agent bank for the relevant facility
in order to determine the actions required for their participation.
Specification of Price. In accordance with the instructions contained in
the enclosed Bid Letter, holders desiring to tender their Credit Facility Debt
pursuant to the Invitation must properly indicate (a) the amount of each Credit
Facility Debt being tendered therewith and (b) either:
o in the section therein captioned "Price at Which Credit Facility Debt
is Being Tendered", specify (in multiples of 2.50 (0.25%) per 1,000
(in the applicable currency) principal amount) the price at which the
Credit Facility Debt is being tendered, which price cannot be lower
than the Minimum Purchase Price or higher than the Maximum Purchase
Price; or
o not specify a price, in which case the holder will be deemed to have
specified the Minimum Purchase Price in respect of the amount of
Credit Facility Debt being tendered and to accept the Purchase Price
determined by us in accordance with the terms of the Invitation.
Credit Facility Debt held pursuant to a single governing document cannot
be tendered at more than one price. If more than one price is selected in your
Bid Letter you will be deemed to have selected the lowest price selected. If
you hold Credit Facility Debt pursuant to more than one governing document, you
will receive, and must complete, a separate Bid Letter for each governing
document pursuant to which Credit Facility Debt is held.
Tendering Without Specifying a Price. As described above, you may tender
Credit Facility Debt pursuant to the Invitation without specifying an offer
price in respect of any or all of such Credit Facility Debt. If you tender
Credit Facility Debt without specifying the offer price and your Credit
Facility Debt is accepted, you will receive the Purchase Price, subject to
proration. You should understand that this lack of election could result in
your Credit Facility Debt being purchased at the Minimum Purchase Price.
Effect of the Bid Letter. Subject to and effective upon our acceptance for
purchase of and payment for Credit Facility Debt tendered thereby, by executing
and delivering a Bid Letter pursuant to the Invitation, you will enter into a
binding agreement with us upon the terms and conditions set forth therein. On
the Payment Date, to the extent that we accept the tender of Credit Facility
Debt pursuant to the terms of the Invitation, we will cancel the principal of
such Credit Facility Debt, together with accrued and unpaid interest thereon.
Bid Letter Representations, Warranties and Covenants of Tendering Holders.
Following the Expiration Date, and subject to and effective upon our acceptance
for purchase and payment of the principal amount of the Credit Facility Debt
that you tender pursuant to the Invitation, upon the terms and conditions set
forth in the Invitation, you shall be deemed, among other things, to:
o irrevocably sell, assign and transfer to us or upon our order or to
our nominee, all right, title and interest in and to, and any and all
claims in respect of or arising or having arisen as a result of your
status as a holder of, all Credit Facility Debt tendered by you and
accepted for purchase by us, such that thereafter you shall have no
contractual or other rights or claims in law or equity against us or
any other lender, agent or other person connected with such tendered
Credit Facility Debt;
B-2
o waive any and all rights with respect to the Credit Facility Debt
tendered by you and accepted for purchase by us (including, without
limitation, any existing or past defaults and their consequences in
respect of such Credit Facility Debt) or the Invitation and documents
related thereto;
o in the case of any Credit Facility Debt held pursuant to a governing
document that may be amended or cancelled solely by the consent
and/or agreement (written or otherwise) of you and us, consent and
agree that the Bid Letter shall constitute an immediate and automatic
amendment of the governing document(s) for such Credit Facility Debt,
effective upon our acceptance of such Credit Facility Debt, to permit
(i) you to tender all or a portion of your Credit Facility Debt
pursuant to this Bid Letter and (ii) us to purchase and cancel such
tendered Credit Facility Debt (or portion thereof) pursuant to the
terms and conditions of this document, with the result that
thereafter the principal so purchased and all amounts payable in
respect thereof shall cease to be outstanding, in each case in
accordance with the terms described in this document and without
reference to any minimum or other requirement as to principal amount,
and that no fees shall be payable by Telecom with respect to the
purchase of any such Credit Facility Debt;
o in the case of any Credit Facility Debt held pursuant to a
multi-party or syndicated facility or any other governing document
that requires the consent and/or agreement of parties other than you
and us, represent that all such consents and/or agreements have been
obtained and are in full force and effect, and agree to take any and
all future actions to obtain any consents or approvals that shall
arise pursuant to the governing document and to execute any further
waiver, amendments or similar documents that may be required, in
order to effectuate the tender of the Credit Facility Debt and comply
with the terms of the Bid Letter;
o release and discharge us (and, if applicable, the agent for any
syndicated facility) from any and all claims you may have, now or in
the future, arising out of or related to the Credit Facility Debt
tendered by you and accepted for purchase by us, including, without
limitation, any claims that you are entitled to receive additional
principal or interest payments with respect to the Credit Facility
Debt tendered by you and accepted for purchase by us (other than as
expressly provided in this document and the Bid Letter) or to
participate in any payment or defeasance of such Credit Facility Debt
or any recovery that may be obtained by our creditors in connection
with the proposed restructuring of our financial debt obligation or
otherwise;
o agree to send any promissory note(s) underlying your tendered Credit
Facility Debt accepted for purchase by us to us for cancellation
promptly upon our request; and
o agree to take whatever actions are necessary, and execute whatever
documents are required, in order to effectuate a release of all
guarantees with respect to your tendered Credit Facility Debt that
has been purchased and cancelled by us.
In addition, you shall be deemed to represent, warrant and agree that:
o you have received and reviewed this document and the Bid Letter;
o you own the Credit Facility Debt tendered and have full power and
authority to execute the Bid Letter and will provide any additional
documents or information that we may request in order to verify such
ownership, power and authority;
o all relevant notices, consents and approvals necessary to tender the
Credit Facility Debt in accordance with the terms of the Invitation
and complete the transactions contemplated in the Invitation and in
the Bid Letter have been obtained or waived, including any notices,
consents or approvals required pursuant to the governing documents
relating to such Credit Facility Debt;
o you own the Credit Facility Debt being tendered, free and clear of
any liens, charges, claims, encumbrances, interests and restrictions
of any kind, and we will acquire good, indefeasible and unencumbered
title to such Credit Facility Debt, free and clear of all liens,
charges, claims, encumbrances, interests and restrictions of any
kind;
B-3
o you will not sell, pledge, hypothecate or otherwise encumber or
transfer any interest in the Credit Facility Debt tendered thereby
from the date of the Bid Letter and agree that any purported sale,
pledge, hypothecation or other encumbrance or transfer will be void
and of no effect;
o we make no representation concerning whether the terms of any
governing documents related to the Credit Facility Debt permit you to
participate in the Invitation;
o the governing documents relating to certain Credit Facility Debt may,
among other things, restrict transfer or assignment of the Credit
Facility Debt, specify minimum denominations for transfer or
assignment, provide for sharing of recoveries with other participants
and require notice to or consent of other parties in connection with
the transactions of the sort contemplated by the Invitation
including, but not limited to, the purchase and cancellation of such
debt; you have reviewed the governing documents relating to the
Credit Facility Debt to be tendered with these considerations in mind
and, to the extent required, consulted your legal counsel and/or
professional advisors concerning your participation in the
Invitation;
o in evaluating the Invitation and in making your decision whether to
participate therein by submitting the Bid Letter and tendering your
Credit Facility Debt, you have made your own independent appraisal of
the matters referred to herein and in any related communications and
are not relying on any statement, representation or warranty, express
or implied, made to you by us or the Dealer Managers other than those
contained in the Invitation (as supplemented to the Expiration Date);
o to the extent necessary to give effect to the transactions
contemplated by the Bid Letter, you agree to execute any further
documents and give any further assurances that may be required in
connection with any of the foregoing, in each case on and subject to
the terms and conditions set out or referred to in the Invitation;
o the terms and conditions of the Invitation shall be deemed to be
incorporated in, and form a part of, the Bid Letter, which shall be
read and construed accordingly.
The representations and warranties and agreements that you make in
tendering Credit Facility Debt shall be deemed to be repeated and reconfirmed
on and as of the Expiration Date and the Payment Date.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Credit Facility Debt pursuant to any of the procedures described above
and the form and validity (including time of receipt of notices of withdrawal)
of all documents will be determined by us, in our sole discretion, which
determination will be final and binding. We reserve the absolute right to
reject any or all tenders of any Credit Facility Debt determined by us not to
be in proper form or if the acceptance of or payment for such Credit Facility
Debt and its subsequent cancellation may, in the opinion of our counsel, be
unlawful or violate any contractual provision relating to such Credit Facility
Debt. We reserve, at our sole judgment, the right to reject any tender if there
is any discrepancy relating to the ownership of the tendered Credit Facility
Debt. We also reserve the absolute right, in our sole discretion, to waive or
amend any condition to the Invitation that we are legally permitted to waive or
amend, or to waive any defect or irregularity in any tender of Credit Facility
Debt of any particular holder, whether or not similar defects or irregularities
are waived in the case of other holders.
Our interpretation of the terms and conditions of the Invitation
(including the Bid Letter and the instructions thereto) will be final and
binding.
No tender will be deemed to have been properly made until all defects or
irregularities in such tender have been cured or waived. None of us, the Dealer
Managers, the Custodian, the Information Agents, the Escrow Agent or any other
person will be under any duty to give notification of any defects or
irregularities in any tender of any Credit Facility Debt or notice of
withdrawal, or incur any liability for failure to give any such notification.
PLEASE SEND ALL MATERIALS TO THE CUSTODIAN AND NOT TO THE COMPANY, THE
INFORMATION AGENTS OR THE DEALER MANAGERS.
B-4
Withdrawal of Tenders
You may withdraw your tender of Credit Facility Debt pursuant to the
Invitation at any time prior to the Expiration Date in accordance with the
procedures described below. We may extend, at our discretion, the Expiration
Date.
If, for any reason whatsoever, acceptance for payment of, or payment for,
any Credit Facility Debt tendered pursuant to the Invitation is delayed
(whether before or after our acceptance for payment of Credit Facility Debt) or
we are unable to accept for payment or pay for the Credit Facility Debt
tendered pursuant to the Invitation, we may (without prejudice to our rights
set forth herein) retain our rights to purchase the Credit Facility Debt, and
such tender of Credit Facility Debt may not be withdrawn subsequent to the
Expiration Date. Telecom will accept and pay for such Credit Facility Debt or
notify you that it does not intend to accept and pay for such Credit Facility
Debt as promptly as practicable.
For a withdrawal of Credit Facility Debt tendered pursuant to the
Invitation to be effective, a written or facsimile transmission notice of
withdrawal must be received by the Custodian prior to the Expiration Date at
its address set forth on the back cover of this document. Any such notice of
withdrawal must (1) specify the name of the person who tendered the Credit
Facility Debt to be withdrawn, (2) contain a description of the specific
facility and principal amount thereof represented by such tender and (3) be
signed by the holder of such Credit Facility Debt in the same manner as the
original signature on the Bid Letter by which such Credit Facility Debt was
tendered, or be accompanied by evidence sufficient to the Custodian that the
person withdrawing the tender has succeeded to the ownership of the Credit
Facility Debt. If the Credit Facility Debt to be withdrawn has been identified
to the Custodian, a signed notice of withdrawal is effective immediately upon
the Custodian's receipt of such written or facsimile notice of withdrawal.
Any permitted withdrawal of tendered Credit Facility Debt may not be
rescinded, and any Credit Facility Debt properly withdrawn will thereafter be
deemed not properly tendered; provided, however, that you may retender properly
withdrawn Credit Facility Debt by again following one of the appropriate
procedures described above at any time prior to the Expiration Date.
Any tenders of Credit Facility Debt that are not accepted will be deemed
released upon the date on which the proration is completed.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by us, in our sole
discretion (which determination shall be final and binding). None of us, the
Custodian, the Dealer Managers, the Information Agents or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal, or incur any liability for failure to give any such
notification.
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The Custodian for the Invitation is:
Mellon Investor Services LLC
By Mail: By Overnight Delivery: By Hand:
P.O. Box 3301 85 Challenger Road 120 Broadway
South Hackensack, Mail Stop-Reorg 13th Floor
New Jersey 07606 Ridgefield Park, New Jersey New York, New York
07660 10271
Attn: Reorganization Department
By Facsimile:
(201) 296-4293
Confirmation:
(201) 296-4860
Any questions or requests for assistance or additional copies of this
document, the accompanying Letter of Transmittal or Bid Letter may be directed
to the Information Agents at their telephone numbers and locations set forth
below. You should contact your broker, dealer, commercial bank or trust company
or other nominee for assistance concerning the Invitation.
The Information Agents for the Invitation are:
In the US and Argentina: In Europe:
Georgeson Shareholder Communications Inc. GSC Proxitalia SpA
17 State Street, 28th Floor Via Emila 88-00187
New York, New York 10004 Rome, Italy
Banks and Brokers: (212) 440-9800 +3906-4217-1777
Toll Free: (866) 216-0459 Toll Free in Italy:
For Argentine holders: (800) 18-99-23
please dial (0-800) 555-4288,
(0-800) 222-1288 or
(0-800) 288-5288
followed by the US Toll Free:
(866) 216-0459
Any question regarding the Invitation may be directed to the Dealer
Managers at the telephone numbers and locations set forth below. MBA Banco de
Inversiones S.A. will act as dealer manager in Argentina only.
The Dealer Managers for the Invitation are:
International: In Argentina only:
Morgan Stanley MBA Banco de Inversiones S.A.
Liability Management Group Av. Alicia Moreau de Justo 140
1585 Broadway, Second Floor C1107AAD Buenos Aires, Argentina
New York, New York 10036 Phone: +5411-4319-5800
Domestic U.S. Callers Call Toll Free:
(800) 624-1808
Callers from Outside the U.S. Call Collect:
(212) 761-1893