<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2003
REGISTRATION NO. 333-101922
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
AMENDMENT NO. 1 TO FORM F-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------------------
TRICOM, S.A., AS ISSUER
(Exact name of registrant as specified in its charter)
<Table>
DOMINICAN REPUBLIC NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
CALL TEL CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
PANAMA NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
GFN COMUNICACIONES, S.A.
(Exact name of registrant as specified in its charter)
<Table>
DOMINICAN REPUBLIC NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TCN-DOMINICANA, S.A.
(Exact name of registrant as specified in its charter)
<Table>
DOMINICAN REPUBLIC NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM CENTROAMERICA, S.A.
(Exact name of registrant as specified in its charter)
<Table>
PANAMA NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM INTERNATIONAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 94-3343217 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
<Page>
TRICOM LATINOAMERICA, S.A.
(Exact name of registrant as specified in its charter)
<Table>
CAYMAN ISLANDS NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM, S.A.
(Exact name of registrant as specified in its charter)
<Table>
GUATEMALA NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM, S.A.
(Exact name of registrant as specified in its charter)
<Table>
NICARAGUA NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM, S.A.
(Exact name of registrant as specified in its charter)
<Table>
PANAMA NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM, S.A. - DE C.V.
(Exact name of registrant as specified in its charter)
<Table>
EL SALVADOR NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM TELECOMUNICACIONES, S.A.
(Exact name of registrant as specified in its charter)
<Table>
COSTA RICA NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
TRICOM TELECOMUNICACIONES, S.A.
(Exact name of registrant as specified in its charter)
<Table>
HONDURAS NOT APPLICABLE 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
AND
<Page>
TRICOM USA, INC., AS GUARANTORS
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 13-3927530 4812 NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial (Translation of registrant's
incorporation or organization) Identification Number) Classification Code Number) name into English)
</Table>
-----------------------------
TRICOM, S.A.
AVE. LOPE DE VEGA NO. 95
SANTO DOMINGO, DOMINICAN REPUBLIC
TELEPHONE: (809) 476-4000
(Address, including zip code, and telephone number of registrant's
principal executive offices)
CT CORPORATION SYSTEM
111 EIGHTH AVENUE, 13TH FLOOR
NEW YORK, NEW YORK 10011
TELEPHONE: (212) 894-8940
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-----------------------------------------
Copies to:
STEVEN L. WASSERMAN, ESQ. JEFFREY J. PELLEGRINO, ESQ.
PIPER RUDNICK LLP PAUL, HASTINGS, JANOFSKY & WALKER LLP
1251 Avenue of the Americas 75 East 55th Street
New York, New York 10020 New York, New York 10022
TELEPHONE: (212) 835-6000 TELEPHONE: (212) 318-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
-----------------------------
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<Page>
Subject to completion, dated March 20, 2003
PROSPECTUS AND CONSENT SOLICITATION
[TRICOM(R) LOGO]
OFFER TO EXCHANGE
$200,000,000 [___]% SENIOR NOTES DUE 20[__]
AND CASH OR WARRANTS
FOR
$200,000,000 11 3/8% SENIOR NOTES DUE 2004
AND
SOLICITATION OF CONSENTS FOR PROPOSED AMENDMENTS TO THE INDENTURE
GOVERNING THE 11 3/8% SENIOR NOTES DUE 2004
-----------------------------
We are offering to exchange our [___]% senior notes due 20[__], the new
notes, and either cash or warrants for our outstanding 11 3/8% senior notes due
2004, the existing notes. For every $1,000 principal amount of existing notes
tendered and accepted for exchange, you will receive a new note in the principal
amount of $1,000 and, at your option, either (1) a cash payment of $[______] or
(2) a warrant to purchase [____] shares of our Class A common stock in the form
of American depositary shares or ADSs.
The new notes will be senior unsecured obligations of TRICOM ranking
equally in right of payment with all of our other existing and future senior
indebtedness and senior to any of our future subordinated indebtedness. The
payment of the principal of, interest and additional amounts, if any, on the new
notes will be unconditionally guaranteed, jointly and severally, on a senior
unsecured basis by the guarantors of the existing notes.
The exercise price of the warrants will be $[__] per ADS. The warrants will
be exercisable beginning with the date they are issued, which will be the
closing date of the exchange offer and consent solicitation, until the earlier
of September 1, [_____], the maturity date of the new notes, or the date on
which we repurchase the new notes. Our ADSs are listed on the New York Stock
Exchange under the symbol "TDR". On March 17, 2003, the last reported sale price
of our ADSs on the New York Stock Exchange was $2.98 per ADS.
The exchange offer and consent solicitation is conditioned upon, among
other things, at least [_____]% of the aggregate outstanding principal amount of
the existing notes being validly tendered and not properly withdrawn prior to
5:00 P.M., New York City time, on [___________], 2003, unless extended by us (we
refer to such time or date, as the same may be extended, as the expiration
date).
Holders of at least a majority of the aggregate outstanding principal
amount of the existing notes must consent to the proposed amendments in order
for them to be adopted. The proposed amendments that eliminate provisions of the
indenture governing the existing notes will not become operative until the
exchange offer is completed. The valid and unrevoked tender of your existing
notes will constitute your consent to the proposed amendments with respect to
your tendered existing notes. If you desire to tender your existing notes, you
must consent to the proposed amendments. You may not deliver consents without
tendering the related existing notes and you may not revoke consents without
withdrawing the existing notes tendered.
PLEASE READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE 17 OF
THIS PROSPECTUS AND CONSENT SOLICITATION WHEN YOU EVALUATE THE EXCHANGE OFFER
AND CONSENT SOLICITATION.
WE HAVE RETAINED D.F. KING & CO., INC. AS OUR INFORMATION AGENT TO ASSIST
YOU IN CONNECTION WITH THE EXCHANGE OFFER AND CONSENT SOLICITATION. YOU MAY CALL
TOLL FREE, AT 1-888-866-4425, TO RECEIVE ADDITIONAL DOCUMENTS AND TO ASK
QUESTIONS.
INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<Page>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS AND CONSENT SOLICITATION. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DEALER MANAGER FOR THE EXCHANGE OFFER AND THE SOLICITATION AGENT FOR
THE CONSENT SOLICITATION IS:
BEAR, STEARNS & CO. INC.
The date of this prospectus and consent solicitation is ____________, 2003.
<Page>
THIS DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS AND CONSENT
SOLICITATION. THIS INFORMATION IS AVAILABLE FROM THE INFORMATION AGENT WITHOUT
CHARGE TO HOLDERS UPON WRITTEN OR ORAL REQUEST AT THE ADDRESS AND TELEPHONE
NUMBER LISTED ON THE BACK COVER OF THIS PROSPECTUS AND CONSENT SOLICITATION. TO
OBTAIN TIMELY DELIVERY, HOLDERS OF THE OUTSTANDING EXISTING NOTES MUST REQUEST
THE INFORMATION NO LATER THAN [____].
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
PROSPECTUS SUMMARY.............................................................1
OUR BUSINESS...................................................................5
RECENT DEVELOPMENTS............................................................5
RISK FACTORS..................................................................17
FORWARD-LOOKING STATEMENTS....................................................28
THE EXCHANGE OFFER AND CONSENT SOLICITATION...................................29
PROPOSED AMENDMENTS...........................................................36
PRICE RANGE OF AMERICAN DEPOSITARY SHARES AND DIVIDEND POLICY.................39
EXCHANGE RATES................................................................40
SELECTED FINANCIAL DATA.......................................................41
OPERATING AND FINANCIAL REVIEW AND PROSPECTS..................................46
BUSINESS......................................................................70
EXCHANGE CONTROLS.............................................................99
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...................................101
DESCRIPTION OF NEW NOTES.....................................................109
DESCRIPTION OF WARRANTS......................................................151
DESCRIPTION OF CAPITAL STOCK.................................................154
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS..................................159
CERTAIN MATERIAL TAX CONSEQUENCES............................................165
LEGAL MATTERS................................................................175
EXPERTS......................................................................175
WHERE YOU CAN FIND MORE INFORMATION..........................................175
FINANCIAL STATEMENTS.........................................................F-1
</Table>
i
<Page>
PROSPECTUS SUMMARY
WE URGE YOU TO READ CAREFULLY THE MORE DETAILED INFORMATION, INCLUDING THE
FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS, APPEARING ELSEWHERE IN THIS
PROSPECTUS AND CONSENT SOLICITATION. WE ALSO ENCOURAGE YOU TO REVIEW THE OTHER
INFORMATION PROVIDED IN REPORTS AND OTHER DOCUMENTS THAT WE FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION, WHICH ARE INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND CONSENT SOLICITATION, AS DESCRIBED UNDER "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 175 OF THIS PROSPECTUS AND CONSENT SOLICITATION.
EXCHANGE OFFER AND CONSENT SOLICITATION
Subject to the terms and conditions set forth in this prospectus and
consent solicitation and in the related letter of transmittal and consent, we
are offering to exchange our [__]% senior notes due 20[__], the new notes, and
either cash or warrants for our outstanding 113/8% senior notes due 2004, the
existing notes. The exchange offer and consent solicitation will expire at 5:00
P.M., New York City time, on [_____], 2003, unless extended by us (we refer to
such time or date, as the same may be extended, as the expiration date). The
exchange offer and consent solicitation is open to all holders of existing
notes. Set forth below are some of the questions you, as a holder of the
existing notes, may have and answers to those questions.
Q. WHAT ARE THE NEW NOTES?
A. The new notes are our [__]% senior notes due 20[__]. The new notes will pay
interest semi-annually and will rank equally with any existing notes that
are not exchanged in this exchange offer and consent solicitation. The new
notes, among other things, will have a higher interest rate and a later
maturity date than those of the existing notes. The new notes will have
restrictive covenants substantially the same as those of the existing notes
in effect prior to the consummation of this exchange offer and consent
solicitation. The new notes will be fully, unconditionally, and jointly and
severally guaranteed by the guarantors of our existing notes. See
"Description of New Notes" for a more detailed description.
Q. WHAT IS THE PURPOSE OF THE EXCHANGE OFFER AND THE CONSENT SOLICITATION?
A. The purpose of the exchange offer and consent solicitation is to extend the
maturity of at least [ ]% of the aggregate outstanding principal amount of
our existing notes by offering holders of the existing notes the
opportunity to exchange their existing notes for new notes and, at each
holder's option, either cash or warrants to purchase ADSs. We considered
issuing debt or equity securities to repay the existing notes, however, our
efforts to obtain funds to refinance the existing notes have not been
successful. In view of current market and economic conditions, we
determined that the exchange offer and consent solicitation is the most
realistic alternative for extending the maturity of the existing notes.
Q. WHAT IS TRICOM OFFERING IN EXCHANGE FOR MY EXISTING NOTE?
A. For each tendered existing note, we are offering, upon the terms and
subject to the conditions contained in this prospectus and consent
solicitation and in the letter of transmittal and consent, to exchange a
new note in the same principal amount as your existing note. In addition,
for every $1,000 principal amount of existing notes tendered and accepted
for exchange, you will receive, at your option, either (1) a cash payment
of $[______] or (2) a warrant to purchase [______] shares of our Class A
common stock, in the form of ADSs, at an exercise price of $_______ per
ADS. See "Description of Warrants" for a more detailed description.
Q: MUST I ELECT TO RECEIVE ONLY CASH OR ONLY WARRANTS?
A: No. You may elect to receive a mix of cash and warrants.
1
<Page>
Q. WHAT EFFECT WOULD THE PROPOSED AMENDMENTS HAVE ON THE PROVISIONS OF THE
EXISTING NOTES?
A. The proposed amendments, among other things, would eliminate:
- substantially all of the covenants in the indenture governing the
existing notes, other than covenants requiring payment of interest on
and principal of the existing notes when due and requiring the
maintenance of an office for purposes of making payments on the
existing notes;
- most events of default under the indenture governing the existing
notes; and
- the limitations in the indenture on consolidations, mergers and asset
conveyances and transfers.
An event of default may occur under the new notes. However, as a result of
the amendments, there would not be an event of default under the existing
notes and the holders of the existing notes would not have the right to
accelerate the payment of the existing notes, even if payment of the new
notes or other Tricom indebtedness were accelerated.
Q. WHEN WILL THE EXCHANGE OFFER AND CONSENT SOLICITATION EXPIRE?
A. The exchange offer and consent solicitation will expire at 12:00 midnight,
New York City time, on [______], 2003, unless otherwise extended by us, in
our sole discretion.
Q. HOW DO I CONSENT TO THE AMENDMENTS TO THE EXISTING NOTES?
The valid and unrevoked tender of your existing notes will constitute the
giving of consent to the consent solicitation with respect to those
existing notes.
Q. IF I TENDER MY EXISTING NOTES WHAT ACCRUED BUT UNPAID INTEREST WILL I BE
ENTITLED TO RECEIVE?
A. We will pay accrued and unpaid interest on the existing notes, together
with accrued and unpaid interest on the new notes, on the first interest
payment date of the new notes.
Q. WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
A. If you are the record owner of your existing notes and you tender your
existing notes in the exchange offer, you should not have to pay brokerage
fees or similar expenses. If you own your existing notes through a broker
or other nominee and your broker tenders your existing notes on your
behalf, your broker or nominee may charge you a fee for doing so. You
should consult your broker or nominee to determine whether any charges will
apply.
Q. HOW WILL I BE NOTIFIED IF THE EXCHANGE OFFER AND CONSENT SOLICITATION IS
EXTENDED?
A. If we extend the exchange offer and consent solicitation, we will make a
public announcement of the extension not later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled
expiration date. See "The Exchange Offer and Consent
Solicitation--Announcements."
Q. HOW DO I TENDER MY EXISTING NOTES?
A. In order for you to validly tender your existing notes, JPMorgan Chase
Bank, the exchange agent, must receive from you, your broker or other
nominee a properly completed and duly executed letter of transmittal and
consent, or a copy of those documents, with any required signature
guarantee, and any other required documents, at one of the exchange agent's
addresses set forth on the last page of this prospectus and consent
solicitation prior to 5:00 p.m., New York City time, on the expiration
date. In addition, prior to 5:00 p.m., New York City time, on the
expiration date, either (1) the exchange agent must receive certificates
for tendered existing notes at one of those addresses or (2) tendered
existing notes must be transferred pursuant to the procedures for
book-entry transfer described under "The Exchange Offer and Consent
Solicitation--
2
<Page>
Procedure for tendering existing notes and delivering consents" and the
exchange agent must receive a confirmation of such tender.
IF YOU TENDER EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER AND CONSENT
SOLICITATION, YOU WILL BE DEEMED TO HAVE GIVEN YOUR CONSENT TO THE PROPOSED
AMENDMENTS WITH RESPECT TO THE EXISTING NOTES TENDERED. YOU MAY NOT CONSENT
WITHOUT TENDERING OR TENDER WITHOUT CONSENT. SEE "THE EXCHANGE OFFER AND
CONSENT SOLICITATION--PROCEDURE FOR TENDERING EXISTING NOTES AND DELIVERING
CONSENTS."
Q. UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED EXISTING NOTES AND THE
RELATED CONSENT AND WHAT IS THE PROCESS?
A. You may withdraw your tendered existing notes at any time prior to the
exchange of such existing notes for new notes and either cash or warrants
and the effectiveness of the supplemental indenture governing the existing
notes. In order to withdraw your tendered existing notes and the related
consent, you must follow the procedures described in "The Exchange Offer
and Consent Solicitation--Withdrawal of tenders and revocation of
corresponding consents." YOU MAY NOT WITHDRAW YOUR TENDERED EXISTING NOTES
WITHOUT REVOKING THE CORRESPONDING CONSENTS PROVIDED WITH YOUR TENDER.
Withdrawn existing notes may be retendered in the exchange offer and
consent solicitation in accordance with the procedures described under "The
Exchange Offer and Consent Solicitation--Procedure for tendering existing
notes and delivering consents" prior to the exchange of the existing notes
for new notes and either cash or warrants and the effectiveness of the
supplemental indenture governing the existing notes.
Q. IF I TENDER MY EXISTING NOTES, HOW WILL I BE NOTIFIED THAT TRICOM HAS
ACCEPTED MY EXISTING NOTES FOR EXCHANGE?
A. Upon the terms and subject to the conditions of the exchange offer and
consent solicitation, we will accept for exchange all existing notes
validly tendered and not properly withdrawn promptly after the expiration
date. We will announce acceptance of the existing notes for exchange by
issuing a press release.
Q. IF I DECIDE NOT TO TENDER MY EXISTING NOTES, HOW WILL THE EXCHANGE OFFER
AND CONSENT SOLICITATION AFFECT MY EXISTING NOTES?
A. If you do not tender your existing notes, they will remain outstanding. If
the exchange offer and consent solicitation is completed, the proposed
amendments to the indenture will become operative. Any existing notes that
remain outstanding will lose the benefit of substantially all covenants,
most events of default and other provisions of the existing notes contained
in the indenture. In addition, if the exchange offer and consent
solicitation is consummated, the market for any outstanding existing notes
is likely to be significantly reduced.
Q. WILL OUR AMERICAN DEPOSITARY SHARES OR THE NEW NOTES BE LISTED ON ANY
EXCHANGE OR AUTOMATED QUOTATION SYSTEM?
A. Our American Depositary Shares are listed on the New York Stock Exchange
and all ADSs issued upon exercise of the warrants that you may elect to
receive will be listed on the New York Stock Exchange. The existing notes
are not listed on any exchange or automated quotation system and we will
not list the new notes on any exchange or automated quotation system.
Q. WHAT IS REQUIRED FOR THE PROPOSED AMENDMENTS TO BECOME EFFECTIVE?
A. In order for the proposed amendments to be adopted, holders of at least a
majority of the aggregate outstanding principal amount of the existing
notes must consent to them. The proposed amendments will become operative
only upon our exchange of the existing notes for new notes and either cash
or warrants and the effectiveness of the supplemental indenture governing
the existing notes. The proposed amendments to the indenture governing the
existing notes are a single proposal. If you tender your existing notes,
you will be deemed to have consented to the proposed amendments in their
entirety with respect to the existing notes you tender. You may not consent
selectively to only some of the proposed amendments.
3
<Page>
We expect that we and the trustee will execute a supplemental indenture
giving effect to the related proposed amendments on or shortly after the
expiration date.
Q. WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE EXCHANGE OFFER AND CONSENT
SOLICITATION?
A. The exchange offer and consent solicitation is conditioned upon, among
other things, at least [___]% of the aggregate outstanding principal amount
of the existing notes being validly tendered and not properly withdrawn
prior to 5:00 P.M., New York City time, on the expiration date. The
aggregate outstanding principal amount of the existing notes is $200
million. The indenture governing the existing notes provides that
amendments must be approved by the holders of a majority of the aggregate
outstanding principal amount of the existing notes. The proposed amendments
to the indenture will become operative only upon our exchange of the
existing notes for new notes and either cash or warrants and the
effectiveness of the supplemental indenture governing the existing notes.
Q. WHERE CAN I OBTAIN FURTHER INFORMATION ABOUT THE EXCHANGE OFFER AND CONSENT
SOLICITATION?
A. You may obtain additional copies of this prospectus and consent
solicitation and the related letter of transmittal and consent by
contacting the information agent at its address and telephone number set
forth on the back cover of this prospectus and consent solicitation.
Questions about the exchange offer and consent solicitation should be
directed to the dealer manager and solicitation agent or the information
agent at their addresses and telephone numbers set forth on the back cover
of this prospectus and consent solicitation. Copies of the other documents
incorporated by reference in this prospectus and consent solicitation may
be obtained as described under "Where You Can Find More Information."
Q. WHAT ARE THE TAX IMPLICATIONS OF THE EXCHANGE OFFER AND CONSENT
SOLICITATION?
A. We are required by Dominican law to withhold 25% of the cash payment, if
that is what you elect to receive as part of the exchange offer. The
withholding requirement does not apply to our issuance to you of warrants
as part of the exchange offer, if you elect to receive warrants. You should
read "Material Tax Consequences" for a discussion of United States federal
and Dominican Republic income tax consequences of the exchange offer and
consent solicitation whether or not you decide to tender your existing
notes and for a discussion of United States federal and Dominican Republic
income tax consequences of holding and disposing of the new notes, warrants
and ADSs. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL AND DOMINICAN REPUBLIC INCOME TAX CONSEQUENCES IN LIGHT OF
YOUR PARTICULAR SITUATION AS WELL AS ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY OTHER TAXING JURISDICTION.
Q. WILL TRICOM RECEIVE ANY CASH PROCEEDS FROM THE EXCHANGE OF EXISTING NOTES
FOR NEW NOTES AND EITHER CASH OR WARRANTS?
A. No.
4
<Page>
OUR BUSINESS
OVERVIEW
We are a full service communications services provider in the Dominican
Republic. We offer local, long distance, mobile, cable television and broadband
data transmission and Internet services. Our wireless network covers
approximately 90% of the population in the Dominican Republic. Our network
providing local service is 100% digital, the only such network in the Dominican
Republic. Telecommunication networks that employ digital technology can transmit
higher quality signals at lower cost. We also own interests in undersea fiber
optic cable networks that connect and transmit telecommunications signals
between Central America, the Caribbean, the United States and Europe. Fiber
optic cable is composed of glass strands and transmits telecommunications
signals in the form of light. Through our subsidiary, TRICOM USA, Inc., we own
telecommunication-switching facilities in New York, Florida and Puerto Rico.
Using these facilities, we originate, transport and terminate international
long-distance traffic. We believe that we are one of the few Latin American
based long distance carriers that is licensed by the U.S. Federal Communications
Commission to own and operate switching facilities in the United States.
Through our subsidiary, TCN Dominicana, S.A., we are the largest cable
television operator in the Dominican Republic based on our number of subscribers
and homes passed. At September 30, 2002, our cable network served 71,081
subscribers, including 62,035 basic subscribers, 8,413 commercial rooms and 633
subscribers for digital audio programming and other services, with approximately
170,000 homes passed. At that date, approximately 40% of our network had
bi-directional capability and approximately 70% operated at 750MHz. This enables
us to provide a variety of multimedia and telecommunications services, including
high speed Internet access, interactive programming services and
television-based Internet access services.
We have offered digital mobile integrated services in Panama since April
2002 and, at September 30, 2002, we had approximately 5,000 subscribers. Our
services include two-way radio and paging services using iDEN(R) technology. Our
network covers Panama City and Colon, the two largest cities in Panama, and
important transportation corridors in other parts of the country. Through a 51%
owned joint venture, we own frequency rights in Panama for 107 channels of 25
MHz each. These frequencies give us access to nationwide coverage, covering a
population of approximately 2.8 million people. We also own radio frequency
rights in Guatemala and El Salvador that would allow us to operate our iDEN(R)
network using switches deployed in Panama. We currently do not intend to develop
a network in either Guatemala or El Salvador.
RECENT DEVELOPMENTS
We reported unaudited financial results for our fourth quarter and year
ended December 31, 2002. Revenues totaled $61.2 million for the 2002 fourth
quarter, a decrease of 8.2% from the 2001 fourth quarter, and increased 5.7%
from 2001 to $257.6 million for 2002. Loss for the 2002 fourth quarter was $22.4
million, or $0.51 per share. For 2002, loss was $62.1 million, or $1.43 per
share. EBITDA totaled $16.3 million for the 2002 fourth quarter and $76.2
million for 2002.
Our 2002 results reflect the impact of the devaluation of the Dominican
peso, which affects the translation of revenues generated in Dominican pesos
into U.S. dollars, as well as a non-cash asset impairment charge of $5.9 million
related to our analog cellular and paging networks and lower installation and
activation revenues. During the 2002 fourth quarter, the Dominican peso
depreciated by approximately 12% against the U.S. dollar. The Dominican peso
declined by approximately 26% against the U.S. dollar in 2002 compared to
approximately 2% in 2001. These effects were offset in part during the fourth
quarter 2002 by increased international revenues, which are denominated in
U.S. dollars. These revenues grew by 7.2% from the 2001 fourth quarter to
$22.7 million in the 2002 fourth quarter, and increased by 7.1% to $87.8
million for 2002.
Operating costs and expenses increased 1.9 % to $69.6 million in the 2002
fourth quarter and increased 14.8 % to $263.2 million for 2002. This increase
reflects higher transport and interconnection charges resulting from increased
outgoing volume of traffic terminating in other networks, increased depreciation
and amortization charges, as well as higher general and administrative expenses,
offset in part by lower expenses in lieu of income
5
<Page>
taxes. Approximately 48% of our operating costs and expenses are peso
denominated, including transport and access charges and cost of equipment sold.
Depreciation and amortization are dollar denominated and not affected by
devaluation.
Selling, general and administrative expenses were $22.9 million in the 2002
fourth quarter, compared to $29.2 million in the 2001 fourth quarter, a 21.5 %
decrease. For 2002, these expenses totaled $94.9 million compared to $87.8
million in 2001, reflecting the inclusion in operations of cable television
operations acquired in the fourth quarter of 2001 for the full-year for the
first time and the launch of Panamanian operations in April 2002. Approximately
76% of our selling, general and administrative expenses are peso denominated.
The effect of devaluation is to reduce the amount reported for those expenses.
Local lines in service at December 31, 2002 decreased by 15.2% from
December 31, 2001 to approximately 150,000, as a result of our previously
announced strategy to disconnect low usage subscribers. Our wireless subscribers
at December 31, 2002 totaled approximately 432,000, an 18.7% increase from
December 31, 2001. Cable subscribers increased 11.3% from December 31, 2001 to
approximately 72,000 at December 31, 2002.
In December 2002, we received approximately $70 million from the sale of
Class A common stock in a private placement. All of the proceeds were used to
repay short term debt.
--------------
We were incorporated in the Dominican Republic as a SOCIEDAD ANONIMA on
January 25, 1988. Our operations are headquartered at Ave. Lope de Vega No. 95,
Santo Domingo, Dominican Republic and our telephone number at the above address
is 809-476-4000. Our website address is www.tricom.net. The information on our
website is not part of this prospectus and consent solicitation.
6
<Page>
COMPARISONS BETWEEN THE EXISTING NOTES
AND THE NEW NOTES
The following is a brief summary of the terms of the existing notes and the
new notes. Provisions of the existing notes that will be eliminated if the
exchange offer and consent solicitation is consummated are presented in bold.
For a more complete description of the new notes, see "Description of the New
Notes."
<Table>
<Caption>
EXISTING NOTES NEW NOTES
Interest............................ Interest on the existing notes Interest on the new notes will
accrues at an annual rate of 11 3/8% accrue at an annual rate of [___]%
and is payable semi-annually on and will be payable semi-annually on
March 1 and September 1 of each year. March 1 and September 1 of each
year, beginning on [_______].
Maturity............................ September 1, 2004 September 1, 20[__]
Optional Redemption................. The existing notes may be redeemed The new notes may be redeemed at our
at our option, in whole or in part, option, in whole or in part, at
at 102.844% of their principal 102.844% of their principal amount,
amount, plus accrued and unpaid plus accrued and unpaid interest
interest through and including through and including August 30,
August 30, 2003 and, thereafter, at 2003 and, thereafter, at 100% of
100% of their principal amount, plus their principal amount, plus accrued
accrued and unpaid interest. and unpaid interest.
Covenants........................... The indenture governing the existing The indenture governing the new
notes contains covenants requiring: notes will contain covenants
requiring:
- payment of interest on and - payment of interest on and
principal of the existing notes principal of the existing notes
when due; when due;
- maintenance of an office for - maintenance of an office for
purposes of making payments on purposes of making payments on
the existing notes; the existing notes;
- THE UNCONDITIONAL AND - the unconditional and
IRREVOCABLE GUARANTEE, JOINTLY irrevocable guarantee, jointly
AND SEVERALLY, BY OUR and severally, by our
RESTRICTED SUBSIDIARIES; restricted subsidiaries;
- THE OFFER TO PURCHASE WITH - the offer to purchase with
EXCESS ASSET SALE PROCEEDS; excess asset sale proceeds;
- THE OFFER TO PURCHASE UPON A - the offer to purchase upon a
CHANGE OF CONTROL; change of control;
- THE FURNISHING OF REPORTS TO - the furnishing of reports to
HOLDERS; AND holders; and
- the furnishing of a compliance
- THE FURNISHING OF A COMPLIANCE certificate to the trustee on
CERTIFICATE TO THE TRUSTEE ON an annual basis.
AN ANNUAL BASIS.
The indenture governing the new
The indenture governing the existing notes also will contain covenants
notes also contains covenants that, that, among other things, will limit
among other things, limits our our ability and the ability of our
ability and the ability of our restricted subsidiaries to:
restricted subsidiaries to:
- pay dividends on, redeem or
repurchase capital stock and
- PAY DIVIDENDS ON, REDEEM OR subordinated debt, or make
REPURCHASE CAPITAL STOCK AND investments;
SUBORDINATED DEBT, OR MAKE
INVESTMENTS; - in the case of our restricted
subsidiaries, create or permit
- IN THE CASE OF OUR RESTRICTED to exist dividend or payment
SUBSIDIARIES, CREATE OR PERMIT restrictions;
TO EXIST DIVIDEND OR PAYMENT
RESTRICTIONS; - incur indebtedness;
- incur indebtedness; - sell assets and, in the case of
our restricted subsidiaries,
capital stock;
</Table>
7
<Page>
<Table>
- SELL ASSETS AND, IN THE CASE OF - engage in transactions with
OUR RESTRICTED SUBSIDIARIES, affiliates;
CAPITAL STOCK;
- incur or permit to exist
- ENGAGE IN TRANSACTIONS WITH certain liens;
AFFILIATES;
- engage in certain sale and
- INCUR OR PERMIT TO EXIST leaseback transactions;
CERTAIN LIENS;
- ENGAGE IN CERTAIN SALE AND - engage in any business other
LEASEBACK TRANSACTIONS; than the telecommunications
business;
- ENGAGE IN ANY BUSINESS OTHER
THAN THE TELECOMMUNICATIONS - pay any consideration to any
BUSINESS; holder for or as an inducement
to any consent, waiver or
- PAY ANY CONSIDERATION TO ANY amendment of any of the
HOLDER FOR OR AS AN INDUCEMENT provisions of the indenture,
TO ANY CONSENT, WAIVER OR unless such consideration is
AMENDMENT OF ANY OF THE offered to all holders;
PROVISIONS OF THE INDENTURE,
UNLESS SUCH CONSIDERATION IS - own any interest in any person;
OFFERED TO ALL HOLDERS; and
- OWN ANY INTEREST IN ANY PERSON; - undertake certain mergers,
AND consolidations or sales.
- UNDERTAKE CERTAIN MERGERS, These covenants are subject to
CONSOLIDATIONS OR SALES. significant exceptions or
qualifications. See "Description of
These covenants are subject to New Notes - Certain Covenants."
significant exceptions or
qualifications, substantially
identical to those to be contained
in the indenture governing the new
notes.
Events of Default................... The indenture governing the existing The indenture governing the new
notes contains the following events notes will contain the following
of default: events of default:
- default for 30 days in the - default for 30 days in the
payment when due of interest; payment when due of interest;
- default in payment when due of - default in payment when due of
the principal or premium. principal or premium;
- DEFAULT IN PAYMENT OF PRINCIPAL - default in payment of principal
OR PREMIUM, IF ANY, OR INTEREST or premium, if any, or interest
ON ANY EXISTING NOTES REQUIRED on any new notes required to be
TO BE REPURCHASED UPON CHANGE repurchased upon change of
OF CONTROL OR FROM EXCESS ASSET control or from excess asset
SALE PROCEEDS; sale proceeds;
- FAILURE BY US OR ANY OF OUR - failure by us or any of our
RESTRICTED SUBSIDIARIES FOR 30 restricted subsidiaries for 30
DAYS AFTER NOTICE TO COMPLY days after notice to comply
WITH ANY OF OUR COVENANTS; with any of our covenants;
- DEFAULT BY US OR ANY OF OUR - default by us or any of our
RESTRICTED SUBSIDIARIES UNDER restricted subsidiaries under
INDEBTEDNESS AGGREGATING MORE indebtedness aggregating more
THAN $4.0 MILLION; than $4.0 million;
- FAILURE BY US OR ANY OF OUR - failure by us or any of our
RESTRICTED SUBSIDIARIES TO PAY restricted subsidiaries to pay
FINAL JUDGMENTS AGGREGATING IN final judgments aggregating in
EXCESS OF $4.0 MILLION; excess of $4.0 million;
- TERMINATION OR LOSS OF OUR - termination or loss of our
DOMINICAN TELECOMMUNICATIONS Dominican telecommunications
LICENSE; license;
- THE INITIATION OF ANY - the initiation of any
BANKRUPTCY OR INSOLVENCY bankruptcy or insolvency
PROCEEDING BY US OR ANY OF OUR proceeding by us or any of our
SIGNIFICANT SUBSIDIARIES OR BY significant subsidiaries or by
ANY CREDITOR FOLLOWING THE any creditor following the
TERMINATION OF AN AMICABLE termination of an amicable
SETTLEMENT PROCESS ADMINISTERED settlement process administered
BY THE DOMINICAN MINISTRY OF by the Dominican Ministry of
STATE FOR INDUSTRY AND COMMERCE State for Industry and Commerce
OR THE ENTRY OF ANY BANKRUPTCY or the entry of any bankruptcy
OR INSOLVENCY ORDER or insolvency order against
</Table>
8
<Page>
<Table>
AGAINST US OR ANY OF OUR us or any of our significant
SIGNIFICANT SUBSIDIARIES; OR subsidiaries; or
- ANY GUARANTY OF THE EXISTING - any guaranty of the new notes
NOTES BY ANY OF OUR SIGNIFICANT by any of our significant
SUBSIDIARIES IS HELD IN A subsidiaries is held in a
JUDICIAL PROCEEDING TO BE judicial proceeding to be
UNENFORCEABLE OR INVALID OR unenforceable or invalid or
SHALL CEASE TO BE IN FULL FORCE shall cease to be in full force
AND EFFECT. and effect.
</Table>
9
<Page>
SUMMARY OF TERMS OF THE NEW NOTES
ISSUER................................... TRICOM, S.A., a corporation
established under the laws of the
Dominican Republic.
GUARANTEES............................... The new notes will be jointly and
severally and fully and
unconditionally guaranteed on a
senior unsecured basis by all of
our current and future restricted
subsidiaries.
SECURITIES OFFERED....................... Up to $200 million [__]% senior
notes due 20[__] in exchange for
the existing $200 million 11 3/8%
senior notes due 2004.
INTEREST................................. We will pay interest on the new
notes on March 1 and September 1 of
each year, beginning on March 1,
2003.
MATURITY................................. September 1, 20[__]
OPTIONAL REDEMPTION...................... We have the option to redeem the
new notes in whole or in part, at
102.844% of their principal amount,
plus accrued and unpaid interest
through and including August 30,
2003 and, thereafter, at 100% of
their principal amount, plus
accrued and unpaid interest.
CHANGE OF CONTROL........................ Upon a change of control, as a
holder of new notes, you will have
the right to require us to
repurchase all of your new notes at
a purchase price equal to 101% of
the aggregate principal amount of
the new notes, plus accrued and
unpaid interest and additional
amounts, if any, through the date
of repurchase.
RANKING.................................. The new notes will be senior
unsecured obligations of TRICOM and
will rank equally, in all respects,
with any existing notes that are
not exchanged and other existing
and future senior indebtedness of
TRICOM.
The new notes will rank senior to
any future subordinated
indebtedness of TRICOM.
PAYMENTS OF ADDITIONAL AMOUNTS........... All payments of principal and
interest in respect of any new
notes will be made free and clear
of any taxes imposed by the
Dominican Republic or any political
subdivision or taxing authority of
the Dominican Republic.
10
<Page>
SUMMARY OF TERMS OF THE WARRANTS
WARRANTS................................. Up to [____] warrants to purchase
an aggregate of up to [_____]
shares of our Class A common stock
in the form of American depositary
shares, or ADSs.
MARKET................................... We will not list the warrants on
the New York Stock Exchange or any
other stock exchange or any
automated quotation system. All
ADSs issued upon the exercise of
the warrants will be listed on the
New York Stock Exchange.
EXERCISE PRICE........................... Each warrant will give you the
right to purchase one ADS at an
exercise price of $[_____] per ADS,
subject to adjustment as provided
in the warrant agreement.
EXERCISE PERIOD.......................... You may exercise your warrants
beginning on the date that they are
issued, which will be the closing
of the exchange offer and consent
solicitation, until the earlier to
occur of (1) 5:00 p.m. New York
City time on the date of our
repurchase of the new notes or (2)
5:00 p.m., New York City time, on
September 1, 20__, the maturity
date of the new notes.
If we repurchase the new notes, we
will give each holder of the
warrants at least 30 days prior
notice so that the holders may
exercise their warrants prior to
the closing of the repurchase.
If the warrant agent has not
received a warrant exercise
certificate and full payment of the
exercise price for any warrant by
the end of the exercise period,
those warrants will expire and have
no further value.
PROCEDURE FOR EXERCISING WARRANTS........ If you hold your warrants directly,
you may exercise your warrants
during the exercise period by
delivering to the warrant agent
your warrant certificate,
accompanied by the exercise price
for each new ADS to be purchased.
The exercise of the warrants is
irrevocable and, once made, may not
be canceled or modified.
WARRANT AGENT............................ The warrant agent for the warrants
is The Bank of New York.
11
<Page>
SUMMARY OF TERMS OF THE AMERICAN DEPOSITARY SHARES
AMERICAN DEPOSITARY SHARES............... Each ADS represents one share of
our Class A common stock. See
"Description of American Depositary
Receipts."
CLASS A COMMON STOCK..................... See "Description of Capital Stock -
Memorandum and Articles of
Association."
VOTING RIGHTS............................ Holders of Class A common stock are
entitled to one vote per share.
Holders of Class B stock are
entitled to ten votes per share.
Both classes of capital stock vote
together as a single class on all
matters submitted to a vote of the
shareholders, except any matter
that would adversely affect the
rights of either class.
DIVIDENDS................................ We have never paid and do not
anticipate paying dividends on our
Class A common stock. The new notes
will restrict our ability to pay
dividends.
MARKET................................... The ADSs are currently listed on
the New York Stock Exchange under
the symbol "TDR". ADSs issuable
upon exercise of the warrants will
be listed on the New York Stock
Exchange.
Our Class A common stock is not
listed or traded on any exchange or
automated quotation system.
RECENT PRICE............................. On March 17, 2003, the closing
price of the ADSs on the New York
Stock Exchange was $2.98 per ADS.
DEPOSITARY............................... The Bank of New York.
12
<Page>
SUMMARY FINANCIAL DATA
The following table provides summary financial and operating data for the
periods indicated. We have derived the summary financial data for, and as of,
the years ended December 31, 1999, 2000 and 2001 from our consolidated financial
statements, which have been audited by KPMG (member firm of KPMG International
in the Dominican Republic), independent auditors. The summary financial data
for, and as of, the nine months ended September 30, 2001 and 2002 are derived
from our unaudited consolidated financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, that are necessary for a fair presentation of our financial and
operating results for these periods. The summary consolidated financial and
operating data are not necessarily indicative of the results that may be
expected for any future period. You should read the information in the following
tables in conjunction with "Operating and Financial Review and Prospects" and
our consolidated financial statements (including the notes to the statements)
included in this prospectus and consent solicitation.
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
(IN THOUSANDS)(1)
1999 2000 2001 2001 2002
--------- --------- --------- --------- ---------
STATEMENTS OF OPERATIONS DATA:
Operating revenues:
Toll ........................................ $ 23,118 $ 28,666 $ 29,018 $ 22,216 $ 21,037
International ............................... 60,592 84,187 82,024 60,863 65,156
Local service ............................... 33,299 51,310 63,419 46,365 51,046
Cellular and PCS ............................ 26,474 35,796 37,302 28,228 28,300
Data and Internet ........................... 560 3,461 8,268 6,025 8,072
Paging ...................................... 2,696 1,704 1,051 832 495
Sale of equipment ........................... 7,690 5,263 2,686 2,652 1,722
Installation and activation fees ............ 15,502 13,749 14,348 9,391 3,298
Cable (2) ................................... - - 4,736 - 16,852
Other ....................................... 889 162 919 555 416
Total operating revenues .................. 170,819 224,298 243,772 177,127 196,395
Operating costs:
Transport and access charges (excluding
network depreciation expense of $15,983,
$29,342, $44,510, $32,465 and $39,624 in
1999, 2000, 2001 and for the nine months
ended September 30, 2001 and 2002,
respectively, included below) ............. 43,688 68,608 68,337 49,471 57,266
Programming costs(2) ........................ - - 1,225 - 4,673
Network depreciation ........................ 15,983 29,342 44,510 32,465 39,624
Expense in lieu of income taxes(3) .......... 12,764 10,174 12,646 9,003 6,247
Selling, general and administrative expenses,
including non-network depreciation expense
of $4,855, $6,824, $9,922, $7,353 and
$9,611 in 1999, 2000, 2001 and for the nine
months ended September 30, 2001 and 2002,
respectively .............................. 51,501 70,691 98,755 66,402 83,026
Cost of equipment sold ...................... 3,988 2,911 2,070 2,179 1,192
Other ....................................... 1,433 1,550 1,746 1,473 1,437
Total operating costs ..................... 129,357 183,276 229,289 160,992 193,464
Operating income ............................... 41,462 41,022 14,484 16,135 2,930
Other income (expenses):
Interest expense, net ....................... (20,041) (30,736) (39,680) (26,961) (45,585)
Other expenses, net ......................... 875 (470) 819 226 1,707
Earnings (loss) before income taxes, extraordinary
item and cumulative effect of accounting change .. 22,296 9,816 (24,378) (10,600) (40,948)
Income taxes ................................... (142) (588) (511) (251) (637)
</Table>
13
<Page>
<Table>
Minority interest ................................ - - 1,775 155 1,871
Cumulative effect of accounting change:
Organization costs ........................... (120) - - - -
Installation and activation revenues ......... - (16,453)(4) - - -
--------- --------- --------- --------- ---------
Net earnings (loss) .............................. $ 22,035 $ (7,226) $ (23,114) $ (10,696) $ (39,714)
========= ========= ========= ========= =========
Basic earnings per common share:
Earnings before extraordinary item and
cumulative effect of accounting change ......... $ 0.89 $ 0.33 $ (0.78) $ (0.37) $ (0.92)
Cumulative effect of accounting change ......... - (0.59)(4) - - -
--------- --------- --------- --------- ---------
Net earnings (loss) - basic and diluted ........ $ 0.89 $ (0.26) $ (0.78) $ (0.37) $ (0.92)
========= ========= ========= ========= =========
Book value per share ............................. $ 6.04 $ 7.61 $ 8.58 $ 8.33 $ 4.93
========= ========= ========= ========= =========
Average number of common shares
outstanding .................................... 24,845 27,724 29,571 28,845 43,390
========= ========= ========= ========= =========
</Table>
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------ ----------------
1999 2000 2001 2002
--------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents(5) $ 13,460 $ 18,200 $ 27,776 $ 20,666
Working capital (deficit) ...................... (83,659) (125,299) (175,567) (137,406)
Property and equipment, net .................... 455,045 586,224 685,917 687,545
Total assets ................................... 531,478 682,440 829,415 811,650
Long-term debt and capital leases (excluding
currentPortion)(6) ........................... 240,413 276,744 317,826 398,053
Total indebtedness ............................. 336,468 398,808 498,155 528,896
Shareholders' equity ........................... 149,869 210,796 253,534 213,820
</Table>
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1999 2000 2001 2001 2002
--------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Capital expenditures(6) ........................ $ 145,426 $ 168,913 $ 116,575 $ 96,084 $ 52,655
Net cash provided by operating activities ...... 31,526 42,339 34,002 20,348 6,293
Net cash used in investing activities .......... 64,360 149,395 176,466 96,782 42,467
Net cash provided by financing activities ...... 30,966 111,796 136,840 96,334 30,742
EBITDA(7) ...................................... 75,261 87,681 82,222 65,705 60,385
Ratio of EBITDA to net interest expense ........ 3.7x 2.9x 2.1x 2.4x 1.3x
Ratio of total indebtedness to EBITDA .......... 4.5x 4.5x 6.1x 5.2x 6.6x
OTHER OPERATING DATA:
International minutes (in thousands)(8) ........ 360,532 597,204 768,394 549,021 761,324
Local access lines in service (at period end) .. 118,926 148,312 177,352 169,893 179,124
Mobile subscribers (at period end) ............. 176,080 284,991 364,059 332,436 410,918
Cable subscribers (at period end)(9) ........... - - 64,466 - 71,081
</Table>
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -----------------
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges(10) - 1.3x 1.3x 1.0x - -
Amount by which fixed charges exceeded
earnings ............................. $ 15,600 - - - $ 31,100 $ 40,500
</Table>
- ----------
(1) Except per share, ratios and other operating data.
(2) We acquired our cable television operations on October 26, 2001.
14
<Page>
(3) On June 4, 2002, a Presidential decree modified the tax system imposed on
all telecommunication providers in the Dominican Republic by concession
agreements (including by our 1996 concession agreement) in favor of the
payment of a tax equal to the greater of 25% of net taxable income and 1.5%
of gross revenues, which is the tax applicable to Dominican corporate
taxpayers. We began paying income tax on this basis on September 1, 2002.
Before September 1, 2002, we made payments in lieu of income taxes equal to
10% of gross domestic revenues, after deducting charges for access to the
local networks, plus 10% of net international revenues. Had we paid taxes
for these periods on the same basis as all Dominican corporate taxpayers,
our taxes would have been $5.5 million for 1999, $3.4 million for 2000,
$3.7 million for 2001 and approximately $1.7 million and $2.0 million for
the nine months ended September 30, 2001 and 2002, an aggregate tax payment
savings of approximately $23 million since January 1, 1999, but without
taking into account additional payments that we would be required to make
with respect to withholding requirements for, among other things, services
provided to us by non-Dominican vendors, from which our concession
agreement exempted us, but to which we will be subject now.
We are required by Dominican law to withhold 5% interest paid to financial
institutions located outside the Dominican Republic and 25% of all other
payments abroad, excluding payments to foreign suppliers for goods and
equipment imported to the Dominican Republic. We are required by the terms
of various financings with non-Dominican lenders, including our existing
notes, to pay the amount of the withholding tax on behalf of the lender so
that the net amount it receives after such withholding or deduction will
not be less than the amount the lender would have received if such taxes
had not been withheld. For each of 1999, 2000 and 2001, this would have
resulted in additional payments with respect to the existing notes of $1.14
million and approximately $474,000, $942,000 and $1.08 million with respect
to other borrowings, or approximately $5.9 million in the aggregate since
January 1, 1999. For the nine months ended September 30, 2001 and 2002,
this would have resulted in aggregate additional payments to lenders and
with respect to the existing notes of approximately $1.6 million and $1.8
million.
(4) Effective January 1, 2000, we adopted the U.S. Securities and Exchange
Commission's Staff Accounting Bulletin No. 101, concerning the recognition
of revenue. This pronouncement provides that we recognize net revenues from
installations and activations over the period in which we retain our
clients. See "Operating and Financial Review and Prospects" and note 16 of
notes to our consolidated financial statements.
(5) Includes investments in the form of certificates of deposit of $15.2
million at December 31, 2001 and $13.5 million at September 30, 2002.
(6) Includes capital lease obligations incurred during 1999 of $26.2 million,
2000 of $17.7 million and 2001 of $3.3 million.
(7) EBITDA typically consists of earnings (loss) before interest and other
income and expenses, income taxes and depreciation and amortization. As
described in note 3 above, until September 1, 2002, we made payments to the
Dominican government in lieu of income taxes. As a result, we calculated
EBITDA prior to the deduction of payments to the Dominican government in
lieu of income taxes. Our calculation of EBITDA may not be comparable to
EBITDA calculated by other companies. We believe that EBITDA is useful to
investors because EBITDA is commonly used in the telecommunications
industry to analyze companies on the basis of operating performance,
leverage and liquidity. EBITDA also is used in covenants in credit
facilities and high yield debt indentures to measure a borrower's ability
to incur debt and for other purposes, and may be the preferred measure for
these purposes. Covenants in the indentures for our existing notes and new
notes which limit our ability to incur debt and make restricted payments
are based upon EBITDA. However, EBITDA does not purport to represent cash
generated or used by operating activities and should not be considered in
isolation or as a substitute for a measure of performance in accordance
with generally accepted accounting principles. We also have included in
EBITDA amortization of radio frequency rights of $198,333 for 1999,
$320,186 for 2000, $660,086 for 2001, $465,338 for the nine months ended
September 30, 2001 and $465,338 for the nine months ended September 30,
2002.
15
<Page>
The table below shows how we calculate EBITDA.
<Table>
<Caption>
NINE MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- --------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
Cash flows provided by operating activities $ 31,526 $ 42,339 $ 34,002 $ 20,348 $ 6,293
Allowance for doubtful accounts (5,421) (3,500) (5,519) (5,174) (5,894)
Allowance for obsolescence of equipment - - (1,015) - -
Amortization of debt issue cost (1,499) (1,959) (2,254) (1,706) (2,078)
Expense for severance indemnities (329) (761) (1,987) (1,070) (1,475)
Deferred income tax, net (34) (492) (374) 67 (163)
Value of consulting services received in
exchange for stock warrants (273) (1,006) (831) (753) -
Foreign exchange gains (102) - - - -
Loss (gain) on sale of fixed assets, net 898 836 (283) - 1,284
Net changes in assets and liabilities 18,424 10,254 8,463 18,004 11,656
Income taxes 142 588 511 251 637
Other income (expenses), including net
interest expense 19,166 31,206 38,861 26,735 43,878
Expense in lieu of income taxes 12,764 10,174 12,646 9,003 6,247
--------------------------------------------------------
EBITDA $75,261 $87,681 $82,222 $65,705 $60,385
========================================================
</Table>
(8) Includes both inbound and outbound international minutes.
(9) Includes, at December 31, 2001, 56,896 basic subscribers and 7,570
commercial rooms and, at September 30, 2002, 62,035 basic subscribers,
8,413 commercial rooms and 633 subscribers for digital audio programming
and other services. Commercial rooms include commercial establishments (for
example, any hotel) or multiple dwelling units (for example, any apartment
building or hospital), for which we receive a bulk rate for basic cable
service offered by us.
(10) The ratio of earnings to fixed charges represents the number of times fixed
charges were covered by earnings. Earnings represents the sum of: (a)
pre-tax income from continuing operations before adjustment for minority
interests in consolidated subsidiaries or income or loss from equity
investments, (b) fixed charges, (c) amortization of capitalized interest,
(d) distributed income of equity investments and (e) our share of pre-tax
losses of equity investments for which charges arising from guarantees are
included in fixed charges, LESS the following: (a) interest capitalized,
(b) preference security dividend requirements of consolidated subsidiaries
and (c) the minority interest in pre-tax income of subsidiaries that have
not incurred fixed charges. Fixed charges consist of (a) expensed and
capitalized interest, (b) amortized debt issuance costs, (c) the interest
component of rental expense and (d) preference security dividend
requirements of consolidated subsidiaries.
16
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RISK FACTORS
THE EXCHANGE OFFER AND THE OFFERING OF NEW NOTES AND WARRANTS INVOLVES A
HIGH DEGREE OF RISK. BEFORE TENDERING YOUR EXISTING NOTES FOR EXCHANGE, YOU
SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION SET FORTH OR INCORPORATED IN
THIS PROSPECTUS AND CONSENT SOLICITATION, IN OUR FINANCIAL STATEMENTS AND THE
RELATED NOTES, AND, IN PARTICULAR, THE RISKS DESCRIBED BELOW.
Risks Relating to the Exchange Offer and Consent Solicitation
RISKS RELATING TO THE EXISTING NOTES
THE PROPOSED AMENDMENTS TO THE INDENTURE GOVERNING THE EXISTING NOTES WILL
ELIMINATE MANY PROTECTIONS INTENDED FOR THE HOLDERS OF THE EXISTING NOTES.
If the proposed amendments to the indenture governing the existing notes
are approved, substantially all covenants and most events of default will be
eliminated. The proposed amendments to the indenture governing the existing
notes would, among other things:
- - eliminate substantially all of the covenants in the indenture other than the
covenants requiring payment of interest on and principal of the existing
notes when due and requiring the maintenance of an office for purposes of
making payments on the existing notes;
- - eliminate most events of default under the indenture; and
- - eliminate the limitations in the indenture on consolidations, mergers or
selling substantially all of our assets.
The elimination of the restrictive covenants would permit us, without the
consent of the holders of existing notes, to take actions that could increase
the credit risks with respect to us faced by the holders of the existing notes
or that could otherwise be adverse to the interests of the holders of the
existing notes. If the proposed amendments to the indenture governing the
existing notes are adopted, each non-exchanging holder of existing notes will
lose the benefit of protective covenants included in the indenture governing the
existing notes as a result of the adoption of the proposed amendments even if
such holder did not consent to the proposed amendments.
YOUR ABILITY TO SELL EXISTING NOTES WILL BE REDUCED.
The trading market for existing notes outstanding after the consummation of
the exchange offer and consent solicitation could become more limited or
non-existent due to the reduction in the principal amount of existing notes
outstanding after completion of the exchange offer and consent solicitation. If
a market for non-exchanged existing notes exists after consummation of the
exchange offer and consent solicitation, the existing notes may trade at a lower
price than the price at which they would trade if the exchange offer and consent
solicitation were not consummated, depending on prevailing interest rates, the
market for similar securities and other factors. There may not be an active
market for the non-exchanged existing notes and the prices at which the
non-exchanged existing notes trade may be adversely affected by the limited
market for the existing notes.
WE MAY PURCHASE THE EXISTING NOTES AFTER THE EXPIRATION OF THE EXCHANGE
OFFER AND CONSENT SOLICITATION ON TERMS LESS FAVORABLE THAN THOSE PROPOSED
IN THE EXCHANGE OFFER AND CONSENT SOLICITATION.
We reserve the right in our sole discretion, from time to time after the
expiration of the exchange offer and consent solicitation, to purchase any
existing notes that may remain outstanding through various means, including:
- open market or privately negotiated transactions; and
- one or more additional tender or exchange offers.
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If we do so, we may do so on terms that may differ materially from, and may
be less favorable to you than, the terms of the exchange offer and consent
solicitation. These terms may adversely affect the price of other existing
notes.
THE CONSUMMATION OF THE EXCHANGE OFFER AND CONSENT SOLICITATION MAY BE A
TAXABLE TRANSACTION UNDER UNITED STATES FEDERAL TAX LAWS FOR BOTH HOLDERS
WHO DO NOT TENDER THEIR EXISTING NOTES IN THE EXCHANGE OFFER AND CONSENT
SOLICITATION AND THOSE HOLDERS WHO TENDER THEIR EXISTING NOTES.
Whether or not you actually exchange your existing notes for new notes and
either cash or warrants, you may be treated as having exchanged your existing
notes for U.S. federal income tax purposes, in which case you may recognize gain
and may not be able to recognize loss. The amount of gain you recognize will
depend on whether the transaction is treated as a taxable exchange or a tax-free
recapitalization, which is uncertain. See "Certain Material Tax Consequences -
Consequences of the Exchange."
IF THE EXCHANGE OFFER AND CONSENT SOLICITATION IS NOT COMPLETED, WE MAY BE
UNABLE TO REPAY THE EXISTING NOTES AT MATURITY.
The existing notes mature on September 1, 2004. We intend to extend the
maturity of at least ____% of the aggregate outstanding principal amount of our
existing notes by exchanging them in the exchange offer for the new notes, which
will be due in [_____], and either cash or warrants. If we are unable to
complete the exchange offer and consent solicitation, or to otherwise refinance
the existing notes prior to their maturity, we would need to find a source of
refinancing to repay the existing notes or sell assets to generate cash to
satisfy our obligations. We have attempted to obtain alternative sources of
financing without success. If we are unable to complete the exchange offer and
consent solicitation, we may not be able to find a source of refinancing or
complete any asset sale on terms acceptable to us, or at all. The failure to
repay or refinance the existing notes also may result in an acceleration of our
other debt obligations.
DOMINICAN REPUBLIC BANKRUPTCY LAWS MAY NOT BE AS FAVORABLE TO YOU AS U.S.
INSOLVENCY AND BANKRUPTCY LAWS.
If we are unable to pay our indebtedness, including the existing or new
notes, then we may become involved with bankruptcy proceedings in the Dominican
Republic. The bankruptcy laws of the Dominican Republic are significantly
different from, and are less developed than, those of the United States. There
have been very few bankruptcy proceedings in the Dominican Republic and none has
involved an entity with operations as significant or a capital structure as
complex as ours. Dominican bankruptcy law does not provide for a reorganization
process for debtors or for an automatic stay on collection or foreclosure
efforts by secured creditors. Unless creditors claims are resolved in an
amicable settlement process or in negotiations among creditors and with the
debtor, Dominican law provides only for the liquidation of a debtor's business
and distribution of the proceeds first to employees, Dominican tax authorities,
lawyers, landlords and secured creditors and finally to unsecured creditors.
Amicable settlement and bankruptcy proceedings may be time consuming and subject
to significant delays. Our business and market position likely would be
adversely affected by the proceedings and the adverse publicity that would
accompany it. Dominican courts have broad discretion and, in the absence of
precedent, we cannot predict how courts or appointed receivers would apply the
law or administer a bankruptcy. Because a business may not be reorganized and
must be liquidated, the ability of our creditors, including holders of existing
notes, to realize any value may be limited. A liquidation of TRICOM under
Dominican bankruptcy laws could result in holders of notes receiving
distributions from such liquidation in Dominican pesos, thus subjecting such
holders to the currency risks associated with converting Dominican pesos into
U.S. dollars.
RISKS RELATING TO THE NEW NOTES
THERE IS NO ACTIVE TRADING MARKET FOR THE NEW NOTES AND YOU CANNOT BE SURE
THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NEW NOTES.
The new notes are new securities for which there is not a trading market.
We do not know the extent to which investor interest will lead to the
development of an active trading market or how liquid that market might be.
Historically, the market for non-investment grade debt, such as the new notes,
has been subject to disruptions that
18
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have caused substantial volatility in the prices of such securities. Any such
disruptions may harm holders of the new notes. If the new notes are traded after
their initial issuance, they may trade at a price lower than their principal
amount, depending upon prevailing interest rates, the market for similar
securities, general economic conditions in the United States, the Dominican
Republic or elsewhere and our financial condition. An active trading market may
not develop for the new notes and if a market for the new notes develops, it may
not provide any liquidity for holders that desire to sell their new notes.
IT IS POSSIBLE THAT THE NEW NOTES COULD BE DEEMED TO BE ISSUED WITH
ORIGINAL ISSUE DISCOUNT, IN WHICH CASE YOU COULD BE REQUIRED TO INCLUDE AMOUNTS
IN YOUR INCOME FOR TAX PURPOSES WHICH EXCEED THE AMOUNT OF CASH INTEREST YOU
RECEIVE.
If the existing notes or the new notes are deemed, for tax purposes, to be
traded on an established securities market, and on the date of the exchange, the
fair market value of the new notes is less than their face amount by more than a
DE MINIMIS amount, the difference will be treated for tax purposes as original
issue discount. Any original issue discount on the new notes will be includible
in your income over the life of the new notes (subject to possible reduction if
you hold the new notes with a tax basis which exceeds the fair market value on
the date of the exchange). As a result , you may be required to include amounts
in income for tax purposes which exceed the amount of cash interest you receive.
See "Material Tax Consequences - Tax Consequences of Owning the New Notes."
RISKS RELATING TO OUR CAPITAL STRUCTURE AND LIQUIDITY
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR COMPETITIVE
POSITION.
We are highly leveraged. At September 30, 2002, we had outstanding
approximately $528.9 million in aggregate principal amount of indebtedness,
including capital leases, and total shareholders' equity of $213.8 million.
The degree to which we are leveraged could have important consequences to
us, including the following:
- a substantial portion of our cash flow must be used to pay interest on
our indebtedness and therefore is not available for use in our business;
- our high degree of indebtedness increases our vulnerability to changes
in general economic and industry conditions;
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes
could be impaired;
- we have much more indebtedness than Codetel, our principal
telecommunications competitor in the Dominican Republic, which may be a
competitive disadvantage in our principal market;
- because some of our borrowings are short-term or at variable rates of
interest, we are vulnerable to interest rate fluctuations, which could
result in our incurring higher interest expenses if interest rates
increase;
- any devaluation of the Dominican peso would cause the cost of our
dollar-denominated debt to increase; and
- our failure to comply with covenants and restrictions contained in the
terms of our borrowings could lead to a default which could cause all or
a significant portion of our debt to become immediately payable.
We will not reduce the amount of our indebtedness as a result of the
exchange offer and consent solicitation.
19
<Page>
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS OR TO
BORROW TO MEET OUR DEBT SERVICE REQUIREMENTS.
Our ability to pay interest on our indebtedness and meet our debt service
obligations will depend on our future operating performance including our
ability to increase revenues and control expenses, which in turn depends on
successful implementation of our strategy and on financial, competitive,
regulatory, technical and other factors, many of which are beyond our control.
Our interest expense was $42.1 million for the year ended December 31, 2001 and
$46.9 million for the nine months ended September 30, 2002, and our net cash
provided by operating activities for these periods was $34.0 million and $6.3
million. Our existing notes will mature in September 2004. If we cannot extend
the maturity of the existing notes, our cash flow from operations will not be
sufficient to repay the existing notes and we may not be able to obtain
financing from other sources. In addition, if the exchange offer and consent
solicitation is consummated, we may not be able to repay the existing notes that
are not exchanged. Approximately $130.8 million of our indebtedness will mature
during the 12 months ending September 30, 2003. These borrowings primarily are
in the Dominican financial markets, in which short-term financing is the primary
form of lending. However, our ability to refinance any of this indebtedness will
depend on our financial condition at the time it matures, the restrictions in
the agreements governing our indebtedness and other factors, including general
market and economic conditions, and we may not be able to refinance any of this
indebtedness on commercially attractive terms or at all. If refinancing is not
possible, our creditors could initiate bankruptcy proceedings, most likely in
the Dominican Republic, or we could be forced to dispose of business segments or
assets at unfavorable prices. In addition, our inability to refinance the
existing notes or our short term Dominican borrowings could result in our
defaulting on our other debt obligations.
WE DEPEND ON SHORT-TERM BORROWINGS IN THE DOMINICAN FINANCIAL MARKETS,
WHICH BEAR HIGH INTEREST RATES AND WE CANNOT BE CERTAIN THAT THEY WILL
CONTINUE TO BE AVAILABLE.
We fund a substantial portion of our capital expenditure and working
capital requirements with short-term borrowings in the Dominican financial
markets. At September 30, 2002, we had $130.8 million principal amount of
short-term borrowings outstanding, with interest rates ranging from 15% to 32%
per annum for Dominican peso denominated short-term debt and from 4.6% to 14.9%
per annum for U.S. dollar denominated short-term debt. Interest rates have
continued to increase, particularly for Dominican peso denominated debt, of
which we have approximately $39 million as of September 30, 2002, and certain of
our most recent borrowings have been at rates exceeding 30% per annum, which we
believe are market rates. Short term borrowings in the Dominican Republic have
maturities ranging up to 180 days and often are payable on demand. However, our
current lenders may be unable or unwilling to lend to us in the future. In
addition, as a result of the recent decline in the value of the Dominican peso
and because of increased demand for dollars in Dominican financial markets, peso
denominated borrowings have become more expensive. Even if these short-term
borrowings continue to be available to us, due to their short-term maturities,
we may be required to repay them at times when replacement financing is not
available on commercially attractive terms.
IF OUR APPEAL OF THE TAX ASSESSMENT LEVIED UPON US BY THE DOMINICAN TAX
SERVICE IS UNSUCCESSFUL, THEN WE MAY HAVE TO PAY A SUBSTANTIAL AMOUNT TO
THE DOMINICAN TAX SERVICE WHICH WOULD AFFECT OUR ABILITY TO FUND OUR
OPERATIONS AND WOULD REQUIRE US TO OBTAIN ADDITIONAL FINANCING.
In June 2002, we received notice from the Dominican Tax Service claiming
that we owe additional amounts for the period from January 1, 1999 through June
30, 2001 (the last day through which Dominican authorities have audited our tax
payments) (1) in respect of taxes in lieu of income taxes, (2) for withholding
tax on our investment in our wholly-owned subsidiary, TRICOM Latinoamerica and
(3) on certain other payments to non-Dominican vendors. In August 2002, the Tax
Service rejected our objection to the Service's claims, except for withholding
tax on payments to non-Dominican vendors. The Tax Service calculated our
aggregate liability on the two claims, including penalties and interest, as
RD$668.3 million ($35.5 million). Interest continues to accrue on delinquent tax
payments at the rate of 2.58% per month until the delinquent tax is paid or the
claim is resolved. We appealed the Tax Service determination, but, if we are
required to pay a substantial amount in assessments, penalties and interest, it
would reduce funds available for our operations and likely would require us to
obtain additional financing, which may not be available to us on commercially
attractive terms or at all.
20
<Page>
RISKS RELATED TO OUR OPERATIONS
OUR PRINCIPAL COMPETITOR FOR THE PROVISION OF LOCAL, MOBILE AND
INTERNATIONAL LONG DISTANCE SERVICES IN THE DOMINICAN REPUBLIC, CODETEL,
HAS SUBSTANTIALLY GREATER MARKET SHARE AND RESOURCES, WHICH MAY PREVENT US
FROM MAINTAINING OR INCREASING OUR MARKET SHARE.
We compete primarily with Compania Dominicana de Telefonos C. por A., or
Codetel, a wholly owned subsidiary of Verizon Communications Inc. Codetel has an
established market presence, networks and resources substantially greater than
ours. At June 30, 2002, approximately 80% of the Dominican Republic's local
access line customers were customers of Codetel. Codetel also had the largest
share of the market for cellular and PCS services, approximately 45% at that
date. Codetel's presence is particularly strong in the market segments that we
now are targeting, including residential and corporate post-paid subscribers for
mobile and local services, who generate greater revenues than pre-paid
individual subscribers. The growth of our market share among residential and
corporate post paid subscribers depends upon our ability to convince Codetel
customers to either add, or switch to, the telephony services we offer. If
Codetel implements significant price reductions for particular services, we may
be forced to reduce our rates in response in order to remain competitive. In
addition, Codetel could expend significantly greater amounts of capital than are
available to us in order to upgrade its network and/or sustain price reductions
over a prolonged period. As a result, we may not be able to maintain or increase
our market share for local services or in other markets in which we compete with
Codetel.
THERE ARE NEW ENTRANTS IN THE DOMINICAN MARKETS, PARTICULARLY FOR MOBILE
SERVICES, WHICH HAVE INCREASED COMPETITION FOR OUR SERVICES, AND COULD
REDUCE OUR MARKET SHARE OR INCREASE PRICE COMPETITION.
In addition to Codetel, which had approximately 45% of the subscribers for
mobile services at June 30, 2002, we face substantial competition in this
market.
- In the fourth quarter of 2000, Orange, a subsidiary of France Telecom
Group, initiated cellular operations. In 2001, Orange developed an
aggressive marketing strategy based on offering services at discounts.
We believe that Orange subscribers represent in excess of approximately
20% of subscribers for mobile services in the Dominican Republic. Orange
also employs GSM technology which is the prevalent technology used in
Europe and makes its services compatible with handsets that many
tourists use.
- In January 2000, Centennial Communications Corp. acquired 70% of All
America Cables & Radio, Inc., an integrated telecommunications provider.
Centennial is attempting to expand All America's share of the Dominican
market for cellular and PCS services.
As a result of these and other potential new entrants, we expect to face
more competition in the Dominican telecommunications market in the future,
including from international communications companies with vastly greater
resources than ours, which could adversely affect our ability to maintain our
market share or require us to lower prices.
In the international long distance market, investment by U.S.
telecommunications companies in Dominican markets could limit the number of U.S.
carriers that would send a significant number of minutes to us or otherwise
adversely affect our ability to generate international settlement revenue.
OUR BUSINESS PLAN, WHICH NOW FOCUSES ON HIGHER USAGE CUSTOMERS AND INCLUDES
INVOLUNTARY DISCONNECTIONS OF LOWER USAGE OR UNPROFITABLE CUSTOMERS, MAY
NOT RESULT IN INCREASED REVENUES OR AVERAGE RATE PER USER OF OUR OTHER
CUSTOMERS.
Our business plan for our mobile and local services includes disconnecting
subscribers who use service only to receive calls and do not make many outgoing
calls, which generate greater revenues for us, or use our other services. At
September 30, 2002, these subscribers accounted for approximately 35% of our
subscribers for mobile services and 20% of our subscribers for local service. We
disconnected a substantial number of these subscribers during the fourth quarter
of 2002. By disconnecting these subscribers, we believe we can better use our
networks, concentrate our sales efforts on residential and corporate customers
that generate greater per subscriber revenues and
21
<Page>
improve our margins. However, our disconnection of existing subscribers could
result in an overall decrease in revenue. We may not be able to attract new
subscribers that generate greater revenues and we may need to incur greater
marketing and other expenses to do so.
IF WE EXPERIENCE A SIGNIFICANT NUMBER OF CUSTOMER NON-PAYMENTS OUR BUSINESS
AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Our business plan includes increasing our revenue from post-paid services
including mobile telecommunication services and cable television services.
Although we have instituted measures to minimize consumer credit risks our
efforts to minimize consumer credit risks may not be successful as we expand our
services in the post-paid area. Moreover, efforts to minimize credit risks may
limit the number of our new subscribers. If we experience a significant number
of non-payments or are unable to attract new post-paid customers, then our
revenue will decrease and our cash position will be weakened.
SETTLEMENT RATES FOR INTERNATIONAL TRAFFIC FROM THE UNITED STATES AND
PUERTO RICO HAVE DECLINED AND COULD CONTINUE TO DECLINE, WHICH WOULD REDUCE
OUR INTERNATIONAL SETTLEMENT REVENUES AND PROFIT MARGINS FROM THESE
REVENUES.
Revenues from incoming international long distance calls represented
approximately 36% of our operating revenues in 1999, 38% in 2000, 34% in 2001
and 33% for the nine months ended September 30, 2002. During the first nine
months of 2002, approximately 54% of these revenues were attributable to calls
originating in the United States and Puerto Rico. Average settlement rates for
traffic between the United States and the Dominican Republic have declined from
$.41 per minute during 1996 to $.04 per minute during the third quarter of 2002.
We believe that competitive and regulatory pressures could continue to push
settlement rates lower. Future decreases in settlement rates, without a
corresponding increase in our international long distance traffic originating in
the United States, would reduce our international settlement revenues and
adversely affect the profit margins that we realize on these revenues.
BECAUSE WE ARE RECEIVING AN INCREASING PORTION OF OUR INTERNATIONAL MINUTES
FROM U.S.-BASED RESELLERS, WE MAY EXPERIENCE SUBSTANTIAL FLUCTUATION IN OUR
INTERNATIONAL REVENUES.
Since 1997, we have derived an increasing proportion of international
revenues from U.S.-based resellers, which are companies that typically buy long
distance minutes in bulk and resell the minutes to other companies or individual
end users. During the first nine months of 2002, resellers originated
approximately 51% of our international long distance minutes from the United
States to the Dominican Republic. While we enter into agreements with resellers,
they are not required to provide us with any specified amount of traffic.
However, the volume of minutes and revenues we receive from these resellers in
any quarter has varied and may vary significantly because of competition for
their business, primarily from Codetel, and also because of the uncertain
financial condition of many resellers.
A NUMBER OF OUR U.S.-BASED RESELLER CLIENTS AND INTERNATIONAL CARRIERS WITH
WHICH WE EXCHANGE TRAFFIC HAVE FILED FOR BANKRUPTCY. WE MAY NOT BE ABLE TO
COLLECT MONIES THAT THEY OWE TO US.
Since the beginning of 2001, 17 U.S. carriers with which we exchanged,
exchange or contracted at one time to exchange long distance service filed
voluntary petitions for bankruptcy. In ten cases, our subsidiary, TRICOM USA, is
an unsecured, pre-petition and/or post-petition creditor. Our claims in these
cases aggregate approximately $450,000. In the other seven cases, TRICOM USA has
no claims. To date, TRICOM USA has entered into settlement agreements, approved
by the courts, with three bankrupt carriers where we have been able to net
balances with such carriers. We may not be able to net balances or recover any
portions of the amounts owed to us. In addition, we may face substantial delays
in resolving our claims and may not receive full payment of our claims. In two
cases, the bankrupt carriers applied to prevent us from altering, refusing or
discontinuing services, although the courts in these cases did not grant the
requests of these carriers. We may be compelled to provide service to other
carriers in bankruptcy under terms mandated by the court, which may not be as
favorable to us as terms that we receive from other resellers.
In addition, pursuant to an August 2001 service level agreement with Enron
Broadband Services, L.P., TRICOM USA prepaid approximately US$420,000 for the
purchase of a private line bandwidth. On April 5, 2002,
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Enron filed a motion with the bankruptcy court to reject the agreement. We have
objected to such rejection of the agreement. However, the outcome of this case
is uncertain.
OUR NET GROWTH IN, AND REVENUE DERIVED FROM, SUBSCRIBERS MAY BE REDUCED BY
CUSTOMER DISCONNECTIONS OR CHURN.
Our results of operations in the past have been, and in the future may be,
affected by subscriber disconnections, whether initiated by our customers or us.
In order to realize net growth in subscribers, we must replace disconnected
subscribers with new subscribers. Our average monthly disconnection rate, or
"churn rate," during 2001 was 4.6% for cellular and PCS subscribers, compared to
3.1% during 2000, 1.9% for local access line subscribers, compared to 2.3% in
2000. During the first nine months of 2002, the churn rate for cable television
was 2.2%. We expect that our cellular and local service churn rate will increase
as a result of our decision to disconnect "incoming calls only" PCS and local
service subscribers who generate little or no traffic. The sales and marketing
costs associated with attracting new subscribers are substantial, relative to
the costs of providing service to existing subscribers. If we are not able to
maintain our credit policies, or not otherwise able to limit churn, we will
experience a decline in net growth in subscribers and revenue.
WE MAY NOT HAVE SUFFICIENT RESOURCES TO KEEP PACE WITH RAPID CHANGES IN
TECHNOLOGIES USED TO PROVIDE TELECOMMUNICATIONS SERVICES WHICH COULD
INCREASE COMPETITION OR REQUIRE US TO MAKE SUBSTANTIAL ADDITIONAL
EXPENDITURES TO MAINTAIN OUR CURRENT NETWORKS, WHICH COULD REDUCE OUR
REVENUES FROM SUBSCRIBERS AND CASH FLOW.
The services we offer are technology intensive. The development of new
technologies could make the technology we use obsolete. We may have to make
substantial additional investments in new technologies to remain competitive.
New technologies we choose may not prove to be commercially successful. Our
investment, to date, in our Dominican market exceeds $800 million and we would
require substantial investment to replace or upgrade all or a substantial part
of our network. We have chosen to improve our liquidity by reducing our capital
expenditures. For example, we have delayed implementing CDMA 1X migration, the
new technology for mobile service, which we currently estimate would cost $25
million. We anticipate spending not more than approximately $25 million for 2003
capital expenditures, although this is a preliminary estimate. This compares to
$116.5 million expended in 2001 and $63.7 million expended in 2002. If we do not
offer the latest technology, we may not be able to retain our existing customers
or attract new ones.
WE MAY LOSE REVENUE OR INCUR INCREASED COST AS A RESULT OF FRAUDULENT OR
PIRATED USE OF OUR PCS AND CELLULAR OR CABLE TELEVISION SERVICES.
We estimate that our lost revenues from fraudulent use of our PCS and
cellular networks totaled $711,000 for 2000, $496,000 during 2001 and $1.7
million for the nine months ended September 30, 2002. Anti-fraud technology
continually becomes obsolete, and we will have to make future expenditures to
acquire and use anti-fraud technology. We face substantial and widespread access
to our cable television services by unauthorized users, or pirates. When our
services are pirated, we forfeit potential subscribers and related revenues.
IF WE ARE UNABLE TO CONTINUE OFFERING HIGH-QUALITY PROGRAMMING, OUR CABLE
REVENUES MAY DECLINE.
The success of our cable television services depends upon our ability to
acquire popular, high-quality programming content. We license a significant
portion of our programming from third parties. Our arrangements with these third
parties regarding programming may be terminated, or may not be renewed on
favorable terms, if at all. These third parties could increase our costs of
obtaining programming and we may not be able to pass these costs on to our cable
subscribers. As we upgrade the channel capacity of our cable system and add
programming to our basic cable service, we may not be able to pass programming
costs on to our cable subscribers. If some or all of our programming
arrangements are terminated or if we cannot negotiate new agreements on terms
favorable to us, we may lose existing subscribers and attract fewer new
subscribers, which would reduce our revenues.
OUR CABLE NETWORK COULD FAIL OR SHUT DOWN, WHICH COULD CAUSE US TO LOSE
CUSTOMERS.
Interruptions in our services due to the failure or shutdown of our cable
network could harm our reputation and cause us to lose customers. Even upon
completion of the expansion and upgrade of our existing cable network,
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we will still be vulnerable to damage to our network, interruptions in our
services and cessation of our operations, which our insurance may not cover. The
success of our high-speed Internet access servicing offering depends on our
ability to maintain high-quality data transmission with minimal service
disruptions or interference. This is critical to our ability to attract and
retain subscribers.
OUR OPERATIONS MAY BE VULNERABLE TO HACKING, VIRUSES AND OTHER DISRUPTIONS.
"Hacking" involves efforts to gain unauthorized access to information or
systems or to cause intentional malfunctions or loss or corruption of data,
software, hardware or other computer equipment. In addition, the inadvertent
transmission of computer viruses could expose us to a material risk of loss or
litigation and possible liability. Computer viruses, break-ins or other problems
could lead to:
- the interruption, delay or cessation in services to our subscribers;
- the compromise of confidential information relating to our subscribers;
- damage to our reputation and the loss of subscribers; and
- costly litigation.
THE DOMINICAN TELECOMMUNICATIONS REGULATOR RECEIVED OBJECTIONS TO THE
TRANSFER OF THE CONCESSION GRANTED TO TCN DOMINICANA TO OPERATE A CABLE
NETWORK THAT, IF UPHELD, COULD LIMIT OR EVEN PRECLUDE THE OPERATION OF OUR
CABLE BUSINESS.
In November 2001 and February 2002, Indotel and we received notices of
objections to the transfer to us of the concession granted to TCN Dominicana,
S.A., a wholly-owned subsidiary of Telecable, for the operation of its cable
business. The objecting parties are cable companies that operate cable
television systems in the interior of the Dominican Republic and an association
of cable companies from that region. If Indotel decides in favor of the
objections, it could invalidate the transfer of the concession and impose fines
on us. Based upon past challenges to concessions transfers in which objections
did not prevail, we believe that it is unlikely that these objections will
prevail. Moreover, TRICOM's own concession allows us to provide video and cable
services, so that even if the objections are upheld, we believe that we could
use our own concession to provide the cable services currently provided in
reliance on the Telecable concession. However, it also is possible that Indotel
will limit the areas where we can provide services so that we do not compete in
markets currently served by the companies that raised the objections.
BSC OF PANAMA, ONE OF OUR COMPETITORS IN PANAMA, HAS PURSUED LEGAL ACTION
AGAINST US, WHICH, IF DECIDED AGAINST US, COULD FORCE US TO DISCONTINUE OUR
BUSINESS IN PANAMA AND/OR LIMIT OR ELIMINATE OUR ABILITY TO GENERATE
ADDITIONAL REVENUE.
BSC of Panama, S.A., a subsidiary of BellSouth Corporation, one of our
competitors in Panama, has initiated a number of actions, including with the
Panamanian telecommunications regulatory authority, ENTE REGULADOR DE LOS
SERVICOS PUBLICOS, or ENTE, and in the Panama court system, seeking to prevent
us from providing services using iDEN(R) technology. In an additional action,
BellSouth seeks damages from us in the amount of $20 million, which it claims it
may sustain if TRICOM Panama begins using the iDEN(R) system in Panama. To date,
we have invested approximately $46 million in our expansion in Panama. If
BellSouth prevails in its claims, we may be forced to discontinue our business
in Panama and, as a result, we would not generate any revenue from our iDEN(R)
operations in Panama, lose all or a material portion of our investment or be
required to pay damages to BellSouth.
CONDITIONS IN PANAMA MAY CAUSE VOLATILITY IN OUR OPERATIONS AND ADVERSELY
AFFECT OUR REVENUES FROM THIS MARKET.
We have expanded into the telecommunications market in Panama. We have not
operated previously in this market and it will present numerous challenges to
us. These include:
- poor and unstable social, political and economic conditions could
inhibit our performance;
- government regulations may hamper our ability to grow and implement our
strategy in Panama;
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- competition from entrenched multinational mobile service providers;
- obtaining interconnection with existing mobile and local service
providers;
- multinational telecommunication companies may have close ties with
national regulatory authorities or other significant competitive
advantages that would hinder the development of our mobile business
there;
- initially, our coverage will not be as extensive as those of other
mobile service providers in Panama, which may limit our ability to
establish and maintain a significant subscriber base;
- our equipment is more expensive than that of some competitors in the
Panama, which may adversely affect our ability to establish and maintain
a significant subscriber base;
- we may face delays constructing our digital mobile network, because of
difficulties in obtaining communications sites or towers, zoning or
other governmental approvals, acceptable lease or purchase arrangements
or quality supplies which would harm our operations; and
- we are not experienced in selling and marketing iDEN(R) services in
Panama which could adversely affect our ability to establish or maintain
a significant subscriber base.
SINCE WE RELY PRINCIPALLY ON ONE SUPPLIER TO IMPLEMENT OUR DIGITAL MOBILE
NETWORK IN PANAMA, ANY FAILURE OF THAT SUPPLIER TO PERFORM COULD HURT OUR
OPERATIONS.
Motorola is our sole source for the iDEN(R) digital network equipment and
handsets used throughout our Panama market. If Motorola fails to deliver
necessary technology improvements and enhancements and system infrastructure
equipment and handsets on a timely, cost-effective basis, or discontinues
providing this technology altogether we would not be able to service our
existing subscribers or add new subscribers. Motorola also may supply iDEN(R)
technology to other companies, which could hurt our competitive position in
Panama.
CONCERNS ABOUT HEALTH RISKS ASSOCIATED WITH MOBILE COMMUNICATIONS EQUIPMENT
COULD LEAD TO LITIGATION AND MAY REDUCE THE DEMAND FOR OUR SERVICES.
Mobile communications devices have been alleged to pose health risks,
including cancer, due to radio frequency emissions from these devices. If these
concerns are validated, our ability to continue operations could be adversely
affected. Moreover, the actual or perceived health risk of mobile communications
equipment and related publicity or litigation could adversely affect us through
a reduction in subscribers, reduced network usage per subscriber, reduced
financing available to the mobile communications industry or litigation costs
and damages or settlement payments associated with litigation brought against
us.
RISKS RELATING TO OUR PRINCIPAL MARKET, THE DOMINICAN REPUBLIC
OUR FINANCIAL CONDITION AND RESULTS OF OPERATION COULD BE ADVERSELY
AFFECTED BY DOWNTURNS IN THE DOMINICAN ECONOMY.
Most of our operations are conducted in, and most of our customers are
located in, the Dominican Republic. Accordingly, our financial condition and
results of operations are substantially dependent on economic conditions in the
Dominican Republic. While the Dominican Republic's Gross Domestic Product has
grown every year since 1991, the rate of growth slowed in 2001 and growth may
not continue in the future. Future developments in the Dominican economy could
impair our ability to proceed with our business strategies, our financial
condition or our results of operations. Our financial condition and results of
operations also could be adversely affected by changes in economic or other
policies of the Dominican government or other political or economic developments
in or affecting the Dominican Republic, as well as regulatory changes or
administrative practices of Dominican authorities, over which we have no
control.
POVERTY, SOCIAL UNREST AND SHORTAGES OF BASIC SERVICES IN THE DOMINICAN
REPUBLIC COULD AFFECT THE USE OF TELECOMMUNICATIONS SERVICES, WHICH WOULD
DECREASE OUR REVENUES.
The Dominican Republic has widespread poverty. As recently as November
1997, the country experienced riots, partly as a result of price increases and
shortages of water and electricity. Several state-owned companies have
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been privatized, including the country's state-owned electric utility company,
and there can be no assurance that the implementation of these privatizations
will not cause social unrest. Any increase of poverty, social unrest or shortage
of basic services could adversely affect the use of telecommunications services.
YOU MAY NOT BE ABLE TO ENFORCE CLAIMS IN THE DOMINICAN REPUBLIC BASED ON
U.S. SECURITIES LAWS.
A majority of our directors and all of our officers and our external
auditors, KPMG, reside outside of the United States. A substantial portion of
our assets and the assets of these persons are located outside the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon us or these other persons to enforce
judgments obtained against us or against them in United States courts predicated
upon the civil liability provisions of the United States federal securities
laws, other federal laws of the United Sates or laws of the several states of
the United States.
No treaty currently exists between the United States and the Dominican
Republic providing for reciprocal enforcement of foreign judgments. We have been
advised by our Dominican counsel, Pellerano & Herrera, that there is doubt as to
(1) the ability of a plaintiff to bring an original action in a Dominican court
which is predicated solely upon the United States securities laws, other federal
laws of the United States or laws of the several states of the United States and
(2) the enforceability in Dominican courts of judgments of Unites States courts
obtained in actions predicated upon civil liability provisions of the United
States federal securities laws, other federal laws of the United States or laws
of the several states of the United States.
Pellerano & Herrera also has advised us that the enforceability of actions
brought in Dominican courts of liabilities predicated on U.S. laws would require
compliance with certain procedures, including the validation by Dominican courts
of decisions rendered by United States courts. Compliance with such procedures
could require a substantial amount of time and expense, and local defendants
could assert defenses to enforcement based on noncompliance with such
procedures. Foreign plaintiffs bringing original actions in a Dominican court
also can, at the request of the defendant, be required to post a litigation bond
in an amount established by such court in its discretion.
The Dominican legal system is based upon civil law principles according to
which judges decide both the facts and legal issues of a case, and they are not
bound by legal precedents. As a result, judges have broader discretion in
reaching decisions than do judges in the United States. The United States
Department of Commerce has reported that Dominicans and foreign observers have
criticized the Dominican judicial system for what they perceive as an
inequitable resolution of business disputes. The Dominican legal system, coupled
with the fact that substantially all of our assets are located in the Dominican
Republic, may present substantial obstacles to the enforcement of judgments
against us as well as our directors and officers in the Dominican Republic.
INCREASES IN THE INFLATION RATE WOULD ADVERSELY AFFECT THE DOMINICAN
REPUBLIC'S ECONOMY AND THE DEMAND FOR OUR SERVICES.
Inflation has moderated in the Dominican Republic since 1991, following an
austerity program instituted by the Dominican government. According to the
Central Bank, the annual rates of inflation were 7.8% for 1998, 5.1% for 1999,
9.0% for 2000, 4.4% for 2001 and 10.5% in 2002. The increase in inflation in
2002 was principally due to the depreciation of the Dominican peso against the
U.S dollar and the elimination of government subsidies for the general
population of the Dominican Republic, particularly in the energy sector, which
led to higher prices. However, the country has experienced high levels of
inflation in the past, including an inflation rate of 79.9% for 1990. Any
increase in the value of the U.S. dollar against the Dominican peso directly
affects the Dominican Republic's inflation rate because the Dominican Republic
relies heavily on imports from the United States of raw materials and consumer
goods. High inflation levels could adversely affect the Dominican Republic's
economy and reduce demand for our services.
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THE VOLATILITY AND DEPRECIATION OF THE DOMINICAN PESO AGAINST THE U.S.
DOLLAR COULD REDUCE THE AMOUNT OF CASH WE WILL HAVE TO REPAY OUR
INDEBTEDNESS OR FUND OUR OPERATIONS, INCLUDING THE PURCHASE OF EQUIPMENT
AND CABLE TELEVISION PROGRAMMING.
For 1999, 2000 and 2001, we earned between 55% and 65% of our operating
revenues in Dominican pesos and the remainder of our operating revenues in
foreign currency, primarily in U.S. dollars. The percentage of operating
revenues in Dominican pesos could increase if we successfully increase our share
in Dominican local markets in accordance with our strategy. The Dominican peso
has depreciated in value against the U.S. dollar in 2002 and may be subject to
fluctuations in the future. Most of our outstanding indebtedness is U.S.
dollar-denominated and must be paid in U.S. dollars. Vendors of communications
equipment and cable programming providers all require that we pay in U.S.
dollars. The devaluation of the Dominican peso could adversely affect our
operating revenues and our ability to purchase U.S. dollars in order to service
our debt obligations, including the payment of interest on the new notes and the
existing notes, and pay our equipment vendors and cable program providers. Our
purchase of substantial amounts of U.S. currency in Dominican markets could
adversely affect the value of the Dominican peso in relation to the U.S. dollar,
and make these purchases more costly for us.
RISKS RELATING TO THE WARRANTS AND OUR ADSS
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE
WARRANTS.
There is no existing trading market for the warrants. We will not list the
warrants on the New York Stock Exchange or any other stock exchange or automated
quotation system. Therefore, after the exchange offer and consent solicitation
the warrants may not be actively traded. The trading price of the warrants could
fluctuate widely in response to variations in our operating results, adverse
business developments, increased competition or changes to the regulatory
environment in which we operate and other developments. Warrant holders may not
be able to sell their warrants or receive a price equivalent to the cash offered
alternatively in the exchange offer and consent solicitation.
GFN OWNS STOCK WITH A MAJORITY OF THE VOTING POWER AND WILL BE ABLE TO
DETERMINE MANY DECISIONS CONCERNING US.
GFN beneficially owns 11,486,726 shares of Class B stock and, together with
affiliates, including our Chairman of the Board, 15,939,648 shares of Class A
common stock, having approximately 55.5% of our voting power. Motorola, the
other shareholder owning shares of Class B stock, owns 7,657,818 shares of Class
B stock having approximately 32.5% of the voting power. Accordingly, GFN and
Motorola are able to control the election of directors and all other matters
which are subject to a vote of shareholders. Through this ownership, GFN and
Motorola will be able to exert considerable influence over TRICOM's corporate
governance, strategic direction and major corporate actions. This concentration
of ownership may have the effect of delaying or preventing a change of control
of TRICOM even if this change of control would benefit all of our shareholders.
Because GFN and Motorola will continue to exercise control over TRICOM after the
consummation of the exchange and consent solicitation, holders of ADSs upon
exercise of their warrants, will lack meaningful power to approve decisions of
TRICOM by virtue of their ownership of ADSs.
GFN MAY ACT WITHOUT APPROVAL OF THE ADS HOLDERS TO RELEASE DIRECTORS AND
OFFICERS FROM LIABILITY.
Under Dominican law, shareholders are asked to vote upon the performance of
management at annual shareholders' meetings. Our vigilance officer delivers a
report on our financial performance and other issues related to management's
performance. If the holders of a majority of the votes entitled to be cast
approve management's performance, all shareholders are deemed to have released
the directors and officers from liability to us or our shareholders arising out
of actions taken or any failure to take actions by any of them on our behalf
during the prior fiscal year, with certain exceptions. As a result, shareholders
likely will fail in any suit brought in a Dominican court with respect to such
acts or omissions. Officers and directors may not be released from any claims or
liability for criminal acts, fraud, self-dealing or gross negligence. GFN
controls a majority of the votes entitled to be cast at annual shareholders'
meetings and, without the concurrence of other shareholders, is able to approve
the performance of management, thereby releasing management from liability to us
or our shareholders, including holders of the ADSs.
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THE SHARES UNDERLYING YOUR ADRS MAY NOT BE VOTED IN THE MANNER YOU DIRECT,
IF AT ALL.
If you exercise your warrants, you will then own ADSs which represent
American Depositary receipts of our Class A common stock or ADRs. You may
instruct The Bank of New York, the depositary of the ADRs, to vote the shares
underlying your ADRs only if we ask the depositary to ask for your instructions.
Otherwise, you will not be able to exercise your right to vote unless you
withdraw the shares represented by the ADRs. We have asked and intend to ask the
depositary to ask you for voting instructions. However, you may not receive
voting materials from the depositary in time to instruct it to vote your shares
or for you to withdraw your shares. The depositary is not responsible for
failing to carry out your voting instructions. Therefore, you may not have the
ability to vote your shares and there may not be anything you can do to prevent
it or correct it.
WE HAVE A LARGE AMOUNT OF SHARES ELIGIBLE FOR FUTURE SALE, WHICH COULD HAVE
A NEGATIVE IMPACT ON THE MARKET PRICE OF OUR ADSs.
At March 17, 2003, GFN and Motorola owned a total of 19,144,544 shares of
our Class B stock, each of which is convertible into one share of Class A common
stock. GFN and GFN affiliates also owned 15,939,648 shares of Class A common
stock. We issued 3,375,000 shares of Class A common stock in our acquisition of
Telecable. GFN purchased 675,024 of those shares from the Telecable
shareholders. In December 2002, we issued an aggregate of 21,212,121 shares of
Class A common stock in a private placement. In addition, we have outstanding
options and warrants exercisable for an aggregate of 316,150 ADSs and/or shares
of Class A common stock. GFN and Motorola and the former shareholders of
Telecable have registration rights. We cannot predict the effect, if any, that
future sales of ADSs, or the availability of ADSs for sale, would have on the
market price prevailing from time to time. Sales by GFN, Motorola or the former
shareholders of Telecable of substantial amounts of our ADSs in the public
market, or the perception that sales could occur, could adversely affect
prevailing market prices for our common stock. Motorola has indicated its
intention to sell its shares. A reduction in the market price of our ADSs could
impair our ability to raise additional capital through future offerings of our
equity securities.
FORWARD-LOOKING STATEMENTS
Some statements in this prospectus and consent solicitation, and the
documents incorporated by reference in this prospectus and consent solicitation
are known as "forward-looking statements," as that term is used in Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements may relate to, among other things, future
performance generally, business development activities, future capital
expenditures, financing sources and availability and the effects of regulation
and competition. However, the safe harbor provision of the Private Securities
Litigation Reform act of 1995 do not protect forward-looking statements made in
connection with this exchange offer and consent solicitation.
When we use the words "believe," "intend," "expect," "may," "will,"
"should," "anticipate," "could," "estimate," "plan," "predict," "project," or
their negatives, or other similar expressions, the statements which include
those words are usually forward-looking statements. When we describe strategy
that involves risks or uncertainties, we are making forward-looking statements.
We warn you that forward-looking statements are only predictions. Actual
events or results may differ as a result of risks that we face, including those
set forth in the section of this prospectus and consent solicitation called
"Risk Factors." Those are representative of factors that could affect the
outcome of the forward-looking statements. These and the other factors discussed
elsewhere in this offering memorandum and the documents incorporated by
reference herein are not necessarily all of the important factors that could
cause our results to differ materially from those expressed in our
forward-looking statements. Forward-looking statements speak only as of the date
they are made and we undertake no obligation to update them.
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THE EXCHANGE OFFER AND CONSENT SOLICITATION
GENERAL
Subject to the terms and the conditions described in this prospectus and
consent solicitation and in the related letter of transmittal and consent, which
together constitute the exchange offer and consent solicitation, we are offering
to exchange our [__]% senior notes due 20[__], the new notes, and either cash or
warrants for our outstanding 11 3/8% senior notes due 2004, the existing notes,
that are validly tendered and not properly withdrawn. For every $1,000 principal
amount of existing notes tendered and accepted for exchange, you will receive,
at your option, either (1) a cash payment of $[___] or (2) a warrant to purchase
[_____] shares of our Class A common stock in the form of American depositary
shares or ADSs. To exercise either option, you must so indicate in the letter of
transmittal and consent required to be properly completed and executed and sent
to the exchange agent. You may elect to receive a mix of cash and warrants.
However, your election must be the same for each $1,000 principal amount of
existing notes tendered and accepted. For example, a holder of $2,000 principal
amount of existing notes could elect to receive [_____] warrants with respect to
$1,000 principal amount of existing notes tendered and accepted and the cash
payment for the other $1,000 principal amount. The exchange offer and consent
solicitation is open to all holders of existing notes. We will pay accrued and
unpaid interest on the existing notes, together with accrued and unpaid interest
on the new notes, on the first interest payment date of the new notes.
The exercise price of the warrants will be $[___] per ADS. The warrants
will be exercisable beginning with the date they are issued, which will be upon
the closing date of the exchange offer and consent solicitation, and continuing
until the earlier of September 1,[____], the maturity date of the new notes, or
the date on which we repurchase the new notes. Our ADSs are listed on the New
York Stock Exchange.
The exchange offer and consent solicitation is conditioned upon, among
other things, at least [_____]% of the aggregate outstanding principal amount of
the existing notes being validly tendered and not properly withdrawn pursuant to
the exchange offer and consent solicitation.
The time by which you must tender your existing notes in order to be
eligible to have your existing notes accepted for exchange is 5:00 p.m., New
York City time, on the expiration date. Any extension of the expiration date
will be announced in a press release. See "--Extension, amendment and
termination."
NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS WILL BE ACCEPTED AND NO
TENDERS WILL BE ACCEPTED IN RESPECT OF EXISTING NOTES FOR WHICH CONSENTS TO THE
PROPOSED AMENDMENTS HAVE NOT BEEN GIVEN BY SUCH HOLDERS.
PURPOSE OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
The purpose of the exchange offer and consent solicitation is to extend the
maturity of at least [__]% of the aggregate outstanding principal amount of the
existing notes by offering holders of the existing notes the opportunity to
exchange their existing notes for new notes and either cash or warrants. If the
exchange offer and consent solicitation is consummated, the exchanged existing
notes will be retired. We considered issuing debt or equity securities to repay
the existing notes. However, our efforts to obtain funds to refinance the
existing notes have not been successful. In view of current market and economic
conditions, we determined that the exchange offer and consent solicitation is
the most realistic alternative for extending the maturity of the existing notes.
Consents are being solicited in order to obtain consents from the holders
of a majority of the aggregate outstanding principal amount of the existing
notes to the adoption of the proposed amendments to the indenture governing the
existing notes. The proposed amendments, among other things, would eliminate:
- - substantially all of the covenants in the indenture governing the existing
notes other than the covenants requiring payment of interest on and principal
of the existing notes when due and requiring the maintenance of an office for
purposes of making payments on the existing notes;
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- - most events of default under the indenture governing the existing notes; and
- - the limitations in the indenture on consolidations, mergers, asset
conveyances and transfers.
For a description of the proposed amendments, see "Proposed Amendments."
The proposed amendments to the indenture governing the existing notes will
be set forth in a supplemental indenture that will be executed on or shortly
after the expiration date, provided that the requisite consents are received.
The execution and delivery of the letter of transmittal and consent by a holder
tendering existing notes will constitute the consent of that holder to the
proposed amendments. If we do not exchange the existing notes pursuant to the
exchange offer and consent solicitation, the amendments will not become
effective. See "Proposed Amendments."
ACCEPTANCE FOR EXCHANGE
Upon the terms and subject to the conditions of the exchange offer and
consent solicitation, we will accept for exchange all existing notes that
holders validly tender and do not properly withdraw pursuant to the exchange
offer and consent solicitation. For purposes of the exchange offer and consent
solicitation, we will be deemed to have accepted for exchange tendered existing
notes if, as and when we give written notice to the exchange agent of our
acceptance for exchange of those existing notes. We will announce acceptance for
exchange of the existing notes by issuing a press release. The valid and
unrevoked tender of your existing notes will constitute the giving of the
consent to the proposed amendments with respect to those existing notes.
PROCEDURE FOR TENDERING EXISTING NOTES AND DELIVERING CONSENTS
To validly tender existing notes pursuant to the exchange offer and consent
solicitation, you, your broker or other nominee must send to the exchange agent,
and the exchange agent must receive, a properly completed and duly executed
letter of transmittal and consent, or a copy of it, with any required signature
guarantee, or in the case of a book-entry transfer, an agent's message in lieu
of the letter of transmittal and consent, and any other required documents, at
the exchange agent's address set forth on the last page of this prospectus and
consent solicitation, prior to 5:00 p.m., New York City time, on the expiration
date. In addition, prior to 5:00 p.m., New York City time, on the expiration
date, either (1) the exchange agent must receive certificates for tendered
existing notes at the address so listed or (2) the existing notes must be
transferred pursuant to the procedures for book-entry transfer described below
and the exchange agent must receive a confirmation of such tender, including an
"Agent's Message" if you have not delivered a letter of transmittal and consent.
An "Agent's Message" is a message, transmitted by The Depository Trust Company
or DTC to and received by the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the tendering participant, stating that such participant has received and agrees
to be bound by the letter of transmittal and consent and that we may enforce
that letter of transmittal and consent against that participant. A proper tender
of existing notes pursuant to the foregoing procedures by holders of existing
notes also will constitute the giving of a consent by such holders with respect
to such existing notes.
NEED FOR GUARANTEE OF SIGNATURE
A recognized participant in the Securities Transfer Agents Medallion
Program, called a medallion signature guarantor, must guarantee signatures on a
letter of transmittal and consent unless the existing notes tendered thereby are
tendered (1) by the registered holder of those existing notes and that holder
has not completed either of the boxes entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the letter of transmittal and consent or
(2) for the account of a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc. or
is a commercial bank or trust company having an office in the United States.
Such firms, banks and trust companies are referred to herein as "eligible
institutions."
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BOOK-ENTRY DELIVERY OF THE EXISTING NOTES
Within two business days after the commencement date of the exchange offer
and consent solicitation, the exchange agent will establish an account at DTC
for purposes of the exchange offer and consent solicitation. Any financial
institution that is a participant in the DTC system may make book-entry delivery
of existing notes by causing DTC to transfer those existing notes into the
exchange agent's account for the existing notes in accordance with the DTC
Automatic Tender Offer Program. Although delivery of the existing notes may be
effected through book-entry at DTC, the letter of transmittal and consent, or a
facsimile of it, with any required signature guarantees, or in the case of a
book-entry transfer, an agent's message in lieu of the letter of transmittal and
consent, and any other required documents, must be transmitted to and received
by the exchange agent prior to 5:00 p.m., New York City time, on the expiration
date at the address set forth on the last page of this prospectus and consent
solicitation. Delivery of such documents to DTC does not constitute delivery to
the exchange agent.
ADDITIONAL INFORMATION
If you tender existing notes pursuant to the exchange offer and consent
solicitation by one of the procedures set forth above, that tender will be
deemed to constitute, if not validly revoked or withdrawn prior to the
expiration date, (1) an agreement between you and us in accordance with the
terms and subject to the conditions of the exchange offer and consent
solicitation, (2) your consent to the proposed amendments to the existing notes
and the indenture governing the existing notes and (3) your representation and
warranty to us that you have delivered good and marketable title to the existing
notes, free and clear of all liens, encumbrances and claims. Unrevoked consents
also will constitute evidence of the approval of the proposed amendments to the
existing notes and the indenture governing the existing notes and an instruction
to the trustee to execute the supplemental indenture giving effect to the
proposed amendments to the existing notes and the indenture governing the
existing notes.
The method of delivery of the letter of transmittal and consent,
certificates for existing notes and all other required documents is at your
election and risk. If you choose to deliver by mail, the recommended method is
by registered mail with return receipt requested, properly insured. In all
cases, sufficient time should be allowed to ensure timely delivery.
JPMorgan Chase Bank has been appointed as the exchange agent for the
exchange offer and consent solicitation. All executed letters of transmittal and
consents should be directed to the exchange agent at the address set forth on
the last page of this prospectus and consent solicitation. Questions, requests
for assistance, requests for additional copies of this prospectus and consent
solicitation or of the letter of transmittal and consent should be directed to
the exchange agent.
DELIVERY OF THE LETTER OF TRANSMITTAL AND CONSENT TO AN ADDRESS OTHER THAN AS
SET FORTH ON THE BACK COVER OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL AND
CONSENT VIA FACSIMILE OTHER THAN AS SET FORTH DOES NOT CONSTITUTE A VALID
DELIVERY OF THE LETTER OF TRANSMITTAL AND CONSENT.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tenders and consents and revocation of tenders and
consents will be resolved by us in our sole discretion, and our determination
will be final and binding. We reserve the absolute right to reject any and all
tenders of existing notes that we determine are not in proper form or the
acceptance for payment of or payment for which may, in the opinion of our
counsel, be unlawful. We also reserve the absolute right in our sole discretion
to waive any of the conditions of the exchange offer and consent solicitation or
any defect or irregularity in the tender of existing notes by any particular
holder, whether or not similar conditions, defects or irregularities are waived
in the case of other holders. Our interpretation of the terms and conditions of
the exchange offer and consent solicitation (including the instructions in the
letter of transmittal and consent) will be final and binding. Neither we nor the
exchange agent, the dealer manager, the information agent, the trustee or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or any notices of withdrawal or will incur any
liability for failure to give any such notification.
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WITHDRAWAL OF TENDERS AND REVOCATION OF CORRESPONDING CONSENTS
You may withdraw the existing notes that you have tendered at any time
prior to the exchange of the existing notes for new notes and either cash or
warrants and the effectiveness of the supplemental indenture effecting the
proposed amendments to the indenture governing the existing notes. If you
properly withdraw tendered existing notes prior to the exchange of the existing
notes for new notes and either cash or warrants and the effectiveness of the
supplemental indenture, such proper withdrawal will constitute the concurrent
valid revocation of, and the only means of validly revoking, your related
consent. If the exchange offer and consent solicitation is terminated without us
having exchanged any existing notes, existing notes that you tender will be
promptly returned to you.
For a withdrawal of existing notes to be effective, the exchange agent must
timely receive a written or facsimile transmission notice of withdrawal at the
address set forth on the last page of this prospectus and consent solicitation.
The notice of withdrawal must specify the name of the person who tendered the
existing notes to be withdrawn. The notice of withdrawal also must contain (1) a
description of the existing notes to be withdrawn, (2) the numbers shown on the
particular certificates evidencing such existing notes and (3) the aggregate
principal amount of the existing notes so withdrawn. The notice of withdrawal
must be signed by the holder of such existing notes in the same manner as the
original signature on the letter of transmittal and consent (including any
required signature guarantees) or be accompanied by evidence satisfactory to us
that the person withdrawing the tender has succeeded to the beneficial ownership
of such existing notes. In addition, the notice of withdrawal must specify, in
the case of existing notes tendered by delivery of certificates for such
existing notes, the name of the registered holder, if different from that of the
tendering holder, or, in the case of existing notes tendered by book-entry
transfer, the name and number of the account at DTC to be credited with the
withdrawn existing notes. The signature on the notice of withdrawal must be
guaranteed by an eligible institution unless such existing notes have been
tendered for the account of an eligible institution. If a holder delivers or
otherwise identifies to the exchange agent certificates for the existing notes
to be withdrawn, a signed notice of withdrawal will be effective immediately
upon receipt by the exchange agent of written or facsimile transmission notice
of withdrawal even if physical release is not yet effected.
Any existing notes properly withdrawn thereafter will be deemed not validly
tendered for purposes of the exchange offer and consent solicitation and any
consents properly revoked will thereafter be deemed not validly given for
purposes of the exchange offer and consent solicitation. However, properly
withdrawn existing notes and properly revoked consents may be retendered and
regiven by following one of the procedures described under "--Procedure for
tendering existing notes and delivering consents" at any time prior to the
exchange of the existing notes for new notes and either cash or warrants and the
effectiveness of the supplemental indenture governing the proposed amendments.
Holders can withdraw their existing notes and revoke their consents only in
accordance with the foregoing procedures. All questions as to the validity and
form (including the time of receipt) of notices of withdrawal will be determined
by us, in our sole discretion, which shall be final and binding. Neither we nor
the exchange agent, the dealer manager and solicitation agent, the information
agent, the trustee or any other person will be under any duty to give
notification of any defects or irregularities in tenders or any notices of
withdrawal or will incur any liability for failure to give any such
notification.
CONDITIONS TO THE EXCHANGE OFFER AND CONSENT SOLICITATION
The exchange offer and consent solicitation are conditioned upon
satisfaction of the following conditions:
- - at least [____]% of the aggregate outstanding principal amount of the
existing notes being validly tendered and not properly withdrawn pursuant to
the exchange offer and consent solicitation, the minimum condition;
- - there not existing, in our reasonable judgment, any actual or threatened
legal, governmental or regulatory impediment, including a default or alleged
default under an agreement, indenture or other instrument or obligation, to
which we, or one of our affiliates is a party or by which any of them or
their assets are bound, to the exchange of the existing notes for new notes
and either cash or warrants pursuant to the exchange offer and
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<Page>
consent solicitation or to the effectiveness of the proposed amendments to
the existing notes and the indenture governing the existing notes;
- - no change or development, including a prospective change or development, in
the general economic, financial, currency exchange or market conditions in
the Dominican Republic or abroad occurring that, in our reasonable judgment,
has or may harm the value of the new notes; and
- - the trustee under the indenture governing the existing notes shall have
executed and delivered the supplemental indenture relating to the proposed
amendments solicited pursuant to the exchange offer and consent solicitation
and shall not have objected in any respect to, or taken any action that could
adversely affect the consummation of, the exchange offer and consent
solicitation or our ability to effect the proposed amendments.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances, including any action or inaction by us, giving
rise to such condition or may be waived by us in whole or in part in our
discretion. If any condition to the exchange offer and consent solicitation
(other than those subject to governmental approval) is not satisfied or waived
on or prior to the expiration date, we reserve the right, but will not be
obligated, subject to applicable law:
- - to terminate the exchange offer and consent solicitation and return the
tendered existing notes to the tendering holders;
- - to waive all unsatisfied conditions, other than the condition of receiving at
least [ ]% of the aggregate outstanding principal amount of the existing
notes being validly tendered and not properly withdrawn prior to 5:00 p.m.,
New York City time, on the expiration date, and accept for exchange and
exchange all existing notes that are validly tendered and not properly
withdrawn prior to 5:00 p.m., New York City time, on the expiration date;
- - to extend the exchange offer and consent solicitation and retain the existing
notes that have been tendered during the period for which the exchange offer
and consent solicitation is extended; or
- - to amend the exchange offer and consent solicitation.
Since your valid tender of existing notes will constitute your consent to
the proposed amendments to the indenture governing the existing notes, we will
have obtained the consents necessary to adopt the proposed amendments and to
execute the supplemental indenture to the indenture governing the existing notes
if the minimum condition is satisfied. The outstanding principal amount of the
existing notes is $200 million.
EXTENSION, AMENDMENT AND TERMINATION
We expressly reserve the right, at any time or from time to time,
regardless of whether or not the conditions set forth in "--Conditions to the
exchange offer and consent solicitation" are satisfied, subject to applicable
law, (1) to extend the expiration date for the exchange offer and consent
solicitation or (2) to amend the exchange offer and consent solicitation in any
respect, in each case, by giving written notice of such extension or amendment
to the exchange agent. In addition, we reserve the right to terminate the
exchange offer and consent solicitation if the conditions to the exchange offer
and consent solicitation are not satisfied prior to the exchange of the existing
notes for new notes and either cash or warrants and the effectiveness of the
supplemental indenture governing the proposed amendments. If we terminate the
exchange offer and consent solicitation prior to such time we will return the
existing notes tendered pursuant to the exchange offer and consent solicitation
by giving written notice of such termination to the exchange agent. We will
publicly announce any extension, amendment or termination by issuing a press
release. If the exchange offer and consent solicitation are terminated without
us having exchanged any existing notes, we will promptly return the existing
notes tendered.
If we materially change the terms of the exchange offer and consent
solicitation or the information concerning the exchange offer and consent
solicitation, or if we waive a material condition of the exchange offer and
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<Page>
consent solicitation, we will extend the exchange offer and consent solicitation
to the extent required by Rule 14e-1 under the Securities Exchange Act of 1934.
This rule requires that the minimum period during which the exchange offer and
consent solicitation must remain open following material changes in the terms of
the exchange offer and consent solicitation or information concerning the
exchange (other than a change in price or in percentage of securities sought)
will depend on the relevant facts and circumstances, including the relative
materiality of such changes. With respect to a change in price or, subject to
certain limitations, a change in the percentage of securities sought, a minimum
ten business day period from the day of such change generally is required to
allow for adequate dissemination to holders of existing notes. If we withdraw or
terminate the exchange offer and consent solicitation, we will give immediate
notice to the information agent and the dealer manager. For purposes of the
exchange offer and consent solicitation, a "business day" means any day other
than a Saturday, Sunday or a U.S. federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
ANNOUNCEMENTS
If we are required to make an announcement relating to an extension of the
exchange offer and consent solicitation, we will do so no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date. Such announcement may state we are extending the exchange offer
and consent solicitation for a specific time or on a daily basis.
Without limiting the manner in which we may choose to make a public
announcement of any extension, amendment or termination of the exchange offer
and consent solicitation, we expect to make any public announcement through a
timely release to the Dow Jones News Source.
FEES AND EXPENSES
DEALER MANAGER
We have retained Bear, Stearns & Co. Inc. as dealer manager and
solicitation agent in connection with the exchange offer and consent
solicitation. Bear Stearns will receive fees of approximately $2.8 million,
assuming the minimum condition is satisfied, for its services. Bear Stearns will
receive fees only if the exchange offer and consent solicitation is consummated.
The fees will be payable on the date the new notes are issued. Bear Stearns will
be reimbursed for its reasonable out-of-pocket expenses and will be indemnified
together with certain related persons against certain liabilities and expenses,
including certain liabilities under the federal securities laws, in connection
with the exchange offer and consent solicitation whether or not the exchange
offer and consent solicitation is consummated. The obligations of Bear Stearns
will be subject to certain conditions.
At given time, Bear Stearns may trade the existing notes or the new notes
for its own accounts or for the accounts of its customers, and accordingly, may
hold long or short positions in the existing notes or the new notes. Bear
Stearns has held and continues to hold existing notes in its trading account.
Bear Stearns has provided, and expects to provide in the future, investment
banking services to us and our affiliates for which it has received and expects
to receive customary fees and commissions. Inquiries regarding the terms of the
exchange offer and consent solicitation may be directed to Bear Stearns at the
address or telephone number set forth on the back page of this prospectus and
consent solicitation.
SOLICITATION AGENT FEES
We will pay to brokers, dealers or others soliciting acceptances of the
exchange offer and consent solicitation a solicitation fee of $5 per US$1,000
principal amount of existing notes tendered and accepted for exchange pursuant
to the exchange offer and consent solicitation. Also, we will reimburse such
persons for customary mailing and handling expenses incurred in forwarding
materials relating to the exchange offer and consent solicitation to their
customers. A fee will only be payable to an entity covered by a letter of
transmittal and consent which designated its name as having solicited and
obtained the tender and is:
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<Page>
- - any broker or dealer in securities, including the dealer manager in its
capacity as a broker or dealer, which is a member of any national securities
exchange or the National Association of Securities Dealers, Inc., or NASD;
- - any foreign broker or dealer not eligible for membership in the NASD which
agrees to conform to the NASD's Conduct Rules in soliciting tenders outside
the United States to the same extent as though it were an NASD member; or
- - any bank or trust company.
No such fee will be payable to a soliciting dealer with respect to a tender of
existing notes by a holder unless the letter of transmittal and consent
accompanying such tender designates such soliciting dealer. No such fee will be
payable to a soliciting dealer in connection with exchanges of existing notes by
beneficial owners or registered holders who own more than US$1,000,000 principal
amount of existing notes. No such fee will be payable to a soliciting dealer in
respect of existing notes registered in the name of such soliciting dealer
unless such notes are held by such soliciting dealer as nominee and such
existing notes are being tendered for the benefit of one or more beneficial
owners identified on the letter of transmittal and consent on the notice of
solicited tenders. No such fee will be payable to a soliciting dealer if such
soliciting dealer is required for any reason to transfer the amount of such fee
to a depositing holder (other than itself). No such fee will be payable to a
soliciting dealer with respect to existing notes tendered for such soliciting
dealer's own account.
No broker, dealer, bank, trust company or fiduciary will be deemed to be
our agent or an agent of the exchange agent, the dealer manager or the
information agent for purposes of the exchange offer and consent solicitation.
ADDITIONAL ADVISOR'S FEES
We have retained JPMorgan Chase Bank, as the exchange agent, and D.F. King
& Co., Inc., as the information agent, in connection with the exchange offer and
consent solicitation. The exchange agent will receive $10,000 and the
information agent $8,000. Each will also be reimbursed for reasonable
out-of-pocket expenses. Neither the exchange agent nor the information agent
has been retained to make solicitations or recommendations in connection with
the exchange offer and consent solicitation.
CONSEQUENCES OF NOT EXCHANGING THE EXISTING NOTES
If you do not exchange your existing notes for new notes and either cash or
warrants in the exchange offer and consent solicitation and the exchange offer
and consent solicitation is consummated, then your existing notes will continue
to be subject to the provisions of the indenture governing the existing notes as
modified by the proposed amendments.
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<Page>
PROPOSED AMENDMENTS
GENERAL
The valid tender of your existing notes in accordance with the procedures
set forth in "The Exchange Offer and Consent Solicitation--Procedure for
tendering existing notes and delivering consents" will constitute your consent
to the proposed amendments to the existing notes and the indenture governing the
existing notes. If you tender your existing notes, you must deliver a
corresponding consent to the proposed amendments. You may not deliver consents
without tendering your existing notes. The proposed amendments must be approved
by a majority of the aggregate outstanding principal amount of the existing
notes. We are seeking the proposed amendments in order to discourage holders of
the existing notes from not tendering.
The supplemental indenture will become effective when the exchange offer
and consent solicitation is consummated. The indenture governing the existing
notes states that it is not necessary for consenting holders of the existing
notes to approve the particular form of any proposed amendment. Rather it will
be sufficient if such consent approves the substance of any proposed amendment.
Accordingly, we reserve the right to modify the form of the proposed amendments,
if the modifications would not, in the aggregate, materially alter the substance
of the proposed amendments described in this prospectus and consent
solicitation. Consents validly given under this prospectus and consent
solicitation will remain valid and effective and will be treated as consents to
the proposed amendments as so modified.
The only covenants that will remain in the indenture governing the existing
notes is the covenant to pay interest and principal of the existing notes when
due and the covenant requiring the maintenance of an office for purposes of
making payments on the existing notes. The only events of default that will
remain in the indenture governing the existing notes is default for 30 days on
the payment due if interest on the existing notes and default in payment when
done of the principal or premium on the existing notes.
Set forth below is a brief description of the proposed amendments to be
made to the indenture governing the existing notes. This description is
qualified by reference to the full provisions of the indenture governing the
existing notes, copies of which the information agent can provide to you.
THE AMENDMENTS
AMENDMENT TO "EVENTS OF DEFAULT." Under the indenture, an event of default
constitutes, among other things, default for 30 days in the payment when due of
interest with respect to the existing notes, and default in payment when due of
the principal of or premium on the existing notes. Under the supplemental
indenture, the following events of defaults are deleted:
- we fail to comply with any of the covenants and provisions described
below;
- we or any of our restricted subsidiaries default under any mortgage,
indenture or instrument;
- we or any of our restricted subsidiaries fail to pay final judgments;
- termination or loss of the Dominican License;
- we or any of our restricted subsidiaries are subject to bankruptcy
events; and
- any guaranty by any of our restricted subsidiaries is held to be
unenforceable.
Under the supplemental indenture, there also is deleted the event of
default related to shareholder support agreements (which in accordance with
those agreements no longer are effective) and the obligations of principal
shareholders to provide financial support in certain events (which also no
longer apply in accordance with the terms of the agreements that define these
obligations).
AMENDMENTS TO COVENANTS. Under the supplemental indenture, the following
covenants are deleted:
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<Page>
"GUARANTY" COVENANT. The "Guaranty" covenant requires our obligations under
the existing notes to be unconditionally and irrevocably guaranteed, jointly and
severally, by our restricted subsidiaries and such other persons that become
Restricted Subsidiaries after the issue date and each of their respective
successors. Under the supplemental indenture, the "Guaranty" covenant is
deleted.
"OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS" COVENANT. The "Offer to
Purchase with Excess Asset Sale Proceeds" covenant requires us, among other
things, to make an offer to all holders of existing notes to purchase the
maximum principal amount of existing notes that may be purchased out of such
excess proceeds when the cumulative amount of excess proceeds exceeds $5.0
million. Under the supplemental indenture, the "Offer to Purchase with Excess
Asset Sale Proceeds" covenant is deleted.
"OFFER TO PURCHASE UPON A CHANGE OF CONTROL" COVENANT. The "Offer to
Purchase Upon a Change of Control" covenant requires us, among other things, to
offer to purchase all of the outstanding existing notes at a purchase price
equal to 101% of their principal amount plus accrued interest within 30 days
following the occurrence of a change of control, as defined. Under the
supplemental indenture the "Offer to Purchase Upon a Change of Control" covenant
is deleted.
"REPORTS" COVENANT. The "Reports" covenant requires us to furnish certain
reports to the holders of the existing notes. Under the supplemental indenture,
the "Reports" covenant is deleted.
"COMPLIANCE CERTIFICATE" COVENANT. The "Compliance Certificate" covenant
requires us , among other things, to furnish to the trustee an officers'
certificate within 120 days after the end of each fiscal year. Under the
supplemental indenture, the "Compliance Certificate" covenant is deleted.
"RESTRICTED PAYMENTS" COVENANT. The "Restricted Payments" covenant
restricts us and our restricted subsidiaries from, among other things, declaring
or paying any dividend or making any distribution with respect to or purchasing
our or its capital stock, repaying subordinated debt or making certain
investments, except in certain circumstances. Under the supplemental indenture,
the "Restricted Payments" covenant is deleted.
"DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES"
COVENANT. The "Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant prohibits us and our restricted subsidiaries from, among
other things, creating restrictions on our restricted subsidiaries' ability to
pay dividends or obligations owing to us, making loans to us and transferring
property to us, subject to certain exceptions. Under the supplemental indenture,
the "Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries"
covenant is deleted.
"INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK" COVENANT.
The "Incurrence of Indebtedness and Issuance of Disqualified Stock" covenant
restricts us from incurring additional indebtedness and either us or our
restricted subsidiaries from issuing Disqualified Stock, except in certain
circumstances. Under the supplemental indenture, the "Incurrence of Indebtedness
and Issuance of Disqualified Stock" covenant is deleted.
"ASSET SALES" COVENANT. The "Asset Sale" covenant prohibits us from, among
other things, selling, leasing, conveying, disposing or otherwise transferring
assets in a single transaction or in a series of related transactions, subject
to certain exceptions, . Under the supplemental indenture, the "Asset Sales"
covenant is deleted.
"TRANSACTIONS WITH AFFILIATES" COVENANT. The "Transactions with Affiliates"
covenant prohibits us and our restricted subsidiaries from engaging in
transactions with affiliates unless certain conditions are met, subject to
certain exceptions. Under the supplemental indenture, the "Transactions with
Affiliates" covenant is deleted.
"LIENS" COVENANT. The "Liens" covenant prohibits us and our Restricted
Subsidiaries from granting liens on our assets, subject to certain exceptions.
Under the supplemental indenture, the "Liens" covenant is deleted.
"LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS" COVENANT. The "Limitations
on Sale and Leaseback Transactions" covenant in the existing indenture restricts
us and our restricted subsidiaries from engaging in sale and
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leaseback transactions unless certain conditions are satisfied. Under the
supplement indenture, the "Limitations on Sale and Leaseback Transactions"
covenant is deleted.
"BUSINESS ACTIVITIES" COVENANT. The "Business Activities" covenant
restricts us and our restricted subsidiaries from engaging in any business other
than the telecommunications business. Under the supplemental indenture, the
"Business Activities" covenant is deleted.
"PAYMENTS FOR CONSENT" COVENANTS. The "Payments for Consent" covenants
requires us not to pay any consideration to any holder for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
indenture or the existing notes unless such consideration is offered to be paid
or agreed to be paid to all holders of the existing notes that consent, waive or
agreement to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement. Under the supplemental indenture,
the "Payment for Consent" covenants are deleted.
"SUBSIDIARIES" COVENANT. The "Subsidiaries" covenant restricts us from
owning any interest in any person, subject to certain exceptions. Under the
supplemental indenture, the "Subsidiaries" covenant is deleted.
"MERGER; CONSOLIDATION OR SALE OF ASSETS" COVENANT. The "Merger;
Consolidation or Sale of Assets" covenant restricts us from consolidating or
merging or selling all or substantially all of our assets, subject to certain
exceptions. Under the supplemental indenture, the "Merger; Consolidation or Sale
of Assets" covenant is deleted.
The supplemental indenture also deletes other provisions of the indenture
governing the existing notes related to these events of default and covenants,
including definitions.
The proposed amendments are a single proposal. If you tender your existing
notes, you will be deemed to have consented to the proposed amendments as an
entirety with respect to the existing notes you tender. You may not consent
selectively to only some of the proposed amendments.
EFFECT OF THE PROPOSED AMENDMENTS.
If the exchange offer and consent solicitation is consummated,
substantially all of the covenants and events of default applicable to the
existing notes will be eliminated. The only covenants that will remain are the
covenants
- to pay interest on and principal of the existing notes when due, and
- to maintain an office for purposes of making payments on the existing
notes.
The only events of default that will remain are
- default for 30 days in the payment when due of interest, and
- default in payment when due of principal or premium.
An event of default may occur under the new notes, including as a result of
the violation of a covenant that is similar to a covenant eliminated by the
consent solicitation. However, as a result of the amendments, there would not be
an event of default under the existing notes and the holders of the existing
notes would not have the right to accelerate the payment of the existing notes,
even if payment of the new notes or other TRICOM indebtedness were accelerated.
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PRICE RANGE OF AMERICAN DEPOSITARY SHARES AND DIVIDEND POLICY
Our ADSs are traded on the New York Stock Exchange under the symbol "TDR".
Shares of Class A common stock are not traded on any other exchange or automated
quotation system. At September 30, 2002, there were 28 record holders in the
United States of the ADSs.
The following table provides the high and low prices and average daily
trading volume for the ADSs on the New York Stock Exchange for (1) 1998, the
year in which we completed our initial public offering, 1999, and 2000 (2) each
quarter of 2001 and 2002, our two most recent full fiscal years, and the first
quarter of 2003 to date and (3) each of the most recent six months.
<Table>
<Caption>
NEW YORK STOCK EXCHANGE
-------------------------------------------------------
AVERAGE DAILY
HIGH LOW TRADING VOLUME
-------------- -------------- ----------------
YEAR ENDED DECEMBER 31, 1998.............................. 12 9/16 3 7/16 104,496
YEAR ENDED DECEMBER 31, 1999.............................. 22 5/8 6 35,240
YEAR ENDED DECEMBER 31, 2000.............................. 28 1/2 6 11/20 71,856
YEAR ENDED DECEMBER 31, 2001
First Quarter............................................. 12.46 7.00 13,746
Second Quarter............................................ 7.80 6.00 22,989
Third Quarter............................................. 6.70 5.30 14,836
Fourth Quarter ........................................... 5.75 3.15 45,943
YEAR ENDED DECEMBER 31, 2002
First Quarter............................................. 4.00 3.30 9,288
Second Quarter............................................ 3.90 3.00 13,196
Third Quarter............................................. 3.63 3.09 11,078
Fourth Quarter............................................ 3.20 3.05 33,785
YEAR ENDED DECEMBER 31, 2003
First Quarter (through March 10, 2003).................... 2.96 2.91 4,100
September................................................. 3.50 3.15 8,744
October................................................... 3.40 3.03 9,105
November.................................................. 3.29 2.91 60,242
December.................................................. 3.09 2.93 34,529
January................................................... 2.99 2.94 5,200
February.................................................. 2.96 2.87 3,559
</Table>
We have never paid dividends on our common stock. Under Dominican law, only
our shareholders are entitled to declare dividends out of profits available for
distribution. GFN and Motorola control us and they have indicated to us that
they do not intend to declare dividends on our common stock.
Holders of ADSs on the applicable record dates would be entitled to any
dividends declared on the underlying Class A common stock. If declared,
dividends will be payable in Dominican pesos. The dividends would then be
converted by the Depositary for the benefit of ADS holders into U.S. dollars at
the then prevailing private market rate. The indenture for the existing notes
restricts our ability to pay dividends. If we complete this exchange offer and
consent solicitation, the indenture for the new notes also will restrict our
ability to pay dividends.
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EXCHANGE RATES
The Federal Reserve Bank of New York does not report a noon buying rate for
Dominican pesos. The following table sets forth the average official rate for
each of the five most recent years and the nine month period ended September 30,
2002, and the high and low official exchange rates for each of the previous six
months, all as reported by the Central Bank. The average official rate has been
calculated by using the average of the exchange rates on the last day of each
month during the period. At March 12, 2003, the average official exchange rate
was RD$21.90 per $1.00 while the average private market rate was RD$22.53 per
$1.00.
<Table>
<Caption>
OFFICIAL RATE
------------------------------------------
YEAR ENDED DECEMBER 31, HIGH LOW AVG.
------------- ------------ --------------
(RD$ PER $)
1998 15.49 14.02 14.70
1999 15.93 15.50 15.83
2000 16.56 15.91 16.18
2001 16.99 16.58 16.69
2002 17.63 16.97 17.45
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002 17.63 16.97 17.41
MONTH / PERIOD ENDED
September 30, 2002 17.56 17.56 17.56
October 31, 2002 17.56 17.56 17.56
November 30, 2002 17.56 17.56 17.56
December 31, 2002 17.56 17.56 17.56
January 31, 2003 17.56 17.56 17.56
February 28, 2003 24.50 22.77 23.87
</Table>
<Table>
<Caption>
PRIVATE MARKET RATE
------------------------------------------
YEAR ENDED DECEMBER 31, HIGH LOW AVG.
------------- ------------ --------------
(RD$ PER $)
1998 15.86 14.41 15.23
1999 16.18 15.84 16.03
2000 16.63 16.08 16.37
2001 17.06 16.65 16.88
2002 23.83 17.03 18.54
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2002 19.05 17.03 17.87
MONTH / PERIOD ENDED
September 30, 2002 19.05 18.56 18.81
October 31, 2002 20.39 18.99 19.57
November 30, 2002 21.56 20.33 20.66
December 31, 2002 23.83 20.71 21.45
January 31, 2002 22.59 20.79 22.02
February 28, 2003 25.58 22.50 24.68
</Table>
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SELECTED FINANCIAL DATA
The following table provides selected financial and operating data for the
periods indicated. We have derived the selected financial data for, and as of,
the years ended December 31, 1997, 1998, 1999, 2000 and 2001 from our
consolidated financial statements, which have been audited by KPMG (member firm
of KPMG International in the Dominican Republic), independent auditors. The
selected financial data for, and as of, the nine months ended September 30, 2001
and 2002 are derived from our unaudited consolidated financial statements and,
in the opinion of management, include all adjustments, consisting only of normal
recurring accruals, that are necessary for a fair presentation of our financial
and operating results for these periods. The selected financial data are not
necessarily indicative of the results that may be expected for any future
period. You should read the information in the following tables in conjunction
with "Operating and Financial Review and Prospects" and our consolidated
financial statements (including the notes to the statements) included in this
prospectus and consent solicitation.
<Table>
<Caption>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- ----------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)(1)
STATEMENTS OF OPERATIONS DATA:
Operating revenues:
Toll .......................... $ 15,511 $ 17,645 $ 23,118 $ 28,666 $ 29,018 $ 22,216 $ 21,037
International ................. 39,432 50,332 60,592 84,187 82,024 60,863 65,156
Local service ................. 6,412 11,863 33,299 51,310 63,419 46,365 51,046
Cellular and PCS .............. 13,073 20,364 26,474 35,796 37,302 28,228 28,300
Data and Internet ............. - 1,079 560 3,461 8,268 6,025 8,072
Paging ........................ 5,079 4,528 2,696 1,704 1,051 832 495
Sale of equipment ............. 5,502 4,115 7,690 5,263 2,686 2,652 1,722
Installation and activation fees 5,071 12,937 15,502 13,749 14,348 9,391 3,298
Cable(2) ...................... - - - - 4,736 - 16,852
Other ......................... 21 2,640 889 162 919 555 416
--------- --------- --------- --------- --------- --------- ---------
Total operating revenues .... 90,102 125,501 170,819 224,298 243,772 177,127 196,395
--------- --------- --------- --------- --------- --------- ---------
Operating costs:
Transport and access charges
(excluding network depreciation
expense of $7,433, $11,382,
$15,983, $29,342, $44,510,
$32,465 and $39,624 in 1997,
1998, 1999, 2000, 2001 and for
the nine months ended
September 30, 2001 and 2002,
respectively, included below) . 31,271 32,309 43,688 68,608 68,337 49,471 57,266
Programming costs(2) ............ - - - - 1,225 - 4,673
Network depreciation ............ 7,433 11,382 15,983 29,342 44,510 32,465 39,624
Expense in lieu of income taxes(3) 6,248 9,562 12,764 10,174 12,646 9,003 6,247
</Table>
41
<Page>
<Table>
<Caption>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- ----------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- --------- ---------
Selling, general and administrative
expenses, including non- network
depreciation expense of $1,956,
$3,240, $4,855, $ 6,824, $9,922,
$7,353 and $9,611 in 1997, 1998,
1999, 2000, 2001 and for the nine
months ended September 30, 2001
and 2002, respectively .......... 25,631 39,379 51,501 70,691 98,755 66,402 83,026
Cost of equipment sold ............ 2,558 2,244 3,988 2,911 2,070 2,179 1,192
Other ............................. 1,101 1,148 1,433 1,550 1,746 1,473 1,437
--------- --------- --------- --------- --------- --------- ---------
Total operating costs ........... 74,242 96,024 129,357 183,276 229,289 160,992 193,464
--------- --------- --------- --------- --------- --------- ---------
Operating income: ................. 15,860 29,478 41,462 41,022 14,484 16,135 2,930
--------- --------- --------- --------- --------- --------- ---------
Other income (expenses):
Interest expense, net ........... (12,047) (12,873) (20,041) (30,736) (39,680) (26,961) (45,585)
Other expenses, net ............. (789) 949 875 (470) 819 226 1,707
Earnings (loss) before income
taxes, extraordinary item and
cumulative effect of accounting
change ........................ 3,023 17,554 22,296 9,816 (24,378) (10,600) (40,948)
Income taxes .................... - 352 (142) (588) (511) (251) (637)
Minority interest ............... - - - - 1,775 155 1,871
Extraordinary item .............. (5,453)(4) - - - - - -
Cumulative effect of accounting
change:
Organization costs ............ - - (120) - - - -
Installations and activations
revenues .................... - - - (16,453)(5) - - -
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) ......... $ (2,430) $ 17,906 $ 22,035 $ (7,226) $ (23,114) $ (10,696) $ (39,714)
========= ========= ========= ========= ========= ========= =========
Basic earnings per common share:
Earnings before extraordinary
item and cumulative effect of
accounting change ............. $ 0.17 $ 0.78 $ 0.89 $ 0.33 $ (0.78) $ (0.37) $ (0.92)
Extraordinary item .............. (0.31) - - - - - -
Cumulative effect of accounting
change ........................ - - - (0.59)(5) - - -
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) - basic and
dilited ....................... $ (0.14) $ 0.78 $ 0.89 $ (0.26) $ (0.78) $ (0.37) $ (0.92)
========= ========= ========= ========= ========= ========= =========
Book value per share .............. $ 2.39 $ 5.56 $ 6.04 $ 7.61 $ 8.58 $ 8.33 $ 4.93
========= ========= ========= ========= ========= ========= =========
Average number of common shares
outstanding ..................... 17,600 22,945 24,845 27,724 29,571 28,845 43,390
========= ========= ========= ========= ========= ========= =========
</Table>
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------------------------------------- ----------------
1997 1998 1999 2000 2001 2002
--------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents(6) ...... $ 5,733 $ 15,377 $ 13,460 $ 18,200 $ 27,776 $ 20,666
Working capital (deficit) ......... 4,846 (19,784) (83,659) (125,299) (175,567) (137,406)
Property, plant and equipment, net 202,978 330,456 455,045 586,224 685,917 687,545
Total assets ...................... 321,144 444,815 531,478 682,440 829,415 811,650
</Table>
42
<Page>
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------------------------------------- ----------------
1997 1998 1999 2000 2001 2002
--------- --------- --------- --------- --------- ---------
Long-term debt and capital leases
(excluding current portion)(7)... 232,000 200,000 240,413 276,744 317,826 398,053
Total indebtedness ................ 242,755 279,257 336,468 398,808 498,155 528,896
Shareholders' equity .............. 42,093 127,561 149,869 210,796 253,534 213,820
</Table>
<Table>
<Caption>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- ----------------------
1997 1998 1999 2000 2001 2001 2002
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)(1)
OTHER FINANCIAL DATA:
Capital expenditures(7) ........... $ 92,668 $ 142,101 $ 145,426 $ 168,913 $ 116,575 $ 96,084 $ 52,655
Net cash provided (used) by
operating activities ............ 39,095 26,912 31,526 42,339 34,002 20,348 6,293
Net cash used in investing
activities ...................... 168,636 121,171 64,360 149,395 176,466 96,782 42,467
Net cash provided by financing
activities ...................... 132,059 104,065 30,966 111,796 136,840 96,334 30,742
EBITDA(8) ......................... 31,497 53,662 75,261 87,681 82,222 65,705 60,385
Ratio of EBITDA to net interest
expense ......................... 2.6x 4.2x 3.7x 2.9x 2.1x 2.4x 1.3x
Ratio of total indebtedness
to EBITDA ....................... 7.7x 5.2x 4.5x 4.5x 6.1x 5.2x 6.6x
OTHER OPERATING DATA:
International minutes
(in thousands)(9) ............... 157,411 231,075 360,532 597,204 768,394 549,021 761,324
Local access lines in service
(at period end) ................. 43,195 80,616 118,926 148,312 177,352 169,893 179,124
Mobile subscribers
(at period end) ................. 41,107 108,532 176,080 284,991 364,059 332,436 410,918
Cable subscribers
(at period end)(10) ............. - - - - 64,466 - 71,081
</Table>
- ----------
(1) Except per share, ratios and other operating data.
(2) We acquired our cable television operations on October 26, 2001.
(3) On June 4, 2002, a Presidential decree modified the tax system imposed on
all telecommunication providers in the Dominican Republic by concession
agreements (including by our 1996 concession agreement) in favor of the
payment of a tax equal to the greater of 25% of net taxable income and 1.5%
of gross revenues, which is the tax regime applicable to Dominican
corporate taxpayers. We began paying income tax on this basis on September
1, 2002. For each of the periods presented, we made payments in lieu of
income taxes equal to 10% of gross domestic revenues, after deducting
charges for access to the local network, plus 10% of net international
revenues. Had we paid taxes for these periods on the same basis as all
Dominican corporate taxpayers, our taxes would have been $760,000 for 1997,
$4.5 million for 1998, $5.5 million for 1999, $3.4 million for 2000, $3.7
million for 2001 and approximately $1.7 million and $2.0 million for the
nine months ended September 30, 2001 and 2002, an aggregate tax payment
savings of approximately $33.5 million for 1997 through 2001, but without
taking into account additional payments that we would be required to make
with respect to withholding requirements for, among other things, services
provided to us by non-Dominican vendors, from which our concession
agreement exempted us, but to which we will be subject now.
We are required by Dominican law to withhold 5% interest paid to financial
institutions located outside the Dominican Republic and 25% of all other
payments abroad, excluding payments to foreign suppliers for goods and
equipment imported to the Dominican Republic. We are required by the terms
of
43
<Page>
various financings with non-Dominican lenders including our existing and
new notes, to pay the amount of the withholding tax on behalf of the lender
so that the net amount it receives after such withholding or deduction will
not be less than the amount the holder would have received if such taxes
had not been withheld. For each of 1998, 1999, 2000 and 2001, this would
have resulted in additional payments with respect to the existing notes of
$1.14 million (the existing notes were issued in August 1997 and the first
interest payment was made in 1998) and approximately $1.2 million for 1997,
$1.4 million for 1998, $474,000 for 1999, $942,000 for 2000 and $1.08
million for 2001, with respect to other borrowings, approximately $8.5
million in the aggregate for 1997 through 2001. For the nine months ended
September 30, 2001 and 2002, this would have resulted in aggregate
additional payments to lenders and with respect to the existing notes of
approximately $1.6 million and $1.8 million.
(4) Represents a write-off related to the refinancing of indebtedness.
(5) Effective January 1, 2000, we adopted the U.S. Securities and Exchange
Commission's Staff Accounting Bulletin No. 101, concerning the recognition
of revenue. This pronouncement provides that we recognize net revenues from
installations and activations over the period in which we retain our
clients. See "Operating and Financial Review and Prospects" and note 14 of
notes to our consolidated financial statements.
(6) Includes investments in the form of certificates of deposit of $15.2
million at December 31, 2001 and $13.5 million at September 30, 2002.
(7) Includes capital lease obligations entered into during 1999 of $26.2
million, 2000 of $17.7 million and 2001 of $3.3 million.
(8) EBITDA typically consists of earnings (loss) before interest and other
income and expenses, income taxes and depreciation and amortization. As
described in note 3 above, until September 1, 2002, we made payments to the
Dominican government in lieu of income taxes. As a result, we calculate
EBITDA prior to the deduction of payments to the Dominican government in
lieu of income taxes. Our calculation of EBITDA may not be comparable to
EBITDA calculated by other companies. We believe that EBITDA also is useful
to investors because EBITDA is commonly used in the telecommunications
industry to analyze companies on the basis of operating performance,
leverage and liquidity. EBITDA also is used in covenants in bank credit
facilities and high yield indentures to measure a borrower's ability to
incur debt and for other purposes, and may be the preferred measure for
these purposes. Covenants in our indenture for the existing notes and new
notes limit our ability to incur debt and make restricted payments are
based upon EBITDA, income taxes and depreciation and amortization. However,
EBITDA does not purport to represent cash generated or used by operating
activities and should not be considered in isolation or as a substitute for
a measure of performance in accordance with generally accepted accounting
principles. We also have included in EBITDA amortization of radio frequency
rights of $198,333 for 1999, $320,186 for 2000, $660,086 for 2001, $465,338
for the nine months ended September 30, 2001 and $465,338 for the nine
months ended September 30, 2002.
44
<Page>
The table below shows how we calculate EBITDA.
<Table>
<Caption>
NINE MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------- --------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
Cash flows provided by operating activities $ 39,095 $ 26,912 $ 31,526 $ 42,339 $ 34,002 $ 20,348 $ 6,293
Allowance for doubtful accounts (1,929) (1,665) (5,421) (3,500) (5,519) (5,174) (5,894)
Allowance for obsolescence of equipment - - - - (1,015) - -
Amortization of debt issue cost (484) (1,381) (1,499) (1,959) (2,254) (1,706) (2,078)
Expense for severance indemnities (329) (258) (329) (761) (1,987) (1,070) (1,475)
Deferred income tax, net - 352 (34) (492) (374) 67 (163)
Value of consulting services received in
exchange for stock warrants - - (273) (1,006) (831) (753) -
Foreign exchange gains (706) (31) (102) - - - -
Loss (gain) on sale of fixed assets, net - 898 836 (283) - 1,284
Net changes in assets and liabilities (23,234) 8,600 18,424 10,254 8,463 18,004 11,656
Income taxes - (352) 142 588 511 251 637
Other income (expenses), including net
interest expense 12,836 11,924 19,166 31,206 38,861 26,735 43,878
Expense in lieu of income taxes 6,248 9,562 12,764 10,174 12,646 9,003 6,247
--------------------------------------------------------------------------------
EBITDA $31,497 $53,662 $75,261 $87,681 $82,222 $65,705 $60,385
================================================================================
</Table>
(9) Includes both inbound and outbound international long distance minutes.
(10) Includes, at December 31, 2001, 56,896 basic subscribers and 7,570
commercial rooms and, at September 30, 2002, 62,035 basic subscribers,
8,413 commercial rooms and 633 subscribers for digital audio programming
and other services. Commercial rooms include commercial establishments (for
example, any hotel) or multiple dwelling units (for example, any apartment
building or hospital), for which we receive a bulk rate for basic cable
service offered by us.
45
<Page>
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
PRESENTATION OF CERTAIN FINANCIAL INFORMATION
We prepare our consolidated financial statements in conformity with
generally accepted accounting principles in the United States. We adopted the
United States dollar as our functional currency effective January 1, 1997 and
maintain our books and records in dollars.
In this prospectus and consent solicitation references to "$," "US$" or
"U.S. dollars" are to United States dollars, and references to "Dominican pesos"
or "RD$" are to Dominican pesos. This prospectus and consent solicitation
contains translations of certain Dominican peso amounts into U.S. dollars at
specified rates solely for the convenience of the reader. The rates we used to
translate Dominican peso-denominated accounts at the period-end were RD$16.69 at
December 31, 2000, RD$17.05 at December 31, 2001 and RD$19.05 at September 30,
2002. These translations should not be construed as representations that the
Dominican peso amounts actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at the rate indicated. The average of prices of one
U.S. dollar quoted by certain private commercial banks, or the private market
rate, as reported by Banco Central de la Republica Dominicana, or the Central
Bank, on September 30, 2002 was RD$18.99 = US$1.00, the date of the most recent
financial information included in this prospectus and consent solicitation. The
Federal Reserve Bank of New York does not report a noon buying rate for
Dominican pesos. On March 12, 2003, the private market rate was RD$22.53 =
US$1.00. To the extent information relates to the Dominican Republic government
or the Dominican Republic macroeconomic data, the information in this prospectus
and consent solicitation has been extracted from publications issued by each of
Indotel at www.indotel.org.do and Central Bank at www.bancentral.gov.do.
REVENUE OVERVIEW
We derive our operating revenues primarily from toll revenues,
international revenues, local services, cellular and PCS services, data and
Internet services, paging services, the sale of equipment, installations and
cable television services. The components of each of these services are as
follows:
Toll revenues are amounts we receive from our customers in the Dominican
Republic for international and domestic long distance calls, as well as
interconnection charges received from Codetel, the incumbent local service
provider, and other carriers, for calls that originate in or transit their
networks but terminate in our network. Toll revenues are generated by
residential and commercial customers, calling card users, cellular and PCS
subscribers and retail telephone centers, and large corporate accounts.
Toll revenues are recognized as they are billed to customers, except for
revenues from prepaid calling cards, which are recognized as the calling
cards are used or expire.
International revenues represent amounts recognized by us for termination
of traffic from foreign telecommunications carriers to the Dominican
Republic. Traffic is based on the minutes that the foreign
telecommunications companies have terminated in the Dominican
telecommunications network, either on our own network or on another
carrier's network, including revenues derived from our U.S.-based
international long distance prepaid calling cards.
Local service revenues consist of monthly fees, local measured service and
local measured charges for value-added services, including call forwarding,
three-way calling, call waiting and voicemail, as well as calls made to
cellular users under the calling-party-pays system and revenues from other
miscellaneous local access services. "Calling party" refers to the person
who originates the phone call. "Calling party pays" is a wireless telephony
payment structure in which the calling party is billed for interconnection
access, and the recipient is not billed for the airtime charges
corresponding to that call. In the Dominican Republic, the calling party
pays. Local measured service includes monthly phone line rental for a
specified number of minutes within a defined area, plus a charge for
additional minutes.
46
<Page>
Cellular and PCS revenues represent fees received for mobile cellular and
PCS services, including interconnection charges for calls incoming to our
cellular and PCS subscribers from other companies' subscribers. Cellular
and PCS revenues do not include fees received for international long
distance calls generated by our cellular and PCS subscribers. Cellular and
PCS fees consist of fixed monthly fees, per minute usage charges and
additional charges for value-added services, including call waiting, call
forwarding, three-way calling and voicemail, and for other miscellaneous
cellular and PCS services.
Data and Internet revenues consist of fixed monthly fees received from our
residential and corporate customers for high speed broadband data
transmission and Internet connectivity services, including traditional
dial-up connections, dedicated lines, private networks, frame relay,
digital subscriber lines, or xDSLs, that provide high-bandwidth
transmission of voice and data over regular telephone lines and very small
aperture terminals, or VSATs, relatively small satellite antennas used for
high speed satellite-based single to multiple point data transmissions,
including for the Internet.
Paging revenues consist of fixed monthly charges for nationwide service and
use of paging equipment and activation fees. Since 1999, paging has not
played a role in our marketing programs and paging revenues have declined.
Revenues from the sale of equipment consist of sales fees for customer
premise equipment, including private automatic branch exchanges, which are
small versions of a phone company's central switching system often used by
private companies, and key telephone systems, residential telephones,
cellular and PCS handsets and paging units.
Installation revenues consist of fees we charge for installing local access
lines, private branch exchanges and key telephone systems as well as fees
for activating cellular and PCS phones. Beginning with January 1, 2000, we
have recognized these revenues over the estimated period in which, based on
our experience, we retain such clients. Initially we estimated this period
as 35 months. Effective October 2, 2001, we revised this period to 24
months, based on our experience with clients. In prior periods, we
recognized these revenues when they were collected.
Cable television revenues consist of monthly fees derived from basic
programming, expanded basic programming, premium services, digital music
services, Internet access, installation fees and revenues from advertising
sales to national advertisers on non-broadcast channels we carry over our
cable communications systems. Cable television revenues, including
installation fees, are recognized when the service is provided.
Other revenues consist of revenues that are not generated from our core
businesses, including commissions received for providing package handling
services for a courier and commissions received for collection services for
utility companies.
The following table sets forth each category of revenues as a percentage of
total operating revenues for the period indicated:
47
<Page>
<Table>
<Caption>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------
1999 2000 2001 2001 2002
------ ------ ------ ------ ------
Toll revenues .................. 13.5% 12.8% 11.9% 12.5% 10.7%
International revenues ......... 35.5 37.5 33.6 34.4 33.2
Local service .................. 19.5 22.9 26.0 26.2 26.0
Cellular and PCS ............... 15.5 16.0 15.3 15.9 14.4
Data and Internet .............. 0.3 1.5 3.4 3.4 4.1
Paging ......................... 1.6 0.8 0.4 0.5 0.3
Sale and lease of equipment .... 4.5 2.3 1.1 1.5 0.9
Installation and activation fees 9.1 6.1 5.9 5.3 1.7
Cable revenues ................. - - 1.9 - 8.6
Other .......................... 0.5 0.1 0.4 0.3 0.2
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</Table>
- ----------
Note: Percentages may not add up to 100% due to rounding.
The following table sets forth certain items in the statements of
operations expressed as a percentage of total operating revenues for the period
indicated:
<Table>
<Caption>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------
1999 2000 2001 2001 2002
------ ------ ------ ------ ------
Operating costs ......................... 75.7% 81.7% 94.1% 90.9% 98.5%
Operating income ........................ 24.3 18.3 5.9 9.1 1.5
Interest expense, net ................... (11.7) (13.7) (16.3) (15.2) (23.2)
Other income (expenses) ................. (11.2) (13.9) (15.9) (15.1) (22.3)
Earnings (loss) before income taxes and
minority interest ....................... 13.1 4.4 (10.0) (6.0) (20.8)
Net earnings (loss) ..................... 12.9 (3.2) (9.5) (6.0) (20.2)
EBITDA .................................. 44.1 39.1 33.7 36.9 30.7
</Table>
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE SAME PERIOD IN 2001
OPERATING REVENUES. Total operating revenues increased 10.9% to $196.4
million for the nine month period ended September 30, 2002 from $177.1 million
for the nine-month period ended September 30, 2001. Cable television, data and
Internet, local, and international long distance services were the primary
contributors to overall revenue growth during the 2002 nine month period.
Excluding revenues from cable television services, which we acquired in October
26, 2001, our total revenues were $179.5 million for the 2002 nine-month period,
an increase of $2.4 million from the 2001 nine month period. Revenue growth was
offset, in part, by lower installation and activation revenues primarily as a
result of lower average installation fees, as well as decreases in toll and
cellular and PCS revenues.
The following is a discussion of our operating revenues for each of our
five reportable segments: Wireless, Cellular, International, Cable and Other.
Other includes paging, Internet, data services, local prepaid calling cards and
customer contact services.
WIRELINE. Wireline revenues decreased 6.2% to $67.1 million during the nine
months ended September 30, 2002 from $71.6 million during the nine months ended
September 30, 2001, primarily as a result of lower installation and activation
revenues.
48
<Page>
CELLULAR. Cellular revenues increased 2.6% to $34.4 million during the nine
months ended September 30, 2002 from $33.5 million during the nine months ended
September 30, 2001, primarily due to an increase in the number of subscribers.
INTERNATIONAL. International revenues increased 7.1% to $65.2 million
during the nine months ended September 30, 2002 from $60.9 million during the
nine months ended September 30, 2001, primarily due to higher inbound traffic
derived from our U.S.-based internatinoal long distance operations.
CABLE. Cable revenues totaled $16.9 million during the nine months ended
September 30, 2002. We acquired our cable subsidiary in October 2001 and,
therefore, did not have any cable revenues during the nine months ended
September 30, 2001.
OTHER. Other revenues increased 22.5% to $12.9 million during the nine
months ended September 30, 2002 from $10.5 million during the nine months ended
September 30, 2001, primarily due to increased revenue from our data and
Internet services offset by a decrease in revenues from sale of equipment and
paging.
The following is a discussion of our revenues for each of the revenue line
items in our financial statements.
49
<Page>
TOLL. Toll revenues decreased by 5.3% to $21.0 million during the first
nine months of 2002 compared to $22.2 million during the first nine months of
2001. The decrease in toll revenues resulted from decreases in revenues derived
from outbound international long distance minutes offset, in part, by increases
in access charges and domestic long distance revenues.
Revenues from outbound international calls decreased by 20.2% to $8.3
million during the first nine months of 2002 from $10.4 million during the first
nine months of 2001, primarily as a result of a decrease in the price per minute
for outbound international calls for residential and commercial customers and a
decrease in outbound long distance traffic volume. The average price per minute
for residential and commercial customers' outbound international calls declined
to $.34 during the first nine months of 2002 from $.47 during the first nine
months of 2001. Outbound international minutes decreased by 3.5% to 26.7 million
minutes during the first nine months of 2002 from 27.6 million minutes during
the first nine months of 2001, reflecting decreased traffic volume from calling
cards and cellular and PCS customers.
Domestic long distance revenues increased 57.8% to $6.2 million during the
first nine months of 2002 from $3.9 million during the first nine months of
2001. Domestic long distance minutes increased 7.7% to 41.2 million minutes
during the first nine months of 2002 from 38.3 million minutes during the first
nine months of 2001. The increase in domestic long distance minutes resulted
from higher traffic volume from our retail call centers. Pending regulatory
proposals that would divide the Dominican Republic into five zones and provide
that intra-zone calls are local could have the effect of decreasing rates for
some calls, if the regulations are adopted.
Revenues from access charges increased 14.5% to $7.0 million during the
first nine months of 2002 compared to $6.1 during the first nine months of 2001.
The increase in access charges reflects the growth in our local access
subscriber base since the 2001 third quarter and in the Dominican telephony
market, as well as our success in attracting higher usage customers. We
currently expect to disconnect a substantial number of lines in service at
September 30, 2002 during the fourth quarter of 2002, which could result in us
receiving less revenues from access charges.
INTERNATIONAL. Our international revenues increased 7.1% to $65.2 million
during the first nine months of 2002 compared to $60.9 million during the first
nine months of 2001, primarily as the result of higher inbound traffic derived
from our U.S.-based international long distance operations, offset in part by
lower international long distance prepaid card traffic volume. The international
revenue increase was achieved despite lower settlement rates for traffic between
the United States and the Dominican Republic. Our average settlement rate was
$.040 per minute during the first nine months of 2002 compared to $.052 per
minute during the first nine months of 2001. Inbound minutes increased by 40.9%
to 734.6 million minutes during the first nine months of 2002 from 521.4 million
minutes during the first nine months of 2001.
Total minutes from our U.S.-based international long distance prepaid cards
remained stable at 149.6 million minutes during the first nine months of 2002
compared to 149.2 million minutes during the first nine months of 2001. Revenues
from our U.S. based international long distance prepaid calling decreased by
8.3% to $21.4 million during the first nine months of 2002 compared to $23.3
million during the first nine months of 2001. Lower prepaid card sales primarily
resulted from competitive pressures and poor results from a third party
distributor that had exclusive rights to distribute our product in the
northeastern U.S. We now have several distributors in the region.
LOCAL SERVICE. Local service revenues increased 10.1% to $51.0 million
during the first nine months of 2002 compared to $46.4 million during the first
nine months of 2001, primarily as the result of the continued growth in the
number of lines in service. At September 30, 2002, we had 179,124 lines in
service compared to 169,893 lines in service at September 30, 2001, a 5.4%
increase in lines. Lines in service at September 30, 2002 decreased from 188,741
lines in service at June 30, 2002. During the fourth quarter of 2002, we
continued our strategy of disconnecting unprofitable local service customers and
we had 150,456 lines in service at December 31, 2002.
As a result of a higher number of lines in service, revenues derived from
cellular calls under the calling-party-pays system increased by 34.3% to $6.2
million during the first nine months of 2002 compared to $4.6 million
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during the first nine months of 2001. Measured local service revenues increased
by 13.5% to $10.8 million during the first nine months of 2002 from $9.5 million
during the first nine months of 2001.
Revenues from monthly fees increased by 4.2% to $33.9 million during the
first nine months of 2002 compared to $32.6 million during the first nine months
of 2001. Our average monthly churn rate for local service subscribers decreased
to 2.0% during the first nine months of 2002 compared to 2.2% during the first
nine months of 2001. We calculate our average monthly churn rate by dividing the
number of subscribers disconnected during a given period by the sum of
subscribers at the beginning of each month during such period.
During the 2002 third quarter, we undertook a number of steps to improve
the profile of our local service customer portfolio, mainly the disconnection of
lower usage users, resulting in a reduction in the number of lines in service at
September 30, 2002 from the number at June 30, 2002. We currently expect to
disconnect a substantial number of our lines in service at September 30, 2002
during the fourth quarter of 2002. As a result, we may have fewer lines in
service at December 31, 2002, which could result in lower revenues from monthly
fees, access charges and measured local service.
By disconnecting unprofitable customers, we believe we can better use our
network to provide services to and concentrate our sales efforts on, higher
usage residential and corporate customers. In addition to increasing the average
revenue per user, we believe we can increase service offerings to higher usage
customers and ultimately increase our revenues and profitability. We anticipate
that local service churn rate will remain relatively high while we continue our
policy of disconnecting lower usage customers.
CELLULAR AND PCS. Our cellular and PCS revenues remained stable at $28.3
million during the first nine months of 2002 compared to $28.2 million during
the first nine months of 2001. For the 2002 nine month period declines in
average price per minute were offset by increased minutes of use.
At September 30, 2002, we had 410,918 cellular and PCS subscribers compared
to 332,436 at September 30, 2001. As a result of a higher average subscriber
base, total minutes of usage increased 10.0% to 167.5 million minutes during the
first nine months of 2002 from 152.2 million minutes during the first nine
months of 2001.
At September 30, 2002, approximately 5% of our subscriber base consisted of
customers that purchase cellular and PCS services pursuant to fixed-term
contracts and the remaining 95% of customers that purchase their services in
advance, primarily through prepaid calling cards. Prepaid customers include both
those who can receive and make outgoing calls and those who are only able to
receive incoming calls. We believe that our postpaid subscribers seek the
convenience of uninterrupted mobile service and access to high quality customer
service and are willing to pay monthly fees for additional value-added services.
In contrast to postpaid subscribers, prepaid customers typically generate low
levels of usage, access a limited number of value-added services, and often are
unwilling to make a fixed financial commitment or do not have the credit profile
to purchase postpaid plan cellular and PCS services.
For the first nine months of 2002, prepaid cellular and PCS services
generated approximately 68% of our total minutes of use and approximately 71% of
our total cellular and PCS revenues, compared to 68% of our total minutes of use
and 74% of our total cellular and PCS revenues during the first nine months of
2001.
At September 30, 2002, we had approximately 150,000 "incoming calls only"
subscribers, all of whom are prepaid subscribers. The substantial majority of
"incoming calls only" subscribers generate little or no traffic. We currently
anticipate voluntarily disconnecting a substantial number of our "incoming calls
only" cellular and PCS subscribers in the fourth quarter of 2002, which could
result in lower airtime and access charge revenues.
Our average monthly churn rate for cellular and PCS services decreased to
4.3% during the first nine months of 2002 compared to 5.1% during the first nine
months of 2001. We anticipate that the cellular and PCS services churn rate to
increase while we continue our policy of disconnecting lower usage "incoming
calls only" prepaid subscribers.
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DATA AND INTERNET. Data and Internet service increased by 34.0% to $8.1
million during the first nine months of 2002 from $6.0 million during the first
nine months of 2001, primarily as the result of the continued growth in the
number of data and Internet subscribers. The number of our data and Internet
subscribers increased 23.3% to 10,611 at September 30, 2002 from 8,606 at
September 30, 2001. Revenues from monthly fees increased by 18.4% to $5.9
million during the first nine months of 2002 compared to $4.9 million during the
first nine months of 2001.
PAGING. Paging revenues decreased 40.5% to $495,000 during the first nine
months of 2002 from $832,000 during the first nine months of 2001, primarily as
a result of our decision to focus on migrating new customers away from paging
services and into prepaid cellular services. At September 30, 2002, we had 9,457
paging subscribers compared to 17,878 paging subscribers at September 30, 2001.
Our average monthly churn rate for paging services increased to 2.9% during the
first nine months of 2002 compared to 2.4% during the first nine months of 2001.
SALE OF EQUIPMENT. Revenues from the sale of equipment decreased 35.1% to
$1.7 million during the first nine months of 2002 compared to $2.7 million
during the first nine months of 2001, primarily as a result of lower sales of
customer premise equipment and cellular and PCS handsets. We have entered into
arrangements for the distribution of cellular and PCS services through major
electronics retailers. These arrangements have decreased equipment sales
revenues but we believe added subscribers and contribute to increase cellular
and PCS service revenues.
INSTALLATION AND ACTIVATION FEES. Installation and activation decreased
64.9% to $3.3 million during the first nine months of 2002 compared to $9.4
million during the first nine months of 2001. The decrease reflects lower
installation fees charged for local access lines and mobile services. In
addition, installation and activation revenues for the 2001 periods include fees
deferred from previous periods in accordance with SEC Staff Accounting Bulletin
101. Most fees so deferred have been recognized before 2002 and such fees have
decreased since 2001. (See "Critical Accounting Policies").
CABLE. In the fourth quarter of 2001, we acquired the shares of TCN
Dominicana, S.A., a wholly-owned subsidiary of Telecable Nacional, C. por A.,
that owns and operates the largest multi-channel system in the Dominican
Republic's pay-TV market, including the concession granted by the Dominican
government to operate a cable system. Revenues from cable television services
totaled $16.9 million during the first nine months of 2002.
At September 30, 2002, we had 71,081 cable subscribers, including 62,035
basic subscribers, and 7,692 commercial rooms, which include commercial
establishments (for example, hotels) or multiple dwelling units (for example,
any apartment building or hospital), for which we receive a bulk rate for basic
cable service offered by us. Programming services revenues totaled $12.1 million
during the first nine months of 2002. Advertising revenues totaled $4.5 million
during the first nine months of 2002.
OPERATING COSTS. Major components of operating costs are:
- transport and access charges (formerly referred to as satellite
connection and carrier costs), which include amounts paid to foreign
carriers for our use of their networks for termination of outbound
traffic and interconnection costs, which are access charges paid
primarily to Codetel, and payments for international satellite circuit
leases;
- programming costs, which are amounts paid to programming providers for
licenses to broadcast on our cable television network basic and premium
programming and other content;
- depreciation of network and non-network equipment and leased terminal
equipment;
- expenses in lieu of income tax; and
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- selling, general and administrative expenses, which include salaries and
other compensation to personnel, building occupancy and maintenance
expenses, marketing expenses, commissions and other related costs.
Our operating costs increased 20.2% to $193.5 million during the first nine
months of 2002 from $161.0 million during the first nine months of 2001. These
results reflect higher selling, general and administrative expenses, as well as
increased network and non-network depreciation expenses resulting from a higher
depreciable capital base as a result of our capital investment and domestic and
international network expansion programs. The increase in operating costs and
expenses also reflects higher transport and access charges costs, as well as the
inclusion of our cable television operations, which we acquired in October 2001,
and the launch of operations in Panama in April 2002. As a percentage of
revenues, operating costs increased to 98.5% during the first nine months of
2002 from 90.9% during the first nine months of 2001. Beginning in the third
quarter, we reduced commissions paid to wholesale distributions of prepaid cards
in the Dominican Republic and personnel compensation as a result of reduction in
the number of employees. Operating costs also include expense in lieu of income
tax, which are based on revenues. Beginning in September 2002, we have paid
taxes based on our income, with a minimum tax equal to 1.5% of gross revenues
(which is less than the basis for calculating taxes in lieu of income taxes).
Expense in lieu of income tax for the nine months ended September 30, 2002 was
$6.2 million. Income taxes are not included in operating expenses. We expect
each of these to affect operating costs in 2003. We also will attempt to
negotiate reductions in amounts that we pay to suppliers, including program
providers. We intend to upgrade our networks, particularly our cable network,
which we expect will reduce amounts that we pay for maintenance to contractors.
However, we do not expect that this will affect operating expenses until late
2003. The exchange offer and consent solicitation will not affect operating
expenses.
TRANSPORT AND ACCESS CHARGES. Transport and access charges costs increased
by 15.8% to $57.3 million during the first nine months of 2002 from $49.5
million during the first nine months of 2001, primarily as a result of increased
interconnection costs and higher outbound carrier costs. Interconnection costs
increased by 25.8% to $25.7 million during the first nine months of 2002 from
$20.5 million during the first nine months of 2001, as the result of a higher
volume of traffic terminating in other networks. Outbound carrier costs
increased by 10.4% to $23.3 million during the first nine months of 2002 from
$21.1 million during the first nine months of 2001, reflecting higher volume of
outbound international calls terminating in non-U.S. destinations.
PROGRAMMING COSTS. Programming costs totaled $4.7 million during the first
nine months of 2002, primarily related to fees paid to providers for signals and
programming content.
NETWORK DEPRECIATION AND NON-NETWORK DEPRECIATION EXPENSE. Network
depreciation increased 22.1% to $39.6 million during the first nine months of
2002 from $32.5 million during the first nine months of 2001, as a result of a
higher depreciable asset base due to the continued investments in our local and
international networks, including telecommunications equipment and facilities.
Non-network depreciation expense with respect to other fixed assets increased
30.7% to $9.6 million during the first nine months of 2002 from $7.4 million
during the first nine months of 2001.
EXPENSE IN LIEU OF INCOME TAXES. In the past, we made payments to the
Dominican government in lieu of income tax equal to 10% of gross domestic
revenues, after deducting charges for access to the local network, plus 10% of
net international revenues. Expense in lieu of income taxes also includes a tax
of 2% on international settlement revenues collected. Beginning September 1,
2002, in accordance with Presidential decree No. 405-02, we no longer pay taxes
in lieu of income tax but pay the tax imposed on all Dominican corporations: a
tax equal to the greater of 25% of net taxable income or 1.5% of gross revenues.
Expense in lieu of income taxes decreased by 30.6% to $6.2 million during
the first nine months of 2002 from $9.0 million during the first nine months of
2001.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses, excluding non-network depreciation expense, increased 24.3% to $73.4
million during the first nine months of 2002 from $59.1 million during the first
nine months of 2001. The amount of selling, general and administrative expenses
reflects increased
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marketing and advertising expenses, higher provision for uncollectible accounts,
occupancy costs, and other related expenses primarily resulting from the
inclusion of a full year of our cable operations and the commencement of our
Panama operations in April 2002. These increases were offset in part by lower
commissions paid to wholesale distributors of prepaid cards, and lower salaries
and other personnel compensation costs during the third quarter, as a result of
a reduction in the number of employees. Selling, general and administrative
amounts have increased from the amounts previously reported by us to account for
amortization expenses, primarily related to radio and cellular and PCS
frequencies, deferred commissions, and other intangible assets, previously
included as a separate line items in interim reports. Amortization expenses
increased to $2.0 million during the first nine months of 2002 from $465,000
during the first nine months of 2001.
Marketing expenses increased to $6.0 million during the first nine months
of 2002 from $4.7 million during the first nine months of 2001. Expenses for the
provision of uncollectible accounts increased to $6.2 million during the first
nine months of 2002 from $2.9 million during the first nine months of 2001,
primarily as a result of a higher number of contract local service, cellular and
PCS and basic and premium cable subscribers. Occupancy costs increased to $5.9
million during the first nine months of 2002 from $4.9 million during the first
nine months of 2001.
Other expenses, which include, among others insurance, legal expenses,
maintenance and repair of vehicles and equipment and other professional
services, increased to $20.9 million during the first nine months of 2002 from
$16.0 million during the first nine months of 2001. Salaries and other
compensation to personnel totaled $22.4 million during the first nine months of
2002 compared to $22.2 million during the first nine months of 2001. At
September 30, 2002, we had 1,489 employees compared to 1,491 employees at
September 30, 2001.
As a percentage of total operating revenues, selling, general and
administrative expenses, excluding non-network depreciation expense, increased
to 37.4% during the first nine months of 2002 compared to 33.3% during the first
nine months of 2001.
COST OF EQUIPMENT AND OTHER COSTS. Cost of equipment sold, which consists
of the cost of sale of customer premise equipment, including private branch
exchanges and key telephone systems, as well as cellular and PCS handsets,
decreased by 45.3% to $1.2 million during the first nine months of 2002 from
$2.2 million during the first nine months of 2001. Other costs, which consist of
the cost of sale of prepaid services, decreased to $1.4 million during the first
nine months of 2002 from $1.5 million during the first nine months of 2001.
OPERATING INCOME. Operating income decreased to $2.9 million during the
first nine months of 2002 compared to $16.1 million during the first nine months
of 2001. Operating income as a percentage of total operating revenues decreased
to 1.5% during the first nine months of 2002 from 9.1% during the first nine
months of 2001.
The following is a discussion of our operating income (loss) for each off
our five reportable segments:
WIRELINE. Wireline operating income decreased 93.0% to $386,000 during the
nine months ended September 30, 2002 from $5.5 million during the nine months
ended September 30, 2001, primarily as a result of lower wireline revenues
combined with higher interconnection charges resulting from a higher volume of
traffic terminating in other networks.
CELLULAR. Cellular operating loss totalled $3.6 million in the first nine
months of 2002 compared to operating income of $2.2 million during the nine
months ended September 30, 2001. The decrease primarily was the result of higher
depreciation expenses, interconnection charges and selling expenses.
INTERNATIONAL. The international operating loss totalled $1.5 million
during the nine months ended September 30, 2002 compared to operating loss of
$6.8 million during the nine months ended September 30, 2001. These results
reflect lower selling, general and administrative expenses combined with lower
interconnection charges for inbound traffic derived from our U.S.-based
international long distance operations terminating in the Dominican Republic.
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CABLE. Cable operating income was $2.8 million during the nine months ended
September 30, 2002. We acquired our cable subsidiary in October 2001 and,
therefore, did not have any cable operating income during the nine months ended
September 30, 2001.
OTHER. We had operating income of $4.8 million from other services compared
to an operating loss of $599,000 from Other services during 2001.
OTHER INCOME (EXPENSES). Other expenses increased to $43.9 million during
the first nine months of 2002 from $26.7 million during the first nine months of
2001, reflecting increased interest expenses resulting from higher average
aggregate amount of outstanding debt. Interest increased to $46.9 million during
the first nine months of 2002 from $28.5 million during the first nine months of
2001. Interest expense also has increased because the amount of interest
capitalized has decreased with the decrease in capital expenditures. During the
first nine months of 2002, we incurred debt primarily to purchase network and
telecommunications equipment.
NET EARNINGS (LOSS). For the first nine months of 2002, net loss totaled
$39.7 million, or $.92 cents per share, compared to a net loss of $10.7 million,
or $.37 cents per share, during the first nine months of 2001.
EBITDA AND CASH FLOWS. Earnings before interest and other income, taxes and
depreciation and amortization decreased by 7.7% to $60.4 million during the
first nine months of 2002 from $65.4 million during the first nine months of
2001. We calculate earnings before interest and other income and expenses, taxes
and depreciation and amortization prior to the deduction of payments to the
government in lieu of income taxes. See footnote 8 to Selected Financial Data.
Net cash provided by operating activities was $6.3 million for the first
nine months of 2002 compared to $20.3 million for the first nine months of 2001,
reflecting lower operating income resulting from a higher cost structure. Net
cash used in investing activities was $42.5 million for the first nine months of
2002 compared to $96.8 million for the first nine months of 2001. The decrease
in cash used in investing activities was primarily the result of a lower capital
expenditure program, combined with proceeds from the sale of land during the
first nine months of 2002. Net cash provided by financing activities was $30.7
million for the first nine months of 2002 compared to $96.3 million for the
first nine months of 2001. Financing activities during the first nine months of
2002 primarily include the proceeds from the issuance of ling-term debt and
commercial paper, offset by the repayment of principal to banks, related parties
and payments of long-term debt. See footnote 8 to Selected Financial Data.
2001 COMPARED TO 2000
OPERATING REVENUES. Our total operating revenues increased 8.7% to $243.8
million in 2001 from $224.3 million in 2000. This growth stemmed primarily from
increases in revenues from local service, data and Internet, cable television
and mobile services, offset, in part, by decreased international revenues and
decreased revenues from the sale and lease of equipment.
The following is a discussion of our operating revenues for each of our
five reportable segments: Wireless, Cellular, International, Cable and Others.
Other includes paging, Internet, data services, local prepaid calling cards and
customer contact services.
WIRELINE. Wireline revenues increased 18.1% to $98.6 million during 2001
from $83.5 million in 2000, primarily as a result of higher interconnection
charges and a higher volume of domestic long distance traffic and continued
growth in the number of local lines in service.
CELLULAR. Cellular revenues increased 3.5% to $44.0 million during 2001
from $42.5 million in 2000, primarily due to an increase in the number of our
wireless subscribers.
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INTERNATIONAL. International revenues decreased 2.6% to $82.0 million
during 2001 from $84.2 million in 2000, primarily due to continued pricing
pressures for traffic between the United States and the Dominican Republic.
CABLE. Cable revenues totaled $4.7 million during 2001. We acquired our
cable subsidiary in October 2001 and, therefore, did not have any cable revenues
during 2000.
OTHER. Other revenues increased 0.7% to $14.3 million during 2001 from
$14.2 million in 2000, primarily due to increased revenue from our data and
Internet services offset by a decrease in revenues from sale of equipment and
paging.
The following is a discussion of our revenues for each of the revenue line
items in our financial statements.
TOLL. Toll revenues increased 1.2% to $29.0 million during 2001 from $28.7
million in 2000, primarily as a result of higher interconnection charges and a
higher volume of domestic long distance traffic, offset, in part, by decreased
revenues derived from outbound international traffic.
Revenues from interconnection charges increased 13.3% to $8.1 million
during 2001 from $7.2 million in 2000. The increase in interconnection charges
reflected the growth in our local access subscription base, as well as growth in
the Dominican telephony markets.
Revenues from outbound international calls decreased by 12% to $14.5
million during 2001 from $16.5 million in 2000, primarily as a result of a
decrease in the price per minute for outbound international calls for
residential and commercial customers. The average price per minute for outbound
international calls declined to $0.54 in 2001 from $0.89 in 2000. Outbound
international minutes increased by 1.9% to 33.1 million in 2001 from 32.5
million minutes during 2000, reflecting increased traffic volume from our
cellular and PCS customers.
Domestic long distance revenues increased 5.9% to $5.4 million during 2001
from $5.0 million in 2000. Domestic long distance minutes increased by 10.8% to
50.8 million minutes during 2001 from 45.9 million minutes during 2000. The
increase in domestic long distance minutes resulted from higher traffic volume
from our retail call centers. The increase in domestic long distance minutes was
offset in part by an approximate 16% decrease in 2001 in the average price per
minute. Pending regulatory proposals that would divide the Dominican Republic
into five zones and provide that intrazone calls are local could have the effect
of decreasing rates for some calls if the regulations are adopted.
INTERNATIONAL. Our international revenues decreased 2.6% to $82.0 million
in 2001 from $84.2 million in 2000, primarily as the result of continued pricing
pressures for traffic between the United States and the Dominican Republic. Our
average settlement rate was $0.095 per minute during 2000 and $0.053 per minute
during 2001. The volume gains achieved in 2001 were not sufficient to offset
pricing declines, particularly during the fourth quarter of 2001, in which
international revenues decreased 16% from international revenues in the fourth
quarter of 2000.
Inbound minutes increased by 30% to 732.7 million minutes in 2001 from
563.4 million in 2000. TRICOM USA accounted for approximately 86.0% of our total
inbound minutes in 2001 compared to 71.1% in 2000. Total minutes from our
U.S.-based international long distance prepaid cards increased by 48.1% to 205.2
million minutes in 2001 from 138.6 million during 2000. Revenues from our U.S.
based international long distance prepaid calling cards increased by 27.6% to
$31.6 million in 2001 from $24.8 million in 2000.
LOCAL SERVICE. Local service revenues increased 23.6% to $63.4 million
during 2001 from $51.3 million in 2000, primarily as the result of the continued
growth in the number of local lines in service. In 2001, we added 29,040 net
local access lines compared to 29,386 net local access lines added in 2000. At
December 31, 2001, we had 177,352 local access lines in service compared to
148,312 local access lines in service at December 31, 2000 representing a 19.6%
increase.
As a result of a higher number of lines in service, measured local service
revenues increased by 23.1% to $13.2 million in 2001 from $10.8 million in 2000.
Revenues from monthly fees increased by 20.6% to $40.3 million
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in 2001 from $33.4 million in 2000. Revenues derived from cellular calls under
the calling-party-pays system increased by 37.3% to $6.5 million in 2001 from
$4.8 million in 2000. Our average monthly churn rate for local service was 1.9%
in 2001 compared to 2.3% in 2000. We calculate our average monthly churn rate by
dividing the number of subscribers disconnected during a given period by the sum
of subscribers at the beginning of each month during such period.
CELLULAR AND PCS. Our cellular and PCS revenues grew 4.2% to $37.3 million
in 2001 from $35.8 million in 2000. The growth in our wireless operations was
the result of a 27.7% increase in subscribers. At December 31, 2001, we had
364,059 cellular and PCS subscribers compared to 284,991 at December 31, 2000.
As a result of a higher average subscriber base, minutes of usage increased
22.6% to 204.2 million minutes in 2001 from 166.6 million minutes in 2000. The
average price per minute of use declined to $0.20 in 2001 from $0.24 in 2000,
reflecting increased price competition initiated by new entrants to the market
in 2000.
We attribute the substantial growth of our subscriber base to the continued
success of our prepaid cellular program. Prepaid cellular and PCS services
generated approximately 70% of our total minutes of use and 71% of total
cellular and PCS revenues in 2001. Prepaid revenues increased by 27.6% to $26.7
million in 2001 from $20.9 million in 2000. Revenues from post paid subscribers
declined by 16.8% in 2001 from 2000, reflecting a decline in the number of post
paid subscribers. We initiated programs in 2002, which have resulted in
increasing our postpaid subscriber base. Our average monthly churn rate for
cellular and PCS services increased to 4.6% in the 2001 from 3.3% in 2000
reflecting primarily our decision to disconnect lower usage prepaid subscribers
during 2001.
DATA AND INTERNET. Data and Internet service revenues increased 138.9% to
$8.3 million in 2001 from $3.0 million in 2000, primarily as the result of the
continued growth in the number of data and Internet subscribers. The number of
our data and Internet subscribers grew to 8,713 at December 31, 2001 compared to
6,080 at December 31, 2000. The increase in revenue also reflects an increase in
our average basic monthly rent as well as revenues that we received from our
contract with the Dominican government to provide data and Internet services to
Dominican public high schools.
PAGING. Paging revenues decreased 38.3% to $1.1 million in 2001 from $1.7
million in 2000, primarily as a result of our decision to focus on having new
customers move away from paging services and into prepaid cellular services. At
December 31, 2001, we had 12,090 paging subscribers compared to 21,622 paging
subscribers at December 31, 2000. Our average monthly churn rate for paging
services increased to 4.3% in 2001 from 3.3% in 2000.
SALE OF EQUIPMENT. Revenues from the sale of equipment decreased 49% to
$2.7 million in 2001 from $5.3 million in 2000, primarily as a result of lower
sales of cellular and PCS handsets and private branch exchanges and key
telephone systems. We have entered into arrangements for the distribution of
cellular and PCS services through major electronics retailers. These
arrangements have decreased equipment sales revenues but we believe added
subscribers and we believe contribute to increased cellular and PCS service
revenues.
INSTALLATION AND ACTIVATION. Installation and activation revenues increased
4.4% to $14.3 million in 2001 from $13.7 million in 2000, primarily as a result
of higher average activation fees for local access service, offset, in part, by
lower revenues derived from lower average activation fees charged for cellular
and PCS services. In response to competition, recently we have not charged
activation fees for new cellular and PCS customers.
CABLE. In the fourth quarter of 2001, we acquired the shares of TCN
Dominicana, S.A., a wholly-owned subsidiary of Telecable Nacional, C. por A.,
that owns and operates the largest multi-channel system in the Dominican
Republic's pay-TV market including the concession granted by the Dominican
government to operate a cable system. Revenues from cable television services
totaled $4.7 million in 2001, primarily from basic and premium programming
services and advertising sales. At December 31, 2001, we had 64,466 cable
subscribers, including 56,896 basic subscribers, and 7,570 commercial rooms.
Programming services revenues totaled $3.9 million and advertising revenues
totaled $768,000 in 2001.
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OPERATING COSTS.
Our operating costs increased to $229.3 million in 2001 from $183.3 million
in 2000. These results reflect higher network and non-network depreciation
expenses resulting from a higher depreciable capital base as a result of our
capital investment and domestic and international network expansion programs. It
also reflects higher selling, general and administrative expense primarily from
increased commissions due to the growth of our retail prepaid card operations in
the United States. As a percentage of revenues, operating costs increased to
94.1% in 2001 from 81.7% in 2000.
SATELLITE CONNECTIONS AND CARRIER COSTS. Satellite connections and carrier
costs decreased by 0.4% to $68.3 million in 2001 from $68.6 million in 2000,
primarily as a result of lower outbound carrier costs. Outbound carrier costs
decreased by 17.6% to $29.3 million in 2001 from $35.6 million in 2000,
reflecting decreases in outbound revenues.
PROGRAMMING COSTS. Programming costs totaled $1.2 million in 2001.
NETWORK DEPRECIATION AND NON-NETWORK DEPRECIATION EXPENSE. Network
depreciation increased 51.7% to $44.5 million in 2001 from $29.3 million in
2000, as a result of a higher depreciable asset base due to the continued
investments in our local and international networks, including
telecommunications equipment and facilities. Non-network depreciation expense
with respect to other fixed assets grew 45.4% to $9.9 million in 2001 from $6.8
million in 2000.
EXPENSE IN LIEU OF INCOME TAXES. In 2000 and 2001 we made payments to the
Dominican government in lieu of income tax equal to 10% of gross domestic
revenues, after deducting charges for access to the local network, plus 10% of
net international revenues. Expense in lieu of income taxes also included a tax
of 2% on international settlement revenues collected. Expense in lieu of income
taxes during 2001 increased by 24.3% to $12.6 million from $10.2 million in
2000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and administrative
expenses, excluding non-network depreciation expense, increased 39.1% to $88.8
million in 2001 from $63.9 million in 2000. The increase in the amount of
selling, general and administrative expenses reflected the greater amount of
commissions paid to wholesale distributors of prepaid cards, as a result of a
higher number of prepaid cards sold in the United States and the expansion of
our prepaid cellular subscriber base in the Dominican Republic, and other
expenses, including legal, maintenance and repair of equipment. Commissions paid
to wholesale distributors of prepaid cards grew 40.4% to $16.3 million in 2001
from $11.6 million in 2000. Other expenses increased 29.5% to $18.3 million in
2001 from $14.1 million in 2000. At December 31, 2001, we had 1,829 employees
compared to 1,740 employees at December 31, 2000. Salaries and other
compensation to personnel increased by 6.6% to $29.0 million in 2001 from $27.2
million in 2000. Marketing expenses increased by 4.1% to $4.5 million in 2001
from $4.3 million in 2000.
As a percentage of total operating revenues, selling, general and
administrative expenses, excluding non-network depreciation expense, increased
to 36.4% in 2001 compared to 28.5% in 2000.
COST OF EQUIPMENT SOLD AND OTHER COSTS. Cost of equipment sold, which
consists of the cost of sale of customer premise equipment, including private
branch exchanges and key telephone systems, as well as cellular and PCS
handsets, decreased by 28.9% to $2.1 million in 2001 from $2.9 million in 2000.
Other costs, which consist of the cost of sale of prepaid services, increased by
12.6% to $1.7 million in 2001 from $1.6 million in 2000.
OPERATING INCOME. Operating income decreased to $14.5 million in 2001
compared to $41.0 million in 2000. Operating income as a percentage of total
operating revenues decreased to 5.9% in 2001 from 18.3% in 2000.
The following is a discussion of our operating income (loss) for each of
our five reportable segments:
WIRELINE. Wireline operating income decreased 30.2% to $13.9 million during
2001 from $19.9 million in 2000.
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CELLULAR. Cellular operating income decreased 72.7% to $4.1 million during
2001 from $15.0 million in 2000.
INTERNATIONAL. International operating income decreased 79.3% to $0.6
million during 2001 from $2.9 million in 2000.
CABLE. Cable operating income was $1.0 million in 2001. We acquired our
cable subsidiary in October 2001 and, therefore, did not have any cable
operating income during 2000.
OTHER. We incurred an operating loss of $5.1 million from Other services
during 2001 compared to operating income of $3.3 million in 2000.
OTHER INCOME (EXPENSES). Other expenses increased to $38.9 million in 2001
from $31.2 million in 2000, reflecting increased interest expenses resulting
from higher average aggregate amount of outstanding debt and despite a decrease
in the average interest paid in 2001. We incurred debt primarily to purchase
network and telecommunications equipment.
NET EARNINGS (LOSS). Net loss totaled $23.1 million, or $0.78 per share, in
2001 compared to a net loss of $7.2 million, or $0.26 per share, in 2000. The
net loss in 2000 included the effect of the $16.5 million cumulative effect of
the accounting change from the adoption of SAB 101.
EBITDA AND CASH FLOWS. Earnings before interest and other income, taxes and
depreciation and amortization decreased by 6.3% to $82.2 million in 2001 from
$87.7 million in 2000. We calculate earnings before interest and other income
and expenses, taxes and depreciation and amortization prior to the deduction of
payments to the government in lieu of income taxes. See footnote 8 to Selected
Financial Data.
Net cash provided by operating activities was $34.0 million in 2001
compared to $42.3 million in 2000, reflecting lower operating income resulting
from a higher cost structure and increased net loss. Net cash used in investing
activities was $176.4 million in 2001 compared to $149.4 million in 2000. Cash
used in investing activities was primarily utilized for acquisition of property
and equipment as well as business acquisitions. Net cash provided by financing
activities was $136.8 million in 2001 compared to $111.8 in 2000. Financing
activities during 2001 primarily include the proceeds from the issuance of
common stock, combined with the issuance of long-term debt and commercial paper.
2000 Compared to 1999
OPERATING REVENUES. Our total operating revenues increased 31.3% to $224.3
million in 2000 from $170.8 million in 1999. This growth stemmed primarily from
increases in revenues from our international, local service, mobile and toll
services, offset, in part, by decreased revenues from the sale and lease of
equipment and installations.
The following is a discussion of our operating revenues for each of our
four reportable segments: Wireless, Cellular, International and Others. Others
includes paging, Internet, data services, local prepaid calling cards and
customer contact services.
WIRELINE. Wireline revenues increased 33.4% to $83.5 million during 2000
from $62.6 million in 1999, primarily as a result of a higher volume of domestic
long distance traffic and continued growth in the number of local lines in
service.
CELLULAR. Cellular revenues increased 20.4% to $42.5 million during 2000
from $35.3 million in 1999, primarily due to an increase in the number of our
wireless subscribers.
INTERNATIONAL. International revenues increased 38.9% to $84.2 million
during 2000 from $60.6 million in 1999, primarily due to the growth of inbound
traffic volume received from TRICOM USA.
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OTHER. Other revenues increased 15.4% to $14.2 million during 2000 from
$12.3 million in 1999, primarily due to increased revenue from our data and
Internet services offset by a decrease in revenues from sale of equipment and
paging.
The following is a discussion of our revenues for each of the revenue line
items in our financial statements.
TOLL. Toll revenues increased 24.0% to $28.7 million during 2000 from $23.1
million for 1999, as a result of higher domestic long distance and outbound
international traffic derived from the growth of our customer base. Domestic
long distance minutes increased by 47.4% to 45.9 million minutes during 2000
from 31.1 million minutes during 1999. Outbound international minutes increased
by 9.4% to 32.5 million minutes in 2000 from 29.7 million minutes in 1999. The
increase in numbers of minutes was offset by a decrease of approximately 15%
during 2000 of our average per minute long distance tariff. The increases in
domestic long distance and outbound minutes resulted from higher traffic volume
from our mobile and local service customers. Mobile and local service customers
respectively accounted for 32.3% and 31.3% of our total long distance minutes in
2000 compared to 22.3% and 27.9% in 1999. Calls from our call centers account
for our remaining minutes.
INTERNATIONAL. Our international revenues grew 38.9% to $84.2 million in
2000 from $60.6 million in 1999. This increase was due principally to the growth
of inbound traffic volume received from our U.S.-based international carrier,
TRICOM USA. Inbound minutes increased by 70.9% to 563.4 million minutes in 2000
from 329.7 million in 1999. TRICOM USA accounted for 71.1% of our total inbound
minutes in 2000 compared to 59.4% in 1999.
The increase in international revenues was achieved despite the continued
trend of decreasing settlement rates for traffic between the United States and
the Dominican Republic. Our average settlement rate was $0.14 per minute during
1999 and $0.10 per minute during 2000. We have been able to increase revenues
from the provision of international long distance services by increasing the
volume of international traffic carried through our network. Future decreases in
settlement rates, without corresponding increases in our long distance traffic
from the United States, would reduce our international settlement revenues,
adversely affect the profit margins that we realize on such traffic and could
have a material adverse effect on our business, financial condition and results
of operations.
LOCAL SERVICE. Local service revenues grew 54.1% to $51.3 million in 2000
from $33.3 million in 1999, primarily as the result of the continued growth in
the number of local lines in service. In 2000, we added 29,386 net local access
lines compared to 38,310 net local access lines added in 1999. At December 31,
2000, we had 148,312 local access lines in service, including 48,765 wireless
local loop lines, compared to 118,926 local access lines in service at December
31, 1999, including 19,284 wireless local loop lines. The increase in local
service revenues also reflects an approximate 15% increase in local access
rates.
As a result of a higher number of lines in service, interconnection
revenues for local calls received from Codetel and other carriers increased
113.8% to $6.2 million in 2000 from $2.9 million in 1999. Our average monthly
churn rate for local service was 2.3% in 2000 compared to 1.8% in 1999. We
calculate our average monthly churn rate by dividing the number of subscribers
disconnected during a given period by the sum of subscribers at the beginning of
each month during such period. The increase reflected our policy of financing
installation fees for local access adopted in 1999. In October 1999, we reduced
installation fees and stopped providing financing, which resulted in decreased
monthly churn.
CELLULAR AND PCS. Our cellular and PCS revenues grew 35.2% to $35.8 million
in 2000 from $26.5 million in 1999. The growth in our wireless operations was
the result of a 61.9% increase in subscribers. At December 31, 2000, we had
284,991 cellular and PCS subscribers compared to 176,080 at December 31, 1999.
As a result of a higher average subscriber base, airtime minutes increased 27.8%
to 166.6 million minutes in 2000 from 130.4 million minutes in 1999. We
attribute the substantial growth of our subscriber base to the continued success
of our prepaid cellular program.
Prepaid cellular and PCS services generated approximately 59% of our total
airtime minutes and 58.7% of total cellular and PCS revenues in 2000. Prepaid
revenues increased by 44.1% to $20.9 million in 2000 from $14.5 million in 1999.
Our average monthly churn rate for cellular and PCS services increased to 3.1%
in 2000 from
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1.8% in 1999 reflecting primarily our decision in the fourth quarter to
eliminate lower revenue-generating prepaid customers by shortening the
expiration of our prepaid cards to 30 days.
Interconnection revenues attributed to airtime traffic received from
Codetel and other carriers increased by 22.4% to $4.3 million in 2000 from $3.5
million in 1999 due to a larger subscriber base, as well as a higher volume of
incoming minutes received by prepaid cellular and PCS subscribers.
DATA AND INTERNET. Data and Internet service revenues grew 518% to $3.5
million in 2000 from $560,000 in 1999, primarily as the result of the continued
growth in the number of data and Internet subscribers. Data and Internet
subscriber base grew to 6,080 at December 31, 2000 compared to 3,269 at December
31, 1999.
PAGING. Paging revenues decreased 36.8% to $1.7 million in 2000 from $2.7
million in 1999, primarily as a result of our decision to focus on having new
customers move away from paging services and into prepaid cellular services. At
December 31, 2000, we had 21,622 paging subscribers compared to 28,737 paging
subscribers at December 31, 1999. Our average monthly churn rate for paging
services increased to 3.4% in 2000 from 2.3% in 1999.
SALE OF EQUIPMENT. Revenues from the sale of equipment decreased 31.6% to
$5.3 million in 2000 from $7.7 million in 1999, primarily as a result of lower
sales of customer premise equipment and cellular and PCS handsets. We have
entered into arrangements for the distribution of cellular and PCS services
through major electronics retailers. We believe that these arrangements will
decrease equipment sales revenues but will add subscribers and increase cellular
and PCS service revenues.
INSTALLATION AND ACTIVATION. Installation and activation revenues decreased
11.3% to $13.7 million in 2000 from $15.5 million in 1999. The decrease in
installation and activation revenues was due to an aggressive promotional
marketing strategy undertaken during 2000, which included lowering subscriber
activation fees for mobile and local access service, and the effect of adopting
a new accounting pronouncement, SAB 101, resulting in the deferral of the
recognition of installation revenues and activation fees.
OPERATING COSTS.
Our operating costs increased to $183.3 million in 2000 from $129.4 million
in 1999. These results reflect increased satellite connection and carrier costs
associated with higher volumes of international traffic; higher general and
administrative expenses primarily from increased commissions due to the growth
of our retail operations in the U.S.; and higher network depreciation expenses
resulting from our capital investment and domestic and international network
expansion programs. As a percentage of revenues, operating costs increased to
81.7% in 2000 from 75.7% in 1999.
SATELLITE CONNECTIONS AND CARRIER COSTS. Satellite connections and carrier
costs increased by 57.0% to $68.6 million in 2000 from $43.7 million in 1999,
primarily as a result of higher outbound carrier costs, as well as higher
interconnection costs. Outbound carrier costs increased by 86.1% to $35.6
million in 2000 from $19.1 million in 1999. The increase was attributable to
increased international traffic through our TRICOM USA hubbing operations.
Interconnection costs increased by 37.9% to $27.0 million in 2000 from $19.8
million in 1999, as a result of a higher volume of inbound traffic terminating
in Codetel's network.
NETWORK DEPRECIATION AND NON-NETWORK DEPRECIATION EXPENSE. Network
depreciation increased 83.6% to $29.3 million in 2000 from $16.0 million in
1999, as a result of the continued investments in our local and international
networks, including telecommunications equipment and facilities. Non-network
depreciation expense with respect to other fixed assets grew 40.6% to $6.8
million in 2000 from $4.9 million in 1999.
EXPENSE IN LIEU OF INCOME TAXES. In 1999 and 2000 we made payments to the
Dominican government in lieu of income tax equal to 10% of gross domestic
revenues, after deducting charges for access to the local network, plus 10% of
net international revenues. Expense in lieu of income taxes also includes a tax
of 2% on international settlement revenues collected. Expense in lieu of income
taxes during 2000 decreased by 20.3% to $10.2 million
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from $12.8 million in 1999. The decrease reflects increases in international
costs, interconnection costs and accounts receivable reserve which are deducted
from revenues in calculating the tax and which increased at a greater rate than
the increase in domestic revenues on which the tax is based.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and administrative
expenses, excluding non-network depreciation expense, increased 36.9% to $63.9
million in 2000 from $46.6 million in 1999. The increase in the amount of
selling, general and administrative expenses reflected the greater amount of
commissions paid to wholesale distributors of prepaid cards as a result of
higher revenues from sales of the cards and increased personnel costs due to a
higher employee headcount. At December 31, 2000, we had 1,740 employees compared
to 1,534 employees at December 31, 1999. As a percentage of total operating
revenues, selling, general and administrative expenses, excluding non-network
depreciation expense, increased to 28.5% in 2000 compared to 27.3% in 1999.
Commissions paid to wholesale distributors of prepaid cards grew 89.3% to
$11.6 million in 2000 from $6.1 million in 1999, primarily as a result of the
expansion of our prepaid cellular subscriber base and a 113% increase in the
number of prepaid cards sold in the United States in 2000.
COST OF EQUIPMENT SOLD AND OTHER COSTS. Cost of equipment sold, which
consists of the cost of sale of customer premise equipment, including private
branch exchanges and key telephone systems, as well as cellular and PCS
handsets, decreased by 27% to $2.9 million in 2000 from $4.0 million in 1999,
primarily as a result of the lower cost of sale from residential telephones,
cellular and PCS handsets and paging units. Other costs, which consist of the
cost of sale of prepaid services, increased by 8.2% to $1.6 million in 2000 from
$1.4 million in 1999.
OPERATING INCOME. Operating income was approximately $41.0 million in 2000
compared to $41.5 million in 1999. Operating income as a percentage of total
operating revenues decreased to 18.3% in 2000 from 24.3% in 1999.
The following is a discussion of our operating income for each of our four
reportable segments:
WIRELINE. Wireline operating income decreased 5.7% to $19.9 million during
2000 from $21.1 million in 1999.
CELLULAR. Cellular operating income increased 53.1% to $15.0 million during
2000 from $9.8 million in 1999.
INTERNATIONAL. International operating income decreased 71.6% to $2.9
million during 2000 from $10.2 million in 1999.
OTHER. Other operating income increased 1000% to $3.3 million during 2000
from $0.3 million in 1999.
OTHER INCOME (EXPENSES). Other expenses increased to $31.2 million in 2000
from $19.2 million in 1999, reflecting increased interest expenses resulting
from higher short-term bank borrowings and vendor financing used to purchase
network and telecommunications equipment.
NET EARNINGS (LOSS). Earnings before cumulative effect or accounting change
totaled $9.2 million, or $0.33 per share, in 2000 compared to $22.2 million, or
$0.89 per share, in 1999. Including the $16.5 million cumulative effect of
accounting change for the adoption of SAB 101, we had a net loss of $7.2
million, or $0.26 per share, in 2000.
EBITDA AND CASH FLOWS. Earnings before interest and other income, taxes and
depreciation and amortization increased by 16.5% to $87.7 million in 2000 from
$75.3 million in 1999. We calculate earnings before interest and other income
and expenses, taxes and depreciation and amortization prior to the deduction of
payments to the government in lieu of income taxes. See footnote 8 to Selected
Financial Data.
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Net cash provided by operating activities was $42.3 million in 2000
compared to $31.5 million in 1999. Net cash used in investing activities was
$149.4 million in 2000 compared to $64.4 million in 1999. The increase in cash
used in investing activities was the result of higher acquisition of property
and equipment. Net cash provided by financing activities was $111.8 million in
2000 compared to $40.0 in 1999. Financing activities during 2000 primarily
include the proceeds from the issuance of common stock and long-term debt,
combined with borrowed funds from banks and related parties.
ACQUISITIONS
In April, 2001, we purchased a 51% interest in a Panamanian company,
Cellular Communications of Panama, S.A., now TRICOM Panama, S.A., for
approximately $8.1 million. TRICOM Panama has approximately 1,750 analog mobile
users and owns the frequency rights for 107 channels of 25 MHz each. These
frequencies will give us access to nationwide coverage, covering a population of
approximately 2.81 million people. We have constructed an iDEN(R) network, at a
cost as of December 31, 2001 of approximately $37 million, in Panama City and
Colon, the two largest cities in Panama, and in important transportation
corridors in other parts of the country. We offer digital mobile integrated
services, including two-way radio, paging and interconnect services.
On October 26, 2001, we acquired the shares of TCN Dominicana, S.A., a
wholly-owned subsidiary of Telecable Nacional, C. por A., that owns and operates
the largest multi-channel system in the Dominican Republic's pay-TV market
including the concession granted by the Dominican government to operate a cable
system. The transaction was valued at approximately $1,130 per subscriber
equivalent or approximately $64.0 million, payable $41.8 million in cash and
with 3,375,000 shares of our Class A common stock. TCN Dominicana is the leader
of the Dominican cable television market with a 43% market share, serving 70,609
cable subscribers, including 63,020 basic subscribers and 7,589 commercial
rooms, with close to 170,000 homes passed as of December 31, 2001. We intend to
expand our subscriber base by increasing our penetration rate over existing
homes passed and by expanding the reach of our existing cable network, as well
as by marketing our various Internet access services and introducing new
multimedia products and services.
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION
During the year ended December 31, 2000, we adopted the U.S. Securities and
Exchange Commission's Staff Accounting Bulletin No. 101 concerning the
recognition of revenue. This pronouncement provides that we recognize net
revenues from installations and activations over the period in which we retain
our clients. At the time we adopted SAB 101, we charged activation and
installation fees to subscribers for cellular and PCS services and for local
access lines. In preparing our financial statements for the year ended December
31, 2000, we estimated that the average service life for our customers that we
charged activation and installation fees was 35 months. We based our estimate of
average service life on our experience during the preceding five years, which
included periods in which we were initiating and developing these service
offerings. We recognized revenue associated with the accounting change from the
adoption of SAB 101 of $8,940,040 in 2000 and $7,512,759 in 2001.
Effective October 1, 2001, we updated our estimate of the average service
life for our customers from 35 to 24 months. We based our revision on our
experience during the preceding three years, which we regarded as more
representative of current market conditions. The number of mobile subscribers
and subscribers for local access lines increased substantially during that
period. We also face increased competition, particularly in the mobile markets
in which there have been new market entrants since 2000, which have captured
significant market share. As a result of these and other factors, our average
monthly disconnection or churn rate increased during 2001. We expect these
factors to continue to affect our ability to retain customers.
Based upon recent market trends to reduce activation fees for mobile and
local service, we anticipate that our activation fees and deferred revenue may
decrease in the future. In addition, in October 2001, we acquired TCN
Dominicana, the largest operator of cable television systems in the Dominican
Republic, which we operate under the name Telecable. Telecable did not
consistently charge fees for the installation and activation of cable service
before
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we acquired it. We currently charge new subscribers approximately $45, which
includes a one-time installation fee and the first month of service. Given
current market conditions, we do not foresee charging installation fees in the
future. We do not have sufficient experience to determine the average customer
service life for cable subscribers. We recognized revenues from cable activation
fees for the nine months ended September 30, 2002 in the aggregate of
approximately $185,000.
LONG-LIVED ASSETS
The Company's long-lived assets include property and equipment, in service,
under construction or development and held for disposal, as well as goodwill and
identifiable intangible assets to be held and used.
Property and equipment in service is stated at historical costs. Costs
associated directly with network construction, service installations and
development of business support systems and interest expense incurred during the
construction period are capitalized. Depreciation is calculated on a
straight-line basis over the estimated useful lives of assets. The estimated
useful life of telecommunications networks is 15 years and 3 to 10 years for
furniture fixtures, equipment and other. These useful lives are determined based
on historical usage with consideration given to technological changes, trends in
the industry and other economic factors that could impact the network
architecture and asset utilization. Assets held for disposal or sale is stated
at the estimated proceeds from the sale, less costs to sell.
The Company provides for the impairment of long-lived assets, including
goodwill, pursuant to SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-Lived Assets to be Disposed of", which requires that
long-lived assets and certain identifiable intangible held and used by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of an assets may not be recoverable. Such events
include, but are not limited to, a significant decrease in market value of an
asset, a significant adverse change in the business climate that could affect
the value of an asset or a current period operating or cash flow loss combined
with a history of operating or cash flow losses. An impairment loss is
recognized when estimated undiscounted future cash flows, before interest,
expected to be generated by the assets are less than its carrying value.
We adopted the provisions of SFAS No. 142 on January 1, 2002. SFAS No. 142
no longer requires the amortization of goodwill and indefinite-lived intangible
assets. Instead, these assets must be reviewed annually (or more frequently
under certain conditions) for impairment in accordance with this statement. In
accordance with the new rules, starting January 1, 2002, we are no longer
amortizing goodwill, acquired intangible assets, which we determined, have an
indefinite life. The Company's amortization of goodwill for the year ended
December 31, 2001 totaled approximately $47,000. Currently, we do not believe
that the provisions of SFAS 142 will have a significant effect on our results of
operations and financial position.
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ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141")
and No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141
requires all business combinations initiated after September 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have
indefinite lives will continue to be amortized over their useful lives (but
with no maximum life). The amortization provisions of SFAS 142 apply to
goodwill and intangible assets acquired after September 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, we
adopted SFAS 142 effective January 1, 2002. Upon the adoption of SFAS 142
there was no impairment of goodwill. As of December 31, 2001, and September
30, 2002, the composition of goodwill and intangible assets totaled $36.5
million, primarily related to the acquisitions of TCN Dominicana, S.A. and of
Cellular Communications of Panama, S.A. (subsequently renamed TRICOM Panama,
S.A.) during 2001.
EFFECTS OF INFLATION
The annual inflation rate in the Dominican Republic was 5.1% for 1999, 9.0%
for 2000 and 4.4% for 2001. The effects of inflation on our operations have not
been significant.
CHANGE IN FUNCTIONAL AND REPORTING CURRENCY
Through December 31, 1996, we used the Dominican peso as our functional and
reporting currency. While a significant portion of our revenues, assets and
liabilities historically were denominated in U.S. dollars, a clear determination
of the functional currency was difficult, and we used the Dominican peso as our
functional currency. However, in our opinion, with the issuance of the existing
notes, in August 1997, our cash flows and financial results of operations are
more appropriately presented in the U.S. dollar as the functional currency.
Effective January 1, 1997, we changed our functional currency from the Dominican
peso to the U.S. dollar. Our financial statements for periods prior to January
1, 1997 have not been restated for this change in the functional currency.
However, we did retroactively change our reporting currency to the U.S. dollar.
LIQUIDITY AND CAPITAL RESOURCES
Substantial capital is required to operate and expand our
telecommunications networks. For 2002, we made capital expenditures of $63.7
million for the installation of additional local access lines, enhancement of
our cellular and PCS network, expansion of international facilities and other
network improvements, primarily in the Dominican Republic. The amount expended
represents a significant reduction from expenditures in prior years, including
$116.5 million in 2001. This reflects our previously announced program to reduce
capital expenditures by optimizing the use of our existing network, while
minimizing new capital needs and conserving cash. Our capital expenditures in
2002 were funded by internally generated cash flow, short-term borrowings,
capital leases and trade and vendor financing. We currently estimate that our
2003 capital expenditures will aggregate approximately $25 million. Capital
expenditures in 2003 will be used to expand the capacity of our local service
and mobile networks, upgrade our cable networks and general network maintenance.
We have satisfied our working capital requirements and funded capital
expenditures from cash generated from operations, short and long-term
borrowings, trade finance, capital leases, vendor financing and equity and debt
issuances. In December 2002, we received approximately $70 million from the sale
of Class A common stock in a private placement. All of the proceeds of the
private placement was used to repay short-term debt. We believe our cash
generated by operations, current cash and borrowings available to us will be
sufficient to fund our expected capital expenditures through the end of 2003. We
frequently evaluate potential acquisitions and joint venture investments,
although we do not currently contemplate any acquisitions and the indenture
governing our existing notes limit, and the indenture governing the new notes
will limit, the amount that we can invest in joint ventures. Acquisitions,
investments or potential debt repayments may require us to obtain additional
financing. There can be no assurance that additional funding sources will be
available to us on terms, which we find acceptable, or at all.
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Net cash provided by operating activities was $20.3 million for the first
nine months of 2001 compared to $6.3 million for the first nine months of 2002.
Net cash provided by operating activities was $42.3 million for 2000 and $34.0
million for 2001. We had net accounts receivable of $34.5 million at December
31, 2001 and $29.5 million at September 30, 2002, respectively. Our allowance
for doubtful accounts increased to $7.1 million at September 30, 2002 from $4.1
million at December 31, 2001, primarily as a result of higher number of contract
local service, cellular and PCS, and basic and premium cable subscribers.
Our indebtedness was approximately $528.9 million at September 30, 2002,
compared to $498.2 million at December 31, 2001, of which $200.0 million was our
existing notes, $198.1 million was long-term borrowings and capital leases, with
maturities ranging from fifteen months to six years, and $130.8 million was
short-term bank loans, commercial paper, short-term telecommunications equipment
trade financings and current portion of capital leases and of long-term debt. At
September 30, 2002, our U.S. dollar borrowings and commercial paper, other than
the existing notes, had interest rates ranging from 4.62% per annum to 14.93%
per annum, and our Dominican peso borrowings and commercial paper had interest
rates ranging from 15% per annum to 32% per annum. At September 30, 2002, our
U.S. dollar borrowings, other than the existing notes, totaled $289.8 million
and our peso borrowings totaled $39.1 million.
Our existing notes in the aggregate principal amount of $200 million will
mature in September 2004. If we are successful in this exchange offer and
consent solicitation, our liquidity and capital resources will not be materially
affected during 2003 other than by the costs and expenses of this exchange offer
and consent solicitation, which we currently estimate will be between $8 and $10
million. The successful completion of this exchange offer and consent
solicitation will also eliminate our requirement to repay the exchanged portion
of the $200 million principal amount of the existing notes in September 2004. If
we are unsuccessful in this exchange offer and consent solicitation or if we
otherwise cannot extend the maturity of the existing notes, our cash flow from
operations will not be sufficient to repay the existing notes and we may not be
able to obtain financing from other sources.
At September 30, 2002, we had approximately $20.7 million in cash and
investments. In addition, we had credit facilities, which, in the aggregate,
permit us to borrow up to $289.1 million. At September 30, 2002, there was
$266.8 million outstanding under these facilities. We had approximately $22.3
million available for borrowing under these facilities, of which $18.5 million
was under facilities with maturities of less than one year.
At September 30, 2002, we had $87.4 million of short-term and long-term
approved credit facilities with Dominican banks and institutions and $201.7
million of U.S. dollar-denominated approved credit facilities with international
banks and financial institutions as compared to $93.5 million and $246.7
million, respectively, at December 31, 2001. In addition, at September 30, 2002,
the Company had in place a $74 million dollar-denominated and peso-denominated
commercial paper program in the Dominican Republic. At September 30, 2002, we
had outstanding $62.1 million under such program. The proceeds from the issuance
of commercial paper have been used to finance the purchase of telecommunications
related assets.
At September 30, 2002, our current liabilities exceeded our current assets
by $137.4 million compared to $175.6 million at December 31, 2001. This reflects
our short-term borrowings in the Dominican Republic with related companies,
local and international banks. Dominican banks lend on a short-term basis in
order to negotiate interest rates should market conditions change, without
necessarily demanding the repayment of credit facilities. It is our belief that
the existence of negative working capital does not affect adversely the
continuity of our business. In the third quarter of 2002, we restructured
approximately $8.0 million of our short-term debt to long-term debt, extending
the maturity of such debt with a financial institution for a period of three
years, with an interest rate of 11% per annum with respect to dollar denominated
borrowings and 28% per annum with respect to peso denominated borrowings. We
will seek additional credit facilities with international banks to refinance our
short-term credit facilities.
Our credit facilities in the Dominican Republic do not contain financial
covenants. One loan with General Electric Capital Corporation of Puerto Rico,
which had an outstanding principal amount of $5.6 million at December 31, 2001,
and $3.8 million at September 30, 2002, contains two financial covenants that
require us to maintain a minimum cash flow coverage ratio (defined as net income
plus depreciation minus preferred dividends divided by
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current maturity of long term debt) and EBITDA coverage ratio (defined as
earnings before interest, taxes, depreciation and amortization divided by
current maturity of long term debt plus interest expense). We failed to comply
with these covenants at December 31, 2001. We failed to meet the cash flow
coverage ratio by approximately $3.8 million and failed to meet the EBITDA
coverage ratio by approximately $1.8 million. GE Capital waived such
non-compliance and amended the loan agreement to eliminate the application of
the covenants altogether to the three months periods ended March 31, 2002 and
June 30, 2002 and to change the ratios for periods ending after June 30, 2002.
At September 30, 2002, we were not in compliance with the GE Capital financial
covenants. GE Capital has waived our non-compliance and agreed to waive any
future non-compliance until December 31, 2003.
The following table contains certain information concerning the Company's
material contractual obligations at September 30, 2002 (in millions of dollars).
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
- ---------------------------------- --------------------------------------------------------------
LESS THAN 1 AFTER
CONTRACTUAL CASH OBLIGATIONS TOTAL YEAR 1 - 3 YEARS 4 - 5 YEARS 5 YEARS
- ---------------------------------- -------- ---------------------------------------------------
Short-term debt $ 101.4 101.4 - - -
Long-term debt 411.9 28.4 322.8 59.6 1.1
Capital lease obligations 15.6 1.0 9.4 5.2 -
Operating leases 22.7 2.7 8.8 5.6 5.6
Unconditional purchase obligations - - - - -
Other long-term obligations - - - - -
--------------------------------------------------------------
TOTAL CONTRACTUAL CASH OBLIGATIONS $ 551.6 133.5 341.0 70.4 6.7
==============================================================
</Table>
We borrow from a bank, Bancredito, that is controlled by GFN, one of our
principal shareholders. The terms on which we borrow from Bancredito are similar
to terms available to us from other banks in the Dominican Republic. If loans
from Bancredito were not available to us, we could not be certain that we could
obtain financing from other sources. An affiliate of Bancredito also has acted
as agent for the placement of short-term debt in the commercial paper markets in
the Dominican republic. See "Directors, Senior Management and Employees - Major
Shareholders and Related Party Transactions" and Note 6 of notes to our
consolidated financial statements for discussions of these transactions.
At December 31, 2001, our existing notes were rated B1 (with a stable
outlook) by Moody's Investors Service ("Moody's") and B+ (with a positive
outlook) by Standard & Poor's ("S&P"). On March 26, 2002, S&P reaffirmed its B+
rating of our existing notes and lowered its outlook from positive to stable. On
April 30, 2002, Moody's lowered the rating of our existing notes to B3 and
lowered its outlook from stable to negative. On May 31, 2002, S&P lowered the
rating of our existing notes to B and lowered its outlook from stable to
negative. On December 2, 2002, Moody's lowered the rating of our existing notes
to Caa2. Our rating also has been placed on review for possible further
downgrade. Our domestic commercial paper program is not rated by either Moody's
or S&P. The ratings of our existing notes by Moody's and S&P is not a
recommendation to buy, sell or hold the existing notes; these ratings may be
subject to revision or withdrawal at any time by the assigning rating
organization; and each of these rating should be evaluated independently of any
other rating.
The following table describes certain information regarding the ratings by
S&P and Moody's of the existing notes:
<Table>
<Caption>
S&P DESCRIPTION MOODY'S DESCRIPTION
- ---------- ---------------------------------------- ------- ----------------------------------------------------
RATING B The obligor currently has the capacity RATING Bonds which are rated Caa are of poor standing.
to meet its financial commitment on the Caa2 Such issues may be in default or there may be
obligation. Adverse business, present elements of danger with respect to
financial, or economic conditions will principal or interest. The modifier 2 indicates
likely impair the obligor's capacity or that the obligation ranks in the mid-range of its
</Table>
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<Table>
willingness to meet its financial generic rating category.
commitment on the obligation.
NUMBER OF
RATING
CATEGORIES 22 21
RANK 15th (8th lowest) 18th (4th lowest)
AUDIENCE Lenders, investors and other interested Lenders, investors and other interested parties
parties
CHARACTER- Business risk Franchise value
ISTICS BEING Industry characteristics Leverage
RATED Competitive position Coverage
Management Liquidity
Financial risk Profitability
Financial characteristics Management quality
Financial policy
Profitability
Capital structure
Cash flow protection
Financial flexibility
</Table>
In connection with the offering of our existing notes, our principal
shareholders, a subsidiary of GFN Corporation, Ltd., and Motorola, Inc., entered
into voting arrangements with the trustee under the indenture governing the
existing notes. The agreements provided for the grant to the trustee of proxies
giving it the right to vote all shares of common stock upon the occurrence of
specified events of default. GFN and Motorola had the right to terminate the
voting agreements, in certain events, including the Dominican Republic becoming
bound by the United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, which occurred during 2002. GFN and Motorola exercised
their rights to terminate the voting agreements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about market risks to certain financial
instruments includes "forward-looking" statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
We are exposed to market risks from adverse changes in interest rates and
foreign exchange rates. We do not hold or issue financial instruments for
trading purposes.
INTEREST RATE RISKS
Our interest expense is sensitive to changes in the general level of
interest rates in the United States and in the Dominican Republic. At September
30, 2002, we had outstanding $200 million aggregate principal amount of the
existing notes. The existing notes bear interest at fixed rate of 11 3/8% per
annum and mature in the year 2004. The fair value of the existing notes was
approximately $120 million at September 30, 2002. The existing notes are U.S.
dollar denominated.
Our primary exposure to market risk for changes in interest rates relates
to our short-term borrowings from Dominican banks. Primary exposure is based on
the potential of short-term interest rate variation, not on exposure to changes
in fair market value of our long-term debt. At September 30, 2002, we had $328.9
million outstanding of short-term and long-term borrowings, other than our
existing notes but including trade finance, of which $289.8 million was U.S.
dollar denominated, and the remaining $39.1 million was Dominican peso
denominated. Of the
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$289.8 million of U.S. dollar dominated debt, $51.1 million was borrowed from
Dominican banks, $55.5 million was commercial paper outstanding issued in
Dominican markets, while the remaining $183.1 million was borrowed from
international banks, including branches in the Dominican Republic. Of the total
$328.9 million outstanding, $305.2 million had fixed interest rates, while the
remaining $23.7 million had variable interest rates. At September 30, 2002, our
short-term and long-term U.S. dollar denominated borrowings and commercial paper
bore interest at rates ranging from 4.62% per annum to 14.93% per annum. At
September 30, 2002, our short-term and long-term Dominican peso denominated
borrowings and commercial paper bore interest at rates ranging from 15% per
annum to 32% per annum. A 10% increase in the average rate for our variable rate
debt would have increased our loss for the nine months ended September 30, 2002
by approximately $1.8 million.
FOREIGN EXCHANGE RISKS
We are subject to currency exchange risks. During the first nine months of
2002, we generated revenues of $65.2 million in U.S. dollars and $131.2 million
in Dominican pesos. In addition, at September 30, 2002, we had $289.8 million of
U.S. dollar-denominated debt outstanding, excluding the $200.0 million principal
amount of the existing notes.
The impact of changes in foreign exchange rates is determined by measuring
the effect of percentage changes in the range of rates during the year for our
Dominican peso denominated assets and liabilities. The model reflects the
weighted average change in exchange rates as resulting in the same percentage
change in foreign exchange gains or losses.
Dominican foreign exchange regulations require us and other
telecommunications companies to convert all U.S. dollar revenues into Dominican
pesos at the official exchange rate, and to purchase US dollars at the private
market exchange rate. Although regulations now provide that the official
exchange rate fluctuates and will be tied to the private market rate, the
official exchange rate tends to be lower than the private market rate. During
the first nine months of 2002, the average official exchange buying rate was
RD$17.41 per $1.00 while the average private market rate was RD$17.87 per $1.00.
For most of 2002, the Central Bank has maintained the average official exchange
buying rate at RD$17.56 per $1.00.
Our functional currency is the U.S. dollar and, as a result, we must
translate the value of Dominican peso-denominated assets into U.S. dollars when
compiling our financial statements. This translation can create foreign exchange
gains or losses depending upon fluctuations in the relative value of the
Dominican peso against the U.S. dollar. During the first nine months of 2002, we
recognized an approximate $702,000 foreign exchange gain. If the Dominican peso
had devalued by an additional 10% against the U.S. dollar on average in the nine
months ended September 30, 2002, then we would have realized an additional
foreign exchange gain of approximately $70,200.
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BUSINESS
OVERVIEW
We are a full service communications services provider in the Dominican
Republic. We offer local, long distance, mobile, cable television and broadband
data transmission and Internet services. Our wireless network covers
approximately 90% of the population in the Dominican Republic. Our network
providing local service is 100% digital, the only such network in the Dominican
Republic. Telecommunications networks that employ digital technology can
transmit higher quality signals at lower cost. We also own interests in undersea
fiber optic cable networks that connect and transmit telecommunications signals
between Central America, the Caribbean, the United States and Europe. Fiber
optic cable is composed of glass strands and transmits telecommunications
signals in the form of light. Through our subsidiary, TRICOM USA, Inc., we own
telecommunication-switching facilities in New York, Florida and Puerto Rico.
Using these facilities, we originate, transport and terminate international
long-distance traffic. We believe we are one of the few Latin American based
long distance carriers that is licensed by the U.S. Federal Communications
Commission to own and operate switching facilities in the United States.
Through our subsidiary, TCN Dominicana, S.A., we are the largest cable
television operator in the Dominican Republic based on our number of subscribers
and homes passed. At September 30, 2002, our cable network served 71,081
subscribers, including 62,035 basic subscribers, 8,413 commercial rooms and 633
subscribers for digital audio programming and other services, with approximately
170,000 homes passed.
We offer two-way radio and paging services in Panama using iDEN(R)
technology. We began offering services in April 2002 and, at September 30, 2002,
we had approximately 5,000 subscribers. Our iDEN(R) network covers Panama City
and Colon, the two largest cities in Panama, and important transportation
corridors in other parts of the country. We also own radio frequency rights in
Guatemala and El Salvador that would allow us to operate our iDEN(R) network
using switches deployed in Panama. We currently do not intend to develop a
network in either Guatemala or El Salvador.
MARKET OPPORTUNITIES
We believe that our markets represent attractive opportunities and that the
following factors will drive growth in these markets:
- UNDERSERVED DOMINICAN MARKET. At December 31, 2001, teledensity, the
ratio of local access lines per 100 inhabitants, in the Dominican
Republic was 10.9 and the ratio of mobile subscribers per 100
inhabitants was 14.5, based upon data published by Indotel. The ratios
in Puerto Rico were 33.2 for teledensity and 23.7 for mobile, according
to the International Telecommunications Union, or ITU. At December 31,
2000, multi-channel penetration of television households per 100
inhabitants in the Dominican Republic was 15.3, compared to 44.4 for
Puerto Rico, according to Kagan World Media, Inc.
- DOMINICAN ECONOMY AMONG THE FASTEST GROWING IN LATIN AMERICA. Gross
Domestic Product in the Dominican Republic grew at an average annual
rate exceeding 6.8% from 1996 through 2001, according to the Central
Bank of the Dominican Republic. This has made it one of the fastest
growing economies in Latin America. The Dominican Republic experienced
real Gross Domestic Product growth of 7.8% in 2000 and 2.7% in 2001
according to the Central Bank. The Central Bank projects growth for the
Dominican Republic to exceed 5% in 2002.
- STRONG GROWTH IN THE DOMINICAN TELECOMMUNICATIONS MARKET. In 2001, the
total telecommunications market in the Dominican Republic was
approximately $1.3 billion, according to the Central Bank. The
telecommunications market in the Dominican Republic grew at an average
annual rate of 18.6% from 1996 to 2001 according to the Central Bank.
- BUSINESS DEMAND FOR ADVANCED MOBILE SERVICES IN PANAMA. We believe that
the market in Panama is
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driven by several factors, including several characteristics that are
common to the market in the Dominican Republic, including:
- a rapidly growing economy;
- the development of intra-regional trading markets in Central America
fostered by the adoption of free trade agreements; and
- business market demand for advanced mobile services.
COMPETITIVE STRENGTHS
We believe that the following factors give us a competitive advantage in
our existing and targeted markets:
PRODUCT AND SERVICE OFFERINGS. We believe that we provide one of the most
extensive product and service offerings in our market: local, long distance,
mobile, cable television and broadband data transmission and internet services.
With the addition of cable television services to our existing operations during
the fourth quarter of 2001, we are able to provide a complete suite of
telecommunications services.
ADVANCED NETWORK. We have the only network providing 100% digital local
service in the Dominican Republic. Our wireless network covers approximately 90%
of the population. We currently have switching facilities in New York, Florida
and Puerto Rico, and interests in international fiber optic cable undersea
systems that connect Central America and the Caribbean with the United States
and Europe. These facilities enable us to originate, transport and terminate
traffic at reduced costs. Our advanced networks also provide our customers with
high quality voice and data transmission. We are expanding and upgrading our
existing cable network into a broadband bi-directional network. Our broadband
bi-directional cable network will have increased network capacity, quality and
reliability. This will facilitate the introduction of new services and enable us
to increase our subscriber base and our average monthly revenues per subscriber.
We also are deploying set-top boxes to bolster subscriber growth and facilitate
the control of unauthorized or pirate users.
STRONG BRAND NAME RECOGNITION AND MARKETING CAPABILITIES. Our creative
marketing and excellent customer service have allowed us to build a strong brand
in our existing markets and to achieve substantial market share in each of our
service offerings. We capitalize on our brand name recognition and marketing
programs both in the Dominican Republic and to target ethnic communities in
Florida, New England, New Jersey, New York and Puerto Rico. In the Dominican
Republic, we have consistently lead the market in introducing innovative
business practices and products using advanced technology. We were the first
operator in the Dominican Republic to offer prepaid cellular, international
calling cards, Internet service and offerings combining different services and
pricing options.
Since 1992, we have diversified our operations and increased our market
share in the telecommunications markets of the Dominican Republic. The following
table sets forth information about our market share in several of our markets
based upon information published by Indotel, at June 30, 2002 (the latest date
for which Indotel publishes information), and information that we generate about
our operations:
<Table>
<Caption>
APPROXIMATE MARKET
SERVICE SHARE (%) RANK NUMBER OF PROVIDERS
------- ------------------ ---- -------------------
Local 20.1 2 3
Mobile 28.1 2 4
Cable television 46.0 1 -
Data and Internet 12.8 2 3
</Table>
Indotel reports that there are 112 cable operators in the Dominican
Republic. However, in our principal markets, Santo Domingo and its surrounding
areas and La Romana, we face little competition. In 2002, a third
telecommunications services provider, using wireless technology, began offering
to business customers limited local services and broadband Internet access. This
provider does not offer a full range of local services, and, to date, we believe
has obtained a negligible percentage of the market for local services.
In addition, we are one of the two principal Dominican carriers terminating
Dominican bound international long distance traffic. However, neither Indotel
nor the U.S. Federal Communications Commission publishes current
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information about traffic exchanged. International long distance traffic has
expanded dramatically in the last five years as the price per minute charged
consumers has declined.
OUR STRATEGY
Our goal is to capitalize on our strengths in our markets - our developed
network, strong brand name recognition and marketing capabilities and
experienced management - to improve our financial condition and results, while
continuing to build market position. We intend to:
GROW REVENUES AND IMPROVE OPERATING MARGINS BY:
- Focusing on mid and high income residential and corporate subscribers.
In the past, we grew our local and mobile subscriber bases by
capitalizing on the low penetration rates for these services.
However, many of our subscribers use our services on an "incoming
calls only" basis and generate little or no traffic. We intend to
concentrate our marketing and sales efforts on higher usage
residential and corporate subscribers. In the first nine months
of 2002, we increased the number of our corporate subscribers by
67%, from approximately 31,000 to 51,000 customers. We believe
that we can increase service offerings to higher usage customers
and ultimately increase our revenues and profitability.
- Cross-selling services to increase revenues per subscriber.
Our marketing efforts capitalize on our being the only
telecommunications provider that offers all of local, long
distance, mobile, cable television, and broadband data
transmission and Internet services. We promote our value added
services in our mobile and local access businesses, including
what we believe are the most extensive wireless roaming services
for mobile offered by any Dominican provider and wireless
application protocol, or Internet access, for handsets. Our cable
acquisition complemented our existing service offerings. There
was little overlap between our existing subscriber base and the
Telecable subscriber base, allowing us additional cross-selling
opportunities.
- Increasing penetration rates in our cable business and subscriptions
for advanced services.
Our cable business offers us access to potential subscribers with
the highest income levels in the Dominican Republic. We will
attempt to increase our subscribers from this potential
subscriber base and offer premium, digital, high speed internet
access and multimedia services made possible by the upgrade of
our network and the deployment of set-top boxes, which we
substantially completed this year.
- In our international business, increasing traffic to higher settlement
priced destinations and diversifying distribution channels for prepaid
cards in the United States.
International long distance traffic from and to the Dominican
Republic accounts for approximately 97% of our total
international long distance minutes. We use our facilities in the
United States to connect traffic to other destinations. We intend
to concentrate on increasing our traffic volumes to destinations
with higher termination rates. We also will expand our card
offerings to target additional ethnic markets in the United
States and add distributors to penetrate these markets.
- Reducing costs, while maintaining our marketing strengths and service
capabilities.
In late 2002, we instituted cost control measures, including
headcount reductions. In addition, industry-wide developments
resulted in a reduction of commission rates we and other
telecommunications services providers pay to prepaid card
distributors in the Dominican Republic. As a result of these and
other measures, we reduced selling, general and administrative
expenses for the 2002 third quarter by 7% from the 2002 second
quarter. We also reorganized our marketing and sales staff to
target higher income subscribers and
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subscribers that use services to a greater extent. Our goal is to
continue reducing expenses, while growing revenues.
OPTIMIZE USE OF EXISTING NETWORK, WHILE MINIMIZING NEW CAPITAL NEEDS, BY:
- Disconnecting lower usage subscribers.
We have initiated disconnections of lower usage local and mobile
subscribers. By disconnecting lower usage subscribers, we believe
that we can better use our network to provide service to, and
concentrate our sales efforts on, higher usage residential and
corporate customers.
- Migrating underutilized equipment to high income, densely populated
areas.
We are redeploying network equipment to areas where we have
greater capacity demands in order to make more efficient use of
our network. This enables us to expand coverage in areas of peak
demand without additional capital expenditures or adversely
affecting overall network coverage or quality of service. The
areas to which we are moving equipment have higher service
demands and greater concentration of corporate and higher income
residential customers.
- Consolidating cable and telephone networks.
Our cable network is a hybrid fiber and coaxial network.
Transmission from the headend to node is by fiber. Our local and
data transmission networks also deploy fiber. We intend to take
advantage of the fiber optic capacity of both networks in areas
that are underserved by either, which will allow us to expand
service offerings without significant capital investments.
- Using existing spectrum to provide wider digital coverage at lower
costs.
We are using our existing spectrum to expand our digital
coverage, avoiding, as a result, the cost of purchasing
additional spectrum to expand our PCS service. We also are able
to purchase telecommunications equipment and obtain cell sites
for our digital network at prices that are discounted from prices
in the past.
STRENGTHEN OUR CAPITAL STRUCTURE BY:
- Extending the maturities of our debt.
In 2002, we succeeded in extending the maturity by as much as
five years, of approximately $118 million principal amount of our
short term debt. We will continue to attempt to extend and
refinance our debt. This exchange offer and consent solicitation
is part of that effort.
- Maximizing internally generated cash flow to reduce debt.
Our efforts to maximize the use of our network, minimize capital
expenditures and reduce our costs and expenses, as well as
improve our working capital management, are intended to increase
our cash flow generation and create free cash flow, cash flow
exceeding our capital and operating requirements. To the extent
that we generate cash flow exceeding our capital and operating
requirements, we intend to reduce debt.
SERVICE OFFERINGS
Our service offerings include:
- Local;
- Mobile;
- International long distance;
- Cable television; and
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- Broadband data transmission and Internet.
LOCAL
We are a competitive local exchange carrier in the Dominican Republic and
had 179,124 local access lines in service at September 30, 2002. According to
the most recent information from Indotel, there were approximately 940,000 local
access lines in service at June 30, 2002. At June 30, 2002, we had approximately
185,000 local access lines in service, or approximately 20% of the local market.
Since such date, we initiated a program to disconnect low usage subscribers and,
at December 31, 2002, we had approximately 150,000 local access lines in
service. Our local access network covers areas with approximately 85% of the
population of Santo Domingo, Santiago and nine additional cities.
All of our basic telephone service customers have access to a range of
value-added services, including call forwarding, three-way calling, call
waiting, caller ID and voicemail applications. In addition to local service, we
provide direct-dialed, collect and operator-assisted international and domestic
long distance services and Internet access to our residential and corporate
customers.
We offer our customers broad flexibility in assembling customized packages
of services, which provide our customers with cost savings and enhanced control
over their consumption of telephone services. Customers may choose from a menu
of services, including domestic and international long distance services, local
service and value-added services. They also may bundle their local access
service with cellular or PCS, paging, cable television and Internet services.
Service packages permit customers to preset their monthly bills based upon, for
example, local service minutes as well as long distance minutes and specified
destinations. Customers are responsible for paying for usage levels in excess of
preset package amounts, at regular per minute rates. We believe that providing
customers with such budgeting capability increases consumer confidence in using
telecommunications services, consequently allowing for increased service
penetration, higher levels of customer satisfaction and lower incidence of
delinquent payments.
Beginning in 1999, we accelerated our local access network expansion
program by deploying a wireless local loop, which offers voice quality as clear
as telephones connected by wirelines and often can be connected more rapidly
than wireline. However, we have deployed an intra city fiber and copper network
in Santo Domingo, Santiago and five other cities. As a result, we can connect
subscribers using wireline as quickly and at costs comparable to the cost of
connection by wireless local loop. Using wireline connection, we also can offer
data transmission and other value added services attractive to corporate and
higher usage residential subscribers that we are targeting. We intend to convert
all wireless local loop subscribers to wireline over the next several years.
Wireless local loop technology can be redeployed to support our mobile services.
We also sell fully integrated systems and components for both turnkey
systems and private telephone networks used within enterprises. We are a
distributor in the Dominican Republic for Mitel and Comdial equipment, two
leading manufacturers of private branch exchanges and key telephone systems. We
are also a leading provider of computer telephony integration systems in the
Dominican Republic.
MOBILE
Our mobile network covers approximately 90% of the Dominican Republic's
population. We currently offer both cellular and PCS service. According to
Indotel, there were approximately 1,491,283 analog and PCS cellular subscribers
in the Dominican Republic at June 30, 2002. At June 30, 2002, we had 398,212
mobile subscribers, including 199,267 PCS subscribers, representing
approximately 27% of the Dominican mobile telephony market. At September 30,
2002, the number of our cellular and PCS subscribers grew by approximately 24%
to 410,918 year-over-year, and our net addition of cellular and PCS subscribers
totaled approximately 13,000 year to date. We attribute a substantial portion of
this growth to our prepaid cellular and PCS card, the Amigo(TM) card. At
September 30, 2002, prepaid cellular and PCS subscribers accounted for 390,372
or approximately 95%, of our 410,918 total cellular and PCS subscribers in the
Dominican Republic. Our Amigo(TM) card program has expanded our cellular and PCS
customer subscriber base because it offers cellular and PCS service to
individuals
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who would not satisfy our current credit policies and because it appeals to
customers who prefer to budget their cellular and PCS telephone spending.
We have offered PCS service since April 1999. This technology provides for
added security and privacy compared with traditional analog systems, and it also
offers greater capacity. PCS customers are able to receive all of the benefits
related to a digital service, including digital messaging, caller ID and
voicemail. Our PCS network covers areas with approximately 75% of the population
in the Dominican Republic and is less extensive than our analog network. We
offer a dual-band service, allowing customers to use seamlessly their mobile
phones nationwide over both digital and analog networks.
We offer domestic as well as international roaming services to
participating subscribers. Subscribers who pay the roaming rates gain access to
our nationwide cellular and PCS network, while subscribers paying the
international roaming fees are able to roam outside of the Dominican Republic,
using the networks of cellular service providers with which TRICOM has entered
into roaming agreements. We have entered into roaming service agreements with
Sprint PCS and Illuminet, formerly BellSouth International Wireless, which
enable our customers to roam in the continental United States and Central and
South America. Under the roaming agreements, when a subscriber of another
cellular service provider makes a call from within the Dominican Republic, that
service provider pays TRICOM for the call at the applicable rate. Conversely,
when one of our subscribers makes a call outside the Dominican Republic, we must
pay the applicable charges to the cellular service provider in whose region the
call originates. These payments are channeled through Cibernet, which functions
as a central international clearing house that collects and redistributes
roaming fees from and to the participating providers.
We have entered into arrangements with major consumer electronics retailers
and a network of independent cellular and PCS dealers to offer our cellular and
PCS services in conjunction with their sale of handsets. As a result of our
arrangements with major electronics retailers for the sale by them of handsets
in conjunction with subscriptions for our services, we sold handsets to
approximately 4% of our new subscribers in 2001. We provide subsidies on the
sale of mobile handsets for customers who purchase post-paid plans for a minimum
term of 18 months. Subsidies vary depending on the handset but can exceed 50% of
the cost of some handsets.
We were the first domestic provider to offer Wireless Application Protocol,
or WAP, to our mobile subscribers, starting in September 2001. WAP brings
Internet content and advanced services to digital cellular phones and other
wireless devices. Digital mobile customers who subscribe to WAP may access
internet content through their wireless devices and perform operations such as
sending e-mail, on-line banking or browsing the Internet.
We have provided paging services since April 1995. At June 30, 2002, we
provided paging services to 10,023 subscribers, representing approximately 14%
of the Dominican paging market. At September 30, 2002, we had 9,457 paging
subscribers. In 1999, we stopped soliciting new paging subscribers. We believe
that the success of our prepaid cellular and PCS program has contributed to the
decline of paging as a significant part of our business because customers have
replaced paging services with prepaid cellular services.
INTERNATIONAL LONG DISTANCE
In the Dominican Republic, we provide international long distance services
to our local access, cellular and PCS customers. In addition, we offer prepaid
calling cards for international long distance, the Efectiva(TM) and Conexion(TM)
cards, that can be used from any telephone in the Dominican Republic. We operate
telephone centers that provide access to telephone services to individual
customers who either do not have telephone services in their own homes or who
are attracted by the competitive pricing of the telephone centers. The centers
offer a wide range of telephone services, including bill payments and sales of
service in addition to long distance.
In the United States, our subsidiary TRICOM USA provides international
carrier services primarily to resellers, which account for an increasing share
of international long distance traffic between the United States and the
Dominican Republic. Through our telecommunications switching facilities in the
United States, we have been able to provide resellers with an alternate channel
for sending international long distance traffic. In addition, by
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controlling the origination, transport and termination of international long
distance traffic between the United States and the Dominican Republic, we
believe that we are able to send and receive such traffic at a lower cost to us
than by exchanging traffic with traditional international carriers.
Each year since the initiation of TRICOM USA's operations, we have derived
a greater percentage of international revenues from resellers. During 2001,
resellers originated approximately 59% of the international long distance
minutes from the United States to the Dominican Republic that we received.
Minutes delivered by resellers may fluctuate significantly. While we enter into
agreements with resellers, they are not required to provide to us any amount of
traffic. The price per minute charged by us to a reseller is negotiated as often
as dictated by the market. At September 30, 2002, we received traffic from
approximately 90 resellers. Intense competition in U.S. markets among
international long distance carriers resulted in bankruptcy filings by 12 of our
reseller clients in 2001.
TRICOM USA also markets a number of prepaid cards to ethnic communities in
California, Canada, Florida, Georgia, Illinois, Massachusetts, New Jersey, New
York, Pennsylvania, Puerto Rico, Rhode Island, U.S. Virgin Islands and
Washington D.C. Each prepaid card is assigned a unique identification number and
a face value ranging from $2 to $20. The prepaid card's dollar balance is
reduced by the cost of each call. TRICOM USA sells the cards to distributors
that resell the cards to retail outlets.
CABLE TELEVISION
We are the largest provider of cable television services in the Dominican
Republic, based on the number of subscribers, and the number of homes passed. At
September 30, 2002, our cable network served 71,081 subscribers, including
62,035 basic subscribers, 8,413 commercial rooms and 633 subscribers for digital
audio programming and other services, with approximately 170,000 homes passed.
One component of our business strategy has been to expand our number of basic
and premium subscribers by providing high-quality programming and other content.
In addition to publicly available programming, we license or otherwise acquire
programming from various programming providers for broadcast on our cable
television network and also produce a limited amount of programming ourselves
intended for exclusive broadcast on our network. We currently offer 98 basic and
premium channels including HBO, Cinemax, Disney, ESPN, Fox Sports and CNN. We
also sell our own advertising time.
BASIC SERVICE PACKAGE. Our basic service package provides access to 80
local and foreign content channels. Subscribers pay a one-time installation fee
of approximately $24 and a monthly fee of approximately $21 for this service.
Connecting one additional television is free of charge. We charge an additional
installation fee of $8 for connection of each additional television in the house
after the second television, plus $2 per month per outlet. Subscribers do not
need a digital decoder to receive the basic service package.
PREMIUM SERVICE PACKAGES. Our premium service packages include all of the
channels included in our basic service package, with an additional choice of one
of our six premium packages. These packages include one or more premium channels
and range from approximately $4 to $26 a month per package. Premium subscribers
pay the basic package monthly fee plus the additional cost of the premium
packages. Subscribers pay a one-time installation fee of approximately $26 for
the first set-top box and approximately $15 for each additional one. Subscribers
pay approximately $10 a month per additional connection. A decoder set-top box
is required for these services. We are currently focusing on marketing our
various premium service packages to our existing basic subscribers with a view
to increasing our overall revenues per subscriber.
DIGITAL AND CABLE MODEM SERVICE. In June 2002, we made available digital
cable television and high-speed Internet access over coaxial cable via cable
modem, under the brand name Internet Tornado(R). This service targets primarily
residential customers. Digital cable television provides movie-quality pictures,
digital-quality sound, broadcast services and certain programming not available
through our basic or premium packages. Our digital cable television offering
includes an on-screen interactive program guide, 17 pay-per view channels, seven
content rich educational resources channels and 40 channels of commercial free
CD-quality music. A digital decoder set-top box is required for these services.
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A cable modem is a small box that connects a personal computer to the
Internet by a local cable provider. Cable modems allow personal computer users
to download information from on-line services at speeds one hundred times faster
than today's telephone modems. Our cable modem service packages offer several
bandwidth and pricing options, ranging from 128 kbps at approximately $29 per
month to 1,536 kbps at $197 per month.
DMX MUSIC. We offer digital audio programming provided by DMX Music
International through our hybrid fiber coaxial network. Customers choose from 40
exclusive music channels that play 24 hours a day, seven days a week. Customers
are charged a one-time installation fee of approximately $165 and a monthly fee
of approximately $19. Subscribers for this service primarily are hotels.
BROADBAND DATA TRANSMISSION AND INTERNET
In the Dominican Republic, we are the second largest Internet service
provider. We provide Internet connectivity to the residential and corporate
markets through traditional dial-up connections, digital subscriber lines, or
xDSLs, dedicated lines and very small aperture terminals, or VSATs, and cable
modems. VSATs are relatively small satellite antennas used for high speed
satellite-based single to multiple point data transmissions, including for the
internet, with speeds ranging from 56 kilobytes per second to 2 megabytes per
second. Our PCS and paging services are now fully integrated with our Internet
service, offering short messaging services, including e-mail and digital
messaging through our website, www.tricom.net.
We offer our residential customers Internet access bundled together with
local, mobile and other services. We also provide pre-installed Internet access
through major Dominican computer retailers.
During 2002, we launched several new services through a Shasta Platform
that enables us to offer firewall services and virtual private networks. During
2001, we launched wireless access to Internet for private data administrators
and laptop use. We also launched a number of broadband delivery systems. These
systems allow us to further increase our penetration into markets requiring
high-speed data transmission and Internet access.
We provide broadband data transmission services to large business customers
in the Dominican Republic through several means of delivery including fiber
optic cable and digital wireless point-to-point radio links. In addition, we
provide these large customers with data circuits, Internet access, private
networks and frame relay services with branches in the different cities in the
country. During 2002, we increased transmission capacity to provide larger
bandwidths and data services primarily for business customers through digital
subscriber lines, or xDSLs, that provide high-bandwidth transmission of voice
and data over regular telephone lines and the very small aperture terminals, or
VSATs, relatively small satellite antennas used for high speed satellite-based
single to multiple point data transmissions, including for the Internet.
In 2000, we entered into a five-year $25 million contract with the
Dominican Republic Department of Education to provide broadbased satellite
Internet access and Intranet services to every public high school in the
Dominican Republic.
MARKETING AND SALES
Our advertising and promotional materials in the Dominican Republic
emphasize that we are a full-service provider of local, long distance, mobile,
cable television, and broadband data transmission and Internet services and that
customers can realize significant savings from our service packaging. Our
advertising also emphasizes reliability, performance, quality of service and the
multiple advantages that users can obtain from our different products and
services.
In 2001, we introduced a new corporate image and logo. In 2002, we launched
a new corporate campaign, in which we highlight our innovative products, and
introduced a new logo for Telecable. Our advertising strategy also emphasizes
that the technology we offer is state of the art in order to provide our
customers solutions that better fit their needs. Seasonal promotions are also
made for specific target markets at different points throughout the year.
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Beginning 2001, we have reoriented our sales force and marketing efforts to
focus on corporate, medium and small businesses. This sales force is oriented to
develop close relationships with our business customers to assess their needs
and offer customized solutions.
LOCAL AND MOBILE SERVICE
We use door-to-door sales, telemarketing and mass media to promote and sell
our local services. During the nine months ended September 30, 2002,
approximately 83% of local line gross additions were made through direct sales
and approximately 17% were completed at our commercial points of sale and
through telemarketing. In the local access market, we use product
differentiation to target residential and business customers.
We market mobile services through direct sales, database marketing, and
telemarketing, focusing on new subscribers. Our post-paid mobile sales target
higher income customers who usually have a higher usage profile. We have
expanded our wireless network to new geographic areas and offer in-building
coverage in highly transited urban areas such as shopping malls, restaurants and
office buildings.
In an effort to target the middle-class market for mobile services we
launched Tricomtrolsm during 2001. This prepaid plan offers users the controlled
spending featured in prepaid plans along with the advantages of postpaid plans,
including low rates and short-term loans provided by GFN related financial
companies to help subscribers acquire handsets. We also restructured our
postpaid plans in order to offer our clients more options. Our advertising
strategy for PCS services focuses on our nationwide coverage, quality of service
and competitive prices.
Our sales and marketing approach for offering local and mobile services to
large business customers is to offer comprehensive and customized
telecommunications solutions for individual corporate customer's needs. Our
sales staff works closely with each customer to gain a better understanding of
its particular operations and to develop customized local and mobile service
solutions. Many of our sales executives in this market segment have engineering
backgrounds or receive periodical training sessions in which they learn the
fundamentals of our industry as well as thorough information on our family of
products. Our product development and customer service departments also offer
them continuous support.
INTERNATIONAL LONG DISTANCE
In addition to our Dominican local access and mobile subscribers, we market
our long distance services in the Dominican Republic to individual customers who
do not have telephone services in their own homes. In the United States, we
target the large immigrant Dominican communities and other ethnic populations.
We feature our prepaid cards, Efectiva(TM) and Conexion(TM), in our basic
services advertisements, as well as in individual advertising. Our advertising
emphasizes the accuracy and reliability of our billing as well as savings. The
Efectiva(TM) and Conexion(TM) cards are distributed at our commercial offices,
call centers and through wholesalers and retailers. We have five wholesale
distributors in the Dominican Republic as well as an internal sales force
targeting smaller retailers; a total of approximately 52,000 points of sale for
our prepaid cards.
Efectiva(TM) was the first long distance calling card in the Dominican
Republic. At September 30, 2002, its market penetration was over 80% in retail
stores around the country. Efectiva(TM) offers 20% to 30% more minutes of usage
than the competition.
In July 2002, we implemented a Sixbell platform to manage our prepaid
services. As a result, we have been able to unify all of our calling card
products into one card, allowing our customers to use the card for domestic and
international long distance calling as well as prepaid cellular. We also expect
to be able to offer prepaid customers several options to recharge their minutes
through ATM machines, over the Internet and at all of our customer service
offices and affiliated businesses. On November 26, 2002, we launched the unified
product under the brand name Bla Bla Bla(R).
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TRICOM USA advertises its prepaid cards on radio and through print media
targeted at Dominican and other ethnic communities, mainly in the New York
metropolitan area. Advertisements emphasize price and voice quality as well as
patriotic or ethnic themes. Prepaid cards are distributed to wholesalers under
our brand name and are sold primarily in small retail stores, including
groceries, drugstores and newsstands.
CABLE TELEVISION
We use a variety of methods to attract new subscribers. We generally
advertise on our cable broadcasts as well as on television and radio broadcasts
and in magazines, newspapers and billboards. Our direct marketing includes
flyers and promotional materials. Our telemarketing staff focuses on both
attracting new subscribers, as well as upgrading our existing basic subscribers
to one of our premium service packages. We market our cable services under the
brand name Telecable(TM).
Our current marketing strategy is intended to:
- promote subscriber loyalty and timely payments;
- reinforce our market position by offering better pricing and more
channels;
- increase our subscriber base by increasing the penetration levels in
our coverage areas, and by converting users that pirate our cable
services to legitimate subscribers; and
- capitalize on the development possibilities of new broadband services.
We currently maintain a call center to respond to incoming calls from
potential subscribers. The call center staff is trained to respond to questions
concerning our various service packages, as well as contact potential
subscribers, market our services and receive payment for our services by credit
card.
BROADBAND DATA TRANSMISSION AND INTERNET
For broadband data transmission services, we target large Dominican
businesses, which require more sophisticated technology and demand specialized
service and support. We developed a sales force focused on this sector, which
includes multi-national corporations, local business conglomerates, local and
international banks and large hotels. We also have a specialized sales force
targeting medium and small businesses with products that fit their needs such as
virtual private networks, dial up and broadband xDSL Internet, among others. Our
advertising campaign is focused on promoting the speed and accuracy of our
Internet dial-up services.
CUSTOMER SERVICE
In the Dominican Republic, we provide customer care for all of our services
through 17 service centers and 16 commercial offices. We also provide payment
services for our customers through several other businesses including
supermarkets, banks and other commonly frequented businesses. There are
approximately 373 such offices, all of which are linked to our central billing
and collection system.
Our customers may subscribe for services, pay and obtain information about
monthly bills and inquire about billing adjustments at our offices. To enhance
customer service, our representatives use our customer service system linked to
our central billing and service order system, enabling them to handle
expeditiously both billing and service inquiries.
We provide a 24-hour interactive voice response service through which
customers can register claims and make billing inquiries. In addition, customers
may access their account information online 24 hours a day, seven days a week,
on our website, www.tricom.net. Our website provides information about our
services and can be used to purchase products including prepaid cards, cellular
phones and accessories.
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We provide installation and repair services to our customers on par with
such services provided by the best telecommunications companies throughout the
world. In order to achieve this goal, we have established service benchmarks
for, among other things, network availability, installation and repair
intervals. We research other companies' response time and client promises in
order to establish equal or better ones that will ensure our competitive
advantage.
Our customer service department gathers information from our customers,
which we then use to tailor our products and services to meet customer needs. We
contact customers shortly after initial installation to address any service
concerns or problems that they may have. We regularly survey our customers to
determine their satisfaction with our services and to improve services based
upon the explanations offered by customers who voluntarily cancel their
services. Furthermore, we have a customer retention department that works to
determine the cause for customer churn and also to develop appropriate retention
strategies to target this segment.
During 2000, in an effort to improve our customer service, we implemented a
customer relationship management (CRM) system, integrating our information
systems and our customer relationship management software. This system allows
customer service representatives to access all billing, service order and other
client specific information. This enables us to offer speedier service and more
efficient follow through and to monitor every step of the customer service
relationship. During 2001, we implemented the Support and Field Service modules
and finished implementing the collections module during the second quarter of
2002.
BILLING AND CREDIT POLICIES
We have developed an integrated billing system for local, long distance,
cellular, paging and value-added services. The integrated billing system enables
our customers to obtain a single bill, providing detailed information about
charges for all services rendered, other than cable television for which
customers receive a separate bill. We have led the Dominican telecommunications
market in the introduction of billing packages that provide detailed call
reports with time-of-day, day-of-week and destination information as well as
flexible billing discount programs which are similar to those found in the most
competitive markets outside the Dominican Republic. Our subscribers can call our
center and speak with a customer care representative and obtain account and
statement information. Our customers also can access information over the
telephone through "Fonocom," an interactive voice response system that enables
customers to consult their most recent calls and account balances. Our customers
also may request a copy of their bill, which is then delivered to them via
facsimile transmission.
Cash payments may be made at walk-in commercial offices, centers and
affiliated bank branches, or funds may be debited from credit cards or bank
accounts. Our customers also may pay their bills at any one of our over 440
payment stations, which are located in neighborhood gas stations, grocery stores
and other retail outlets.
Residential customers, who are not prepaid customers, subscribing for basic
local telephone service are required to pay an installation fee of up to US$50.
At various times, we offer promotional prices for installation. If the customer
chooses to pay the installation fee in installments, the subscriber must pay a
50% down payment and the balance within two months. Each residential basic
telephone service subscriber has a credit limit of approximately RD$6,000. We
contact any customer exceeding this credit limit and request that such customer
pay all or part of the outstanding bill. In December 1999, we introduced a
prepaid local access line program. This program appeals to customers who prefer
to budget their telephone spending and allows us to expand our market to
customers who otherwise would not qualify under our credit policies.
We require all individuals wishing to subscribe for cellular and PCS
services to own a credit card or prepay either by using the Amigo(TM) card or
making a deposit through the Tricomtrol(SM) prepayment program. Our service
contracts do not cover a specified amount of time and remain in effect as long
as each customer remains active and current in paying its bills. Each cellular
and PCS service subscriber is assigned a credit limit, which varies depending
upon the individual's monthly usage and payment history. We also use credit
bureaus to check the credit history of new clients.
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Our policy is to suspend service for all post-paid subscribers if payment
is not received within 45 days after a bill is issued and to terminate service
45 days after the suspension date. Pre-paid services are suspended when the
prepayment balance is exhausted or the pre-paid card has expired. Upon
suspension, pre-paid service customers may continue to receive in-coming calls.
Service to post-paid subscribers is also suspended when a customer's credit
limit is reached. In order to reinstate service after termination, post-paid
subscribers must pay a reinstallation fee, except for Internet services for
which no reinstallation fee is required after termination.
We had an average monthly churn rate for cellular and PCS subscribers of
4.4% for the first nine months of 2002, 4.6% in 2001 and 3.1% in 2000. We had an
average monthly churn rate for local subscribers of 2.0% for the first nine
months of 2002, 2.2% in 2001 and 2.3% in 2000. We had an average monthly churn
rate for cable subscribers of 2.3% for the first nine months of 2002. Increasing
local and cellular churn rates reflect primarily our decision to disconnect
lower revenue-generating prepaid customers. We expect that our churn rate will
increase substantially for mobile and local access services as we disconnect
subscribers that use our services primarily to receive calls. We calculate
average monthly churn by dividing the number of subscribers disconnected during
the year by the sum of subscribers at the beginning of each month during such
year.
TRICOM USA distributes its prepaid cards through wholesale distributors.
Depending on their credit history and the length of their relationship with
TRICOM USA, wholesalers are required to pay in full for calling cards upon
delivery or are extended credit for up to 15 days. All distributors of prepaid
cards in the Dominican Republic are extended credit for up to 30 days.
TRICOM USA requires that new and smaller reseller customers pay on a weekly
basis for long distance services. Some customers that have a previous
relationship with TRICOM USA are extended credit for 15 to 30 days on average,
depending on proven reliable financial condition. Traditional long distance
carriers generally pay TRICOM USA within 60 to 90 days for traffic.
MANAGEMENT INFORMATION SYSTEMS
Our business applications are designed to fulfill two principal
necessities. First, to generate accurate information in real time, which is then
readily accessible to employees at all levels of the organization, particularly
those dealing directly with customers. Second, to provide our customers with
direct access to pertinent information from our computer network. For this
reason, we have designed a fully integrated, open architecture network.
Our business applications are developed according to industry standards and
include the following characteristics:
- tailor-made features;
- UNIX operating system;
- enterprise relational data base;
- graphical user interface;
- table driven; and
- open systems.
We use Oracle as our unified database and software application development
tool set. We use Oracle Financials as our enterprise resource planning system,
which includes the following modules: accounts payable, accounts receivable,
general ledger, purchase orders, inventory control and fixed asset accounting.
We have developed an integrated billing and customer care system that runs
on the Oracle platform. Our billing system rates calls in one-second increments
for calls made from our retail telephone centers, six-second increments for
calls made with our prepaid calling cards and one-minute increments for calls
made from local access lines, cellular and PCS telephones. It also enables us to
rate calls according to each customer's specific service package, thus
permitting us to offer tailored packages. In August 2000, we entered into a
product marketing alliance
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agreement with Codisa Software Corp., a leading Latin American developer and
provider of business applications, for the exclusive distribution of TRICOM's
advanced billing and operational support platform.
The main features of our billing system include: convergence (wireless,
wireline, Internet, data, paging, dispatch); credit scoring; post and pre-paid;
direct debit; credit card; point of sale; cash registers; commissions; multi
currency; accounting (automatic interface to general ledger); web statement and
payment; unlimited number of billing cycles; pre-cycle; concurrent billing
cycles; flexible handling of letters; messages: inserts and several other
functions.
The main features of our customer care system are: provisioning for
wireless, wireline, Internet, data, paging, dispatch and cable television;
retention; trouble tickets; inventory; maintenance; scheduling; plant records;
directory listing; claims handling and resellers; multi location; use of
electoral census data base; corporate quotations; online switch programming (for
automatic activation, disconnect, reservation, etc.); product configuration;
customer profile; and Map Viewer/engineering work order. Our local area network
and wide area network structure is supported by a high-speed metropolitan
network that communicates with our main offices through fiber optic cable with
alternating routes in a 36 kilometer radius around the capital city of Santo
Domingo. Our net switches are strategically located in our main information
technology centers, allowing users direct access to our applications with the
same response time from virtually any location. This network is supported by a
combination of state-of-the-art technology from Cisco Systems and Enterasys
Networks (formerly Cabletron) conforming a system of intelligent network paths
allowing us to seamlessly and automatically switch connections between points.
Our local area network topology includes: gigabit ethernet backbone over
fiber; transmission control protocol/internet protocol; 100 Mbps dedicated
connection for each user; structured cabling, redundancy; 24x7 monitoring and
support; and flexible network structure.
Our wide area network topology includes: transmission control
protocol/internet protocol; frame relay; T1; wireless network; virtual private
network access for backup of overseas sites and round-the-clock monitoring; and
support of the wide area network.
Remote sites include New York, Florida, Puerto Rico, Panama and over 70
other sites.
NETWORK INFRASTRUCTURE
Our state-of-the-art network includes:
- our local access network;
- a digital wireless point-to-point radio system;
- our mobile network;
- two satellite earth stations in the Dominican Republic and capacity in
eleven international undersea cables;
- switches in New York, Florida and Puerto Rico to connect international
traffic originating in the U.S.; and
- our cable television network.
We invested over $800 million from 1992 through 2001 to develop all of our
networks, which are fully digital except for portions of our cellular network.
LOCAL SERVICE AND MOBILE NETWORK
The core of our network is composed of Nortel International gateway
switches with a switching capacity of more than 4,300 digital trunk lines. They
possess special features such as ultra-high-speed and port-to-port call
switching that can handle 240,000 calls per second. Our switch time-of-day
capability allows us to distribute our
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telecommunications traffic efficiently and provide, as a result, more
competitive pricing. Our switches also provide statistical call distribution
information, which allows us to control our flow of traffic. Without such
capabilities, we would have to conduct these monitoring tasks manually. The
switches also handle common channel signaling protocols, optimizing the channels
available for voice transmission. Without this capability, a network must use
each of its channels to signal the origination and termination for each call,
which often results in uncompleted calls and poor circuit utilization.
Our wireline local access network is composed of five central office
switches, 39 remote switching centers and 51 digital loop carriers. Each of the
central office switches is capable of supporting up to 90,000 customers. Our
switches enable us to offer value-added services including caller
identification, three-way calling and automatic recall between others. Our
intra-city network is comprised of 500 route miles of fiber optic cable and over
3,000 miles of copper cable in seven cities.
We use digital loop carriers technology, which is a multi-service access
platform connected to the central office through fiber optic cables. This
network layout minimizes the copper plant and employs digital network
transmission equipment used to provide multiple phone conversations, and fiber
optic cable to connect to local access lines. Our central office switches are
connected by fiber optic cable to various digital loop carriers located
throughout the three largest cities in the Dominican Republic. The digital loop
carriers can be located up to 160 kilometers away from the central office
switch. They are small in size and can be easily installed at a relatively low
cost. These digital loop carriers, in turn, carry traffic by copper or fiber
optic lines to the customer. All these activities are remotely monitored by our
management system, located at our central office. Without the use of the digital
loop carriers, we would have to maintain additional central office switches,
which would require us to incur substantial additional costs, including land
acquisition, obtaining the necessary rights-of-way and hiring additional
personnel to manage these operations.
We transmit our domestic traffic through a fully redundant digital wireless
point-to-point backbone system, which provides both intra-city and inter-city
telecommunications services. A point-to-point backbone system is a dedicated
connection between two endpoints of a communications network. The backbone
system links approximately 85% of the country's population, including Santo
Domingo, Santiago, San Francisco de Macoris and certain key tourist and
agricultural areas in the eastern and northern regions of the country including
Puerto Plata and Higuey. The wireless point-to-point system serves the areas
that have high telecommunications usage, including large industrial and
commercial areas. We interconnect with Codetel in 12 cities of the Dominican
Republic.
To oversee and monitor the activities of our network infrastructure, we
have installed a network management system. This system allows us to manage our
central office switches and remotely monitor all network components. The
management system provides continuous information regarding our equipment, any
equipment failure, and network security. In addition, it allows the central
office to send commands and to test our network.
Our cellular network in the Dominican Republic uses analog technology and
our PCS network uses CDMA or digital protocol. Our analog mobile network
currently has 95 cell sites and two mobile switching centers, in Santo Domingo
and Santiago, which enable us to provide mobile coverage to those regions of the
Dominican Republic with the greatest demand for mobile services. To provide PCS
service, we use two Motorola digital switches, 118 cell sites and ten digital
repeaters, which allow us to provide PCS service in 14 cities and continuous
coverage in the main highway routes of the country.
INTERNATIONAL LONG DISTANCE NETWORK
In July 1998, we installed our own state-of-the-art switching facility
in the New York metropolitan area, which we subsequently upgraded to allow us to
provide multiple international signaling protocols. We also installed a switch
in Puerto Rico that became operational in the second half of 2000. We installed
an additional switch in Florida during the first quarter of 2001. By having our
own switching facilities, we can provide termination of international long
distance traffic at very competitive rates to several countries in addition to
the Dominican Republic.
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By purchasing and leasing international traffic capacity from various
systems, we have acquired diverse options to route our international traffic.
This capacity is fully connected to the international network. We have purchased
capacity in international submarine fiber optic cables that have been built to
send and receive international traffic to and from various countries. These
submarine cables include Americas I, Columbus II, Columbus III, TAINO CARIBE and
Antilles 1, which directly provide service, or connect with other cables that
provide service to Latin America, the Caribbean and Europe. We own 23% of the
Antilles 1 submarine cable, which connects the Dominican Republic to the United
States via Americas I, Columbus II, Taino Caribe, Americas II and Arcos I. In
addition, we have an earth station, which connects to the PanAmSat satellite
system, and an earth station which connects to the INTELSAT satellite system
serving the Atlantic region, Africa and Europe. The use of these satellite
facilities also allows us to route international traffic between the Dominican
Republic and most other countries in the world.
CABLE TELEVISION NETWORK
Our cable television network uses a broadband network employing radio
frequency transmission over coaxial and/or fiber optic cable to transmit
multiple channels carrying images, sound and data between a central facility and
a subscriber's television. Coaxial cable is a type of cable used for broadband
data and cable systems. This type of cable has high-quality broadband frequency
characteristics, noise immunity and physical durability. Fiber optic cable is a
communication medium that uses hair-thin glass fibers to transmit signals over
long distances with less signal loss or distortion than coaxial cable. Our
existing cable network consists of three major portions: a master headend, a
distribution network and nodes. At our master headend, programming signals are
received, processed, amplified and then sent through our distribution network,
which consists of fiber optic and coaxial cables connected to nodes. A node,
which is typically shared by a number of subscribers within the same area, is a
single connection to any of our distribution network's main fiber optic cables
that receives and transmits signals. One node in our existing network typically
serves an average of 820 homes passed. Programming signals then travel, via
coaxial cable, from nodes into subscribers' homes. As part of our plan for the
expansion and upgrade of our network, we plan to redesign our distribution
network by installing hubs and additional nodes to improve the quality and
redundancy of our services. Hubs receive signals from the headend and retransmit
signals to the nodes, increasing the quality and reliability of the signals.
At September 30, 2002, our cable network consisted of approximately 204
miles of fiber optic cable, 718 miles of coaxial cable and 208 nodes, passing
approximately 170,000 homes. Approximately 98% of our network is constructed
above ground, with a small percentage of the fiber optic cable constructed
underground. We are expanding and upgrading our existing cable into a broadband
bi-directional network that will provide us with a platform for the delivery of
a broad range of services. At September 30, 2002, approximately 40% of our
network had bi-directional capability, and we expect that more than 60% of our
current network will have bi-directional capability by the end of 2002.
Telecable completed encoding the complete channel package signal delivered
to our customers in Santo Domingo. This allows us to control the theft or piracy
of our cable entertainment services, as well as giving us the opportunity to
offer compressed packages to reach low-income subscribers living in marginal
areas, and increase penetration levels. At September 30 2002, we had deployed
approximately 115,000 analog set-top boxes and approximately 15,000 digital
set-top boxes.
The expansion and upgrade of our network involves the conversion of our
existing cable network into a broadband bi-directional network. We currently
plan to complete this upgrade by the end of 2003. A bi-directional network
allows subscribers to transmit as well as receive signals. This allows us to
offer Internet connection, video and games on demand. A broadband bi-directional
network combines the use of fiber optic cable, which can carry hundreds of
video, data and voice channels over long distances, with coaxial cable, which
requires a more extensive signal amplification in order to obtain the desired
transmission levels for delivering programming signals and nodes. We believe
that the primary advantages of a broadband bi-directional network over a
narrowband uni-directional network include:
- greater bandwidth, which allows us to provide Internet access and
other multimedia;
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- the ability to provide communications services;
- better signal quality and reliability;
- increased channel capacity; and
- a reduction in the number of homes per node, which improves the
overall capacity of the network and reduces the number of households
affected by a disruption in the network.
BROADBAND DATA TRANSMISSION AND INTERNET NETWORK
Our Internet services are provided by Sun, 3Com and Cisco platforms. The
network has equipment to connect to international carriers, including Teleglobe,
UUNET and Sprint. We have the capacity to handle more than 10,000 dial-up users
and provide e-mail, Internet connection, web hosting, news and real audio/video.
At September 30, 2002, we had 9,637 subscribers for dial-up services.
Other new services are under development through a Nortel Network Shasta
Platform, which became operational in the first quarter of 2002. This platform
enables us to offer our customers firewalls for xDSL and lease lines, bandwidth
control and auto-bandwidth, filtering, captive portal, content, and virtual
private networks.
Data communications services are primarily targeted to the business
community and provided at a variety of speeds. Our data communications network
consists of Newbridge Alcatel data multiplexing nodes, which are network
connection points that allow for the transmission of two or more signals over a
single channel, linked to a fiber optic ring and digital wireless point-to-point
radio links. The "last mile" to the customer is provided through fiber optic
cable and/or digital wireless point-to-point radio links. At September 30, 2002
we had 8,177 access lines offering speeds in excess of 56 kilobytes per second.
Our data network has the capability to monitor the communications link all the
way to the customer's desktop and to support multiple data protocols such as ATM
and frame relay.
Our technology infrastructure is built and maintained to assure
reliability, security and flexibility, and is monitored by our technical staff.
Each of our servers can function separately, and multiple redundant machines
serve key components of our server architecture.
We maintain our central production servers at the data center of our
headquarters. Our operations depend on the ability of the network operating
centers to protect their systems against damage from fire, hurricanes, power
loss, telecommunications failure, break-ins or other events.
Our local and mobile networks employ monitoring software developed by us
and by others to monitor access to our production and development servers. Our
reporting and tracking systems generate daily traffic, demographic and
advertising reports, which are copied to backup tapes each night.
COMPETITION
LOCAL AND MOBILE
In local service, our only established competitor is Codetel, a wholly
owned subsidiary of Verizon. Codetel is an integrated communications service
provider which, at June 30, 2002, had approximately 80% of the local access
lines and subscribers for local services in the Dominican Republic. In 2002,
Centennial, using wireless technology, began offering to businesses local access
service and broadband internet access but, to date, we believe has obtained an
insignificant percentage of the market for local services.
In mobile service, in addition to Codetel which has approximately 48% of
the mobile subscribers, we compete with Orange, a subsidiary of France Telecom
Group, and Centennial Dominicana. Orange operates a GSM 800 MHz network in the
main cities of the country. In 2001, Orange initiated an aggressive expansion
strategy based on low prices on mobile equipment and a distribution network with
dealers. Orange subscribers represent in
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excess of 20% of total mobile subscribers in the Dominican Republic. Centennial
Dominicana, a joint venture of Centennial Communications Corp., offers PCS
mobile services and has approximately 5% of the mobile subscribers.
In addition to mobile services, Centennial offers long distance calls at
very low rates to the United States from the Dominican Republic.
The Dominican government also has granted concessions to the following
telecommunications companies which either have not yet commenced operations or
have minimal operations: Telecomunicaciones America, C. por A., Compania
Telefonica del Norte, S.A., Servicios Globales de Telecomunicaciones, S.A.,
Defisa, S.A., Comunicaciones Dominicanas S.A., Turitel S.A. Economitel C. por A.
and Servicios Moviles de Comunicacion, S.A. (MOVICELL). Each of the concessions
allows for the provision of some or all of the telecommunications services that
we provide.
In addition, from time to time, several international companies have
expressed to Indotel interest in entering the Dominican telecommunications
market. These include AT&T, US Sprint, DG Cell and Telefonica S.A.
INTERNATIONAL LONG DISTANCE
The international telecommunications industry is intensely competitive and
subject to rapid change precipitated by changes in the regulatory environment
and advances in technology. Our success depends upon our ability to compete with
a variety of other telecommunications providers in the United States and in each
of our international markets. Our competitors include large facilities-based
multinational carriers including AT&T, MCI/WorldCom and Sprint, smaller
facilities- based wholesale long distance service providers in the United States
and overseas that have emerged as a result of deregulation and switched-based
resellers of international long distance services. Competition primarily is
based on price, although reliability, quality of transmission, routing capacity
and customer service also are competitive factors.
PREPAID CALLINGS CARDS
In 1997, TRICOM USA began offering international long distance calling
services to the Hispanic community in the United States, targeting primarily
Dominican communities in New England. Currently TRICOM USA offers prepaid
calling cards in California, Canada, Florida, Georgia, Illinois, Maryland,
Massachusetts, New Jersey, New York, Ohio, Pennsylvania, Puerto Rico, Rhode
Island, U.S. Virgin Islands, Virginia and Washington D.C. Our better-known
prepaid cards are TRICOMPASS, MI GENTE, MI TIERRA, INTERNATIONAL and PA GOZA.
Prepaid calling cards are distributed through wholesalers from our New
Jersey office and through retailers from our New York location. Cards are sold
primarily in small retail stores including groceries, drugstores and newsstands.
Our prepaid calling cards are advertised through special promotions during
Hispanic events and by radio, television and newspapers that target Dominican
and other ethnic communities, particularly in the New York metropolitan area.
Our advertising emphasizes on savings, voice quality and patriotic themes.
In addition to prepaid calling cards, TRICOM USA offers national and
international long distance services in New York, New Jersey and Florida. Major
users of this service are calling centers. This service is offered to potential
customers through an independent sales force.
CABLE TELEVISION
We are the largest cable television operator in the Dominican Republic
based on our number of subscribers and homes passed as of September 30, 2002. As
of that date, our cable network served 71,081 subscribers, including 62,035
basic subscribers, 8,413 commercial rooms and 633 subscribers for digital audio
programming and other services. We pass approximately 170,000 homes. We face
little competition in Santo Domingo and surrounding
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areas from other cable television operators. Indotel reports that there are 112
cable operators in the Dominican Republic, including illegal cable television
providers.
We also face competition from widespread pirate direct broadcast satellite
or DBS transmission. There is no legal DBS service offered in the Dominican
Republic. For several years, the Dominican pay television market has been harmed
by the persistent violation of copyright laws or "piracy." TCN Dominicana has
deployed encoding technology to aid in reducing piracy from its network.
All pay television service providers, including cable television systems,
direct to home or DTH satellite services and multi-point, multi-channel
distribution system operators, face substantial competition from other signal
delivery methods, including television broadcasters. The ability of potential
subscribers to directly receive traditional public over-the-air television
signals from television broadcasters may hinder our ability to obtain additional
subscribers.
PANAMA
OVERVIEW
In 2001, we purchased a 51% interest in a Panamanian company, Cellular
Communications of Panama, S.A., now TRICOM Panama, S. A., which owns the
frequency rights for 107 channels of 25 MHz each. These frequencies give us
access to nationwide coverage, covering a population of approximately 2.89
million. In Panama, frequency rights are granted for 20 years and are
automatically renewable for additional 20 year terms. We initiated offering
iDEN(R) services in April 2002 and had approximately 5,000 subscribers at
September 30, 2002. Our right to offer services has been challenged by
BellSouth, one of the two principal mobile service providers in Panama.
We completed the construction of our digital network in Panama City and
Colon (the two largest cities in Panama) and the transportation corridors that
link those cities with airports and ports. We also completed a network along the
corridor that connects Panama City, the capital, with its satellite cities and
the most important beaches, recreational and tourist areas of the country. To
date, we have invested approximately $37 million in this deployment, primarily
for the purchase of:
- a switching office for telephone and radio communications dispatch
through which mobile service traffic is originated or terminated;
- enhanced base transceiver stations, which are antennae located at base
sites to provide radio coverage in specific geographic areas; and
- site acquisition and construction.
MARKET OPPORTUNITY.
At December 31, 2000, Panama had a population of approximately 2.89
million, with an estimated Gross Domestic Product of $7.4 billion in 2000, and a
Gross Domestic Product growth rate of 2.5% for that year. Approximately 57% of
the population lives in urban areas. Mobile penetration for Panama at December
31, 2001 was 17% while wireline penetration was 12.1%.
MARKETING PLANS
We offer specialized mobile radio services, including two-way radio, and
interconnect services. We offer our digital services mainly to business
customers, offering bundled programs with different services and pricing plans,
customized to meet our clients' specific needs. We are currently marketing our
services through direct sales and intend to do so through independent dealers as
well.
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COMPETITION
The mobile market in Panama has been open to competition since 1996. TRICOM
Panama's digital radio services will compete with the two digital wireless
communications providers in the country, Cable & Wireless of Panama and BSC of
Panama (a subsidiary of BellSouth), as well as with several analog trunking
operators. The Panamanian government granted a 10-year duopoly service
concession to both digital wireless operators in 1997 as part of the
privatization of the telecommunications industry.
REGULATORY AND LEGAL OVERVIEW
To provide telecommunications services, a Panamanian or foreign company
must obtain a service concession from the ENTE REGULADOR DE SERVICIOS PUBLICOS,
or ENTE. There are two types of service concessions, Type "A" and Type "B". Type
"A" service concessions currently are awarded on an exclusive basis. Services
under a Type "A" category concession include basic telecommunications and
cellular services. Effective January 2003, ENTE has reclassified Type "A"
services as Type "B" services, and therefore, additional concessions of this
type will not be granted again until 2003 for basic telephony and long distance
and until 2007 for PCS services.
Type "B" service concessions are awarded on a non-exclusive basis to
companies which meet specific requirements and complete the application
procedures for the services they wish to provide. Applicants must include a form
of the contract they intend to enter into with potential customers and a diagram
of the system that will be operated in order to provide the contemplated
services, among other information. Applicants may submit their applications to
provide Type "B" services on any one of four specified dates a year.
Additionally, since Type "B" telecommunications service concessions are open to
all companies which meet the requirements, the terms of the concession are the
same for all concession holders. However, each concession holder must comply
with fair competition practices in providing services to its clients and in
relation to other concession holders. Concession holders also must provide
services in a nondiscriminatory manner. Concession holders may also assign or
transfer their concessions to other companies which meet the same requirements
that ENTE considered at the time it awarded the concession, subject to ENTE's
authorization. ENTE may only deny a transfer or assignment when the transfer or
assignment would be prohibited by law or against fair competition practices.
Telecommunications providers are required to pay annual fees to the government
of 1% of their total gross revenues.
TRICOM Panama has four of the twenty-six Type "B" service concessions, one
to provide each of the following services: (1) conventional trunking systems for
public or private use, (2) fixed or mobile radio communication services, (3)
data transport services, and (4) paging services.
Panamanian telecommunications law prohibits companies providing trunking
mobile services to hand off telephone calls, even if the hand-off would be from
one site to another site owned by the same trunking company. Our iDEN(R) system
does not permit hand-off. Therefore, we have built additional enhanced base
transceiver stations in Panama to minimize the number of calls dropped due to
handed-off failures. We believe that additional enhanced base transceiver
stations will prevent a higher percentage of dropped calls than would otherwise
occur due to the effect of this restriction on hand-off under Panamanian law.
In addition, Panamanian telecommunications law requires that all concession
holders permit and maintain nondiscriminatory interconnection of other
concession holders to their networks. A concession holder is required to use its
best efforts to reach an interconnection agreement within 120 days from the date
on which another concession holder sends a copy of an interconnection request to
the ENTE, with confirmation that the concession holder with which
interconnection is sought also has received the request. After this 120-day
period, any of the parties may request the intervention of the ENTE in
negotiations. The ENTE may intervene in the process if interconnection is not
negotiated by the parties or is not provided on terms at least equal to those
that other concession holders have obtained in similar circumstances.
TRICOM Panama requested interconnection from Cable & Wireless. With the
intervention of the ENTE, the parties negotiated and agreed upon most of the
terms of interconnection, except for access charges and certain other economic
aspects, which the parties were not able to agree upon. The ENTE resolved the
impasse by
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mandating the access charges and other economic aspects. Thereafter, Cable &
Wireless refused to sign the interconnection agreement on the ground that it
might be prohibited from doing so by a precautionary measure obtained by BSC of
Panama against TRICOM Panama in August 2001. Such precautionary measure, which
following an appeal was lifted in December 2001, had ordered TRICOM Panama to
cease the installation of its iDEN(R) system in Panama. The ENTE has imposed on
Cable & Wireless sanctions of US$5,000 per day until it signs the
interconnection agreement with TRICOM Panama. Cable & Wireless appealed the
ENTE's sanctions order before the Supreme Court, and the case is pending
decision.
Bell South, in a number of related actions and proceedings in Panamanian
courts and the ENTE, has challenged our right to provide mobile services and has
sought $20 million in damages.
Panama has no restrictions on repatriation or monetary transfers to and
from Panama nor does it have any exchange controls. The unit of currency, the
Balboa, is issued only in coins which are identical in size and value with those
of the United States. Panama's paper currency is the U.S. dollar. There are few
limitations or restrictions on foreign investment, especially for international
business operations based in Panama. One of the few exceptions is that certain
sales to consumers of retail goods are reserved for Panamanian nationals.
As a telecommunications business, we will have to pay a monthly regulatory
fee to ENTE of 1% of our previous month's gross income in addition to the 1% of
gross revenue annual fee required to be paid by telecommunications providers. We
are also subject to certain taxes, including income, franchise, dividend and
commercial license taxes.
CENTRAL AMERICA
In 2000, we were awarded, in a government auction, radio frequency rights
in Guatemala to 172 channels of 25 MHz, providing us with nationwide coverage.
We have also acquired the spectrum to operate our iDEN(R) network in El Salvador
through the purchase of radio frequency rights for an aggregate of 185 channels
of 25 MHz, 175 of which we purchased from a U.S. telecommunications company that
previously owned the rights and 15 of which we acquired through a government
auction. We acquired these rights as part of our strategy to establish in
Central America an interregional specialized mobile service network targeted at
business customers using a single transmission technology in major business
centers. However, we currently do not intend to develop a network in either
Guatemala, El Salvador or elsewhere in the region.
REGULATION
GENERAL
The legal framework of the telecommunications sector in the Dominican
Republic consists of General Telecommunications Law No. 153-98, enacted on May
27, 1998, resolutions and regulations issued by Indotel and the concession
agreements entered into by the Dominican government or the regulator with
individual service providers.
In addition to the industry-specific legal framework, the Constitution of
the Dominican Republic affects the telecommunications sector. Among other
individual and social rights, the Dominican Constitution guarantees Dominican
citizens the freedom of trade. The Constitution specifically provides that
monopolies can be established only by law and only for the benefit of the
Dominican government. None of the existing concession agreements grants a
monopoly in any sector of the telecommunications industry to any carrier, and
the Dominican government has announced a policy of encouraging growth through
competition in the telecommunications industry.
In 1930, Codetel was granted a concession to operate telecommunications
services in the Dominican Republic. Over the years, while other service
providers entered the Dominican telecommunications market, none was successful
in becoming a full-service telephone company able to compete with Codetel
because Codetel was not required to allow other service providers to
interconnect their services with its physical infrastructure. To provide
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services, a company would have to install its own wireline telecommunications
network. The economics of this requirement hindered competition. As a result,
Codetel held a de facto monopoly for more than 60 years.
To increase substantially the number of Dominican citizens with access to a
telephone and to allow for the establishment and growth of other modern
telecommunications services, the Dominican government adopted a policy of
liberalization of the telecommunications sector beginning in the late 1980s. In
1990, the Dominican government granted us a concession to provide a full range
of telecommunications services within, from and to the country. Additionally,
advancements in wireless technologies made it more cost-effective for companies
to penetrate the market even without being able to interconnect to Codetel's
network. However, interconnection remained important for full-service
competition. In 1994, the Dominican government enacted a series of
interconnection resolutions requiring all service providers in the Dominican
Republic to interconnect with all other service providers pursuant to contracts
between them. The guidelines for those contracts are set forth in those
resolutions. In May 1994, we entered into an interconnection agreement with
Codetel which became effective in November 1994. This agreement allowed us to
become the second full-service telecommunications provider in the Dominican
Republic.
GENERAL TELECOMMUNICATIONS LAW NO. 153-98 OF 1998
Former Telecommunications Law No. 118 of February 1, 1966 was repealed by
Law No. 153-98 of May 27, 1998. Law No. 153-98 is the result of a joint
government and industry project conducted with the assistance of the ITU, which
studied the telecommunications sector in the Dominican Republic. As part of this
process, the ITU drafted a proposed telecommunications law and various
regulations, including interconnection and tariff regulations, in consultation
with Dominican telecommunications carriers. The project was requested by the
Technical Secretariat of the Dominican Presidency and the country's
telecommunications carriers and was funded by the carriers.
Law No. 153-98 established a basic framework to regulate the installation,
maintenance and operation of telecommunications networks and the provision of
telecommunications services and equipment. The law adopted the "Universal
Service Principle," by seeking to ensure access to telecommunications services
at affordable prices in low-income rural and urban areas. The law creates a fund
for the development of the telecommunications sector that is supported by a 2%
contribution payable by customers and collected by telecommunications providers
from them based on billings to customers for telecommunications services.
In addition, the law created an independent regulator with strong
regulatory powers, the Dominican Institute of Telecommunications (Instituto
Dominicano de las Telecomunicaciones, or Inodotel), and established the
regulator's responsibilities, authorities and procedures. The regulator is
headed by a five-member council, the members of which serve a four-year term,
and includes a representative from the telecommunications industry. Among other
responsibilities, Indotel is charged with implementing telecommunications
development projects to satisfy the requirements of the Universal Service
Principle. Law No. 153-98 grants Indotel control over all frequency bands and
channels of radio transmission and communications within the country and over
its jurisdictional waters.
Law No. 153-98 seeks to encourage competition by, among other things,
mandatorily imposing the obligation to interconnect with existing participants
and prohibiting and punishing different types of monopolistic behavior. The law
requires that interconnection charges be cost based and eliminates cross
subsidies. Pursuant to the law, a rate rebalancing process was completed on
December 31, 2000 which eliminated cross subsidies and allows for rates for
services to reflect actual costs. Currently, market participants are free to
establish the rates for the services that they offer.
RECENT REGULATORY INITIATIVES
PROPOSED TELECOMMUNICATIONS REGULATIONS
In 2001 and 2002, Indotel initiated several public inquiry processes, which
are similar to a U.S. Federal Communications Commission notice for proposed rule
making, in connection with several proposed regulations. In
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November 2001, Indotel published for public comment the "National Routing Plan",
which, among other things, intends to divide the country into five regions,
within each of which telephone calls would be deemed local. In November 2002,
Indotel published for public comment the "National Routing Plan", which, among
other things, would divide the country into five regions, within each of which
telephone calls would be deemed local.
In January 2002, Indotel commenced a public inquiry process for several
other regulation projects including a non-rounding up regulation which seeks to
establish the second as the traffic measurement and pricing unit within the
telephone network. This would preclude telephone companies from rounding up to
the next minute fractions of traffic (though a call lasting less than a minute
can be rounded up to one minute). Another proposed regulation is aimed at
providing subscribers the right to choose whether or not to use the voice mail
services of the called party. The adoption and implementation of all or any one
of these proposed regulations could have a financial impact on our business and
results of operations.
RECENT CABLE REGULATION
Indotel issued cable broadcasting regulations on August 19, 2002. Though
the draft originally proposed included a "must carry rule" (which would have
required cable systems to carry television broadcasters' signals on a virtually
free basis), the final version approved did not include this proposed rule. With
the issuance of these regulations, several claims brought against Telecable by
UHF channels, who also sought the imposition of the must carry rule by
resolution of Indotel, were "closed and decided." The cable broadcasting
regulations, however, prohibit cable systems from discriminating among UHF
channels or among VHF channels.
INTERNATIONAL TERMINATION RATES
On June 22, 2002, Indotel issued a resolution which set a minimum rate for
incoming traffic termination of not less than $.08 per minute. The current
market rate is less than $.05 per minute. The resolution also raises
international long distance access charges from RD$0.68 to RD$0.85 per minute.
Indotel has postponed the effectiveness of the resolution because of opposition
by international carriers and the United States government.
INTERCONNECTION REGULATIONS
On June 22, 2002, Indotel issued interconnection regulations including
rules on co-location, network unbundling, open network architecture and equal
access. The regulations require that interconnection agreements be modified to
conform to them and established a deadline extended by Indotel on several
occasions (the last deadline was December 2, 2002) for filing with Indotel
revised, conforming contracts. Indotel will resolve any disputes between
carriers concerning interconnection terms. We were not able to reach agreement
with Codetel, Orange or Centennial on new interconnection agreements by the
deadline and submitted the dispute to Indotel. Until Indotel rules on the
dispute, we will continue to interconnect under the current terms of our
agreements with each carrier.
PENDING REGULATIONS ON TARIFFS AND COSTS
Further regulations on tariffs and costs, which would complement the
interconnection regulations, are being prepared by Indotel. Consultants from the
U.S. firm, Strategic Policy Research, are advising Indotel on this matter.
OUR CONCESSION AGREEMENT
In accordance with former Law No. 118, we entered into a concession
agreement with the Dominican government in 1990 under which we were issued a
non-exclusive license to establish, maintain and operate a system of
telecommunications services throughout the Dominican Republic, as well as
between the Dominican Republic and international points. The services which we
were permitted to provide under the 1990 concession agreement included
telegraphy, radio communications, paging, cellular and local, domestic and
international telephone services.
In February 1996, we entered into a new concession agreement with the
Dominican government which superseded the 1990 concession agreement. Under the
1996 concession agreement, we were granted the same
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non-exclusive license as provided in the 1990 concession agreement to establish,
maintain and operate a telecommunications system throughout the Dominican
Republic until June 30, 2010. Under our original provisions, the concession
agreement and the license granted under it are renewable automatically for
20-year periods unless, at least three years prior to the end of the then
existing term, either we or the Dominican government advise each other of our
intention not to renew. Law No. 153-98 establishes that the renewal must be
requested during the one year immediately prior to the expiration of the
concession, and that the reasons for non-renewal shall be only those set forth
in the law.
Law No. 153-98 established that within one year after its effectiveness
each concession must be adjusted to the provisions of the new law. This process,
however, is still pending. Indotel issued Resolution No. 005-99 in December 1999
for such purposes requesting information from each of the telecommunications
companies with valid concession agreements. We have complied with these
requirements. Indotel also empowered the President to execute amendments to our
and other concession agreements to reflect our paying taxes on the same basis as
all Dominican corporate taxpayers and amending provisions of our concession
agreements providing for the payment of tax in lieu of income taxes.
CODETEL'S CONCESSION AGREEMENT
Codetel's concession from the Dominican government, originally granted in
1930, was modified on January 23, 1995 and more recently by the Presidential
decree that eliminated provisions for payment in lieu of income taxes. The terms
and conditions of Codetel's concession are substantially identical to those of
our 1996 concession agreement. The license provides it with the right to
construct, maintain and operate a telecommunications system throughout the
Dominican Republic and between the Dominican Republic and other countries.
Codetel's concession agreement is valid until April 30, 2010; our concession
agreement is valid until June 30, 2010.
OUR INTERCONNECTION AGREEMENT WITH CODETEL
In May 1994, we entered into an interconnection agreement with Codetel
which sets forth the terms and conditions for interconnection between each
party's network in the Dominican Republic. The interconnection agreement, which
has an indefinite term, requires each of us to provide access to the other's
respective network on equal, nondiscriminatory and transparent terms.
Under the interconnection agreement, the parties began paying an
interconnection charge for local-to-local traffic in 1996, which is revised
annually. Additionally, use of the network by either us or Codetel to originate
or terminate cellular, domestic long distance and international long distance
calls requires payment of an access charge, which is reviewed annually and is
calculated based upon an established formula. The access charge consists of a
usage charge and a subsidy charge which only is incurred with respect to
international calls.
On January 2, 1998, we and Codetel executed an addendum to the
interconnection agreement which provides, among other things, that Codetel will:
(1) remove any technical or operational impediment to telephone users
accessing our network from Codetel's network;
(2) automatically deliver to us the identification number of any call
originating on Codetel's network which is subject to our access
charge;
(3) install interconnection facilities without delay upon our request,
provided that we bear the expenses of installing any such facilities;
(4) connect calls to emergency services and toll-free numbers on Codetel's
network, and make operators available to assist calls from our network
to numbers on Codetel's network; and
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(5) make Codetel's database of telephone numbers available to us at no
charge on a quarterly basis.
On January 11, 2000, we and Codetel executed a second addendum to the
interconnection agreement to:
(1) provide local interconnection of each company's respective Internet
nodes and to enable the clients of each company to access both our
respective servers and nodes to access the Internet;
(2) simplify the billing and collection process for interconnection
services; and
(3) amend the regulation on interconnection costs. In addition, the second
interconnection amendment adjusted the access charges by:
(1) lowering the charge for international long distance calls. The
charge currently is RD$0.68 ($0.04);
(2) increasing the charges for national long distance calls and calls
made from cellular telephones from RD$0.63 ($0.04) to RD$0.68
($0.04); and
(3) charging for "calling party pays" traffic a use charge of RD$0.68
($0.04) per minute and a variable complementary charge depending
on the amount of cellular lines on service.
The terms of our interconnection with Codetel and other carriers must be
revised to comply with Law No. 153-98 and Indotel regulations implementing the
law. We were not able to negotiate new terms of interconnection by the deadline
established by Indotel, December 2, 2002, and submitted the dispute to Indotel
for resolution.
U.S. TELECOMMUNICATIONS REGULATION
The following summary of the Unites States federal regulatory developments
does not purport to describe all present and proposed regulations and
legislation affecting the telecommunications industry. Other existing federal
and state regulations are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in varying
degrees, the regulations of telecommunications companies in the United States.
On September 11, 1995, the Federal Communications Commission, FCC issued an
order approving the application of Domtel Communications, Inc., which later
changed its name to TRICOM USA, Inc., to provide, on a facilities-based basis,
voice, data and private line services between the United States and various
international points, including the Dominican Republic. The FCC also approved
Domtel Communications as a non-dominant provider on all routes, including to the
Dominican Republic. We began initiating U.S. traffic pursuant to this
authorization in 1997. Domtel Communications was also granted global resale
authority by the FCC in 1996.
Since the effectiveness of the interconnection agreement with Codetel, we
have entered into operating agreements with U.S. correspondents. TRICOM USA also
has the ability as a U.S. carrier to develop its own business plan for markets
other than the Dominican Republic, and has been approved by the FCC to
communicate from the United States with 186 countries via satellite and with 28
countries via fiber optic submarine cables.
As a carrier holding an international authorization from the FCC, TRICOM
USA is subject to various statutory and regulatory telecommunications mandates,
including the duty to offer services at just and reasonable rates, the payment
of certain fees, such as universal service contribution and regulatory fees, and
the requirement to obtain prior approval for most transfers of control and
assignments of authorizations, except those considered non-substantial, or "pro
forma" under FCC rules. The FCC may address regulatory non-compliance with a
variety of enforcement mechanisms, including monetary forfeitures, refund
orders, injunctive relief, license conditions, and/or license revocation.
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The FCC recently required mandatory detariffing for all non-dominant
international carriers, with limited exceptions for dial-around, local exchange
carrier implemented services, inbound collect calling, and on-demand Mobile
Satellite Systems. TRICOM USA is a non-dominant carrier, and therefore, was
required to detariff its international services. The FCC now requires carriers
to maintain their rates, terms and conditions for public inspection, including
posting these matters on a carrier's web site. Although TRICOM USA no longer
must maintain tariffs at the FCC, it is still subject to other regulatory
requirements established by the FCC for international carriers, as noted above.
We believe we are in compliance, in all material respects, with all laws
and regulations necessary to conduct our business in the countries in which we
operate, including in the United States. As we expand our operations into other
countries, we may become subject to varying degrees of regulation in those
jurisdictions where we provide service. Laws and regulations regarding
telecommunications differ significantly from country to country. Future
regulatory, judicial, or legislative activities in one or more of the countries
in which we operate could have a material adverse effect on our financial
condition, results of operations or cash flow.
Through several policy initiatives in the last several years, the FCC has
encouraged greater competition in foreign markets. A particular focus of the FCC
has been "accounting rates" or "settlement rates," which are the amount of
payment negotiated between carriers for the termination of international
telephone calls. There are three elements of the FCC's international settlements
policy that serve as conditions on U.S. carriers entering into agreements with
foreign carriers: (1) all U.S. carriers must be offered the same effective
accounting rate and same effective date for the rate; (2) U.S. carriers are
entitled to a proportionate share of U.S.-inbound, or return, traffic based upon
their proportion of U.S.-outbound traffic; and (3) the accounting rate is
divided evenly 50-50 between U.S. and foreign carriers for U.S. inbound and
outbound traffic. The FCC has exempted certain foreign routes from the
international settlements policy where U.S. carriers are able to terminate at
least 50 percent of U.S.-billed traffic at rates that are at least 25 percent
below the benchmark settlement adopted for the foreign country. The Dominican
Republic route has not been exempted from the international settlements policy.
In 1999, the FCC adopted an order approving sweeping reform of the
international settlements policy. The Order eliminated the international
settlements policy and contract filing requirements for arrangements with
foreign carriers that lack market power. TRICOM USA's arrangements with Codetel,
however, must be filed with the FCC, as the FCC has determined that Codetel
possesses market power in the Dominican Republic.
The FCC has established settlement rate benchmarks based on foreign
carriers' publicly available tariffed rates and data published by the
International Telecommunications Union. TRICOM USA's settlement benchmark rate
for the Dominican Republic is within the FCC's prescribed limits.
International Simple Resale involves the provision of switched services
over resold or facilities-based private lines that connect to the public
switched network at either end-point. Instead of U.S. carriers paying for the
use of half of a shared circuit to a foreign point through traditional
settlement payments, U.S. carriers under International Simple Resale
arrangements may connect or lease a complete or whole circuit end-to-end to the
corresponding foreign carrier's network and pay a negotiated rate for
termination of services on the foreign network. Moreover, International Simple
Resale arrangements are not subject to the restrictions of the international
settlements policy (although the international settlements policy may still
apply to the particular route); therefore, U.S. carriers may negotiate
individual, asymmetric, non-proportionate agreements. The FCC has determined
that the Dominican Republic is eligible for International Simple Resale
(although not currently exempt from the international settlements policy).
The FCC recently launched a proceeding to examine possible additional
reform of the international settlements policies and the international simple
resale and benchmarks policies. While the proceeding appears to be aimed at
streamlining these polices, we cannot be certain what types of modifications to
these policies the FCC may order, or the effect of any such changes upon us. In
addition, the FCC is also reviewing in this proceeding whether foreign mobile
termination charges (charges incurred when U.S. consumers place calls to mobile
telephones in other countries) are harming U.S. consumers and competition. The
FCC may take action to address these charges. We
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cannot predict what types of regulations or requirements the FCC may adopt
regarding mobile termination charges, or the effect of any such regulations or
requirements on us.
STATE REGULATION
Most states regulate entry into their telecommunications markets, and
states' regulation of telecommunications companies vary in their regulatory
intensity. The majority of states mandate that companies seeking to provide
telecommunications services in their state apply for, and obtain the requisite
authorization from a public utility commission or similar agency. This
authorization process generally requires the carrier to demonstrate that it has
sufficient financial, technical, and managerial capabilities and that granting
the authorization will serve the public interest.
As an authorized telecommunications carrier in various states, we are (and
will be) subject to the regulatory directives of each state in which we are (and
will be) certified. Some states have particular requirements relating to the
offering of pre-paid services, including disclosures that must be included on
the pre-paid calling cards. As we offer pre-paid services, these requirements
may apply to our pre-paid calling cards. Most states require carriers to file
and maintain state tariffs setting forth their rates, terms and conditions. In
addition to tariff filing requirements, most states require that carriers charge
just and reasonable rates and not discriminate among similarly situated
customers. Some states also require the filing of periodic reports, the payment
of various regulatory fees and surcharges, and compliance with service standards
and consumer protection rules. States also often require prior approvals or
notifications for certain transfers of assets, customers, or ownership of a
certified carrier. States generally retain the right to sanction a carrier or to
revoke certifications if a carrier materially violates relevant laws and/or
regulations.
We are certified to provide telecommunications services by the public
utility commissions of California, District of Columbia, Florida, Georgia,
Illinois, Indiana, Massachusetts, New York, Pennsylvania, Rhode Island and Saint
Thomas in the U.S. Virgin Islands, and are currently in the process of obtaining
certification in Ohio and Maryland. We also are permitted by New Jersey to
provide such services. We cannot be certain that the pending applications will
be granted in a timely manner, or if at all, and we cannot predict what types of
conditions may be imposed upon us in any new authorizations. In addition, it is
possible that state regulators could claim that prepaid calling cards and
associated services are being provided by us prior to obtaining the necessary
authorizations. In such circumstances, we could be subject to enforcement
activities including the possible payment of fines and denial of our application
to provide these services.
LEGAL PROCEEDINGS
BELLSOUTH LITIGATION
On May 8, 2001, BSC of Panama, S.A., a subsidiary of BellSouth, which owns
one of the two cellular telecommunications concessions granted by the Panamanian
government, requested that the Panamanian ENTE REGULADOR DE LOS SERVICIOS
PUBLICOS, or ENTE, investigate TRICOM Panama, S.A. for violations of the
Telecommunications Act and the ENTE's regulations. BellSouth claimed that TRICOM
Panama:
- will use its iDEN(R) based trunking services to provide cellular
telecommunications services, in violation of its license; and
- although we proved that our iDEN(R) system has been modified to
disable "hand off" capabilities, the fact that the equipment has these
capabilities represents a breach of regulations and our license.
The ENTE has not issued any ruling on BellSouth's request, but has stated
publicly that Panamanian regulations do not limit the provision of mobile
services to a particular technology.
On August 24, 2001, BellSouth requested that the ENTE initiate a legal
review before the Third Chamber of the Panamanian Supreme Court of Justice, of
the interpretation given by the ENTE to the definition of "Conventional
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Trunking System Services." BellSouth alleges that the interpretation given by
the ENTE to the definition of "Conventional Trunking System Services," found in
Resolution No. JD-025 of December 12, 1996 violates several articles of the
Telecommunications Act, including that the ENTE's interpretation allows a
trunking service provider to use any mobile system, including any type of
cellular systems, as long as the "Hand-Off" capabilities are disabled. BellSouth
claims that this violates the Telecommunications Act, which states that cellular
services are a Type A Service that can only be provided by BellSouth and the
other holder of a Type A License, Cable & Wireless.
The ENTE has replied that it only regulates services and not technology and
that the definition of "Conventional Trunking System Services" protects the
temporary exclusivity regime given to cellular services because it does not
allow the participation of new cellular service providers in the Panamanian
market. The Attorney General also opined that the definition of "Conventional
Trunking System Services" is legal. The license given to TRICOM Panama is for
the operation of conventional trunking services, which it is operating with the
iDEN(R) system.
The legal review by the Third Chamber of the Panamanian Supreme Court of
Justice requested by BellSouth cannot be undertaken until the Supreme Court
resolves a constitutional review requested by TRICOM Panama on September 10,
2001, regarding the lack of procedure for the Third Chamber to undertake a legal
review of the sort sought by BellSouth. On October 22, 2001, the Supreme Court
decided it would review the procedure.
On August 28, 2001, TRICOM Panama received notice of a precautionary order
obtained by BellSouth from the Seventh Civil Court of the First Judicial Circuit
requiring TRICOM Panama to cease all activity directly or indirectly related to
the installation and supply of telecommunication services using Motorola's
iDEN(R) system. This order forms part of a tort claim, submitted by BellSouth on
September 4, 2001, against TRICOM Panama for US$20,000,000 for the possible
damages that TRICOM Panama may cause BellSouth in the event that TRICOM Panama
initiates operations of an iDEN(R)-based trunking service.
On September 11, 2001, TRICOM Panama submitted a motion before the Seventh
Civil Court to substitute a bond for the precautionary order to cease its
activities and at the same time appealed to the Superior Civil Chamber the
precautionary order itself. On October 1, 2001, the Seventh Civil Court denied
TRICOM Panama's motion and, on October 8, 2001, TRICOM Panama also appealed this
decision to the Superior Civil Chamber. The TRICOM Panama defense was based on
the following principles:
- only the ENTE has by law the power to discontinue public utilities
services;
- this precautionary measure can only be applied to real property (not
to personal property);
- there is no imminent damage that justifies the precautionary measure.
On September 11, 2001, BellSouth submitted a complaint stating that TRICOM
Panama was in default of the court order.
TRICOM Panama also submitted a motion to the Seventh Civil Court to dismiss
BellSouth's tort claim and to invalidate the precautionary order, due to the
court's lack of jurisdiction over a matter that should be decided by the ENTE.
On September 28, 2001, TRICOM Panama filed a US$1,000,000 damages counterclaim
against BellSouth for the public campaign set against TRICOM Panama by BellSouth
and for the unfounded investigation requested before the ENTE.
We believe, based on the advice of our Panamanian legal counsel, that
BellSouth should not succeed in its claims because:
- BellSouth cannot claim any damages caused by TRICOM Panama activities,
since TRICOM Panama operations are protected under a legitimate
Conventional Trunking System Services license.
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- The ENTE is the only authority empowered to declare that the
telecommunications services provided by TRICOM Panama are not
conventional trunking services, or that the iDEN(R) system cannot be
used to provide conventional trunking systems.
On August 5, 2002, the judge in the Seventh Civil Court transferred the
case to the Eleventh Civil Court of the First Judicial Circuit, which will
continue the proceedings.
On November 5, 2001, TRICOM Panama requested that the ENTE investigate
BellSouth for violations of the Telecommunications Act and its concession
agreement on account of the failure of BellSouth to (1) recognize the
jurisdiction of the ENTE, (2) follow proper procedure in connection with the
precautionary measure it obtained and (3) provide interconnection. This case is
pending the Ente's decision on whether or not to press charges against
BellSouth.
On November 13, 2001, upon the request of BellSouth, the Seventh Civil
Court issued an order giving notice to Cable & Wireless of the precautionary
order issued against TRICOM Panama in late August. TRICOM Panama and Cable &
Wireless had negotiated the terms of an interconnection agreement with the
intervention of the Ente. Upon judicial notice of the precautionary order
against TRICOM Panama, Cable & Wireless refused to sign the interconnection
agreement. The Ente imposed on Cable & Wireless sanctions of $5,000 per day
until it signs the interconnection agreement with TRICOM Panama. On December 14,
2001, Cable & Wireless challenged the Ente's sanctions order on constitutional
grounds before the Supreme Court. On June 19, 2002, the Supreme Court revoked
Ente's resolution that imposed a daily fine of $5,000 per day on Cable &
Wireless until it signs the interconnection agreement.
On November 16, 2001, TRICOM Panama sought protection from the First
Superior Tribunal of Justice on account of the August 2001 precautionary order
which violated its constitutional right to due process and trial before a body
of competent jurisdiction. On December 7, 2001, the court declared the case
inadmissible on procedural grounds, and on December 10, 2001, TRICOM Panama
filed an appeal and motion for reconsideration.
On December 20, 2001, the Superior Tribunal decided the appeal of the
precautionary order in favor of TRICOM Panama on the merits of the claims, thus,
lifting the precautionary order. On February 27, 2002, BellSouth challenged this
decision in the Supreme Court. This challenge has not been decided. On July 8,
2002, the Supreme Court confirmed the decision of the Superior Tribunal of the
Supreme Court that rejected defenses to the August 21 precautionary order based
upon procedural grounds. The Supreme Court's decision did not affect the
decision on the merits of the Superior Tribunal.
On April 26, 2002, BellSouth filed a claim against TRICOM Panama before the
ENTE alleging that TRICOM Panama is rendering voice and text mail services in
violation of its concession and the authorized use of its frequencies. BellSouth
argues that value added services, such as voice and text mail services, may only
be provided by basic telephony or cellular operators. BellSouth requests that
the ENTE revoke TRICOM Panama's concession and rights to frequencies. BellSouth
further requests as a provisional measure, and until the conclusion of the
administrative proceedings, that the ENTE order TRICOM Panama to suspend its
trunking services or, alternatively, its voice and text mail services. On May
10, 2002, the ENTE ordered TRICOM Panama to suspend its voice mail services
until the ENTE determines whether the imposition of sanctions is appropriate.
On September 17, 2002, the Ente granted TRICOM Panama the license to offer
international long distance communications services.
On October 24, 2002, the Ente granted TRICOM Panama the license to offer
basic telecommunications services.
DOMINICAN TAX ASSESSMENT
In June 2002, we received notice from the Dominican Tax Service claiming
that we owed additional amounts in respect of taxes in lieu of income taxes for
the period from January 1, 1999 through June 30, 2001 (the
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last day through which Dominican tax authorities have audited our tax payments)
and for withholding tax on our investment in our wholly-owned subsidiary, TRICOM
Latinoamerica and on certain other payments.
The Service claims that we miscalculated the tax in lieu of income tax
payable under our concession agreement. Pursuant to the concession agreement, we
had the obligation to pay, within the first ten days of each month (1) 10% of
gross domestic revenues collected by us during the preceding month for telephone
services, telegraph services, paging services, cellular services, local,
national and international call services, as well as for any data transmission
or broadcast services and other related telecommunications services minus access
charges paid to other carriers for interconnection and (2) 10% of net settlement
revenues collected from foreign correspondent carriers for the use of our
network for termination of international long distance calls. The service claims
that this tax was required to be calculated based upon accrued revenues not
collections and seeks RD$98.8 million ($5.3 million), plus penalties and
interest. Beginning September 1, 2002, in accordance with Presidential Decree
No. 405-02, we no longer pay taxes in lieu of income tax but will pay the tax
imposed on all Dominican corporations.
The Service also claims that we were required to withhold and pay to the
tax service 25% of the amount of our investment in TRICOM Latinoamerica,
approximately $35 million. The 25% withholding tax generally applies to payments
from Dominican source income for services to non-Dominican vendors and to
certain dividends. The Service seeks RD$168.1 million ($9.0 million), plus
penalties and interest, with respect to this claim.
We contested the notice with the Service, answering that we fully complied
with our concession agreement in calculating the tax based on collections rather
than accrued revenues and that there is no required withholding tax on
investments in a wholly owned subsidiary. On August 27, 2002, the Service
rejected substantially all of our response and calculated our aggregate
liability on the two claims, including penalties and interest, as RD$668.3
million ($35.5 million). However, the Service agreed to drop claims for
withholding tax on other payments to non Dominican service providers. Through
December 2000, Dominican tax law imposed penalties for delinquent tax payments
equal to 25% of such delinquent payments for the first month and 5% of the
payments for each additional month in which payment is not made. In January
2001, the penalties were reduced to 10% for the first month and 4% for each
additional month. Interest on delinquent payments accrues at the rate of 2.58%
per month. Penalties cease to accrue on the date of notice from the Service.
Interest continues to accrue until the delinquent tax is paid or the claim is
resolved.
We appealed the Tax Service determination to the Ministry of Finance and
both we and the Tax Service have the right to appeal any determination by the
Ministry of Finance to the tax courts. We believe that we have complied with our
tax obligations and do not believe that we will be required to pay a substantial
amount in assessments, penalties and interest.
OTHER
There are no other legal proceedings to which we are a party, other than
routine litigation incidental to our business which is not otherwise material to
our business or financial condition.
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EXCHANGE CONTROLS
FOREIGN EXCHANGE CONTROLS
The foreign exchange system of the Dominican Republic is administered by
the Central Bank. In January 1991, the Monetary Board of the Central Bank
instituted the current foreign exchange system which permits the purchase of
foreign currency from commercial banks located in the Dominican Republic. Prior
to January 1991, persons were required to purchase foreign currency directly
from the Central Bank. The resolution adopted by the Monetary Board in 1991
retained the Central Bank's administrative authority over the foreign exchange
system by requiring registration with and approval by the Central Bank in order
to repatriate foreign currency abroad. The Monetary Board further liberalized
the foreign exchange system in September 1994, but it retained the requirement
that the payment of debt obligations abroad be registered with the Central Bank.
Accordingly, U.S. dollar-denominated instruments, including the new notes, must
be registered as foreign debt obligations. This registration generally has been
regarded as ministerial in nature, except that short-term advances for exports
of goods and services still require prior approval of the Central Bank. We
cannot assure you that Dominican authorities will not change the Dominican
Republic's monetary policies to restrict the exchange of Dominican pesos for
U.S. dollars.
On August 20, 2002, the Monetary Board issued its first resolution, which
eliminates the 4.75% commission that was required to be paid on the amounts of
Dominican pesos exchanged for foreign currency to meet payment obligations
abroad.
FOREIGN EXCHANGE SYSTEM
The current foreign exchange system in the Dominican Republic was
instituted in January 1991. Under this system, there are two primary exchange
rates:
- the rate established by the Central Bank at which the Dominican
government buys and sells foreign currency or the official rate; and
- the freely floating, private commercial bank rate at which private
banks and other authorized currency exchange agents sell foreign
currency, or the private market rate.
OFFICIAL RATE
The official buying rate is the rate at which companies in certain
strategic industries are required to surrender revenues received in foreign
currency to the Central Bank for Dominican Pesos. The strategic industries
subject to this requirement include the telecommunications industry, and, as a
result, we are subject to this requirement. Accordingly, every U.S. dollar we
receive as revenue must be surrendered to the Central Bank at the official rate,
unless otherwise authorized by the Central Bank.
However, pursuant to the second resolution issued March 13, 2002, the
Monetary Board modified the resolution which created the mechanism to fix the
exchange rate of the Central Bank for selling and purchasing foreign currency.
Currently, the official rate will be a weighted average of the private market
rates quoted by the commercial banks and the exchange agents for the immediately
preceding day. Notwithstanding the resolution, through November 30, 2002, the
official buying rate has been set and maintained by the Central Bank at RD$17.56
per $1.00.
PRIVATE MARKET RATE
The private market rate is the rate at which we purchase the foreign
currency we need to pay foreign suppliers or otherwise to meet our obligations
abroad. According to current regulations, all purchases of foreign currency from
private commercial banks must be reported daily to the Central Bank. This
requirement permits the Central Bank to collect and maintain statistics on the
private market rate but does not give the Central Bank direct control over the
private market rate. The Central Bank publishes a weighted average private
market rate on a weekly basis.
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FOREIGN INVESTMENT
The Dominican Republic once restricted the repatriation of foreign direct
investments in certain sectors of the economy, including the telecommunications
sector. In December 1995, the Dominican government enacted Law No. 16-95 on
foreign investment, which, among other things, permitted foreigners to make
direct investments in the telecommunications sector and to repatriate funds from
such investments. The foreign investment law requires that foreigners register
their investment with the Central Bank in order to exchange Dominican pesos for
foreign currency.
The foreign investment law expanded the definition of direct foreign
investment to include investments in debt instruments. Prior to the enactment of
the foreign investment law, the Dominican government only treated equity
investments as direct foreign investments. As a result, the principal of and
interest on debt instruments could be repatriated so long as the obligor adhered
to the requirements of the Law on the International Transfer of Funds and the
regulations and resolutions promulgated under the law. The foreign investment
law brings "financial instruments" within its purview, establishing that foreign
investments could take the form of those financial instruments that the Monetary
Board categorizes as foreign investments. However, the Monetary Board has yet to
identify which "financial instruments" could become registered as a foreign
investment. We have been advised by our Dominican counsel, Pellerano & Herrera,
that "financial instruments" as contemplated by the foreign investment law are
Dominican peso-dominated instruments issued to foreign investors in the
Dominican Republic.
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DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
We are managed by a Board of Directors, the members of which, in accordance
with our by-laws, are elected at the annual shareholders' meeting and serve for
a period of one year. The Board of Directors is composed of a Chairman, Vice
President, Treasurer, Secretary and eight additional members. The Board of
Directors meets at least once every three months. Special meetings of the Board
of Directors may be held at any time.
The names of our executive officers and directors are set forth below
together with their ages at December 13, 2002 and current positions.
<Table>
<Caption>
NAME AGE POSITION
- ------------------------------- --- --------------------------------------------------------------------
BOARD OF DIRECTORS
NAMED BY GFN CORPORATION, LTD.:
Manuel Arturo Pellerano Pena 48 Chairman of the Board
Hector Castro Noboa 61 Vice President of the Board
Marcos J. Troncoso 55 Secretary
Carl H. Carlson 44 Treasurer
Juan Felipe Mendoza 49 Director
Anibal De Castro 53 Director
NAMED BY MOTOROLA, INC.:
Kevin J. Wiley 43 Director
Ralph Smith 47 Director
Richard Haning 51 Director
Theodore W. Schaffner 56 Director
INDEPENDENT DIRECTORS:
Marino Ginebra 56 Director
Edwin Corrie 74 Director
EXECUTIVE OFFICERS
Manuel Arturo Pellerano Pena 48 President, Chief Executive Officer and Chairman of the Board of
Directors
Marcos J. Troncoso 55 Executive Vice President of International Business Development,
Member of the Office of the President and Secretary
Carl H. Carlson 44 Executive Vice President, Chief Operating Officer, Member of the
Office of the President and Treasurer
Ramon Tarrago 39 Chief Financial Officer and Vice President of International Division
Carlos Ramon Romero 50 Vice President, Business Segment Division
Ryan Larrauri 30 Vice President, Consumer Segment Division
Valeriano Valerio 43 First Vice President, Network Planning and Operations
</Table>
Each of the current members of the Board of Directors has been elected
pursuant to an amended and restated shareholders agreement, dated at May 8,
1998, among Motorola, Inc., Oleander Holdings, Inc., Zona Franca San Isidro,
S.A. and certain individuals, Oleander and Zona, are wholly owned subsidiaries
of GFN, and the individual parties to the agreement are all affiliates of either
GFN or TRICOM.
The Directors are elected annually at the Annual General Meeting of
Shareholders. Each Director (when ever elected) holds office until the next
Annual General Meeting of Shareholders following his election and until his
successor is elected or until his earlier resignation or removal.
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At this date, no date has been set for the Annual General Meeting of
Shareholders.
MANUEL ARTURO PELLERANO PENA has served as Chairman of our Board of
Directors and President and Chief Executive Officer since August 1994 and as a
member of the Board of Directors since our formation in January 1988. He
currently serves as President of Bancredito, a bank affiliated with GFN and one
of the largest commercial banks in the Dominican Republic and has been a member
and the Vice President of the Board of Directors of GFN since April 1989. Mr.
Pellerano holds a Bachelor of Science degree in Economics from the Universidad
Nacional Pedro Henriquez Urena.
MARCOS J. TRONCOSO has served as our Executive Vice President of
International Development since March 1992, as Secretary of the Board of
Directors since our formation in January 1988 and as Member of the Office of the
President since September 1995. Prior to assuming these positions, Mr. Troncoso
served as Executive Vice President of GFN beginning in May 1979. Mr. Troncoso
received a law degree from Universidad Nacional Pedro Henriquez Urena and a BS
degree in business administration with a major in accounting from the University
of Puerto Rico.
CARL H. CARLSON, our Executive Vice President and Chief Operating Officer
since March 1998, has served as Treasurer of the Board of Directors since
January 2000 and as a Member of the Office of the President since September
1995. Mr. Carlson was a Senior Vice President from March 1993 until March 1998
and Chief Financial Officer from September 1993 until September 1995. Mr.
Carlson served as a Vice President of Finance and Administration from December
1989 until September 1993. Mr. Carlson was an Assistant Vice President for GFN's
insurance division from 1987 until December 1989. From 1983 to 1987, Mr. Carlson
was a Vice President at Chase Manhattan Bank. Mr. Carlson is a graduate of
Instituto Technologico de Santo Domingo where he majored in business
administration and accounting and finance. Mr. Carlson earned an MBA from a
joint program between the University of South Carolina and Pontifica Universidad
Catolica Madre y Maestra.
RAMON TARRAGO, has served as our Chief Financial Officer and Vice President
of International Division since July 2002. Mr. Tarrago has directed the
International Division since its organization as a separate business unit in
July 1996 as First Vice President. He was a Second Vice President of the
Corporate Center from August 1995 until July 1996. He was a Second Vice
President of the International Division from August 1995 until July 1996. He was
Director of International Relations from November 1993 until August 1995. From
February 1992 until November 1993, he was our Director of Finance. Between May
1991 and February 1992, he was a management associate in the Corporate Banking
Unit at the Santo Domingo branch of Citibank. Mr. Tarrago worked for the World
Bank's International Finance Corporation in Washington, D.C. from May 1990 to
September 1990 and for Bancredito between October 1986 and March 1988. He is the
former dean of the MBA program at the Pontificia Universidad Catolica Madre y
Maestra and has held an academic post at the Instituto Tecnologico de Santo
Domingo. Mr. Tarrago holds both a BA in economics from Universidad Nacional
Pedro Henriquez Urena and an MBA with a finance concentration from the Virginia
Polytechnic Institute and State University.
CARLOS RAMON ROMERO has served as Vice President of our Business Segment
Division since January 2002. He was Vice President Customer Relationship
Management Division from July 2000 to blank and First Vice President of the
Residential and Business Division from July 1996 until July 2000. Immediately
prior to his arrival, Mr. Romero served as chief executive of a brokerage
company which he started in February 1994. Mr. Romero served as Vice President
of the Technical Area of Compania Nacional de Seguros, a subsidiary of GFN, from
1980 until February 1994. Mr. Romero earned a BA in International Services from
the Universidad Nacional Pedro Henriquez Urena, where he has since held various
academic posts.
RYAN LARRAURI has served as Vice President of our Consumer Segment Division
since June 2001. Before joining TRICOM, he was Vice President of Marketing for
GFN's Bancredito and Compania Nacional de Seguros since 1999. He has held
numerous directive and executive positions in the textile, consumer goods and
financial sectors. Mr. Larrauri is the published author of MARKETING IN THE
DOMINICAN REPUBLIC, GENESIS AND EVOLUTION as well as several other specialized
articles in the field. Mr. Larrauri has a B.S. in Marketing from the Univesidad
Iberomaricana, as well as Post-Graduate degrees in Brand Management,
International Business, Bank Management and Strategic planning.
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VALERIANO VALERIO has served as our First Vice President of Network
Planning and Operations since June 2000 and as Second Vice President of
Institutional Relationships between June 1995 and June 2000. Mr. Valerio
graduated with a degree in Electrical Engineering from the Universidad Pedro
Henriquez Urena and studied at the Nippon Telegraph and Telephone Public
Corporation of Tokyo, Japan.
HECTOR CASTRO NOBOA has served as Vice President of our Board of Directors
since August 1994 and as a member since our formation in January 1988. He has
been director and Executive Vice President of GFN since April 1989. Between
March 1993 and September 1997, Mr. Castro served as the Executive Vice President
of Bancredito. Mr. Castro has also worked for the Deutsche Sudamerikanische Bank
(Germany), Citibank (Marketing Vice President), Bonanza Dominicana (Chief
Financial Officer), Banco Metropolitano (Financial Advisor) and Universidad
Nacional Pedro Henriquez Urena (professor of international economics and
macroeconomics). Mr. Castro has a degree in Business Economics from Madrid's
Universidad Complutense where he studied business economics.
JUAN FELIPE MENDOZA has been a member of our Board of Directors since June
1997. Mr. Mendoza currently serves as Chief Executive Officer of Bancredito and
President of Compania Nacional de Seguros. He is Vice President of FIDES
(Inter-American Federation of Insurance Companies) and its regional commission
for Central America and the Caribbean. Mr. Mendoza is a director of
Reaseguradora Nuevomundo, Caribbean Hotel Association Insurance Company,
Bancredito and GFN Corporation. Mr. Mendoza joined GFN in 1977. Prior to joining
GFN, Mr. Mendoza was employed in the Internal Audit Department for the Caribbean
of the Royal Bank of Canada. Mr. Mendoza graduated from Universidad Nacional
Pedro Henriquez Urena and also attended Specialized Insurance Training Programs
at Royal Global Insurance of New York and Swiss Insurance Formation Center,
Swiss Re, Switzerland. Mr. Mendoza is a certified public accountant.
ANIBAL DE CASTRO has been a member of our Board of Directors since May
1998, and has served as President of Editorial AA, a subsidiary of GFN, since
May 1994. Mr. De Castro served on the Board of Directors of Corporacion
Dominicana de Electricidad (C.D.E), the country's state-owned electric utility
provider from 1979 to 1982, and currently serves on the Board of Directors of
several Dominican companies and professional associations including Banco de la
Pequena Empresa and Fondo de Financiamiento de la Micro-Empresa. Mr. De Castro
graduated from Universidad Autonoma de Santo Domingo with a degree in journalism
and holds a B.A. in economics from the University of East Anglia in Great
Britain.
KEVIN J. WILEY has been a member of our Board of Directors since December
1998. He currently serves as the Vice President of Sales for Next Level
Communications - a telecommunications equipment provider whose largest
shareholder is Motorola, Inc. Prior to his employment at Next Level
Communications, Mr. Wiley worked for the Motorola Network Management Group as
the Director of Regional Cellular Operations for the Latin America Region from
October 1998 until April 2001. He worked as the Vice President and General
Manager of Aliant Cellular Communications from July 1995 to July 1997. Mr. Wiley
has been involved in various positions within the wireless telecommunications
industry throughout his entire career. He has a B.S. in Finance and Management
from Creighton University.
RALPH SMITH has been a member of our Board of Directors since April 2001.
Mr. Smith began working for Motorola in 1985 in its Automotive Electronics
Business. He worked there in a variety of sales, project management, strategy
and marketing roles. He joined the Corporate Business Development group of
Motorola in 1991 and became an elected officer of Motorola in 2000. Mr. Smith
began his career with a variety of financial and commercial research positions
working for United States Steel Supply Division until he left to join Motorola.
He has a B.S. degree in Management from Purdue University and a M.B.A. from
Indiana University.
RICHARD HANING has been a member of our Board of Directors since April
2001. Mr. Haning was a Senior Vice President of Motorola and Director of Finance
for Motorola's Network Management Group until August 2002. Mr. Haning has been a
Corporate Vice President with Motorola since 1990. Since joining Motorola in
1977, Mr. Haning has held numerous other financial positions within Motorola's
cellular networks and subscribers businesses. Mr. Haning is a Director of
Telular Corporation, a participant in the fixed wireless telecommunications
market. He is also a Director of Omnitel, a Lithuanian cellular operator. He has
a B.A. and M.B.A. from the University of Illinois.
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THEODORE W. SCHAFFNER has been a member of our Board of Directors since
October 2001. Mr. Schaffner has been Senior Vice President and Director of
Corporate Development at Motorola since 1999. He joined Motorola in 1987 and
became the Director of Corporate Business Development in 1989. In 1991, he
became Vice President of Corporate Business Development. He received his
Bachelors of Arts at The Ohio State University and his Juris Doctor degree from
Harvard University School of Law.
MARINO GINEBRA has been a member of our Board of Directors since October
2001. Mr. Ginebra is the Chairman of the Board of Directors and President of
Telecable Nacional, S.A. He has served as member of the Board of Directors of
numerous charity associations and social clubs, and is currently a member of the
Board of Directors of various banking, insurance and hotel corporations in the
Dominican Republic. Mr. Ginebra holds a B.S. in Business Administration and
Finance from the Catholic University of the Americas.
EDWIN CORRIE has been a member of our Board of Directors since October
2001. Mr. Corrie is the Chairman and President of several corporations operating
in the real-estate, investment and agricultural industries in the Dominican
Republic. He is a member of the Board of Directors of various leading insurance,
tourism, medical, and financial service institutions in the Dominican Republic.
Mr. Corrie holds a B.S. in electromechanical engineering from the Massachusetts
Institute of Technology and a B.S. in Business Administration from the Harvard
Business School.
EXECUTIVE COMPENSATION
The aggregate amount of compensation we paid during the fiscal year ended
December 31, 2001 to our directors and executive officers, as a group (17
persons), was $2.3 million.
EMPLOYEES
At December 31, 2001, we had 1,829 employees. Of this number, 26 were
executives, 92 were managers, and the remaining 1,711 were technicians,
salesmen, service and staff employees. We believe that this number may increase
over the next several years as we expand our network and customer base. None of
our employees belong to labor unions. We believe that we have good relations
with our employees.
SHARE OWNERSHIP
In connection with our initial public offering, our Board of Directors
adopted, and GFN and Motorola approved, our 1998 Long-Term Incentive Plan
pursuant to which 750,000 shares of Class A common stock were reserved for
issuance. At December 31, 2001, there were outstanding options to purchase
483,947 shares of Class A common stock that had been granted to directors,
officers and employees at exercise prices ranging from $3.65 per share to $16.00
per share. The options granted expire on the tenth anniversary of the date of
grant. At December 31, 2001, there were 266,053 shares available for grant under
the plan.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth certain information known to us with respect
to beneficial ownership of our Class A common stock at March 17, 2003 (unless
otherwise indicated) by each person, to our knowledge, who beneficially owns
5% or more of the Class A common stock and all officers and directors as a
group. Except as otherwise indicated, the holders listed below have sole voting
and investment power with respect to all shares beneficially owned by them.
Each share of Class B stock is freely convertible at any time into one
share of Class A common stock, subject to adjustment, and may not be transferred
except to GFN, Motorola or their permitted transferees, as defined. Each share
of Class B stock has ten votes and of Class A common stock has one vote. GFN and
Motorola own 100% of the outstanding shares of Class B stock. Currently, GFN and
its affiliates have approximately 55.5% of the
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voting power (including shares of Class A common stock owned by it and its
affiliates) and Motorola approximately 32.5%.
<Table>
<Caption>
PERCENTAGE OF
PERCENTAGE OF VOTING POWER
CLASS A COMMON (ASSUMING THAT ALL
STOCK OF THE CLASS B
CLASS A -------------- PERCENTAGE OF STOCK IS
COMMON STOCK SHARES CLASS B STOCK CONVERTED INTO
BENEFICIALLY BENEFICIALLY BENEFICIALLY CLASS A COMMON
SHAREHOLDER OWNED(1) OWNED(1) OWNED STOCK)(1)
- ----------------------------------------------------- ------------ -------------- ------------- ------------------
GFN Corporation Ltd(2)............................... 25,396,193 44.6 60.0 39.3
Oleander Holdings, Inc.(2)........................... 12,161,750 21.4 60.0 18.8
Manuel Arturo Pellerano Pena(2) ..................... 27,426,374 48.2 60.0 42.5
Motorola, Inc........................................ 7,657,818 14.4 40.0 11.9
Orient Star Holdings LLC(3).......................... 2,835,700 6.2 - 4.4
Directors and executive officers as a group
(17 persons)(4).................................... 27,700,058 48.6 60.0 42.9
</Table>
- ----------
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares as of a given date which such person
or group of persons has the right to acquire within 60 days after such
date. Information relating to the percentage beneficially owned is
calculated in accordance with SEC rule 13d-3 and includes for each of GFN
Corporation Ltd., Manuel Arturo Pellerano Pena, Oleander Holdings Inc. and
Motorola the shares of Class A common stock issuable upon conversion of the
Class B stock beneficially owned by it only. For purposes of calculating
the percentage of Class A common stock beneficially owned by GFN
Corporation Ltd, for example, in accordance with SEC rule 13d-3, the number
of outstanding shares of Class A common stock does not include shares that
would be issuable upon conversion of Class B stock owned by Motorola. As a
result, the percentage of Class A common stock beneficially owned by any
holder of Class B stock is greater than the percentage of Class A common
stock owned by that holder, assuming conversion of all Class B stock, shown
in the column, "Percentage of Voting Power."
(2) GFN Corporation Ltd. is controlled by Manuel Arturo Pellerano Pena, our
Chairman of the Board of Directors and President, and members of his
family. Oleander Holdings, Inc., a Panamanian corporation, is a wholly
owned subsidiary of GFN.
(3) Inmobiliaria Carso, S.A. de C.V., as the sole member of Orient Star
Holdings LLC, is deemed to beneficially own indirectly the ADSs owned
directly by Orient Star Holdings LLC. Carlos Slim Helu, Carlos Slim Domit,
Marco Antonio Slim Domit, Patrick Slim Domit, Maria Soumaya Slim Domit,
Vanessa Paola Slim and Johanna Monique Slim Domit own all of the
outstanding voting securities of Inmobiliaria Carso, S.A. de C.V., and are
deemed to beneficially own indirectly the ADSs deemed beneficially owned by
Inmobiliaria Carso, S.A. de C.V. and directly owned by Orient Star Holdings
LLC. This information is based on a Schedule 13-G dated December 31, 2002
and filed with the Securities and Exchange Commission.
(4) Includes 11,486,726 shares of Class B stock and 15,939,648 shares of Class
A common stock that may be deemed to be beneficially owned by Mr.
Pellerano, our Chairman of the Board of Directors and President, in his
capacity as a controlling person of GFN. Also includes 47,544 shares of
Class A common stock that are issuable upon exercise of currently
exercisable options beneficially owned by officers.
Motorola Inc. has announced its intention to sell its shares of Class B
stock. Our By-laws provide that upon transfer of such shares (unless to GFN
or one of its affiliates), these shares will convert to Class A common
stock.
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SHAREHOLDERS AGREEMENT
Each of the current members of the Board of Directors has been elected
under the terms of an amended and restated shareholders agreement, dated at May
8, 1998, among TRICOM, Motorola, Oleander Holdings Inc., Zona Franca San Isidro,
S.A. and certain nominal shareholders that are affiliates of GFN or TRICOM.
The shareholders agreement provides that the Board of Directors will
consist, and GFN and Motorola each will vote all of the shares owned by it (or
in the case of any transfer of shares to its permitted transferee, as defined in
the shareholders agreement, will cause such permitted transferees to vote their
shares) in favor, of six directors to be designated by GFN, four directors to be
designated by Motorola and two independent directors. The shareholders agreement
provides that in order for a person to qualify as an independent director such
person must not be:
- an officer, employee, principal stockholder, consultant or partner of
TRICOM, apart from such directorship, or an officer, employee,
principal stockholder, consultant or partner of an entity that was
dependent upon TRICOM or any affiliate of TRICOM for more than 5% of
its revenues or earnings in its most recent fiscal year;
- an officer, director, employee, principal stockholder, consultant or
partner of a person that is a competitor of TRICOM or any of its
affiliates, any affiliate of such competitor, or any other person that
was dependent upon such competitor or affiliate of such competitor for
more than 5% of its revenues or earnings in its most recent fiscal
year; or
- an officer, director, employee, principal stockholder, consultant or
partner of Motorola or GFN or an officer, employee, principal
stockholder, consultant or partner of an entity that was dependent
upon Motorola or any affiliate of Motorola for more than 5% of its
revenues or earnings in its most recent fiscal year.
Each of Motorola and GFN will be entitled to nominate one independent
director so long as it together with its permitted transferees owns at least 25%
of the issued and outstanding shares of Class B stock. In calculating the number
of shares of Class B stock owned by either GFN or Motorola, there will be
included the number of shares of Class B stock owned by any of it permitted
transferees.
The number of directors other than independent directors that GFN or
Motorola each may designate will change if its percentage ownership of Class B
stock changes as follows:
- if GFN and Motorola each owns 50% of the then outstanding shares of
Class B stock, each would have the right to designate five directors;
- if either GFN or Motorola owns shares of Class B stock;
- greater than 50% but less than or equal to 60% of the then
outstanding shares of Class B stock, it would designate six
directors and the other four directors;
- greater than 60% but less than or equal to 70% of the then
outstanding shares of Class B stock, it would designate seven
directors and the other three directors;
- greater than 70% but less than or equal to 80% of the then
outstanding shares of Class B stock, it would designate eight
directors and the other two directors;
- greater than 80% but less than or equal to 90% of the then issued
and outstanding shares of Class B stock, it would designate nine
directors and the other one director; or
- greater than 90% of the issued and outstanding Class B stock, it
would designate all ten directors.
Until such time as either Motorola or GFN owns less than 25% of the
outstanding shares of Class B stock, the shareholders agreement requires the
affirmative vote of nine directors to approve the following actions:
- the acquisition or formation by TRICOM of any entity or the making of
any investments in an other entity of business, including, but not
limited to, the purchasing of equity or debt interests in or the
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extension of credit to such entity;
- the incurrence of indebtedness, if after giving effect to such
incurrence, including the proposed application of the proceeds of such
indebtedness to pay existing indebtedness, the ratio of indebtedness
to shareholders' equity would be greater than three to one;
- approval of annual budgets relating to income, capital expenditure,
operating expenses and cash flows (provided that this does not require
approval of any projected debt incurrence that otherwise complies with
the limits described above or of any other proposed corporate action
for which super-majority approval is not specifically required); and
- the issuance, or redemption, of Class A common stock or other
securities or instruments exercisable for or convertible into Class A
common stock.
In addition, approval by the independent directors is required for any
transaction that has a fair market value exceeding $1.0 million which we enter
into with either GFN or Motorola and their respective affiliates. The vote of a
majority of the directors present at a duly convened meeting is required for all
other board actions (and at such time that Motorola or GFN owns less than 25% of
the then outstanding shares of Class B stock for the four actions specified as
requiring a greater vote).
Under the shareholders agreement, if we propose to register any of our
securities under the Securities Act of 1933 (other than a registration in
connection with a reorganization on Form F-4 or in connection with any employee
stock option, stock purchase or savings plan on Form S-8 or similar registration
forms), whether or not for our own account, GFN and Motorola are entitled to
include shares of Class A common stock owned by them in any such registration,
subject to the right of the managing underwriter of any such offering to
exclude, due to market conditions, some or all of such securities. In addition,
GFN and Motorola each has the right to require us to prepare and file on three
occasions a registration statement covering registrable securities with a market
value of at least $5.0 million, subject to customary blackout periods. We are
generally required to bear the expenses (except underwriting discounts and
commissions and fees and expenses of any special counsel) of all such
registrations, whether or not initiated by GFN or Motorola.
Certain Transactions with Principal Shareholders
GFN
GFN is one of the Dominican Republic's largest privately held companies,
with interests in insurance, finance and publishing. GFN provides a number of
managerial services to its affiliated companies, including TRICOM, for which the
affiliated companies are billed based upon the number of hours that a particular
GFN employee spends on providing such services and other factors. GFN employees
have provided to us internal auditing, public relations, management information
services, legal and personnel management services. For 1999, 2000, 2001 and the
first nine months of 2002, we paid to GFN $167,470, $234,348, $128,957 and
$60,097, respectively, for such services. GFN also provides us with security
services for which we paid $77,382, $227,001, $267,725 and $170,957 in 1999,
2000, 2001 and the first nine months of 2002, respectively. In addition, GFN
provides us with advertising services for which we paid $74,104, $250,232,
$1,031,594 and $483,368 in 1999, 2000, 2001 and the first nine months of 2002,
respectively. We anticipate that we will continue to receive such services from
GFN.
We lease premises and equipment from GFN and its affiliates. During 1999,
2000, 2001 and the first nine months of 2002, we paid to GFN and its affiliates
$108,578, $157,600, $122,568 and $142,628, respectively, for the use of premises
and equipment.
During 1999 we bought land from an unaffiliated third-party for $1,826,625
which we later sold to an affiliate of GFN for $2,724,458. We also entered into
various capital leases with an affiliate of GFN for $26,244,000 during 1999,
$20,829,275 during 2000 and $17,856,766 during 2001. In 2000, we sold our
Internet portal to GFN affiliate for approximately $2.3 million.
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We provide life insurance to our employees and have obtained other
insurance through Segna, formerly Compania Nacional de Seguros, a GFN affiliated
insurance company. We paid insurance premiums to affiliates of GFN totaling $2.0
million, $4.1 million, $4.4 million and $3.9 million in 1999, 2000, 2001 and the
first nine months of 2002, respectively.
We provide telecommunications services to GFN and its affiliated companies.
GFN and its affiliated companies paid us $2.0 million, $1.9 million, $3.7
million and $2.7 million for such services in 1999, 2000, 2001 and the first
nine months of 2002, respectively.
GFN affiliated banks have loaned us funds. We had borrowings from GFN
affiliated banks, including financing of letters of credit and open accounts, in
the aggregate principal amounts of $31.4 million at December 31, 2000, $27.1
million at December 31, 2001 and $65.7 million at September 30, 2002.
MOTOROLA
We have purchased telecommunications equipment from Motorola, particularly
for the development of our mobile cellular system and our wireless local loop in
the Dominican Republic for aggregate consideration of approximately $23.1
million, $20.3 million, $20.2 million and $2.5 million during 1999, 2000, 2001
and the first nine months of 2002, respectively. During 2001, we purchased from
Motorola an iDEN(R) system for Panama, for $20 million.
OTHER TRANSACTIONS
We have purchased mortgage participation contracts from savings and loan
associations in the Dominican Republic that are maintained as compensating
balances for mortgage loans made by these associations to several of our
officers. At December 31, 2000 and 2001 and September 30, 2002, these mortgage
participation contracts totaled $3,289,459, $3,968,711 and $486,682,
respectively.
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DESCRIPTION OF NEW NOTES
GENERAL
The new notes will be issued under an indenture between TRICOM and The Bank
of New York, as trustee. The terms of the new notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939. The new notes are subject to all these terms, and holders
of the new notes are referred to the indenture and the Trust Indenture Act for a
statement of them. The following summary of certain provisions of the new notes
and the indenture does not purport to be complete and is qualified in its
entirety by reference to the new notes and the indenture, including the
definitions in the notes and the indenture of terms used below. A copy of the
proposed forms of new notes and the indenture will be made available to holders
of the existing notes upon request. The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions."
As of the date of the indenture, we will have 14 direct and indirect
subsidiaries. All of our subsidiaries are wholly-owned except for TRICOM Panama,
S.A., of which we own 51%. All of our subsidiaries, other than TRICOM USA and
TRICOM Latino America, S.A. and certain of its subsidiaries, have nominal assets
and operations. The indenture will contain certain provisions restricting the
ability of our Restricted Subsidiaries to borrow money or incur any obligation
that would limit the dividends that may be paid to us. As of the date of the
indenture, one of our subsidiaries, TRICOM Panama SA, will be an Unrestricted
Subsidiary. In addition, under certain circumstances, we will be able to
designate current or future subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the indenture. The amount that we may invest in
Unrestricted Subsidiaries is limited by the indenture. As used in this section,
the term "Company" refers only to TRICOM, S.A. and not to any of its
subsidiaries.
The obligations of the Company under the new notes will be fully,
unconditionally, jointly and severally guaranteed (collectively, the "Note
Guarantees") by all of the Company's current and future Restricted Subsidiaries
(collectively, the "Guarantors"). See "-- Guarantees." The Note Guarantee of
each of the Guarantors will rank senior in right of payment to all subordinated
indebtedness of such Guarantor and will rank equally in right of payment with
all other indebtedness of each Guarantor that is not expressly subordinated to
its Note Guarantee, except to the extent of any collateral securing other
indebtedness.
RANKING
The new notes will be general unsecured senior obligations of the Company
ranking senior in right of payment to all existing and future subordinated
indebtedness of the Company and equally in right of payment with all other
existing and future indebtedness of the Company that is not expressly
subordinated to the new notes, except to the extent of any collateral securing
other indebtedness.
As of September 30, 2002, the total amount of senior indebtedness of the
Company and its Restricted Subsidiaries was approximately $528.9 million.
PRINCIPAL, MATURITY AND INTEREST
The new notes will be issued in a maximum aggregate principal amount of
$200.0 million. The new notes will mature on September [__], 20[__]. Interest on
the new notes will accrue at the rate of ______% per annum and will be payable
semi-annually in arrears on March 1 and September 1 of each year, commencing on
March 1, 2003, to holders of record on the immediately preceding February 15 and
August 15. Interest on the new notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the issue
date of the new notes. The interest payment on September 1, 2003 will include
accrued and unpaid interest on the existing notes exchanged for new notes and
either cash or warrants from the most recent interest payment date for the
existing notes (March 1, 2003) through and including the date immediately
preceding the issue date of the new notes. Interest will
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be computed on the basis of a 360-day year comprised of twelve 30-day months.
The new notes will be payable both as to principal, premium, if any, and
interest at the office or agency of the Company maintained for that purpose
within the City and State of New York or, at the option of the Company, payment
of principal, premium, if any, and interest may be made by check mailed to the
holders of the new notes at their respective addresses set forth in the register
of holders of the new notes. If the holder of any new notes has given wire
transfer instructions to the Company, the Company will be required to make all
payments with respect to those new notes by wire transfer of immediately
available funds to the account specified by that holder. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the trustee maintained for the purpose of making payments. The new
notes will be issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The new notes will be subject to redemption at the option of the Company or
any Guarantor, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth in the table below, plus accrued and unpaid interest, if any, on the
new notes being redeemed to the applicable redemption date.
<Table>
<Caption>
If Redeemed During the Twelve-Month Period Beginning on
September 1 of the Years Indicated Below: Percentage
- ---------------------------------------------------------------------------------------- ----------
2002.................................................................................... 102.844%
2003 and thereafter..................................................................... 100.000%
</Table>
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments with respect to the new notes.
ADDITIONAL AMOUNTS
All payments made by the Company or any Guarantor under or with respect to
the new notes or any Note Guarantee will be made free and clear of and without
withholding or deduction for or on account of any present or future taxes,
levies, imposts, duties, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of the Dominican Republic or any political
subdivision or taxing authority of or in the Dominican Republic ("Taxes"),
unless the Company or such Guarantor, as the case may be, is required to
withhold or deduct any amount for or on account of Taxes by law or by the
interpretation or administration of law. If the Company or any Guarantor is so
required to withhold or deduct any amount for or on account of Taxes from any
payment made by the Company under or with respect to the new notes or by a
Guarantor under or with respect to the Note Guarantee of that Guarantor, the
Company or the Guarantor, as the case may be, will pay such additional amounts
("Additional Amounts") as may be necessary so that the net amount (including
Additional Amounts) received by each holder of new notes after withholding or
deduction will not be less than the amount the holder would have received if
Taxes had not been withheld or deducted.
However, no Additional Amounts will be payable with respect to a payment
made to a holder of new notes with respect to any Tax which would not have been
imposed, payable or due:
(1) but for the fact that the holder or a Beneficial Owner of a new
note is or was a domiciliary, national or resident of, or engages or
engaged in business, maintains or maintained a permanent establishment or
is or was physically present in the Dominican Republic, or otherwise has
some present or former connection with the Dominican Republic other than
the mere holding or enforcement of the new notes or the receipt of
principal, premium, if any, or interest in respect of the new notes;
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(2) but for the failure of the holder or Beneficial Owner of new notes
to comply with a request by the Company or any Guarantor to satisfy any
certification, identification or other reporting requirements which the
holder or such Beneficial Owner is legally entitled to satisfy, whether
imposed by statute, treaty, regulation, administrative practice or
otherwise, concerning the nationality, residence or connection with the
Dominican Republic (or, in the case of a payment by a Guarantor, any other
jurisdiction in which the Guarantor is organized or resident) of such
holder or Beneficial Owner; or
(3) if, where presentation by the holder is required to receive
payment under the new notes, the presentation for payment had occurred
within 30 days after the date such payment was due and payable or was
provided for, whichever is later.
Notwithstanding the preceding paragraph, the limitations on the Company's
obligation to pay Additional Amounts set forth in clause (2) of the preceding
paragraph will not apply if a certification, identification, or other reporting
requirement described in clause (2) would be materially more onerous, in
procedure or in the substance of information disclosed, to the holders or
Beneficial Owners (taking into account any relevant differences between U.S.
law, regulation or administrative practice and that of the jurisdiction
requiring the certification, identification or other reporting requirement) than
comparable information or other reporting requirements imposed under U.S. tax
law, regulation (including proposed regulations) and administrative practice or
other reporting requirements imposed as of the date of this prospectus under
U.S. tax law, regulation (including proposed regulations) and administrative
practice (such as IRS Forms 1001, W-8 and W-9).
The obligation of the Company or any Guarantor to pay Additional Amounts in
respect of Taxes will not apply with respect to:
(1) any estate, inheritance, gift, sales, transfer, personal property
or any similar Tax or
(2) any Tax which is payable otherwise than by deduction or
withholding from payments made under or with respect to the new notes.
The Company and each Guarantor, as applicable, will:
(1) make any required withholding or deduction;
(2) remit the full amount deducted or withheld to the relevant
authority (the "Taxing Authority") in accordance with applicable law;
(3) use their best efforts to obtain certified copies of tax receipts
evidencing the payment of any Taxes so deducted or withheld from each
Taxing Authority imposing such Taxes; and
(4) in the event that certified copies of tax receipts are obtained,
promptly send the certified copies of tax receipts to the trustee (if the
trustee acts as the paying agent) or, if different, to the paying agent for
prompt forwarding to any holder that has made a written demand for the
certified copies to the trustee or the paying agent, as the case may be.
The Company or the Guarantor will attach to each certified copy of a tax
receipt a certificate stating
(1) that the amount of withholding tax evidenced by the certified copy
was paid in connection with payments in respect of the principal amount of
new notes than outstanding, and
(2) the amount of the withholding tax paid per $1,000 of principal
amount of the new notes.
If, notwithstanding the Company's or such Guarantor's efforts to obtain tax
receipts, the receipts are not obtainable, the Company or such Guarantor will
provide to the trustee or the paying agent, as the case may be, such other
evidence of the payments as the Company or such Guarantor may reasonably obtain.
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At least 30 days prior to each date on which any payment under or with
respect to the new notes is due and payable (unless the obligation to pay
Additional Amounts arises after the 30th day prior to such date, in which case
it shall be promptly after the obligation to pay Additional Amounts arises), if
the Company or any Guarantor will be obligated to pay Additional Amounts with
respect to the payment, the Company or the Guarantor will deliver to the trustee
and each paying agent an Officers' Certificate stating the fact that the
Additional Amount will be payable and the amounts so payable and will set forth
other information necessary to enable the trustee and each paying agent to pay
the Additional Amounts to holders of new notes on the payment date. Each
Officers' Certificate will be relied upon until receipt of a further Officers'
Certificate addressing these matters.
Whenever in the indenture or in this "Description of the New Notes" there
is mentioned, in any context, the payment of amounts based upon the payment of
principal, premium or interest or of any other amount payable under or with
respect to any New Note, such mention will be deemed to include mention of the
payment of Additional Amounts as are, were or would be payable in respect of the
payment of principal, premium or interest or of any other amount.
Dominican law currently requires that we withhold 5% of any interest
payable on the new notes to financial institutions located abroad and 25% on
interest paid to companies and individuals other than financial institutions
located abroad.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The new notes may be redeemed at the option of the Company, in whole but
not in part, at any time prior to maturity if, as the result of any change in or
amendment to the laws, regulations or rulings of the Dominican Republic (or of
any jurisdiction of organization of any Guarantor that makes any payment under
or with respect to the new notes for which Additional Amounts must be paid) or
any political subdivision or taxing authority of or in the Dominican Republic or
any jurisdiction of organization of any Guarantor, or any change in the
application of or official interpretation of their laws, regulations or rulings
(including the holding of a court of competent jurisdiction), the Company or any
Guarantor has or will become obligated to pay Additional Amounts (excluding
interest and penalties) in excess of the Additional Amounts that the Company or
any Guarantor would be obligated to pay if withholding taxes (excluding interest
and penalties) were imposed with respect to payments of principal, premium or
interest at a rate of 15.0%, and the obligation cannot be avoided by the Company
or the Guarantors, as the case may be, taking reasonable measures available to
them. In that event the Company may, at its option, redeem or cause the
redemption of the new notes, as a whole but not in part, upon not more than 60
nor less than 30 days' notice to the holders of the new notes (with copies to
the trustee and each other paying agent) at 100% of their principal amount,
together with accrued and unpaid interest, if any, to (but excluding) the date
fixed for redemption, plus any Additional Amounts payable with respect to
principal amount and interest as provided under "-- Additional Amounts."
Prior to the giving of notice of redemption of the new notes as described
herein and as a condition to any redemption, the Company will deliver to the
trustee an Officers' Certificate (together with a copy of the written opinion of
counsel to the effect that the applicable rate has increased to a rate in excess
of 15.0% and the Company or any Guarantor has or will become so obligated to pay
Additional Amounts as a result of the change, amendment or official
interpretation), stating that the Company is entitled to effect the redemption
and setting forth in reasonable detail a statement of facts relating to the
redemption. No notice of redemption will be given earlier than 90 days prior to
the earliest date on which the Company or any Guarantor would be obligated to
pay Additional Amounts were a payment in respect of the new notes then due and,
at the time the notice of redemption is given, the obligation to pay such
Additional Amounts remains in effect.
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REPURCHASE AT THE OPTION OF HOLDERS
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (the "Change of Control Offer") to each holder of new notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
each holder's new notes at a purchase price equal to 101% of the aggregate
principal amount of the new notes, plus accrued and unpaid interest, if any, to
the date of purchase (the "Change of Control Payment"). The Change of Control
Offer
- must be commenced within 30 days following a Change of Control,
- must remain open for at least 30 and not more than 40 days (unless
required by applicable law) and
- must comply with the requirements of Rule 14e-1 under the Exchange Act
and any other applicable securities laws and regulations.
Due to the leveraged structure of the Company and the effective
subordination of the new notes to secured Indebtedness of the Company and of the
Company's Restricted Subsidiaries, the Company may not have sufficient funds
available to purchase the new notes tendered in response to a Change of Control
Offer. In addition, agreements relating to Indebtedness of the Company or the
Company's Restricted Subsidiaries may contain prohibitions or restrictions on
the Company's ability to make a Change of Control Payment.
The provisions described above that require the Company to make a Change of
Control offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that permit the holders of the new notes to require that the Company repurchase
or redeem the new notes in the event of a takeover, recapitalization or similar
transaction.
The Company will not be required to make a Change of Control Offer upon the
occurrence of a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the indenture applicable to a Change of Control Offer
made by the Company and purchases all new notes properly tendered and not
withdrawn under the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of new notes to require the Company to repurchase such new notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company to another Person may be uncertain.
OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS
When the cumulative amount of Excess Proceeds (as defined below under "--
Repurchase at the Option of Holders -- Asset Sales") exceeds $5.0 million, the
Company will make an offer to all holders of new notes (an "Excess Proceeds
Offer") to purchase the maximum principal amount of new notes that may be
purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of
the outstanding principal amount of the new notes, plus accrued and unpaid
interest, if any, on the principal amount of the new notes to the date fixed for
the closing of the Excess Proceeds Offer, in accordance with the procedures
specified in the indenture.
ASSET SALES
The Company and its Restricted Subsidiaries may not, whether in a single
transaction or a series of related transactions occurring within any
twelve-month period (each of the following, an "Asset Sale"), sell, lease,
convey,
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dispose of or otherwise transfer any assets (including by way of a Sale and
Leaseback Transaction), other than sales, leases, conveyances, dispositions or
other transfers:
(a) in the ordinary course of business;
(b) to the Company by any Restricted Subsidiary of the Company,
from the Company to any Restricted Subsidiary of the Company or from
any Restricted Subsidiary of the Company to another Restricted
Subsidiary of the Company; or
(c) that constitute a Restricted Payment permitted under the
covenant entitled "-- Covenants-- Restricted Payments", or
(d) issue or sell Equity Interests in any of its Restricted
Subsidiaries (other than an issuance or sale of Equity Interests of
any such Restricted Subsidiary to the Company or a Restricted
Subsidiary of the Company),
unless in each case:
(1) no Default or Event of Default exists or would occur as a result
of the Asset Sale;
(2) the Company, or the Restricted Subsidiary, as the case may be,
receives consideration at the time of the Asset Sale at least equal to the
Fair Market Value (evidenced by a resolution of the Board of Directors of
the Company set forth in an Officers' Certificate delivered to the
trustee), of the assets or securities issued or sold or otherwise disposed
of; and
(3) at least 85% of the consideration received by the Company or such
Restricted Subsidiary from the Asset Sale is in the form of cash; PROVIDED,
HOWEVER, that
(a) the amount of
(x) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet or in the notes
to the balance sheet) of the Company or any Restricted Subsidiary
of the Company (other than liabilities that are by their terms
subordinated to the new notes) that are assumed by the transferee
of any such assets or Equity Interests and
(y) any notes, obligations or other securities received by
the Company or any Restricted Subsidiary from the transferee that
are immediately converted by the Company or the Restricted
Subsidiary into cash, will be deemed to be cash (to the extent of
the cash received in the case of this subclause (y)) for purposes
of this clause (3); and
(b) an amount equal to the Fair Market Value (evidenced as set
forth in clause (2) above) of the Voting Stock of any Person engaged
in the Telecommunications Business in the United States received by
the Company or any Restricted Subsidiary (if the Voting Stock is
converted to cash within 90 days or the Person concurrently becomes or
is a Restricted Subsidiary of the Company) will be deemed to be cash
for purposes of this clause (3).
These provisions will not apply to a sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company, which will
be governed by the provisions of the indenture described below under "--
Covenants -- Merger, Consolidation, or Sale of Assets."
Notwithstanding the foregoing, TRICOM USA, the Company or any Restricted
Subsidiary may issue and sell Equity Interests of TRICOM USA without the sale
constituting an Asset Sale; PROVIDED, that
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(1) after giving effect to the issuance and sale, the Company and its
Restricted Subsidiaries continue to own, in the aggregate, at least 51% of
the Total Common Equity and Voting Stock of TRICOM USA and
(2) the net proceeds from the issuance and sale
- are invested in the business of the Company or any
Restricted Subsidiary of the Company and
- are not used to purchase any securities or Indebtedness of
any other Person (other than those of the Company or any
Restricted Subsidiary of the Company) or to pay dividends or
other distributions to the Company or another Restricted
Subsidiary of the Company or redeem shares of TRICOM USA
owned by the Company or any Restricted Subsidiary.
Within 360 days after the receipt of Net Proceeds of any Asset Sale, the
Company or its Restricted Subsidiary, as the case may be, may apply the Net
Proceeds from the Asset Sale to:
(1) permanently reduce the amounts permitted to be borrowed by the
Company under the terms of any of its Senior Indebtedness, or
(2) to the extent not used in clause (1) above, the purchase of
(a) Telecommunications Related Assets or
(b) Voting Stock of any Person engaged in the Telecommunications
Business; PROVIDED, that the Person concurrently becomes a Restricted
Subsidiary of the Company.
Any Net Proceeds from any Asset Sales that are not so applied or invested will
constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will be required to make an Asset Sale Offer in accordance with the
terms set forth under "-- Repurchase at the Option of Holders -- Offer to
Purchase with Excess Asset Sale Proceeds."
SELECTION OF NEW NOTES FOR REDEMPTION OR OFFERS TO PURCHASE
If less than all of the new notes are to be redeemed or to be purchased
pursuant to any purchase offer required under the indenture at any time,
selection of new notes for redemption or purchase will be made by the trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the new notes are listed, or, if the new notes are not so
listed, on a PRO RATA basis, by lot or by any method that the trustee deems fair
and appropriate; PROVIDED, that no new notes with a principal amount of $1,000
or less will be redeemed or purchased in part. A new note in principal amount
equal to the unredeemed or unpurchased portion will be issued in the name of the
holder of the original new note upon cancellation of the original new note. On
and after the redemption or purchase date, assuming new notes are redeemed or
purchased as so required, interest will cease to accrue on the new notes or
portions of them called for redemption or purchase.
NOTICE OF REDEMPTION
Notice of redemption will be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of new notes to be
redeemed at its registered address. If any new note is to be redeemed in part
only, the notice of redemption that relates to that new note will state the
portion of the principal amount to be redeemed.
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GUARANTEES
The obligations of the Company under the new notes will be guaranteed,
jointly and severally and fully and unconditionally, by all of the Company's
current Restricted Subsidiaries and each other Person that becomes a Restricted
Subsidiary of the Company after the Issue Date (including previously designated
Unrestricted Subsidiaries of the Company that are designated as Restricted
Subsidiaries of the Company) and each of their respective successors. The Note
Guarantee issued by each Guarantor will rank senior in right of payment to all
other Indebtedness of such Guarantor that is expressly subordinated to such Note
Guarantee and will rank equally in right of payment with all other Indebtedness
of the Guarantor that is not expressly subordinated to the Note Guarantee,
except to the extent of any collateral securing the other Indebtedness.
The obligations of each Guarantor with respect to its Note Guarantee will
be limited to the maximum amount that will result in the obligations of such
Guarantor under its Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under any applicable federal, state or foreign law. This
amount is calculated after giving effect to all other contingent and fixed
liabilities of the Guarantor and after giving effect to any collections from,
rights to receive contribution from, or payments made by or on behalf of any
other Guarantor in respect of the obligations of the other Guarantor under its
Note Guarantee or under its contribution obligations under the indenture. Each
Guarantor that makes a payment or distribution under a Note Guarantee will be
entitled to contribution from each other Guarantor so long as the exercise of
that right does not impair the rights of the holders of the new notes under the
Note Guarantees.
In the event of:
(1) a sale or other disposition of all or substantially all of the
assets of any Guarantor or the sale of a Guarantor, by way of merger,
consolidation or otherwise;
(2) a Guarantor becoming an Unrestricted Subsidiary under the terms of
the indenture; or
(3) a sale or other disposition of all of the Capital Stock of any
Guarantor,
then in each of these cases the Guarantor or the Person acquiring the assets, as
applicable, will be released and relieved of any obligations under its Note
Guarantee; PROVIDED, that the Company complies with the provisions under "--
Repurchase at the Option of Holders -- Assets Sales."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company and its Restricted Subsidiaries may not, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on account of
any of their Equity Interests, other than dividends or distributions
payable
(A) in Equity Interests of the Company that are not Disqualified
Stock or
(B) to the Company or any Restricted Subsidiary of the Company;
(2) purchase, redeem, defease, retire or otherwise acquire for value
any Equity Interests of the Company or any of its Subsidiaries or other
Affiliate of the Company, other than any Equity Interests owned by the
Company or any Restricted Subsidiary of the Company or Equity Interests of
any Subsidiary or other Affiliate of the Company that qualifies as a
Permitted Investment;
(3) purchase, redeem, defease, retire or otherwise acquire for value
any Indebtedness of the Company or its Restricted Subsidiaries that is
subordinate in right of payment to the new notes or the Note
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Guarantees, except at final maturity or in accordance with the mandatory
redemption or repayment provisions set forth in the original documentation
governing such Indebtedness; or
(4) make any Restricted Investment
(all payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time of
a Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing
or would occur as a consequence of the Restricted Payment;
(b) after giving effect to the Restricted Payment on a pro forma
basis as if the Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Leverage Ratio test
under the covenant entitled "--Covenants -- Incurrence of Indebtedness
and Issuance of Disqualified Stock"; and
(c) the Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after August 21, 1997 (including any Restricted Payments
made pursuant to clause (1) of the next paragraph), is less than the
sum of
(1) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from October
1, 1997 to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are
available at the time of the Restricted Payment (or, if
Consolidated Net Income for the period is a deficit, less
100% of the deficit), plus
(2) 100% of the aggregate net cash proceeds received by
the Company from the issue or sale of Equity Interests of
the Company (other than Disqualified Capital Stock) or of
debt securities or Disqualified Stock of the Company that
have been converted into or exchanged for Equity Interests
of the Company (other than Equity Interests or convertible
debt securities sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock) after August 21,
1997 (other than any Equity Interests to the extent the
proceeds of the Equity Interests were used as set forth in
clause (2) of the next paragraph), plus
(3) 100% of the sum of, without duplication,
(A) the aggregate cash dividends or distributions
received by the Company or any Restricted Subsidiary of
the Company from any Unrestricted Subsidiary of the
Company (other than dividends or distributions used to
pay any obligations of such Unrestricted Subsidiary to
Persons other than the Company or any Subsidiary of the
Company, such as income taxes),
(B) the amount of the principal and interest
payments received since August 21, 1997 by the Company
or any Restricted Subsidiary of the Company from any
Unrestricted Subsidiary of the Company,
(C) the net proceeds from the sale of an
Investment in a Unrestricted Subsidiary of the Company
received by the Company or any Restricted Subsidiary of
the Company, in each case only if the Company and its
Restricted Subsidiaries are under no obligation to
return any amounts to the Unrestricted Subsidiary, and
excluding any dividend, distribution, principal or
interest
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payment or net proceeds that constitutes a return of
capital invested in any Unrestricted Subsidiary), and
(D) the Fair Market Value of any Investment held
by either the Company or any Restricted Subsidiary of
the Company in any Unrestricted Subsidiary of the
Company at the time Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary of the Company
in accordance with the provisions of the indenture,
plus
(4) $5.0 million.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration the payment would have
complied with the provisions of the indenture;
(2) the purchase, redemption, defeasance, retirement or other
acquisition for value of
(a) any Equity Interests of the Company or any Restricted
Subsidiary of the Company,
(b) Indebtedness of the Company that is subordinated in right of
payment to the new notes or
(c) Indebtedness of a Restricted Subsidiary of the Company that
is subordinated in right of payment to a Restricted Subsidiary's Note
Guarantee, in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary
of the Company) of, Equity Interests of the Company (other than
Disqualified Stock);
(3) the purchase, redemption, defeasance, retirement or other
acquisition for value of any Indebtedness of the Company that is
subordinated in right of payment to the new notes or of any Indebtedness of
a Restricted Subsidiary of the Company that is subordinated in right of
payment to the Note Guarantee of the Restricted Subsidiary in exchange for,
or out of the proceeds of the substantially concurrent incurrence of
Indebtedness of the Company (other than Indebtedness to a Restricted
Subsidiary of the Company), but only to the extent that the new
Indebtedness is permitted under the covenant entitled, "-- Covenants --
Incurrence of Indebtedness and Issuance of Disqualified Stock" and
(a) is subordinated in right of payment to the new notes or the
Note Guarantee at least to the same extent as,
(b) has a Weighted Average Life to Maturity at least as long as,
and
(c) has no scheduled principal payments due in any amount earlier
than, any equivalent amount of principal under the Indebtedness so
purchased, redeemed, defeased, retired or otherwise acquired for
value; and
(4) the purchase, redemption, defeasance, retirement or other
acquisition for value of any Disqualified Stock of the Company with the net
proceeds of the sale of Disqualified Stock of the Company, but only to the
extent that the new Disqualified Stock
(a) is permitted under the covenant entitled "--Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock",
(b) may not be retired or redeemed until all principal, premium,
if any, and interest in respect of the new notes has been paid in full
and
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(c) the proceeds from the issuance and sale of the new
Disqualified Stock does not exceed the redemption price of the
Disqualified Stock to be redeemed without regard to dividends or
redemption premiums;
PROVIDED, HOWEVER that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (1), (2), (3) or (4), no Default or
Event of Default has occurred and is continuing.
A Permitted Investment that ceases to be a Permitted Investment under its
definition will become a Restricted Investment, deemed to have been made on the
date that it ceases to be a Permitted Investment.
The Board of Directors may designate any Restricted Subsidiary of the
Company to be an Unrestricted Subsidiary of the Company if the designation would
not cause a Default or an Event of Default and would otherwise be permitted at
that time. For purposes of making that determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the designated Unrestricted Subsidiary will be deemed to be
Restricted Payments at the time of that designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant.
All outstanding Investments will be deemed to constitute Investments in an
amount equal to the greatest of
(1) the net book value of the Investments at the time of the
designation,
(2) the Fair Market Value of the Investments at the time of the
designation, and
(3) the original Fair Market Value of the Investments at the time they
were made.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; PROVIDED,
that the designation will be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of the
Unrestricted Subsidiary and the designation will only be permitted if:
(1) the Indebtedness is permitted under the covenant entitled "--
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock"
and
(2) no Default or an Event of Default would exist following the
designation.
Not later than the date of making any Restricted Payment, the Company will
deliver to the trustee an Officers' Certificate stating that the Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Company and its Restricted Subsidiaries may not, directly or
indirectly, create, incur, issue, assume, Guarantee or otherwise become directly
or indirectly liable for the payment of (collectively, "incur" and,
correlatively, "incurred" and "incurrence") any Indebtedness (including, without
limitation, Acquired Debt), and the Company and its Restricted Subsidiaries may
not issue any Disqualified Stock; PROVIDED, HOWEVER, that the Company or any of
its Restricted Subsidiaries may incur Indebtedness (including, without
limitation, Acquired Debt) or issue shares of Disqualified Stock if, after
giving effect to the incurrence of the Indebtedness or the issuance of the
Disqualified Stock, the Leverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date of incurrence or issuance does not exceed 4.0 to
1.0 determined on a pro forma basis (including a pro forma application of the
net proceeds from the incurrence of Indebtedness or the issuance of Disqualified
Stock). If the Company incurs or purchases, redeems, defeases, retires or
otherwise acquires for value any Indebtedness or purchases, redeems, defeases,
retires or otherwise acquires for value any Disqualified Stock subsequent to the
commencement of the period for which the Leverage Ratio is being calculated but
prior to the event for which the calculation of the Leverage Ratio is made, then
the
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Leverage Ratio will be calculated giving pro forma effect to any incurrence or
purchase, redemption, defeasance, retirement or other acquisition for value of
Indebtedness, or issuance or purchase, redemption, defeasance, retirement or
other acquisition for value of Disqualified Stock, as if the same had occurred
at the beginning of the applicable period. In making this calculation on a pro
forma basis, interest attributable to Indebtedness bearing a floating interest
rate and dividends attributable to Disqualified Stock bearing a floating
dividend rate will be computed as if the rate in effect on the date of
determination had been the applicable rate for the entire period.
The foregoing limitation will not apply to (with each exception to be given
independent effect):
(1) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness under the Senior Facilities in an aggregate
principal amount at any one time outstanding (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and/or any of its Restricted Subsidiaries under the letters
of credit) not to exceed $50.0 million (including, for purposes of
calculating the amount of Indebtedness that may be incurred as of the Issue
Date under this clause (1), any Indebtedness outstanding under the Senior
Facilities as of the Issue Date), less the aggregate amount of all Net
Proceeds of Asset Sales applied to permanently reduce the commitments with
respect to the Senior Facilities pursuant to the provisions described above
under the caption "-- Repurchase at the Option of Holders -- Asset Sales";
(2) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Vendor Indebtedness; PROVIDED, that the aggregate amount of
Vendor Indebtedness incurred does not exceed (a) 80% of the total cost of
the Telecommunications Related Assets financed with Vendor Indebtedness,
including, but not limited to, the cost of design, development, site
acquisition, construction and integration or (b) 100% of the total cost of
the Telecommunications Related Assets financed with the Vendor Indebtedness
if the Vendor Indebtedness was extended for the purchase of tangible
Telecommunications Related Assets, excluding the cost of design,
development, site acquisition, construction and integration;
(3) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness existing on the Issue Date (which will be
deemed to be incurred as of that date), but only to the extent of (a) the
existing notes, (b) the new notes, (c) Indebtedness that would otherwise
qualify under clause (1) or (4) of this paragraph, and (d) Vendor
Indebtedness (collectively, "Existing Indebtedness");
(4) the incurrence by the Company and/or any of its Restricted
Subsidiaries of Indebtedness in an aggregate principal amount not to exceed
$10.0 million at any one time outstanding (including, for purposes of
calculating the amount of Indebtedness that may be incurred as of the Issue
Date under this clause (4), Indebtedness outstanding as of the Issue Date
which was incurred by the Company or any of its Restricted Subsidiaries
under Section 4.09(d) of the Old Indenture);
(5) the incurrence by the Company of Indebtedness, that is expressly
subordinate to the payment in full of all Obligations with respect to the
new notes and has a final maturity no earlier than, and a Weighted Average
Life to Maturity equal to or greater than, the final maturity and Weighted
Average Life to Maturity, respectively, of the new notes, in an aggregate
principal amount (including, for purposes of calculating the amount of
Indebtedness that may be incurred as of the Issue Date under this clause
(5), Indebtedness outstanding as of the Issue Date which was incurred by
the Company under Section 4.09(e) of the Old Indenture) not to exceed 2.0
times the net cash proceeds received by the Company after August 21, 1997
from the issuance and sale of Equity Interests of the Company (excluding
Equity Interests issued substantially concurrently with the redemption or
purchase of other Equity Interests or Indebtedness of the Company and/or
any of its Subsidiaries);
(6) the incurrence (a "Permitted Refinancing") by the Company and/or
any of its Restricted Subsidiaries of Indebtedness issued in exchange for,
or the proceeds of which are used to refinance, replace, refund or defease
("Refinance" and correlatively, "Refinanced" and "Refinancing")
Indebtedness which was permitted to be incurred pursuant to this covenant,
other than Indebtedness incurred under clause (1) above, but only to the
extent that:
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(a) the net proceeds of the Refinancing Indebtedness does not
exceed the principal amount of, premium, if any, accrued interest and
any additional amounts payable with respect to withholding or other
taxes, levies, duties or assessments or governmental charges on the
Indebtedness so Refinanced (or if the Indebtedness so Refinanced was
issued at an original issue discount, the original issue price plus
amortization of the original issue discount at the time of the
repayment of the Indebtedness so Refinanced) plus the fees, expenses
and costs of the Refinancing in connection therewith;
(b) the Refinancing Indebtedness has a final maturity no earlier
than, and a Weighted Average Life to Maturity equal to or greater
than, the final maturity and Weighted Average Life to Maturity of the
Indebtedness being Refinanced; and
(c) if the Indebtedness being Refinanced is subordinated in right
of payment to the new notes or the Note Guarantees, as the case may
be, the Refinancing Indebtedness will be subordinated in right of
payment to the new notes or the Note Guarantees on terms at least as
favorable to the holders of new notes as those contained in the
documentation governing the Indebtedness being so Refinanced;
except that a Permitted Refinancing that does not comply with clauses (b)
and (c) will be deemed to so comply if the Company incurs Indebtedness
under the Senior Facilities to repay any Existing Indebtedness (or
Indebtedness that Refinances such Indebtedness as permitted by this clause
(6) ("Temporary Indebtedness")) and within six months thereafter incurs
Indebtedness that would otherwise have qualified under this clause (6) as a
Permitted Refinancing if the proceeds of the Indebtedness had been used to
refinance, replace, refund or defease the Existing Indebtedness or
Temporary Indebtedness (but only to the extent of the principal amount of
and premium, if any, and accrued interest on such Existing Indebtedness or
Temporary Indebtedness plus any additional amounts payable with respect to
withholding or governmental charges in connection therewith);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; and
(8) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate or foreign currency risk with respect to
any Indebtedness that is permitted by the terms of the indenture to be
outstanding.
LIENS
The Company and its Restricted Subsidiaries may not, directly or
indirectly, create, incur, assume to suffer to exist any Lien on any asset now
owned or hereafter acquired, or any income or profits from assets now owned or
hereafter acquired or assign or convey any right to receive income from assets
now owned or hereafter acquired, except for Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Company and its Restricted Subsidiaries may not, directly or
indirectly, create or otherwise cause to become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary of the
Company to:
(1) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries with respect to its Capital Stock or
with respect to any other interest or participation in, or measured by, its
profits, or pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
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(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries, except for encumbrances or restrictions
existing as of the Issue Date or under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
(c) any instrument governing Acquired Debt as in effect at the
time of acquisition (except to the extent the Acquired Debt was
incurred in connection with, or in contemplation of, the acquisition),
which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired;
(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with
past practices;
(e) purchase money obligations for property acquired in the
ordinary course of business, or performance bonds or similar security
for performance which liens securing the purchase money obligations do
not cover any asset other than the asset acquired or, in the case of
performance bonds or similar security for performance, the assets
associated with the Company's or any of its Restricted Subsidiary's
performance;
(f) Indebtedness incurred under clause (1) or (2) of the second
paragraph of the covenant entitled "-- Covenants -- Incurrence of
Indebtedness and Issuance of Disqualified Stock";
(g) the new notes and the existing notes;
(h) any agreement for the sale or other disposition of a
Restricted Subsidiary of the Company that restricts distributions by
the Restricted Subsidiary pending its sale or disposition; or
(i) in the case of clauses (a), (c), (f) and (g) above, any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of any of them;
PROVIDED, that the amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are
not materially more restrictive with respect to dividend and other
payment restrictions than those contained in the instruments as in
effect on the date of their incurrence or, if later, the Issue Date.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, another Person unless:
(1) the Company is the surviving entity or the Person formed by or
surviving the consolidation or merger (if other than the Company) or to
which the sale, assignment, transfer, lease, conveyance or other
disposition has been made is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia or
the Dominican Republic;
(2) the Person formed by or surviving the consolidation or merger (if
other than the Company) or the Person to which the sale, assignment,
transfer, lease, conveyance or other disposition has been made assumes all
the obligations of the Company under the new notes and the indenture under
a supplemental indenture in form reasonably satisfactory to the trustee;
(3) immediately after the transaction, no Default or Event of Default
exists or would with notice or lapse of time or both exist;
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(4) the Company, or any Person formed by or surviving the
consolidation or merger or to which the sale, assignment, transfer, lease,
conveyance or other disposition has been made, at the time of the
transaction after giving pro forma effect thereto as if the transaction had
occurred at the beginning of the applicable fiscal quarter (including any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of the transaction or series of transactions),
(a) could incur at least $1.00 of additional Indebtedness under
the Leverage Ratio test described under "-- Covenants -- Incurrence of
Indebtedness and Issuance of Disqualified Stock" and
(b) would have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately prior to the
transaction; and
(5) the transaction would not result in the loss, material impairment
or adverse modification or amendment of any authorization, license, permit
or franchise (governmental or otherwise) of the Company or its Restricted
Subsidiaries that would have a material adverse effect on the business or
operations of the Company and its Restricted Subsidiaries, taken as a
whole.
TRANSACTIONS WITH AFFILIATES
The Company and its Restricted Subsidiaries will not, in one or more
related transactions, sell, lease, transfer or otherwise dispose of any of their
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, understanding, loan, advance or Guarantee with,
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable
to the Company or the Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person;
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $5.0 million, an Officers' Certificate
certifying that the Affiliate Transaction complies with clause (1)
above and has been approved by a majority of disinterested members of
the Board of Directors of the Company, and
(b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10.0 million, a written opinion as to the
fairness of the Affiliate Transaction from a financial point of view
to the Company or Restricted Subsidiary of the Company involved in the
Affiliate Transaction issued by a United States investment banking
firm nationally recognized in the United States; PROVIDED, that (1)
financial transactions between the Company and GFN and (2)
transactions between the Company and Motorola relating to the purchase
by the Company of Telecommunications Related Assets from Motorola
(including without limitation Vendor Indebtedness relating thereto)
will be exempt from the provisions of this clause (2)(b);
Notwithstanding the foregoing, the following will not be deemed to be
Affiliate Transactions:
(1) transactions under any employment, stock option or stock purchase
agreement entered into by the Company or any of its Restricted
Subsidiaries, or any grant of stock, in each case in the ordinary course of
business that is approved by the Board of Directors of the Company;
(2) transactions between or among the Company and its Restricted
Subsidiaries;
(3) transactions permitted by the covenant entitled
"--Covenants--Restricted Payments;"
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(4) Permitted Investments of a type referred to in clauses (1), (2),
(3), (6) and (10) of Permitted Investments; and
(5) the sale of Equity Interests (other than Disqualified Capital
Stock) of the Company.
BUSINESS ACTIVITIES
The Company and its Restricted Subsidiaries may not, directly or
indirectly, engage in any business other than the Telecommunications Business.
LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS
The Company and its Restricted Subsidiaries may not, directly or
indirectly, enter into, assume, Guarantee or otherwise become liable with
respect to any Sale and Leaseback Transaction; PROVIDED, that the Company or any
Restricted Subsidiary of the Company may enter into any Sale and Leaseback
transaction if:
(1) the Company or the Restricted Subsidiary would be permitted under
the covenants entitled "-- Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified Stock" and "-- Covenants -- Liens" to incur
secured Indebtedness in an amount equal to the Attributable Debt with
respect to the Sale and Leaseback transaction;
(2) the consideration received by the Company or the Restricted
Subsidiary from the transaction is at least equal to the Fair Market Value
of the property being transferred; and
(3) the Net Proceeds received by the Company or the Restricted
Subsidiary from the transaction are applied in accordance with the
provisions described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales."
REPORTS
Whether or not required by the rules and regulations of the Securities and
Exchange Commission, so long as any new notes are outstanding, the Company will
furnish to the holders of new notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
20-F if the Company were required to file those Forms (provided that the
information that is required by Form 20-F will be provided within 120 days
of the Company's fiscal year end), including an "Operating and Financial
Review and Prospects" section that describes the financial condition and
results of operations of the Company and its Subsidiaries and, with respect
to the annual information only, a report on the annual financial statements
by the Company's independent certified public accountants; and
(2) all information that would be required to be filed with the
Commission on Form 8-K or 6-K if the Company were required to file those
reports.
In addition, together with the information provided in clauses (1) and (2)
above, the Company will provide supplemental financial information to the extent
permitted by the Commission in the "Operating and Financial Review and
Prospects" section of those reports or other section of those reports, as
appropriate consisting of revenue (allocated between domestic and international
operations), expense, earnings before interest and taxes, net income, capital
expenditures, cash, debt, depreciation and amortization and subscriber data for
the Company and reflecting elimination of intercompany transactions. In the
event the Commission does not permit supplemental financial information to be
included in those reports, then the Company will supply the information
supplementally to the registered holders of the new notes, unless providing such
information supplementally would, in the reasonable judgment of counsel to the
Company, violate applicable law.
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In addition, whether or not required by the rules and regulations of the
Commission, but only if then permitted by the Commission, the Company will file
a copy of all information and reports provided to holders in accordance with
this covenant with the Commission for public availability and make the
information available to securities analysts and prospective investors upon
request. In addition, for so long as any new notes remain outstanding, the
Company will furnish to the holders of the new notes and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Affiliates will, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any new notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the indenture
or the new notes unless the consideration is offered to be paid or agreed to be
paid to all holders of the new notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to the consent,
waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(1) default for 30 days in the payment when due of interest on the new
notes;
(2) default in payment when due (whether at maturity, upon redemption
or repurchase, or otherwise) of the principal of or premium, if any, on the
new notes;
(3) default in the payment of the principal of, or premium, if any, or
interest on new notes required to be purchased pursuant to the provisions
described under the captions "-- Repurchase at the Option of Holders --
Offer to Purchase Upon Change of Control," "-- Repurchase at the Option of
Holders -- Offer to Purchase with Excess Asset Sale Proceeds," or failure
by the Company to comply with the provisions described under "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets";
(4) failure by the Company or any of its Restricted Subsidiaries for
30 days after notice to comply with any of their other covenants in the
indenture or the new notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is Guaranteed by the Company or any
of its Restricted Subsidiaries), whether the Indebtedness or Guarantee now
exists, or is created after the date of the indenture, which default:
(a) is caused by a failure to pay the principal of, or premium, if
any, or interest on the Indebtedness prior to the expiration of the
grace period, if any, provided in the Indebtedness on the date of the
default (a "Payment Default"); or
(b) results in the acceleration (which acceleration has not been
rescinded) of the Indebtedness prior to its express maturity, and, in
each case described in clauses (a) and (b) of this clause (5), the
principal amount of any Indebtedness, together with the principal
amount of any other Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates
$4.0 million or more; PROVIDED, that this clause (5) will not apply to
any Restricted Subsidiary of the Company that is not a Significant
Subsidiary of the Company so long as the Company and its other
Restricted Subsidiaries are not affected by the default (other than
the loss of their investment in such Restricted Subsidiary) and the
default does not result in a default or event of default (whether or
not with notice or passage of time or both) under any contract,
agreement, mortgage, note, Indebtedness, instrument or other
obligation of the Company or any
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other Restricted Subsidiary that gives any Person the right to
accelerate any Indebtedness of the Company or any other Restricted
Subsidiary aggregating $4.0 million or more or causes any Indebtedness
to become due prior to its stated maturity;
(6) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments (other than any judgments as to which a reputable
insurance company has accepted full liability and whose bond, premium or
similar charge for the judgment is not in excess of $4.0 million)
aggregating in excess of $4.0 million, which judgments are not paid,
discharged or stayed within 60 days after the date on which any period for
appeal has expired and during which a stay of enforcement of the judgment
is not in effect; PROVIDED, that this clause (6) will not apply to any
Restricted Subsidiary of the Company that is not a Significant Subsidiary
of the Company so long as the Company and its other Restricted Subsidiaries
are not affected by the failure to pay the final judgment (other than the
loss of their investment in the Restricted Subsidiary so affected) and the
failure does not result in a default or event of default (whether or not
with notice or passage of time or both) under any contract, agreement,
mortgage, note, Indebtedness, instrument or other obligation of the Company
or any other Restricted Subsidiary that gives any Person the right to
accelerate any Indebtedness of the Company or any other Restricted
Subsidiary aggregating $4.0 million or more or causes any such Indebtedness
to become due prior to its stated maturity;
(7) termination or loss, for any reason, of the Dominican License;
(8) the initiation of any bankruptcy or insolvency proceeding by the
Company, any of its Significant Subsidiaries or any group of Restricted
Subsidiaries of the Company that collectively would constitute a
Significant Subsidiary of the Company, the initiation by any creditor of
the Company or a Restricted Subsidiary of the Company of a bankruptcy or
insolvency proceeding against the Company, any of its Significant
Subsidiaries or any group of Restricted Subsidiaries of the Company that
collectively would constitute a Significant Subsidiary of the Company
following the termination of an amicable settlement process administered by
the Ministry of State for Industry and Commerce (Secretaria de Estado de
Industria y Comercio), or the entry of any bankruptcy or insolvency order
by a court of competent jurisdiction against the Company, any of its
Significant Subsidiaries or any group of Restricted Subsidiaries of the
Company that collectively would constitute a Significant Subsidiary of the
Company; or
(9) any Note Guarantee by a Significant Subsidiary of the Company (or
one or more Subsidiaries of the Company that constitute a Significant
Subsidiary of the Company) is held in a judicial proceeding to be
unenforceable or invalid or ceases for any reason to be in full force and
effect, or any Guarantor that is a Significant Subsidiary of the Company
(or a group of subsidiaries that collectively constitute a Significant
Subsidiary of the Company), or any person acting on behalf of any one or
more Guarantor that individually or collectively constitute a Significant
Subsidiary of the Company, deny or disaffirm its obligations under its Note
Guarantee.
If any Event of Default occurs and is continuing with respect to the new
notes, the trustee or the holders of at least 25% of the aggregate principal
amount of the then outstanding new notes may declare all the new notes to be due
and payable immediately. Upon declaration, the principal of, premium, if any,
and accrued and unpaid interest on the new notes will be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary or any group of Restricted Subsidiaries
that collectively would constitute a Significant Subsidiary or in the event the
Company fails to make any payment when due under clauses (1) and (2) of the
preceding paragraph, all outstanding new notes will become due and payable
without further action or notice. Holders of the new notes may not enforce the
indenture or the new notes except as provided in the indenture. Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding new notes may direct the trustee in its exercise of any trust or
power. The trustee may withhold from holders of the new notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the new notes under the
optional redemption provisions of the indenture, an equivalent premium also will
become and be immediately due and payable upon the acceleration of the new
notes.
The holders of a majority of the aggregate principal amount of the new
notes then outstanding by notice to the trustee may on behalf of the holders of
all of the new notes waive any existing Default or Event of Default and its
consequences under the indenture, except a continuing Default or Event of
Default in the payment of interest or premium, if any, on, or the principal of,
the new notes.
The Company is required to deliver to the trustee quarterly a statement
regarding compliance with the indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the trustee a
statement specifying the Default or Event of Default.
NO PERSONAL LIABILITY OF PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, will have any liability for any obligations of the
Company or any Restricted Subsidiary of the Company under the new notes or the
indenture or for any claim based on, in respect of, or by reason of, the
obligations or their creation. Each holder of new notes by accepting a new note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the new notes. The waiver may not be effective to
waive liabilities under the United States federal securities laws and it is the
view of the Commission that a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding new notes ("legal
defeasance"). Legal defeasance means that the Company will be deemed to have
paid and discharged the entire indebtedness represented by the outstanding new
notes, except for:
(1) the rights of holders of outstanding new notes to receive from the
trust described below payments in respect of the principal of, premium, if
any, and interest on the new notes when the payments are due, or on the
applicable optional redemption date, as the case may be;
(2) the Company's obligations with respect to the new notes concerning
issuing temporary new notes, registration of new notes, mutilated,
destroyed, lost or stolen new notes and the maintenance of an office or
agency for payment and money for security payments held in trust;
(3) the rights, powers, trust, duties and immunities of the trustee,
and the Company's obligations in connection therewith; and
(4) the legal defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the indenture ("covenant defeasance") and thereafter any
omission to comply with obligations will not constitute a Default or Event of
Default with respect to the new notes. In the event covenant defeasance occurs,
certain events (not including nonpayment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the new notes.
In order to exercise either legal defeasance or covenant defeasance:
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(1) the Company must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the new notes, cash in U.S. dollars,
non-callable U.S. government obligations, or a combination thereof, in
amounts as will be sufficient, in the opinion of a United States nationally
recognized firm of independent public accountants selected by the Company,
to pay the principal of, premium, if any, and interest on the outstanding
new notes, on the stated maturity or on the applicable optional redemption
date, as the case may be, of the principal or installment of principal of,
premium, if any, or interest on the outstanding new notes;
(2) in the case of legal defeasance, the Company must deliver to the
trustee an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that (A) the Company has received from, or there has
been published by, the United States Internal Revenue Service a ruling or
(B) since the Issue Date, there has been a change in the applicable United
States federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel will confirm that, the holders of the
outstanding new notes will not recognize income, gain or loss for federal
income tax purposes as a result of the legal defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if the legal defeasance had not
occurred;
(3) in the case of covenant defeasance, the Company must deliver to
the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders of the outstanding
new notes will not recognize income, gain or loss for United States federal
income tax purposes as a result of such covenant defeasance and will be
subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
covenant defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on
the date of the deposit (other than a Default or Event of Default resulting
from the borrowing of funds to be applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at
any time in the period ending on the 91st day after the date of deposit;
(5) the legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which the Company or
any of its Restricted Subsidiaries is a party or by which the Company or
any of its Restricted Subsidiaries is bound;
(6) the Company must deliver to the trustee an opinion of counsel to
the effect that after the 91st day (or other applicable date) following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(7) the Company must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by the Company or with the intent of
preferring the holders of new notes over the other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(8) the Company must deliver to the trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for relating to the legal defeasance or the covenant defeasance
have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange new notes in accordance with the
indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the indenture. The Company is not required to transfer or exchange
any new note selected for redemption. Also, the Company is not required to
transfer or exchange any new note for a period of 15 days before a selection of
new notes to be redeemed.
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The registered holder of a new note will be treated as the owner of the new
note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture or the
new notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the new notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for new notes), and any existing default or compliance with any provision of the
indenture or the new notes may be waived with the consent of the holders of at
least a majority in principal amount of the then outstanding new notes
(including consents obtained in connection with a tender offer or exchange offer
for new notes).
Without the consent of each holder affected, however, an amendment or
waiver may not (with respect to any new note held by a non-consenting holder):
(1) reduce the principal amount of new notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any new
note or alter the provisions with respect to the redemption of the new
notes (other than provisions relating to the covenants described under the
captions "-- Repurchase at the Option of Holders -- Offer to Purchase upon
Change of Control" and "-- Repurchase at the Option of Holders -- Offer to
Purchase with Excess Asset Sale Proceeds");
(3) reduce the rate of or change the time for payment of interest on
any new notes;
(4) waive a Default or Event Of Default in the payment of the
principal of or premium, if any, or interest on the new notes (except a
rescission of acceleration of the new notes by the holders of at least a
majority of the aggregate outstanding principal amount of the new notes and
a waiver of the payment default that resulted from such acceleration);
(5) make any new note payable in money other than that stated in the
new notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of new notes to receive
payments of the principal of, premium, if any, or interest on the new
notes;
(7) waive a redemption payment with respect to any new note (other
than a payment required by one of the covenants described above under the
captions "-- Repurchase at the Option of Holders -- Offer to Purchase upon
Change of Control" and "-- Repurchase at the Option of Holders -- Offer to
Purchase with Excess Asset Sale Proceeds"); or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of new
notes, the Company and the trustee may amend or supplement the indenture or the
new notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated new notes in addition to or in place
of certificated new notes;
(3) to provide for the assumption of the Company's obligations to
holders of the new notes in the case of a merger or consolidation or sale
of all or substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of the new notes or that does not adversely affect
the legal rights under the indenture of any holder; or
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(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust indenture
Act.
CONCERNING THE TRUSTEE
The indenture will contain certain limitations on the rights of the
trustee, should the trustee become a creditor of the Company, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The trustee will be
permitted to engage in other transactions with the Company; PROVIDED, HOWEVER,
that if the trustee acquires any conflicting interest, it must eliminate the
conflict within 90 days, apply to the Commission for permission to continue as
trustee or resign.
The holders of a majority in principal amount of the then outstanding new
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture will provide that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
powers, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to these provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of new notes, unless the holder offers to the trustee security and
indemnity satisfactory to it against any loss, liability or expense. No holder
of any new note will have any right to institute any proceeding with respect to
the indenture or for any remedy thereunder, unless
(1) the holder gives to the trustee written notice of a continuing
Event of Default,
(2) holders of at least 25% in principal amount of the then
outstanding new notes make a written request to pursue the remedy,
(3) the holders of the new notes provide to the trustee satisfactory
indemnity, and
(4) the trustee does not comply within 60 days.
Otherwise, no holder of any new note will have any right to institute any
proceeding with respect to the indenture or for any remedy thereunder, except:
(1) a holder of a new note may institute suit for enforcement of
payment of the principal of and premium, if any, or interest on the new
note on or after the respective due dates expressed in the new note
(including upon acceleration thereof) or
(2) the institution of any proceeding with respect to the indenture or
any remedy thereunder, including without limitation acceleration, by the
holders of a majority in principal amount of the then outstanding new
notes;
PROVIDED, that, upon institution of any proceeding or exercise of any remedy
holders provide the trustee with prompt notice thereof.
ADDITIONAL INFORMATION
Anyone who receives this prospectus and consent solicitation may obtain a
copy of the indenture without charge by writing to the Company at Avenida Lope
de Vega No. 95, Santo Domingo, Dominican Republic, Attention: Investor
Relations.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time the other
Person is merged with or into the specified Person or a Restricted
Subsidiary thereof or became a Restricted Subsidiary of the specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, the other Person merging with or into such
Person as a Restricted Subsidiary thereof or becoming a Restricted
Subsidiary of the specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
the specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of all votes represented by the Voting
Stock of a Person shall be deemed to be control. Motorola and GFN will be deemed
to be Affiliates of the Company and its Restricted Subsidiaries until such time
as Motorola or GFN, as the case may be, no longer is the Beneficial Owner of at
least 10% of the Voting Stock of the Company.
"ATTRIBUTABLE DEBT" means, with respect to any Sale and Leaseback
Transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which the lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate the lease without penalty or upon payment of a penalty (in which case
the rental payments shall include the penalty), after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"BENEFICIAL OWNER" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934 (or any successor rules),
including the provision of such Rules that a Person will be deemed to have
beneficial ownership of all securities that a Person has a right to acquire
within 60 days; PROVIDED, that a Person will not be deemed a beneficial owner
of, or to own beneficially, any securities if such beneficial ownership
(1) arises solely as a result of a revocable proxy delivered in
response to a proxy or consent solicitation made pursuant to, and in
accordance with, the Exchange Act and
(2) is not also then reportable on Schedule 13D or Schedule 13G (or
any successor schedule) under the Exchange Act.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at the time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock; and
(3) in the case of a partnership, partnership interests (whether
general or limited) and any other interest or participation that confers on
a Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership.
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"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, in one
or a series of related transactions, of all or substantially all of the
assets of the Company and its Restricted Subsidiaries, taken as a whole, to
any Person or group (as that term is used in Section 13(d)(3) and 14(d)(2)
of the Exchange Act), other than any sale, lease, transfer, conveyance or
other disposition to a Person of which GFN and/or Motorola, after giving
effect to the transaction in the aggregate are the Beneficial Owners,
directly or indirectly, of in excess of 50% of all votes represented by the
Voting Stock of such Person;
(2) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(3) GFN and Motorola in the aggregate are no longer the Beneficial
Owners, directly or indirectly, of at least in excess of 50% of all votes
represented by the total Voting Stock of the Company; or
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"CLOSING PRICE" on any Trading Day with respect to the per share price of
any shares of Capital Stock (or depositary receipts or shares evidencing shares
of Capital Stock) means
- the last reported sale price regular way or, in case no last reported
sale regular way takes place on the Trading Day, the average of the
reported closing bid and asked prices regular way, in either case on the
New York Stock Exchange or,
- if shares of Capital Stock are not listed or admitted to trading on the
New York Stock Exchange, on the principal United States national
securities exchange on which shares are listed or admitted to trading
or, if not listed or admitted to trading on any United States national
securities exchange, on the Nasdaq National Market or,
- if shares are not listed or admitted to trading on any United States
national securities exchange or quoted on Nasdaq National Market, but
the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under the
Exchange Act) and the principal securities exchange on which shares are
listed or admitted to trading is a Designated Offshore Securities Market
(as defined in Rule 902(a) under the Securities Act), the average of the
reported closing bid and asked prices regular way on the principal
securities exchange, or,
- if such shares are not listed or admitted to trading on any United
States national securities exchange or quoted on the Nasdaq National
Market and the issuer and principal securities exchange do not meet such
requirements, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange
member firm that is selected from time to time by the Company for that
purpose and is reasonably acceptable to the trustee and
- if such prices are not available, the price as determined by a United
States investment bank nationally recognized in the United States
selected by the Company.
"COMMISSION" means the United States Securities and Exchange Commission or
any successor governmental agency.
"COMMON STOCK" of any Person means Capital Stock of that Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"CONSOLIDATED EBITDA" as of any date of determination means the
Consolidated Net Income of a Person and its Restricted Subsidiaries for such
period (but without giving effect to adjustments, accruals, deductions or
entries resulting from purchase accounting, extraordinary losses or gains and
any gains or losses from any Asset Sales), plus to the extent not otherwise
added into Consolidated Net Income, the following to the extent deducted in
calculating Consolidated Net Income:
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(1) provision for taxes based on income or profits of the Person and
its Restricted Subsidiaries for such period (but excluding any taxes,
assessments, levies or other charges imposed by any governmental authority
solely on the revenues of any such Person and its Restricted Subsidiaries);
(2) Consolidated Interest Expense; and
(3) depreciation, amortization (including amortization of goodwill and
other intangibles) and other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that
was paid in a prior period and excluding non-cash interest and dividend
income) of the Person and its Restricted Subsidiaries for such period, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation, amortization, interest expense and other non-cash
charges of, a Restricted Subsidiary of the specified Person will be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in same proportion) that the Net Income of that Restricted Subsidiary was
included in calculating the Consolidated Net Income of the Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Person by that Restricted Subsidiary, or loaned to the Person
by that Restricted Subsidiary, without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any Person, as of any
date of determination, the aggregate amount of Indebtedness of that Person and
its Restricted Subsidiaries as of the date of determination calculated on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any Person, for any period, the
aggregate of the following for such Person for the period determined on a
consolidated basis in accordance with GAAP:
(1) the amount of interest in respect of Indebtedness (including
amortization of original issue discount, amortization of debt issuance
costs, non-cash interest payments on any Indebtedness, the interest portion
of any deferred payment obligation and commissions, discounts and other
fees and charges incurred in respect of letters of credit or bankers
acceptance financings) after taking into account the effect of elections
made under any Interest Rate Agreement, however denominated, with respect
to such Indebtedness;
(2) the amount of Redeemable Dividends (to the extent not already
included in Indebtedness in determining Consolidated Interest Expense for
the relevant period); and
(3) the interest component of rentals in respect of any Capital Lease
Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by that Person during the period to the extent the amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition, interest on
a Capital Lease Obligation will be deemed to accrue at an interest rate
reasonably determined by the Person to be the rate of interest implicit in
the Capital Lease Obligation in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of that Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, that:
(1) the Net Income of any Person that is not a Subsidiary of the
Person or that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Subsidiary thereof;
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(2) the Net Income of any Restricted Subsidiary of a specified Person
will be excluded to the extent that the declaration or payment of dividends
or other distributions by that Restricted Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) any taxes, assessments, levies or other charges imposed by any
governmental authority on the revenues of any such Person or its Restricted
Subsidiaries will be treated as an operating expense;
(4) the cumulative effect of a change in accounting principles will be
excluded;
(5) the Net Income of any Unrestricted Subsidiary of such Person will
be excluded, whether or not distributed to the specified Person or one of
its Restricted Subsidiaries; and
(6) any amortization or write-off of deferred financing or related
costs or any costs of defeasance or premium paid with respect to the
retirement, extinguishment, defeasance, refinancing or repayment of the
existing notes will be excluded from such determination.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date:
(1) the consolidated equity of the common equity holders of the Person
and its consolidated Restricted Subsidiaries as of that date; plus
(2) the respective amounts reported on the Person's balance sheet as
of the date with respect to any series of preferred Equity Interests (other
than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless dividends may be declared and paid only out of net
earnings in respect of the year of declaration and payment, but only to the
extent of any cash received by the Person upon issuance of such preferred
stock; minus
(3) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going-concern
business made within 12 months after the acquisition of a business)
subsequent to the date of the indenture in the book value of any asset
owned by a Person or a consolidated Restricted Subsidiary of that Person;
minus
(4) all investments as of the date in unconsolidated Subsidiaries of
the Person and in Persons that are not Restricted Subsidiaries of the
Person; minus
(5) all unamortized debt discount and expense and unamortized deferred
charges as of that date.
"CONTINGENT INVESTMENT" means, with respect to any Person, any Guarantee by
the specified Person of the performance of another Person or any commitment by
the specified Person to invest in another Person. Any Investment that consists
of a Contingent Investment will be deemed made at the time that the Guarantee of
performance or the commitment to invest is given, and the amount of the
Investment will be the maximum monetary obligation under the Guarantee of
performance or commitment to invest. To the extent that a Contingent Investment
is released or lapses without payment under the Guarantee of performance or the
commitment to invest, the Investment will be deemed not made to the extent of
the release or lapse. With respect to any Contingent Investment, the payment of
the Guarantee of performance or the payment under the commitment to invest will
not be deemed to be an additional Investment.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of the Company who
(1) was a member of such Board of Directors on the Issue Date or
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(2) was nominated for election or elected to the Board of Directors
with the affirmative vote of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or election.
"CURRENCY AGREEMENTS" means any foreign exchange contract, currency swap
agreement or other similar swap agreement.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock to the extent that, and only
to the extent that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the new notes mature;
PROVIDED, HOWEVER, that any Capital Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Capital Stock upon the
occurrence of a Change of Control occurring prior to the final maturity of the
new notes will not constitute Disqualified Stock if the change in control
provisions applicable to the Capital Stock are no more favorable to the holders
of the Capital Stock than the provisions applicable to the new notes contained
in the provisions described under "-- Repurchase at the Option of Holder --
Offer to Purchase Upon Change of Control" and such Capital Stock specifically
provides that the Company will not repurchase or redeem any such stock pursuant
to the change of control provisions prior to the Company's repurchase of the new
notes as are required to be repurchased pursuant to the provisions described
under "-- Repurchase at the Option of Holder -- Offer to Purchase Upon Change of
Control."
"DOMINICAN LICENSE" means the Concession Agreement, dated April 30, 1990,
between the Dominican State and Telepuerto San Isidro, S.A. and the Concession
Agreement for the Operation of Telecommunications Services in the Dominican
Republic, dated February 20, 1996, between the Dominican State and TRICOM, S.A.,
as these agreements may be amended, modified, replaced, renewed or extended,
from time to time, as long as any amendment, modification, replacement, renewal
or extension permits the Company or any of its Restricted Subsidiaries to
provide all of the same telecommunications services provided by the Company or
any of its Restricted Subsidiaries immediately prior to the amendment,
modification, replacement, renewal or extension other than those that are
immaterial to the Company and its Restricted Subsidiaries' business, operations
and financial condition, taken as a whole.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to Standard &
Poor's or Moody's at the time as of which any investment or rollover therein is
made.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or exchangeable
for Capital Stock).
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended (or any successor act), and the rules and regulations under the Exchange
Act.
"FAIR MARKET VALUE" means with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in other
statements by any other
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entity as may be approved by a significant segment of the accounting profession
of the United States, which are in effect on the Issue Date.
"GFN" means GFN Corporation Ltd., a Dominican corporation, the Pellerano
Family, and any Subsidiary of GFN all of the Capital Stock (other than directors
qualifying shares or shares issued to comply with any requirement of the laws of
the jurisdiction of organization that there be more than one shareholder) of
which is beneficially owned, directly or indirectly, by GFN or the Pellerano
Family.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
Guaranteed by, the United States of America for the payment of which Guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
that Person under Interest Rate Agreements or Currency Agreements.
"INDEBTEDNESS" means, with respect to any Person, any
(1) indebtedness of that Person, whether or not contingent, in respect
of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or representing the balance deferred and unpaid of the purchase
price of any property (including pursuant to capital leases) or
representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing (other than Hedging Obligations or letters of credit)
would appear as a liability upon a balance sheet of that Person prepared in
accordance with GAAP,
(2) all indebtedness of others secured by a Lien on any asset of that
Person (whether or not the indebtedness is assumed by that Person),
(3) all obligations to purchase, redeem, retire, defease or otherwise
acquire for value any Disqualified Stock or any warrants, rights or options
to acquire Disqualified Stock valued, in the case of Disqualified Stock, at
the greatest amount payable in respect thereof on a liquidation (whether
voluntary or involuntary) plus accrued and unpaid dividends,
(4) the liquidation value of any Preferred Stock issued by Restricted
Subsidiaries of that Person (other than to that Person) plus accrued and
unpaid dividends,
(5) to the extent not otherwise included, the Guarantee of items that
would be included within this definition and
(6) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any of the above.
Notwithstanding the foregoing, in no event will performance bonds or similar
security for performance be deemed Indebtedness so long as the performance bonds
or similar security for performance would not appear as a liability on a balance
sheet of that Person prepared in accordance with GAAP. In addition, the amount
of any Indebtedness in respect of any Guarantee will be the maximum principal
amount of the Indebtedness so Guaranteed.
"INTEREST RATE AGREEMENTS" means
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements and
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(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"INVESTMENTS" means, with respect to any Person,
- all investments by that Person in other Persons (including Affiliates)
in the forms of loans, Guarantees, Contingent Investments, advances or
capital contributions (excluding commission, travel and similar advances
to officers and employees made in the ordinary course of business),
- purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities of any other Person and
- all other items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP;
PROVIDED, HOWEVER, that any investment to the extent made with Capital Stock of
the Company (other than Disqualified Stock) shall not be deemed an "Investment"
for purposes of the indenture.
"ISSUE DATE" means _______ _______, 2003.
"LEVERAGE RATIO" with respect to any Person means the ratio of the
Consolidated Indebtedness of that Person at the date of determination to the
Consolidated EBITDA of that Person for the relevant period; PROVIDED, HOWEVER,
that
(1) if the Company or any Restricted Subsidiary of the Company has
incurred any Indebtedness (including Acquired Debt) or if the Company has
issued any Disqualified Stock or if any Restricted Subsidiary of the
Company has issued any Preferred Stock (other than to the Company or
another Restricted Subsidiary of the Company) since the beginning of such
period that remains outstanding on the date of determination or if the
transaction giving rise to the need to calculate the Leverage Ratio is an
incurrence of Indebtedness (including Acquired Debt) or the issuance of
Disqualified Stock by the Company, Consolidated EBITDA for such period and
Consolidated Indebtedness at the date of determination will be calculated
after giving effect on a pro forma basis to
(A) the Indebtedness, Disqualified Stock or Preferred Stock
incurred or issued, as applicable, as if such
Indebtedness had been incurred or such stock had been
issued on the first day of such period,
(B) the discharge of any other Indebtedness or Retirement of
any Disqualified Stock repaid, repurchased, defeased,
retired or otherwise discharged with the proceeds of new
Indebtedness or sale of stock as if the discharge had
occurred on the first day of the period, and
(C) the interest income realized by the Company or its
Restricted Subsidiaries on the proceeds of the
Indebtedness or of such stock sale, to the extent not yet
applied at the date of determination, assuming the
proceeds earned interest at the rate in effect on the
date of determination from the first day of such period
through such date of determination;
(2) if since the beginning of such period the Company or any
Restricted Subsidiary of the Company has made any sale of assets
(including, without limitation, any Asset Sales or pursuant to any Sale and
Leaseback Transaction), Consolidated EBITDA for the period will be
(A) reduced by an amount equal to Consolidated EBITDA (if
positive) directly attributable to the assets which are
the subject of the sale of assets for such period or
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(B) increased by an amount equal to Consolidated EBITDA (if
negative) directly attributable to the assets which are
the subject of such sale of assets for such period; and
(3) if since the beginning of such period the Company or any
Restricted Subsidiary of the Company (by merger or otherwise) has made an
Investment in any Restricted Subsidiary of the Company (or any Person which
becomes a Restricted Subsidiary of the Company) or has made an acquisition
of assets, including, without limitation, any acquisition of assets
occurring in connection with a transaction causing a calculation of
Consolidated EBITDA to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, Consolidated EBITDA
for such period will be calculated after giving PRO FORMA effect thereto
(including the incurrence of any Indebtedness (including Acquired Debt)) as
if the Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever PRO FORMA effect is to be given to an
acquisition of assets, the pro forma calculations will be determined in good
faith by a responsible financial or accounting Officer of the Company; PROVIDED,
HOWEVER, that the Officer will assume
(1) the historical sales and gross profit margins associated
with the assets for any consecutive 12-month period ended prior
to the date of purchase (provided that the first month of such
12-month period will be no more than 18 months prior to the date
of purchase) and
(2) other expenses as if the assets had been owned by the
Company since the first day of such period.
If any Indebtedness (including, without limitation, Acquired Debt) bears a
floating rate of interest and is being given PRO FORMA effect, the interest on
such Indebtedness will be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period. When
calculating the Leverage Ratio for any period, the Company will use for foreign
currency translations the rate of exchange existing on the last Business Day of
the period for which the calculation is made based on the Private Market Rate.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the New York Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"MARKETABLE SECURITIES" means:
(1) Government Securities;
(2) any certificate of deposit maturing not more than (x) 270 days
after the date of acquisition that is issued by, or time deposit of, an
Eligible Institution or (y) 180 days after the date of acquisition that is
issued by, or time deposit of, Banco Nacional de Credito or any one of the
other four largest private banks in the Dominican Republic (based on
shareholders' equity);
(3) commercial paper maturing not more than 270 days after the date of
acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating, at the time as of which any investment therein is
made, of "A-1" (or higher) according to Standard & Poor's or "P-1" (or
higher) according to Moody's;
(4) any banker's acceptances or money market deposit accounts issued
or offered by an Eligible Institution; and
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(5) any fund with assets of at least $500 million investing
exclusively in investments of the types described in clauses (1) through
(4) above.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"MOTOROLA" means Motorola Inc., a Delaware corporation, and any Subsidiary
thereof all of the Capital Stock of which is directly or indirectly owned by
Motorola Inc.
"NET INCOME" means, with respect to any Person, the net income (loss) of
that Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however,
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any
Asset Sale (including, without limitation, dispositions pursuant to Sale
and Leaseback Transactions) or (b) the disposition of any securities by
that Person or any of its Restricted Subsidiaries or the extinguishment of
any Indebtedness of such Person or any of its Restricted Subsidiaries and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to that Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result of such asset sale (after taking into account any available tax credits
or deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
are the subject of such Asset Sale and any reserve for adjustment in respect of
the sale price of such asset or assets. Net Proceeds will exclude any non-cash
proceeds received from any Asset Sale, but will include any non-cash proceeds
when and as converted by the Company or any Restricted Subsidiary of the Company
to cash.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate
signed by the Chief Executive Officer or President and the Chief Financial
Officer of such Person.
"OLD INDENTURE" means the indenture, dated as of August 21, 1997, between
TRICOM, S.A. and The Bank of New York, as trustee.
"PELLERANO FAMILY" means:
(1) any member of the Pellerano family ("Member") as of the Issue Date
that has an interest (including indirectly through any corporation, trust
or entity) in GFN,
(2) the spouse or surviving spouse and natural and adopted children of
any Member,
(3) any trust existing solely for the benefit of Members and any
person who would be a permitted transferee of any Member under clause (2),
(4) upon the death of any such Member or any person who would be a
permitted transferee of any Member under clause (2), such holder's estate
or any executor, administrator or other legal representative of such
holder, and
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(5) any corporation, partnership or other entity all of the
outstanding equity interests of which are owned, or all of the outstanding
voting power of which is controlled, directly or indirectly by, or any
trust or similar entity the sole beneficiaries of which are, such Members
and their permitted transferees.
"PERMITTED INVESTMENT" means:
(1) any Investments in the Company or any Restricted Subsidiary of the
Company;
(2) any Investments in Marketable Securities;
(3) Investments by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company;
(4) any Investments in property or assets to be used in (a) any line
of business in which the Company or any of its Restricted Subsidiaries was
engaged on the Issue Date or (b) any Telecommunications Business;
(5) Investments in any Person in connection with the acquisition of
such Person or substantially all of the property or assets of such Person
by the Company or any Restricted Subsidiary of the Company; PROVIDED, that
within 180 days from the first date of any such Investment, either (A) such
Person becomes a Restricted Subsidiary of the Company or any of its
Restricted Subsidiaries or (B) the amount of any such Investment is repaid
in full to the Company or any of its Restricted Subsidiaries;
(6) Investments pursuant to any agreement or obligation of the Company
or a Restricted Subsidiary of the Company in effect on the Issue Date or on
the date a Person becomes a Restricted Subsidiary of the Company; PROVIDED,
that any such agreement was not entered into in contemplation of such
Person becoming a Restricted Subsidiary of the Company), to make such
Investments;
(7) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(8) Hedging Obligations permitted to be incurred by the covenant
entitled "--Covenants-- Incurrence of Indebtedness and Issuance of
Preferred Stock";
(9) Investments aggregating not more than $5.0 million in securities
or other debt or equity instruments of Dominican companies or government
entities that mature or are redeemed within 180 days of the date of the
purchase thereof (including any such Investments outstanding as of the
Issue Date);
(10) Investments aggregating not more than $10.0 million in securities
of entities that are engaged in any Telecommunications Business where as a
result of such investment the Company will have the right to designate at
least one member to the Board of Directors of the entity if it is a
corporation or become a general partner or manager if the entity is a
partnership or limited liability entity (including any Investments
outstanding as of the Issue Date); PROVIDED, that no more than $5.0 million
of such Investments will be in entities that, immediately after such
Investment, would not qualify as Subsidiaries of the Company; and
(11) bonds, notes, debentures or other securities received as a result
of Asset Sales permitted under the provisions described under "--
Repurchase at the Option of Holders -- Asset Sales".
"PERMITTED LIENS" means:
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(1) Liens securing Indebtedness (including Capital Lease Obligations)
permitted to be incurred pursuant to clauses (1) or (2) of the second
paragraph of the covenant entitled "-- Covenants -- Incurrence of
Indebtedness and Issuance of Disqualified Stock;"
(2) Liens in favor of the Company;
(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary
of the Company; PROVIDED, that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company;
(4) Liens on property existing at the time of the acquisition thereof
by the Company or any Restricted Subsidiary of the Company; PROVIDED, that
such Liens were in existence prior to the contemplation of such
acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens existing on the Issue Date;
(7) Liens for taxes, assessments or governmental claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings timely instituted and diligently concluded; PROVIDED, that any
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor;
(8) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary of the Company with respect to obligations
that do not exceed $5.0 million at any one time outstanding and that (a)
are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or the Restricted Subsidiary (including any such
Liens outstanding as of the Issue Date);
(9) Liens on Telecommunications Related Assets existing during the
time of the construction thereof;
(10) Liens on buildings or cellular sites acquired by the Company or
any Restricted Subsidiary of the Company; PROVIDED, that such Liens do not
secure Indebtedness equal to or exceeding $5.0 million in the aggregate
(including any such Liens outstanding as of the Issue Date);
(11) Liens to secure any Permitted Refinancing of any Indebtedness
secured by Liens referred to in the foregoing clauses (1), (3), (5) or
(10), but only to the extent that such Liens do not extend to any other
property or assets and the principal amount of the Indebtedness secured by
such Liens is not increased;
(12) easements, rights of way, municipal and zoning ordinances and
similar charges and encumbrances, title defects or other irregularities
that do not materially interfere with the ordinary course of business of
the Company or any Restricted Subsidiary of the Company;
(13) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer relating to such property
or assets; and
(14) Liens in favor of the holders of the new notes and the holders of
the existing notes.
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"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PREFERRED STOCK" as applied to the Capital Stock of any Person, means
Capital Stock of the Person of any class or classes (however designated) that
ranks prior, as to payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of the
Person, to shares of Capital Stock of any other class of the Person.
"RECEIVABLES" means, with respect to any Person, all of the following
property and interests in property of the Person, whether now existing or
existing in the future or hereafter acquired or arising:
(1) accounts;
(2) accounts receivable, including, without limitation, all rights to
payment created by or arising from sales of goods, leases of goods or the
rendition of services no matter how evidenced whether or not earned by
performance;
(3) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit,
relating to any of the foregoing after creation of the foregoing or arising
therefrom;
(4) all rights to any goods or merchandise represented by any of the
foregoing, including, without limitation, returned or repossessed goods;
(5) all reserves and credit balances with respect to any such accounts
receivable or account debtors;
(6) all letters of credit, security, or Guarantees for any of the
foregoing;
(7) all insurance policies or reports relating to any of the
foregoing;
(8) all collection of deposit accounts relating to any of the
foregoing;
(9) all proceeds of any of the foregoing; and
(10) all books and records relating to any of the foregoing.
"REDEEMABLE DIVIDEND" means, for any dividend with regard to Disqualified
Stock and Preferred Stock, the quotient of the dividend divided by the
difference between one and the maximum statutory United States federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Stock or Preferred Stock.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means with respect to a Person, any Subsidiary of
that Person, 100% of the Capital Stock of which is owned by that Person or its
Restricted Subsidiaries; PROVIDED, that, notwithstanding the foregoing, TRICOM
Latinoamerica will be a Restricted Subsidiary of the Company notwithstanding
that the Company and its Restricted Subsidiaries do not own 100% of TRICOM USA's
capital stock, and any Unrestricted Subsidiary will be excluded from this
definition of "Restricted Subsidiary."
"SALE AND LEASEBACK TRANSACTION" means with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by that Person or a Restricted Subsidiary of that Person
and is thereafter leased back from the purchaser or transferee thereof by that
Person or one of its Restricted Subsidiaries.
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"SECURITIES ACT" means the United States Securities Act of 1933, as amended
(or any successor act), and the rules and regulations thereunder.
"SENIOR FACILITIES" means one or more credit facilities entered into by and
among the Company and/or one or more of its Restricted Subsidiaries and one or
more commercial banks or financial institutions, providing for senior term or
revolving credit borrowings (including the issuance of letters of credit) of a
type similar to credit facilities typically entered into by commercial banks and
financial institutions and one or more commercial paper or other senior
securities programs pursuant to which the Company and/or one or more of its
Restricted Subsidiaries is able to raise monies in the capital markets,
including in each case any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
facilities, commercial paper and senior securities programs and related
agreements may be amended, extended, refinanced, renewed, restated, replaced or
refunded from time to time.
"SENIOR INDEBTEDNESS" means any Indebtedness permitted to be incurred by
the Company under the terms of the indenture, unless the instrument under which
the Indebtedness is incurred expressly provides that it is subordinated in right
of payment to the new notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include:
(1) any liability for federal, state, local or other taxes owed or
owing by the Company in the Dominican Republic;
(2) any Indebtedness of the Company to any of its Restricted
Subsidiaries or other Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the indenture.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any
Restricted Subsidiary that qualifies as a Significant Subsidiary as defined in
Rule 12b-2 of the Exchange Act (except that for purposes of this definition 5%
shall be substituted for 10% in the definition of Significant Subsidiary under
Rule 12b-2 of the Exchange Act).
"STANDARD & POOR'S" means Standard and Poor's, a division of The
McGraw-Hill Companies, and its successors.
"SUBSIDIARY" of any Person means
(1) any corporation, association or business entity of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Person or one or more of the other
Subsidiaries of the Person or a combination thereof and
(2) any partnership (x) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(y) the only general partners of which are such Person or one or more
Subsidiaries of such Person or any combination thereof.
"TELECOMMUNICATIONS BUSINESS" means, when used in reference to any Person,
that the Person is engaged primarily in the business of:
(1) transmitting, or providing services relating to the transmission
of, voice, video or data through owned or leased transmission facilities;
(2) creating, developing or marketing communications related network
equipment, software and other devices for use in a Telecommunications
Business; or
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(3) evaluating, participating or pursuing any other activity or
opportunity that is related to those identified in (1) or (2) above;
PROVIDED, that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors of the Company.
"TELECOMMUNICATIONS RELATED ASSETS" means all assets, rights (contractual
or otherwise) and properties, whether tangible or intangible, used in connection
with a Telecommunications Business.
"TOTAL COMMON EQUITY" of any Person means, as of any date of determination
(and as modified for purposes of the definition of "Change of Control"), the
product of
(1) the aggregate number of outstanding shares of Common Stock of that
Person on the date of determination (which will not include any options or
warrants on, or securities convertible or exchangeable into, shares of
Common Stock of such Person) and
(2) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day. If no such Closing
Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (2) of the preceding sentence shall be
determined by the Board of Directors of the Company in good faith and
evidenced by a resolution of the Board of Directors filed with the trustee.
"TRADING DAY" with respect to a securities exchange or automated quotation
system, means a day on which the exchange or system is open for a full day of
trading.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of a Person that is
designated by the Board of Directors of such Person as an Unrestricted
Subsidiary pursuant to a board resolution, excluding TRICOM USA.
"VENDOR INDEBTEDNESS" means any Indebtedness of the Company or any
Subsidiary of the Company incurred in connection with the financing of
Telecommunications Related Assets.
"VOTING STOCK" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(a) the then outstanding principal amount of that Indebtedness into
(b) the total of the product obtained by multiplying
(x) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(y) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment;
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PROVIDED, that with respect to Capital Lease Obligations, that maturity shall be
calculated after giving effect to all renewal options by the lessee.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The new notes, the Note Guarantees and the indenture will be governed by
the laws of the State of New York. The Company and its Restricted Subsidiaries
will submit to the jurisdiction of the U.S. federal and New York state courts
located in the City of New York for purposes of all legal actions and
proceedings instituted in connection with the new notes, the Note Guarantees and
the indenture. The Company and its Restricted Subsidiaries have appointed CT
Corporation System, 1633 Broadway, New York, New York 10019 as their authorized
agent upon which process may be served in any such action.
BOOK-ENTRY, DELIVERY AND FORM
The new notes will initially be represented by one or more permanent global
new notes in definitive, fully registered form without interest coupons (each a
"Global Note") and will be deposited with the trustee as custodian for, and
registered in the name of, Cede & Co., as nominee of The Depository Trust
Company (the "Depository").
Except in the limited circumstances described below regarding "Certificated
Notes," owners of beneficial interests in the Global Note will not be entitled
to receive physical delivery of Certificated Notes (as defined below).
The Company understands that the Depository is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "DTC Participants") and to facilitate the clearance and
settlement of transactions in such securities between DTC Participants through
electronic book-entry changes in accounts of its DTC Participants. The DTC
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a DTC Participant, either directly or indirectly. Persons who are not DTC
Participants may beneficially own securities held by or on behalf of the
Depository only through DTC Participants or the Indirect Participants.
The Company understands that pursuant to procedures established by the
Depository (1) upon deposit of the Global Notes, the Depository will credit the
accounts of DTC Participants designated by the Exchange Agent with portions of
the principal amount of the Global Notes and (ii) ownership of the new notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depository
(with respect to the interests of the DTC Participants), the DTC Participants
and the Indirect Participants. Holders of the existing notes are advised that
the laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer new notes evidenced by the Global Notes will be limited to such extent.
So long as the Depository is the registered owner of any new notes, the
Depository will be considered the sole holder under the indenture of any new
notes evidenced by the Global Notes. Beneficial owners of new notes evidenced by
the Global Notes will not be considered the owners or holders thereof under the
indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the trustee thereunder. Neither the
Company nor the trustee will have any responsibility or liability for any aspect
of the records of the Depository or for maintaining, supervising or reviewing
any records of the Depository relating to the new notes.
Payments in respect of the principal of, premium, if any, and interest on
any new notes registered in the name of the Depository on the applicable record
date will be payable by the trustee to or at the direction of the Depository in
its capacity as the registered holder under the indenture. Under the terms of
the indenture, the Company and the trustee may treat the Persons in whose names
new notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payments. Consequently, neither the Company nor
the trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of new
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notes (including principal, premium, if any, and interest). The Company
understands, however, that it is currently the policy of the Depository to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of the Depository. Payments by the
DTC Participants and the Indirect Participants to the beneficial owners of new
notes will be governed by standing instructions and customary practice and will
be the responsibility of the DTC Participants or the Indirect Participants.
CERTIFICATED NOTES
Subject to certain conditions, any Person having a beneficial interest in
the Global Notes may, upon request to the trustee, exchange such beneficial
interest for new notes in the form of Certificated Notes. Upon any such
issuance, the trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). In addition, if (1) the Company notifies the trustee in
writing that the Depository is no longer willing or able to act as a depositary
and the Company is unable to locate a qualified successor within 90 days or (2)
the Company, at its option, notifies the trustee in writing that it elects to
cause the issuance of new notes in the form of Certificated Notes under the
indenture, then, upon surrender by the Depository of its Global Notes, new notes
in such form will be issued to each Person that the Global Note holder and the
Depository identify as being the beneficial owner of the related new notes.
Neither the Company nor the trustee will be liable for any delay by the
Depository in identifying the beneficial owners of new notes and the Company and
the trustee may conclusively rely on, and will be protected in relying on,
instructions from the Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the new notes
represented by the Global Note (including principal, premium, if any, and
interest) be made in immediately available funds. With respect to Certificated
Notes, however, the Company will make all payments of principal, premium, if
any, and interest by mailing a check to each holder's registered address.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds.
CREDITORS RIGHTS UNDER DOMINICAN LAW
The following is a summary of certain provisions of the Dominican
Republic's Code of Commerce (CODIGO DE COMERCIO DE LA REPUBLICA DOMINICANA)
relating to Dominican bankruptcy law. The summary does not purport to be
complete and is qualified in its entirety by reference to the Commercial Code.
The bankruptcy laws of the Dominican Republic are significantly different
from and are less developed than those of the United States. The Commercial Code
is based on the French Commercial Code of 1807 and the bankruptcy provisions
contained in the Commercial Code have not been amended since 1956. Other than in
connection with the amicable settlement process, described below, Dominican
bankruptcy law does not provide for a reorganization process for debtors or for
an automatic stay on collection or foreclosure efforts by secured creditors. In
addition, to our knowledge, there have been very few bankruptcy proceedings in
the Dominican Republic and none has involved an entity with operations as
significant or a capital structure as complex as ours.
In general, the bankruptcy laws of the Dominican Republic contemplate a
three-stage process:
(1) a proceeding administered by the Ministry of State for Industry
and Commerce (SECRETARIA DE ESTADO DE INDUSTRIA Y COMERCIO) in
which the debtor and its creditors attempt to reach an amicable
settlement;
(2) if no amicable settlement is reached, a bankruptcy proceeding is
initiated before the Court of First Instance (TRIBUNAL DE PRIMERA
INSTANCIA) in which the Court determines whether to issue a
bankruptcy order declaring the debtor bankrupt; and
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(3) if a bankruptcy order is issued, the management and/or
liquidation of the business of the debtor and the resolution of
creditor claims is administered by up to three receivers.
AMICABLE SETTLEMENT PROCESS
Under Dominican bankruptcy law, a corporation which consistently fails to
pay its debts as they become due is required to initiate the bankruptcy process
by filing a bankruptcy petition with the Court of First Instance within three
days from the date it ceased paying its debts.
The bankruptcy proceedings also may be initiated by:
(1) Any creditor, by means of a bankruptcy petition demonstrating
that: (A) the debtor has failed to meet one or more of its
obligations to that creditor or to creditors generally, and (B)
the creditor has complied with the amicable settlement process
and has failed to reach an amicable settlement; or
(2) the Court in the absence of any petition.
However, no bankruptcy proceeding may be pursued without a prior attempt at
a preliminary conciliation or amicable settlement between the debtor and its
creditors. The amicable settlement process may be initiated by either the debtor
or one or more of its creditors, regardless of the amount owed to such
creditor(s), through the submission of an amicable settlement petition before
the Ministry at a time when the debtor is not generally paying its debts as they
become due.
Before a creditor may file an amicable settlement petition, it must first
file a judicial complaint before the Court, demanding either: (1) payment from
the debtor, or (2) that the Court render a decision ordering payment, or the
creditor may serve a "request for payment" (INTIMACION O REQUERIMIENTO DE PAGO)
to the debtor warning the debtor that the creditor will initiate the amicable
settlement process before the Ministry if the debtor continues to fail to meet
its obligations to the creditor. The creditor may then file an amicable
settlement petition which must include:
(1) the amount of the debt;
(2) any documents which evidence the debtor's obligation to the creditor;
and
(3) a copy of the judicial complaint filed by the creditor demanding
payment from the debtor or a copy of the Court's decision ordering
payment, if any, or an original demand for payment served on the
debtor.
The initiation of the amicable settlement process does not preclude any
creditors from commencing legal actions against the debtor for recovery of
amounts owed. A secured creditor may initiate an action at any time during the
pendency of the amicable settlement process in order to foreclose on collateral
pledged to it. An unsecured creditor may also initiate legal action against the
debtor. Nevertheless, unsecured creditors are barred from enforcing any judgment
they may obtain in their favor during the pendency of the amicable settlement
process.
Upon receipt of an amicable settlement petition, the Ministry will notify
the debtor by certified mail of the filing of the petition. The debtor will have
ten days from receipt of such notice to deposit its books and the names and
addresses of all of its creditors with the Chamber of Commerce and Production
(CAMARA OFICIAL DE COMERCIO Y PRODUCCION). The Ministry will then notify all of
the creditors by certified mail of the date of the amicable settlement meeting.
Such meeting will be held before a settlement committee comprised of a
representative of the Ministry as well as the president and secretary general of
the Chamber of Commerce.
While the amicable settlement process is pending, the debtor may continue
to operate its business in the normal course, except that it may not incur
additional indebtedness, other than in the ordinary course of business, until
termination of the amicable settlement process. Under the amicable settlement
process, a debtor may propose a settlement provided that:
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(1) it is not for less than 50% of the total amount of its debts; and
(2) the repayment terms for such debts do not exceed two years from the
date of the amicable settlement.
A secured creditor is not entitled to participate in the amicable
settlement negotiations or to be a part of the amicable settlement agreement
unless it waives its security interest. However, secured creditors have the
right to foreclose on their collateral during the bankruptcy proceeding and, if
the collateral is insufficient to satisfy their claim, to participate in the
distribution of other debtor assets, as unsecured creditors. An amicable
settlement must be approved by two-thirds of the total amount of claims accepted
by the settlement committee at a settlement meeting. Any claim not objected to
by a majority of the creditors present at the settlement meeting or a majority
of the represented debt will be deemed accepted.
The Ministry is not empowered under Dominican law to force an agreement
between the debtor and its creditors; rather, it acts as a mediator which
attempts to help the parties come to an agreement on their own. To our
knowledge, although the amicable settlement process is not used frequently, it
can last from three to six months and rarely results in settlements between
debtors and their creditors.
INITIATION OF BANKRUPTCY PROCEEDING
If an amicable settlement is not reached by the debtor and its creditors,
then the bankruptcy proceeding has to be initiated by the Court, notifying the
debtor of the proceeding's initiation. Creditors are not required to be notified
of the initiation of a bankruptcy proceeding. While a bankruptcy proceeding is
pending, the debtor may continue to operate its business in the normal course
and to make payments to meet its obligations unless the Court has approved
preliminary measures requiring the preservation of the debtor's assets pending a
final determination by the Court. Secured creditors continue to have the right
to foreclose on their collateral.
The Court must make a determination as to whether the debtor is able to pay
its debts as they become due. The debtor is entitled to present its balance
sheet and any other information that it considers relevant to its ability to pay
its debts. Creditors may also submit their own documentation to contest the
accuracy of information presented by the debtor. The Court, the creditors and/or
the debtor may request the opinion of independent auditors or advisors to
confirm information, and any of them may present any additional evidence they
deem necessary for a fair determination. This process may last for
one-and-one-half to two years.
ISSUANCE OF BANKRUPTCY ORDER
If the Court determines that the debtor is unable to meet its payment
obligations as they become due, the Court will issue a bankruptcy order and must
notify all of the debtor's creditors that the order has been issued. Based on
the very limited existing bankruptcy precedent, it may take from 12 to 18 months
for a court to issue a bankruptcy order upon the exhaustion of the amicable
settlement process. Upon the issuance of a bankruptcy order:
(1) the bankrupt debtor is deprived of the possession, management and
right to dispose of its property;
(2) all of its obligations not otherwise due become immediately due,
notwithstanding whether such obligations result from loans or other
transactions;
(3) interest on unsecured claims stops accruing;
(4) interest on secured claims accrues only with respect to the collateral
securing such claims; and
(5) up to three receivers are appointed by the Court to manage the
debtor's business.
A majority in number of the creditors must ratify the selection of the
receivers. After the issuance of a bankruptcy order, a secured creditor must
proceed through the receivers in order to foreclose on collateral pledged to it.
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Upon issuance of a bankruptcy order, the receiver may, with the approval of
75% of the creditors, both in number and in principal amount of the debt
represented by the union of creditors, cause the debtor's business to continue
to operate as a going concern for a limited period, which may be extended from
time to time. In so doing, the receiver will either assume complete management
of the debtor or maintain management substantially in place and assume a
supervisory role. With the approval of the Court and the creditors, the receiver
may sell the debtor's business as a whole provided that the purchaser agrees to
assume all of the debtor's obligations in a manner satisfactory to the Court and
the creditors. Other actions, including the sale of certain assets of the
debtor, may be carried out in the receivers' discretion, subject to the
supervision and authorization of the Court and the absence of objections by the
creditors. In addition, receivers may incur additional indebtedness on behalf of
the debtor's business to continue operations, unless the Court and the creditors
object. Although not expressly provided for in the Commercial Code, such
additional indebtedness may be senior in right of payment to claims of creditors
arising prior to the issuance of a bankruptcy order.
Upon issuing the bankruptcy order, the Court will also determine an
insolvency date, which is the date as of which the debtor generally ceased to
make payments to its creditors. The insolvency date could be as early as a date
prior to the initiation of the amicable settlement process. If, for any reason,
the Court has not fixed such a date, the insolvency date will be deemed to be
the date the bankruptcy order was issued. The Commercial code deems the
following transfers of property by the debtor to be null and void:
(1) payments made within ten days of the insolvency date or after the
insolvency date for obligations not yet due and payable or for
obligations due and payable but made other than in cash; and
(2) any transfers of cash or property made without consideration.
In addition, payments of due and payable obligations made after the
insolvency date but before the date of the bankruptcy order are deemed voidable
if the creditors receiving such payments knew that the debtor had ceased meeting
its obligations to creditors generally. Payments made in respect of our existing
or new notes after the initiation of the amicable settlement process and before
the issuance of a bankruptcy order, including regularly scheduled interest
payments or mandatory prepayments of principal, may be deemed preferential
payments that are either void or voidable. Transfers deemed to be void or
voidable may be recovered by the receiver either on its own initiative or at the
request of the creditors. Creditors may not take action directly to recover such
transfers.
A notice of the bankruptcy order issued by the Court is published in
newspapers in the jurisdiction in which the bankruptcy is declared and wherever
the debtor maintains places of business. Creditors then have 20 days (35 days in
the case of U.S. creditors) from the date of publication of such notice to
submit their claims to the Court before the bankruptcy procedure continues. Upon
receipt of creditors' claims, the receiver must verify the validity of each such
claim based on the balance sheet and other financial documentation and records
of the debtor. All creditors have the right to appear at the verification
proceeding. The debtor or any creditor who has a verified claim may object to
the claim of another creditor. A claimant whose claim is rejected by the
receivers may challenge such rejection before the Court. Notwithstanding the 20
and 35-day time periods mentioned above, creditors who did not participate in
the verification process may file to have their claims recognized at any time
before a final distribution or settlement agreement has been made.
After all claims submitted in response to publication have been considered,
the Court is required to call a meeting of the creditors with verified claims
through letters and publication in newspapers in order to reach a settlement
between the creditors and the debtors. The settlement is then negotiated between
the creditors and the debtor. A secured creditor is not entitled to participate
in bankruptcy settlement negotiations or to vote on adoption of a bankruptcy
settlement agreement unless it waives its security interest. Negotiations can
take up to several weeks. A settlement agreement normally provides the manner
and terms upon which each of the creditors will be paid. A settlement agreement
must be approved by a majority in number of the unsecured creditors who have
verified claims or by creditors representing at least 75% of the principal
amount of the verified claims held by the union of creditors. The Court does not
have discretion to accept or reject a settlement and, therefore, must approve a
settlement once it has been agreed to between the debtor and its creditors.
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Under the provisions of the Civil Code of the Dominican Republic,
creditors, as well as other persons, are allowed to purchase verified claims
from other creditors in order to cast a vote on the settlement agreement with
respect to such claim. A creditor also may grant to another creditor a proxy to
vote with respect to his claim. Under Dominican law, however, a proxy is
revocable even if the parties have agreed expressly to the contrary. A person
who revokes a proxy which is stated to be irrevocable may be sued for damages.
After a settlement is reached, creditors who were entitled to participate
in the negotiations but did not participate or who voted against the settlement
agreement have eight days to oppose the settlement agreement. After expiration
of the eight-day period, the Court will ratify the settlement agreement. Such
ratification makes the settlement agreement binding on all creditors, whether
their claims have been verified or not. After ratification by the court, a
settlement agreement may only be challenged by interested parties based upon
claims of fraud.
If no settlement is reached, the receivers will proceed with the
liquidation of the assets of the debtor and their distribution among creditors
with verified claims. Creditors with statutory priorities, if any, are paid
first in their order of preference. Creditors with such priorities include
employees (for payment of salaries), the Dominican tax authorities (for payment
of tax obligations), lawyers (for payment of legal fees) and landlords (for
payment of rent). Secured creditors are then paid from the proceeds from the
sale of their collateral in the order in which their respective security
interests were perfected. General unsecured creditors and secured creditors, to
the extent that the proceeds from the sale of their collateral do not fully
compensate them, are paid last from the remaining assets of the debtor in
proportion to their claims. Distribution may be effected over time, in which
case the creditors will be paid partially as the assets are being liquidated.
The entire bankruptcy process at the Court may last for two to three years. This
time frame does not include the amicable settlement process.
Under the Commercial Code, no distribution in a liquidation may be made to
creditors in the Dominican Republic without sufficient funds first being set
aside for the payment in the liquidation to creditors located outside the
Dominican Republic. This reserve will be maintained until the final distribution
is made to Dominican creditors, at which time, if the funds set aside for
foreigners have not been claimed, they will be distributed to the Dominican
creditors.
Our liquidation under Dominican bankruptcy laws could result in holders of
existing or new notes receiving distributions from the liquidation in Dominican
pesos, thus subjecting such holders to the currency risks associated with
converting Dominican pesos into U.S. dollars.
Amicable settlement and bankruptcy proceedings in the Dominican Republic
may be time consuming and subject to significant delays and incidental
litigation. A Dominican Republic court may elect not to apply the amicable
settlement and bankruptcy laws, as described above, because no clear precedents
on this subject exist and of the effects of the dual-revision judicial system
established by the Dominican Constitution, which provides litigants the right to
appeal any decision of the Court before a Court of Appeals and later to
interpose a certiorari recourse before the Supreme Court. Therefore, any
bankruptcy proceeding in the Dominican Republic may last from six to nine years
before a final and irrevocable decision can be obtained.
However, in the very few bankruptcy matters of which we know, a final
resolution has been reached at the Court. This may be because, according to
Article 440 of the Commercial Code, bankruptcy judgements are "provisionally
enforceable" regardless of any appeals that may be filed. We are not aware of
any decisions rendered by the Courts of Appeals or the Supreme Court of Justice
on bankruptcy matters.
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DESCRIPTION OF WARRANTS
The warrants will be issued by us and will be governed by a warrant
agreement to be entered into between us and The Bank of New York, as warrant
agent, dated as of the closing date. The summary of the material provisions of
the warrant agreement set forth below does not purport to be complete and is
qualified in its entirety by reference to the warrant agreement, including the
definition of certain terms therein. A copy of the form of warrant agreement has
been filed with the SEC as an exhibit to the registration statement of which
this prospectus and consent solicitation is a part.
GENERAL
Holders of existing notes tendered and accepted for exchange in the
exchange offer and consent solicitation that elect to receive warrants will
receive a pro rata share of warrants to purchase up to an aggregate of
[________] shares of our Class A common stock in the form of American depositary
shares or ADSs. For every $1,000 principal amount of existing notes you tender,
you will receive warrants to purchase [_____] shares of Class A common stock in
the form of ADSs at an exercise price of $[ ] per ADS. The number of our
warrants to be issued in the exchange offer to any holder will be rounded up to
the nearest full warrant. The warrants will be exercisable beginning on the date
that they are issued, which will be upon the closing date of the exchange offer
and consent solicitation, and continuing until the earlier of (1) 5:00 p.m., New
York City time on the date of our repurchase of the new notes or (2) 5:00 p,m.,
New York City time on September 1, [____], the maturity date of the new notes.
The exercise price and the number of shares issuable upon exercise of a warrant
are both subject to adjustments as described below. The warrants may be traded
separately from the new notes. We do not intend to list the warrants on the New
York Stock Exchange or any other stock exchange or automated quotation system.
Therefore, we cannot assure you that, after the exchange offer and consent
solicitation, the warrants will be actively traded.
The warrants may be exercised by delivering to the warrant agent the
certificates evidencing the warrants to be exercised together with the
accompanying form of election to purchase, properly completed and executed, and
with payment of the exercise price. Payment of the exercise price by a holder
may be made in the form of cash or a certified or official bank check payable to
the order of The Bank of New York. Upon surrender of the warrant certificate and
payment of the exercise price, the warrant agent will deliver or cause to be
delivered, to or upon the written order of such holder, stock certificates
representing the number of shares of Class A common stock in the form of ADSs or
other securities or property to which such holder is entitled under the warrants
and warrant agreement, including, without limitation, at our option, cash
payable to adjust for fractional interests in warrant shares issuable upon such
exercise in an amount equal to the current market price (as defined in the
warrant agreement) per share of our Class A common stock in the form of ADSs, as
determined on the day immediately preceding the date the warrant is presented
for exercise, multiplied by such fraction, computed to the nearest whole cent.
If less than all of the warrants evidenced by a warrant certificate are to be
exercised, a new warrant certificate will be issued for the remaining number of
warrants.
No service charge will be made for registration of transfer or exchange
upon surrender of any warrant certificate at the office of the warrant agent
maintained for that purpose. We may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of warrant certificates or warrant shares.
Until exercise, the holders of the warrants have no right to vote on
matters submitted to our stockholders or to receive notice of meetings of
stockholders or any other rights of our stockholders, including any right to
receive cash dividends. The holders of the warrants have no preemptive rights
and are not entitled to share in our assets in the event of the liquidation,
dissolution or winding up of our affairs.
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ADJUSTMENTS
The number of shares of Class A common stock that may be purchased upon the
exercise of the warrants and the exercise price will both subject to adjustment
in certain events including
(1) the payment by us of dividends (or other distributions) on Class A
common stock payable in shares of such Class A common stock or other shares
of our capital stock; and
(2) subdivisions, combinations and certain reclassifications of Class
A common stock.
No adjustment in the exercise price will be required unless such adjustment
would require an increase or decrease of at least $0.01 or one-hundredth (1/100)
of a share, as the case may be; provided, however, that any adjustment which is
not made will be carried forward and taken into account in any subsequent
adjustment.
In the case of certain stock splits, subdivisions, reclassifications,
redesignations, reorganizations or changes in the number of outstanding shares
of Class A common stock and in the case of consolidations, mergers or share
exchanges or the sale of all or substantially all of the assets of us, each
warrant shall thereafter be exercisable for the right to receive the kind and
amount of shares of stock or other securities or property to which such holder
would have been entitled as a result of such transactions had the warrants been
exercised immediately prior thereto.
RESERVATION OF SHARES
At the time of issuance of the warrants, we will have authorized and
reserved for issuance such number of shares of Class A common stock as shall be
initially issuable upon the exercise of the warrants. Such shares of Class A
common stock, when paid for and issued will be duly and validly issued, fully
paid and non-assessable, and not subject to any preemptive rights. The ADSs
underlying the warrants will be listed on the New York Stock Exchange.
AMENDMENT
From time to time, we and the warrant agent, without the consent of the
holders of the warrants, may amend or supplement the warrant agreement for
certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not, in the good faith opinion of
our board of directors, have an adverse effect on the rights of any holder.
Other amendments or supplements to the warrant agreement generally require the
written consent of the holders of a majority of the then outstanding warrants.
The consent of each holder affected shall be required for any amendment pursuant
to which the exercise price would be increased or the number of warrant shares
purchasable upon exercise of warrants would be decreased.
REGISTRATION REQUIREMENTS
We will use our reasonable best efforts to maintain the effectiveness of a
registration statement with respect to the issuance of the shares of our Class A
common stock in the form of ADSs underlying the warrants until the earlier of
(1) such time as all warrants have been exercised and (2) the expiration of the
exercise period. During any consecutive 365-day period in which the warrants are
exercisable, we will have the ability to suspend the availability of such
registration statement for up to two 30-consecutive-day periods (except during
the 30 days immediately prior to the expiration of the warrants) if our Board of
Directors determines in good faith that there is a valid purpose for the
suspension and provides notice of such determination to the holders at their
addresses appearing in the register of warrants maintained by the warrant agent.
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REPORTS
So long as any warrants remain outstanding, and whether or not any new
notes remain outstanding, we will cause copies of the reports and other
documents described under "Description of Notes -- Commission Reports and
Reports to Holders" to be filed with the warrant agent.
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DESCRIPTION OF CAPITAL STOCK
SHARE CAPITAL
At September 30, 2002 and the date hereof, we had 55,000,000 shares of our
Class A common stock, par value RD$10 per share, authorized. As of September 30,
2002, 24,245,920 shares of Class A common stock were issued and outstanding. As
of March 17, 2003, 45,458.041 shares of Class A common stock were issued and
outstanding. As of September 30, 2002 and the date hereof, we also had
25,000,000 shares of our Class B stock, par value RD$10 per share, authorized,
19,144,544 shares of which were issued and outstanding. We have issued
21,212,121 shares of our Class A common stock since December 31, 2001 and we
have not issued any shares of our Class B stock since May 1998. We have issued
14,545,920 shares of our Class A common stock since December 31, 2000.
On December 31, 2002, we issued 21,212,121 shares of Class A common stock
to a group of investors for an aggregate purchase price of $70,000,000 in a
private placement.
On December 28, 2001, we issued 1,170,920 shares of our Class A common
stock in the form of ADSs for an aggregate purchase price of $4,683,680 in a
rights offering.
On December 28, 2001, we issued 10,000,000 shares of our Class A common
stock to GFN Corporation Ltd., our principal shareholder, for an aggregate
purchase price of $40,000,000.
On October 26, 2001, we issued 3,375,000 shares of our Class A common stock
as partial consideration for our acquisition of the shares of TCN Dominicana,
S.A., a wholly-owned subsidiary of Telecable Nacional, C. por A., that owned and
operated the largest multi-channel system in the Dominican Republic's pay-TV
market, including the concession granted by the Dominican government to operate
a cable system.
On April 12, 2000, we issued 4,000,000 shares of our Class A common stock
in the form of ADSs for an aggregate purchase price of $74 million in connection
with a follow-on public offering.
At September 30, 2002, neither we nor any of our subsidiaries owned any
shares of our Class A common stock or Class B stock.
At September 30, 2002, there were outstanding options to purchase 433,050
shares of our Class A common stock for an average exercise price of $7.12 per
share. These options are held by certain of our officers and employees. At
September 30, 2002, there were outstanding warrants to purchase an aggregate of
300,000 shares of our Class A common stock for an average exercise price of
$8.88 per share. These warrants are held by a former consultant to us on
investor relations maters.
All shares of our Class A common stock or ADSs which we have issued or may
be required to issue upon the exercise of outstanding options or warrants and
the warrants to be issued in this exchange offer and consent solicitation have
been or will be authorized and approved by our board of directors whether at a
meeting or by unanimous written consent.
MEMORANDUM AND ARTICLES OF ASSOCIATION
BOARD OF DIRECTORS
Our business and affairs are managed by the board of directors, which
consists of not more than fifteen or less than eight persons. Our directors are
elected annually at the annual general meeting of shareholders. Each director
(whenever elected) holds office until the next annual general meeting of
shareholders following his or her election and until his successor is elected
and qualified or until his or her earlier resignation or removal.
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Any director may resign at any time upon written notice to the board of
directors, to the Chairman of the Board or to the President. Any director may be
removed with or without cause at any time by an affirmative vote of a majority
of the shareholders entitled to vote. If any vacancies occur in the board of
directors, of if the authorized number of directors is increased, the directors
then in office may continue to act, and such vacancies may be filled by a
majority of the directors then in office. Any vacancies or newly created
directorships also may be filled by an affirmative vote of a majority of the
shareholders entitled to vote at a general meeting of shareholders called for
such purpose.
Regular meetings of the board of directors may be held at such places
within or out of the Dominican Republic and at such times as the board of
directors may from time to time determine. Special meetings of the board of
directors may be held at any time or place within or outside of the Dominican
Republic whenever called by the Chairman of the Board, by the President of by
any two directors. Any member of the board of directors may participate in a
meeting of the board of directors by means of a telephone conference or similar
communications equipment provided that all persons participating in the meeting
can hear each other.
At all meetings of the board of directors, the presence of a majority of
the total number of directors will constitute a quorum for the transaction of
business. The vote of at least a majority of the directors present at any
meeting at which a quorum is present is necessary to constitute the act of the
board of directors unless otherwise provided by applicable law.
PURPOSE
Article 2 of our by-laws states that our purpose is:
- to provide, maintain and operate telecommunications systems in the
Dominican Republic and elsewhere;
- to enter into such agreements as may be required to be interconnected to
the switched public telephone network, as well as to any domestic
networks rendering inter-urban services, as may be required by said
telecommunications systems; and
- to construct, maintain, and exploit a private telecommunications system
for the transmission of national and international calls and for the
transmission or reception of messages and signals of any kind.
CAPITAL STOCK
Our authorized capital stock consists of 55,000,000 shares of Class A
common stock and 25,000,000 shares of Class B stock. Both classes of capital
stock vote together as a single class on matters except any matter that would
adversely affect the rights of either class. These matters would need to be
approved by a special meeting of the holders of the class of shares to be
affected. The Class A common stock has one vote per share and the Class B stock
has ten votes per share. The economic rights of each class of capital stock are
identical.
REGISTRATION AND TRANSFER
All shares are evidenced by share certificates in registered form.
Dominican law requires that all shares be represented by a certificate, although
a single certificate may represent multiple shares of stock. Certificates may be
issued in the name of the registered holder, bearer or to-order form. All of our
share certificates are issued in the name of the registered holder. Dominican
law also requires that all transfers, encumbrances and liens on nominative
shares must be recorded in the share registry and only are enforceable against
us and third parties after such registration occurs. The Bank of New York is the
registrar and transfer agent for the Class A common stock, except during
shareholders meetings when we maintain the share registry for the Class A common
stock.
SHAREHOLDERS MEETINGS
Shareholders are entitled to vote on all matters at ordinary or special
shareholders' meetings. The board of directors will convene an annual
shareholders' meeting at least once a year in order for shareholders:
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- to elect new directors and a vigilance officer;
- to acknowledge the vigilance officer's report; and
- for management to report upon our financial performance and for the
shareholders to decide whether or not to distribute dividends.
Ordinary shareholders' meetings may be convened at other times in order to
transact other business, including to remove directors. Special shareholders'
meetings are convened in order to effect fundamental changes in our structure,
including to approve amendments to our by-laws. Under our by-laws, shareholders'
meetings may be convened by:
- the Chairman of the board of directors;
- a majority of the members of the board at any time;
- at the request of the holders of 30% of the shares entitled to be cast
at such meeting; and
- at the request of the vigilance officer in urgent circumstances, which
are not defined under Dominican law.
Shareholders meetings may he convened not less than 30 but not more than 60
calendar days after written notice has been mailed to shareholders. A majority
of the shares entitled to be cast constitutes a quorum at all shareholders
meetings. Our by-laws provide that holders of two-thirds of the votes entitled
to be cast is required to approve:
- amendments to the by-laws, including increases or decreases of our
authorized share capital;
- the issuance of shares of Class B stock in addition to those shares of
Class B stock outstanding on the date of the adoption of the by-laws,
except in connection with a dividend or other distribution with respect
to, or a subdivision, consolidation or reclassification of all
outstanding shares of stock;
- the declaration and payment of any dividend or distribution with respect
to our capital stock;
- any increase or decrease in the number of directors; and
- our voluntary winding up or liquidation or the filing of a bankruptcy
petition.
The affirmative vote of the holders of a majority of votes entitled to be
cast is required to approve all other actions. Shareholders may vote by proxy,
and the depositary will cast proxies as directed by the holders of the ADRs.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY
In addition to voting for directors at the annual shareholder's meeting,
shareholders are asked to vote upon the performance of management. Our vigilance
officer, an officer elected by the shareholders each year, delivers a report on
our financial performance and other issues related to management's performance.
If the holders of a majority of the votes entitled to be cast approve
management's performance, all shareholders are deemed to have released the
directors and officers from claims or liability to us or our shareholders
arising out of actions taken or any failure to take actions by any of them on
our behalf during the prior fiscal year, with certain exceptions. Shareholders
will likely fail in any suit brought in a Dominican court with respect to the
acts or omissions deemed to have been released. Officers and directors may not
be released from any claims or liability for criminal acts, fraud, self-dealing
or gross negligence. If the shareholders do not approve management's
performance, the vigilance officer's report may form the basis of any suit
brought by the shareholders against our officers and directors.
Our by-laws provides that we will indemnify any person made or threatened
to be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person, or a
person of whom he or she is the legal representative, is or was our director,
officer, employee or agent or any of our predecessors, or serves or served any
other enterprise as a director, officer, employee or agent at our request or any
of our predecessors. We are required to pay any expenses reasonably incurred by
a director or officer in defending a civil or criminal action, suit or
proceeding in advance of the final disposition of such action, suit or
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proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it ultimately is determined that he or she is
not entitled to be indemnified by us under our by-laws or otherwise. We may, by
action of our board of directors, provide for the payment of such expenses
incurred by our employees and agents as it deems appropriate.
LIQUIDATION RIGHTS
Each shareholder is entitled to a proportionate share of any of our assets
available upon dissolution after the payment of debts owed to creditors.
Shareholders are deemed to be creditors of our company to the extent of declared
and unpaid dividends.
DIVIDENDS
Under Dominican law, only shareholders may authorize the declaration and
payment of dividends. Shareholders are entitled to receive dividends in
proportion to their respective capital participation, subject to adjustment as
provided in the by-laws. Dividends are payable only from after-tax profits, and
only after we have set aside at least 5% of our annual profits as a legal
reserve (until such reserve equals 10% of paid-in capital). The by-laws provide
that shareholders may only approve the declaration and payment of dividends or
distributions if the declaration or payment of such dividend or distribution
would not violate any obligation, contractual or otherwise, to which we or any
of our subsidiaries are a party or by which any of them or their respective
properties or operations are bound.
VOTING RIGHTS
The holders of Class A common stock and Class B stock vote together with
respect to all matters. Every holder of Class A common stock is entitled to one
vote for each share of Class A common stock held and every holder of Class B
stock is entitled to ten votes for each share of Class B stock held by the
number of shares of Class A common stock into which one share of Class B stock
is then convertible. Under our by-laws, Class B stock may not be transferred
except to permitted transferees. Permitted transferees include
1. Oleander
2. Motorola
3. any subsidiary or affiliate, as defined, and
4. with respect to Oleander, Manuel Arturo Pellerano Pena and any member
of the family of Manuel Arturo Pellerano Pena as of the date of the
initial public offering that had an interest (including indirectly
through any corporation, trust or entity) in Oleander and
- the spouse or surviving spouse and natural and adopted children of any
such family member
- any trust existing solely for the benefit of family members and any
person who would be a permitted transferee of any such family member
under clause (4) and any trustee of such trust
- upon the death of any such member or any person who would be a permitted
transferee of any member, such holder's estate or any executor,
administrator or other legal representative of such holder, and
- any corporation, partnership or other entity all of the outstanding
equity interests of which are owned, or all of the outstanding voting
power of which is controlled, directly or indirectly by, or any trust or
similar entity the sole beneficiaries of which are, such members and
their permitted transferees.
If, despite these restrictions on transfer, a shareholder owning shares of Class
B stock transferred its shares to a person or entity other than to Oleander,
Motorola or a permitted transferee, the shareholder will only become entitled
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to one vote per share. If, with respect to any shares of Class B stock owned by
Oleander and its permitted transferees, the shares of common stock owned by
Oleander and its permitted transferees constitute less than 10% of the
outstanding common stock, such shares of Class B stock will entitle the holder
to one vote per share. If, with respect to any shares of Class B stock owned by
Motorola and its permitted transferees. the shares of common stock owned by
Motorola and its permitted transferees constitute less than 10% of the
outstanding common stock, such shares of Class B stock will entitle the holder
to one vote per share. Oleander, Motorola and any permitted transferee may
pledge shares of Class B stock without reducing the number of votes to which it
is entitled; provided, however, that if such shares of Class B stock are
transferred to or registered in the name of the pledgee (unless the pledgee is a
permitted transferee), the number of votes to which such shares of Class B stock
are entitled will be reduced until Oleander, Motorola or any of their permitted
transferees either cures any default that resulted in the transfer or
registration or reacquires the shares from the pledgee.
PREEMPTIVE AND OTHER RIGHTS
The holders of Class A common stock and Class B stock are not entitled to
preemptive or similar rights. The shares of Class A common stock and Class B
stock are not subject to redemption or a sinking fund. Under our by-laws, we are
authorized to issue shares of Class B stock only in connection with a dividend
or other distribution with respect to, or a subdivision, consolidation or
reclassification of, all outstanding shares of Class A common stock. In the
event of any subdivision, consolidation, reclassification or other change in the
Class A common stock, the Board of Directors, in its discretion, in lieu of
issuing additional shares of Class B stock, may adjust the number of shares of
Class A common stock into which the Class B stock is convertible and the number
of votes to which each share of Class B stock is entitled.
REORGANIZATION, CONSOLIDATION, SHARE EXCHANGE OR MERGER
In the event of a reorganization, consolidation, share exchange or merger
of TRICOM, each holder of outstanding shares of our stock shall be entitled to
receive for each of his shares the same kind and amount of consideration
(whether consisting of cash, property or securities) to be received by each
other holder of the same class of stock, if any for each of his or her shares.
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DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
AMERICAN DEPOSITARY RECEIPTS
The Bank of New York will issue the American Depositary Receipts or ADRs
evidencing ADSs. Each ADS represents one share of Class A common stock. We will
deposit the shares of Class A common stock (or the right to such shares) to be
issued in this exchange offer and consent solicitation with the New York office
of The Bank of New York which we refer to as the custodian. Each ADR will also
represent securities, cash or other property deposited, from time to time, with
The Bank of New York but not distributed to ADR holders. The Bank of New York's
Corporate Trust office is located at 101 Barclay Street, New York, NY 10286, and
its principal executive office is located at One Wall Street, NY, NY 10286
(temporarily located at One Wall Street, NY, NY 10286).
You may hold ADRs either directly or indirectly through your broker or
other financial institution. If you hold ADRs directly, you are an ADR holder.
If you hold the ADRs indirectly, you must rely on the procedures of your broker
or other financial institution to assert the rights of ADR holders described in
this section. You should consult with your broker or financial institution to
find out what those procedures are.
Because The Bank of New York actually holds the shares of Class A common
stock, you must rely on it to exercise the rights of a shareholder. Our
obligations and the obligations of The Bank of New York are set out in an
agreement among TRICOM, The Bank of New York and you, as an ADR holder. The
agreement and the ADRs are generally governed by New York law.
The following is a summary of the agreement. We encourage you to read the
entire agreement and the ADR. Directions on how to obtain copies of these are
provided in the section entitled "Where You Can Find More Information."
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
The Bank of New York has agreed to pay to you the cash dividends or other
distributions it receives on shares or other deposited securities after
deducting its fees and expenses. You will receive these distributions in
proportion to the number of shares your ADRs represent.
CASH. The Bank of New York will convert any cash dividend or other cash
distribution we pay on the shares into U.S. dollars, if it can do so on a
reasonable basis, and, subject to Dominican Republic law, can transfer the U.S.
dollars to the United States. If that is not possible or if any approval from
the Dominican Republic government is needed and cannot be obtained, the
agreement allows The Bank of New York to distribute the Dominican pesos only to
those ADR holders to whom it is possible to do so. It will hold the Dominican
pesos it cannot convert for the account of the ADR holders who have not been
paid. It will not invest the Dominican pesos and it will not be liable for the
interest.
Before making a distribution, any withholding taxes that must be paid under
Dominican Republic law will be deducted. The Bank of New York will distribute
only whole U.S. dollars and cents and will round fractional cents to the nearest
whole cent. If the exchange rates fluctuate during a time when The Bank of New
York cannot convert the Dominican pesos, you may lose some or all of the value
of the distribution.
SHARES. The Bank of New York may distribute new ADRs representing any
shares we may distribute as a dividend or free distribution, if we furnish it
promptly with satisfactory evidence that it is legal to do so. The Bank of New
York will only distribute whole ADRs. It will sell shares which would require it
to use a fractional ADR and distribute the net proceeds in the same way as it
does with cash. If The Bank of New York does not distribute additional ADRs,
each ADR will also represent the new shares.
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RIGHTS TO RECEIVE ADDITIONAL SHARES. If we offer holders of our shares any
rights to subscribe for additional shares or any other rights, The Bank of New
York may make these rights available to you. We must first instruct The Bank of
New York to do so and furnish it with satisfactory evidence that it is legal to
do so. If we do not furnish this evidence and/or give these instructions, and
The Bank of New York decides it is practical to sell the rights, The Bank of New
York will sell the rights and distribute the proceeds, in the same way as it
does with cash. The Bank of New York may allow rights that are not distributed
or sold to lapse. In that case, you will receive no value for them.
If The Bank of New York makes rights available to you, upon instruction
from you, it will exercise the rights and purchase the shares on your behalf.
The Bank of New York will then deposit the shares and issue ADRs to you. It will
only exercise rights if you pay it the exercise price and any other charges the
rights require you to pay.
U.S. securities laws may restrict the sale, deposit, cancellation and
transfer of the ADRs issued after exercise of rights. For example, you may not
be able to trade the ADRs freely in the United States. In this case, The Bank of
New York may issue the ADRs under a separate restricted deposit agreement which
will contain the same provisions as the agreement, except for the changes needed
to put the restrictions in place.
OTHER DISTRIBUTIONS. The Bank of New York will send to you anything else we
distribute on deposited securities by any means it thinks is legal, fair and
practical. If it cannot make the distribution in that way, The Bank of New York
has a choice. It may decide to sell what we distributed and distribute the net
proceeds in the same way as it does with cash or it may decide to hold what we
distributed, in which case the ADRs will also represent the newly distributed
property.
The Bank of New York is not responsible if it decides that it is unlawful
or impractical to make a distribution available to any ADR holders. We have no
obligation to register ADRs, shares, rights or other securities under the
Securities Act of 1933. We also have no obligation to take any other action to
permit the distribution of ADRs, shares, rights or anything else to ADR holders.
This means that you may not receive the distribution we make on our shares or
any value for them if it is illegal or impractical for us to make them available
to you.
DEPOSIT, WITHDRAWAL AND CANCELLATION
The Bank of New York will issue ADRs if you or your broker deposit shares
or evidence of rights to receive shares with it. Upon payment of its fees and
expenses and of any taxes or charges, such as stamp taxes or stock transfer
taxes or fees, The Bank of New York will register the appropriate number of ADRs
in the names you request and will deliver the ADRs at its Corporate Trust office
to the persons you request.
You may turn in your ADRs at The Bank of New York's Corporate Trust office.
Upon payment of its fees and expenses and of any taxes or charges, such as stamp
taxes or stock transfer taxes or fees, The Bank of New York will deliver (1) the
underlying shares to an account designated by you and (2) any other deposited
securities underlying the ADR at the office of the custodian. Or, at your
request, risk and expense, The Bank of New York will deliver the deposited
securities at its Corporate Trust office.
VOTING RIGHTS
You may instruct The Bank of New York to vote the shares underlying your
ADRs but only if we ask The Bank of New York to ask for your instructions.
Otherwise, you won't be able to exercise your right to vote unless you withdraw
the shares. However, you may not know about the meeting enough in advance to
withdraw the shares.
If we ask for your instructions, The Bank of New York will notify you of
the upcoming vote and arrange to deliver our voting materials to you. The
materials will (1) describe the matters to be voted on and (2) explain how you,
on a certain date, may instruct The Bank of New York to vote the shares or other
deposited securities underlying your ADRs as you direct. For instructions to be
valid, The Bank of New York must receive them on or before the date specified.
The Bank of New York will try, as far as practical, subject to Dominican
Republic law and
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the provisions of our by-laws, to vote or to have its agents vote the shares or
other deposited securities as you instruct. The Bank of New York will only vote
or attempt to vote as you instruct.
We cannot assure you that you will receive the voting materials in time to
ensure that you can instruct The Bank of New York to vote your shares. In
addition, The Bank of New York and its agents are not responsible for failing to
carry out voting instructions or for the manner of carrying out voting
instructions. This means that you may not be able to exercise your right to vote
and there may be nothing you can do if your shares are not voted as you
requested.
FEES AND EXPENSES
<Table>
<Caption>
ADR HOLDERS MUST PAY: FOR:
$5.00 (or less) per 100 ADSs........................ Each issuance of an ADS, including as a result of a distribution of shares or
rights or other property. Each cancellation of an ADS, including if the
deposit agreement terminates.
$.02 (or less) per ADS.............................. Any cash payment, except for distributions of cash dividends.
Registration of Transfer Fees....................... Transfer and registration of shares on the share register of the Foreign
Registrar from your name to the name of The Bank of New York or its agent
when you deposit or withdraw shares.
Expenses to The Bank of New York.................... Conversion of Dominican pesos to U.S. dollars. Cable, telex and facsimile
transmission expenses.
Taxes and other governmental charges The Bank of New
York or the custodian have to pay on any ADS or
share underlying an ADS, for example, stock transfer
taxes, stamp duty or withholding taxes.............. As necessary
</Table>
PAYMENT OF TAXES
You will be responsible for any taxes or other governmental charges payable
on your ADRs or on the deposited securities underlying your ADRs. The Bank of
New York may refuse to transfer your ADRs or allow you to withdraw the deposited
securities underlying your ADRs until such taxes or other charges are paid. It
may apply payments owed to you or sell deposited securities underlying your ADRs
to pay any taxes owed and you will remain liable for any deficiency. If it sells
deposited securities, it will, if appropriate, reduce the number of ADRs to
reflect the sale and pay to you any proceeds, or send to you any property,
remaining after it has paid the taxes.
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RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
If we (1) change the nominal or par value of our shares, (2) reclassify,
split up or consolidate any of the deposited securities, (3) distribute
securities on the shares that are not distributed to you, or (4) recapitalize,
reorganize, merge, liquidate, sell all or substantially all of our assets, or
take any similar action, then the cash, shares or other securities received by
The Bank of New York will become deposited securities. Each ADR will
automatically represent its equal share of the new deposited securities unless
additional ADRs are delivered pursuant to the following sentence. The Bank of
New York may, and will if we ask it to, issue new ADRs or ask you to surrender
your outstanding ADRs in exchange for new ADRs, identifying the new deposited
securities.
AMENDMENT AND TERMINATION
We may agree with The Bank of New York to amend the agreement and the ADRs
without your consent for any reason. If the amendment adds or increases fees or
charges, except for taxes and other governmental charges or registration fees,
cable, telex or facsimile transmission costs, delivery costs or other such
expenses, or prejudices an important right of ADR holders, it will only become
effective 30 days after The Bank of New York notifies you of the amendment. At
the time an amendment becomes effective, you are considered, by continuing to
hold your ADR, to agree to the amendment and to be bound by the ADRs and the
agreement is amended.
The Bank of New York will terminate the agreement if we ask it to do so.
The Bank of New York may also terminate the agreement if The Bank of New York
has told us that it would like to resign and we have not appointed a new
depositary bank within 90 days. In both cases, The Bank of New York must notify
you at least 90 days before termination.
After termination, The Bank of New York and its agents will be required to
do only the following under the agreement
- advise you that the agreement is terminated and
- collect distributions on the deposited securities and deliver shares and
other deposited securities upon cancellation of ADRs.
At any time after the expiration of one year after the date of termination,
The Bank of New York may sell any remaining deposited securities by public or
private sale. After that, The Bank of New York will hold the proceeds of the
sale, as well as any other cash it is holding under the agreement for the pro
rata benefit of the ADR holders that have not surrendered their ADRs. It will
not invest the money and will have no liability for interest. The Bank of New
York's only obligations will be to account for the proceeds of the sale and
other cash. After termination, our only obligations will be with respect to
indemnification and to pay certain amounts to The Bank of New York.
INSPECTION OF TRANSFER BOOKS
The Bank of New York will maintain at its transfer office in the Borough of
Manhattan, the City of New York, facilities for the execution and delivery,
registration of transfer, combination or split-up of ADRs and a register for the
registration of ADRs and the registration of the transfer of ADRs that at
reasonable times will be open for inspection by us and the holders of ADRs,
provided that such inspection shall not be for the purpose of communication with
holders of ADRs in the interest of a business or object other than our business
or a matter related to the ADRs.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO ADR HOLDERS
The agreement expressly limits our obligations and the obligations of The
Bank of New York, and it limits our liability and the liability of The Bank of
New York. TRICOM and The Bank of New York:
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- are only obligated to take the actions specifically set forth in the
agreement without negligence or bad faith;
- are not liable if either is prevented or delayed by law or circumstances
beyond their control from performing their obligations under the
agreement;
- are not liable if either exercises discretion permitted under the
agreement;
- have no obligation to become involved in a lawsuit or other proceeding
related to the ADRs or the agreement on your behalf or on behalf of any
other party; and
- may rely upon any documents they believe in good faith to be genuine and
to have been signed or presented by the proper party.
NONE OF THESE LIMITATIONS AFFECTS INVESTOR RIGHTS UNDER THE UNITED STATES
FEDERAL SECURITIES LAWS.
In the agreement, TRICOM and The Bank of New York agree to indemnify each
other under certain circumstances.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before The Bank of New York will issue or register transfer of an ADR, make
a distribution on an ADR, or process the withdrawal of any shares, The Bank of
New York may require:
- payment of stock transfer or other taxes or other governmental charges
and transfer or registration fees charged by third parties for the
transfer of any shares or other deposited securities;
- production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
- compliance with regulations it may establish, from time to time,
consistent with the agreement, including presentation of transfer
documents.
The Bank of New York may refuse to deliver, transfer, or register transfers
of ADRs generally when our books or the books of The Bank of New York are
closed, or at any time if we or The Bank of New York thinks it advisable to do
so.
You have the right to cancel your ADRs and withdraw the underlying shares
at any time except:
- when temporary delays arise because: (1) The Bank of New York or TRICOM
has closed its transfer books; (2) the transfer of shares is blocked to
permit voting at a shareholders' meeting; or (3) TRICOM is paying a
dividend on the shares;
- when you or other ADR holders seeking to withdraw shares owe money to
pay fees, taxes and similar charges; or
- when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to ADRs or to the withdrawal
of shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
agreement.
PRE-RELEASE OF ADRS
In certain circumstances, subject to the provisions of the agreement, The
Bank of New York may issue ADRs before deposit of the underlying shares. This is
called a pre-release of the ADR. The Bank of New York may also deliver shares
upon cancellation of pre-released ADRs (even if the ADRs are canceled before the
pre-release transaction has been closed out). A pre-release is closed out as
soon as the underlying shares are delivered to The
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Bank of New York. The Bank of New York may receive ADRs instead of shares to
close out a pre-release. The Bank of New York may pre-release ADRs only under
the following conditions:
- before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York in
writing that it or its customer owns the shares or ADRs to be deposited;
- the pre-release must be fully collateralized with cash or other
collateral that The Bank of New York considers appropriate; and
- The Bank of New York must be able to close out the pre-release on not
more than five business days' notice.
In addition, The Bank of New York will limit the number of ADRs that may be
outstanding at any time as a result of pre-release, although The Bank of New
York may disregard the limit from time to time, if it thinks it is appropriate
to do so.
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MATERIAL TAX CONSEQUENCES
The following is a general summary of the material U.S. federal and
Dominican Republic income tax consequences of the exchange offer and consent
solicitation, and of holding the new notes, warrants and ADSs.
The discussion of U.S. tax consequences is addressed only to U.S. Holders
and represents the opinion of Piper Rudnick LLP, our counsel, as to the material
U.S. federal income tax consequences of the exchange and of owning new notes,
warrants, and ADSs. This summary is based on the Internal Revenue Code of 1986,
as amended, or the Code, administrative pronouncements, judicial decisions and
existing and proposed Treasury Regulations, and interpretations of the
foregoing, all of which are subject to change on a prospective or retroactive
basis. It applies only to U.S. Holders of the existing notes who held the
existing notes, and who will hold the new notes, as capital assets. This
description does not discuss all of the tax consequences that may be relevant to
U.S. Holders in light of their particular circumstances, nor does it discuss the
consequences to U.S. Holders who may be subject to special rules, such as
certain financial institutions, insurance companies, dealers in securities or
foreign currencies, tax-exempt organizations, U.S. Holders whose functional
currency for U.S. federal income tax purposes is not the U.S. dollar, persons
holding the notes in connection with a hedging transaction, a "straddle", a
conversion transaction or other integrated transaction, and traders in
securities that elect to use a mark-to-market method of accounting for their
securities holdings. It also does not address any federal gift or estate tax or
state or local tax consequences.
The discussion of backup withholding also applies to non-U.S. Holders.
For purposes of this summary, the term "U.S. Holder" means a person (other
than a partnership) that holds existing notes on the date of the exchange or a
person that is a partner in a partnership that holds existing notes on the date
of the exchange, if such person is:
- an individual who is a citizen or resident of the United States;
- a corporation created or organized under the laws of the United States
or any political subdivision of the United States;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
a trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more U.S.
persons, within the meaning of Section 7701(a)(30) of the Code, have the
authority to control all substantial decisions of the trust.
The discussion of Dominican Republic tax consequences represents the
opinion of Pellerano & Herrera, our Dominican counsel as to the Dominican
Republic tax consequences of the exchange and of owning new notes, warrants and
ADSs.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF THE EXCHANGE OFFER AND CONSENT SOLICITATION TO YOUR PARTICULAR
SITUATION, AS WELL AS THE TAX CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN LAW
AND THE POSSIBLE EFFECTS OF ANY CHANGE IN LAW.
CONSEQUENCES OF THE EXCHANGE
U.S. TAX CONSEQUENCES
CONSEQUENCES TO EXCHANGING HOLDERS. The tax consequences to you of
exchanging your existing notes for new notes and cash or warrants, will depend
upon whether the exchange is treated as a recapitalization or as a taxable
exchange for U.S. federal income tax purposes. The exchange will be a
recapitalization if both the existing notes and the new notes are "securities"
for U.S. federal income tax purposes. The determination of whether an
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instrument is a "security" depends on an overall evaluation of the nature of the
instrument, taking into account its term and the degree of participation and
continuing interest in the business which it represents. Because the
determination of whether the existing notes and the new notes are securities is
highly factual and the legal standard is not entirely clear, Piper Rudnick LLP,
our counsel, is unable to render an opinion on this issue. However, after
reviewing the issue with our counsel we believe, and intend to take the
position, that both the existing notes and the new notes are "securities," and
that the exchange of new notes for existing notes is therefore a
recapitalization.
TAX-FREE RECAPITALIZATION. Assuming the exchange qualifies as a
recapitalization, you will not recognize a loss upon the exchange of your
existing notes for new notes. Moreover, you will recognize gain only to the
extent that the sum of the fair market value of the new notes, the fair market
value of the warrants you receive and the amount of cash you receive exceeds
your tax basis in the existing notes which you surrender in the exchange.
However, in no case will you recognize gain in an amount greater than the amount
of cash if any that you receive in the exchange. Any gain recognized should
generally be capital gain (except to the extent of accrued market discount on
your existing notes) and generally will be long term capital gain if you have
held the existing notes for more than one year at the time of the exchange.
Your aggregate tax basis in the new notes and the warrants, if any, that
you receive in the exchange will equal your tax basis in the existing notes,
plus the amount of gain, if any, recognized by you in connection with the
exchange, less the amount of cash, if any, received by you. Such basis will be
allocated between the new notes and the warrants, if any, that you receive in
proportion to their relative fair market values. The holding period of your new
notes will include the holding period of your existing notes.
It is possible that the Internal Revenue Service may take the position that
some portion of the total consideration paid in the exchange offer and consent
solicitation should not be treated as part of the exchange, but should instead
be treated as a separate payment in the nature of compensation for your consent
to proposed amendments to the indenture governing the existing notes. To the
extent that any portion of the consideration is so treated, that portion would
not be taken into account in determining the consequences to you of the
exchange, as described above, but would instead be taxable to you as ordinary
income.
TAXABLE EXCHANGE. If either the existing notes or the new notes are not
securities for U.S. federal income tax purposes, the exchange will not be
treated as a recapitalization. In that case, you would recognize taxable gain or
loss as a result of the exchange measured by the difference between the fair
market value of the new notes on the date of the exchange, plus the amount of
cash and the fair market value of warrants, if any, you receive and your
adjusted tax basis in your existing notes. Treasury Regulations provide, that,
for this purpose, the fair market value of the new notes will be deemed to equal
their "issue price", as defined.
The issue price of new notes received in the exchange will depend on
whether either the existing notes or the new notes are treated, for tax
purposes, as "traded on an established securities market." If, the new notes are
"traded on an established securities market" at any time during the 60 day
period ending 30 days after the date of the exchange, then the issue price of
the new notes would equal the fair market value established by such trading. If
the new notes are not so traded, but the existing notes are so traded, then the
issue price of the new notes would equal the fair market value, established by
such trading, of the existing notes. If neither the new notes nor the existing
notes are so traded, the issue price of the new notes generally would be the
stated principal amount of such notes.
We do not intend to list either the existing notes or the new notes on a
securities exchange or on an interdealer quotation system. However, even in the
absence of such a listing, the existing notes or the new notes would be deemed
to be traded on an established securities market if they appear on a system of
general circulation (including a computer listing disseminated to subscribing
brokers, dealers, or traders) that provides a reasonable basis to determine fair
market value by disseminating either recent price quotations of one or more
identified brokers, dealers, or traders or actual prices of recent trades. In
light of the absence of legal authority applying these rules to instruments
similar to the existing notes or the new notes, it cannot be determined at the
present time whether the new notes or the existing notes will be, at the
relevant times, traded on an established securities market within the meaning of
the applicable regulations.
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In general, if (1) the exchange is not treated as a recapitalization, (2)
the new notes are not readily tradable on an established securities market, and
(3) you recognize gain (but not loss), any gain will be subject to the
installment method of reporting unless you elect out of installment reporting.
For this purpose, an established securities market includes any system of
general circulation to brokers and dealers which regularly disseminates
quotations of obligations by identified brokers or dealers, other than a
quotation sheet prepared and distributed by a broker or dealer in the regular
course of business and containing only quotations of that broker or dealer. If
the installment method does apply, gain recognition will be deferred until you
receive payments. Under the installment method, each time a payment is received,
you will recognize an amount of gain equal to the amount of the payment
multiplied by the "gross profit ratio". For this purpose, "payments" will
include (1) any cash received in the exchange, (2) the fair market value of
warrants that you receive in the exchange, and (3) payments of principal on the
new notes. The gross profit ratio is equal to the total gain on the exchange,
divided by the sum of (1) any cash received in the exchange, (2) the fair market
value of warrants that you receive in the exchange, and (3) the issue price of
the new notes.
If you elect out of the installment method, you will recognize the entire
gain (as computed above) on the exchange in the year of the exchange in
accordance with your method of accounting.
If you report gain on the exchange under the installment method and (1) the
sum of (a) the cash that you receive in the exchange, (b) the fair market value
of the warrants that you receive in the exchange, and (c) the issue price of
your new notes exceeds $150,000, and (2) at the end of any taxable year, the
face amount of all installment obligations (including the new notes) held by you
exceeds $5 million, you will be required to pay interest on the deferred tax
attributable to the gain related to the installment obligations held by you, to
the extent the tax is attributable to the amount of installment obligations in
excess of $5 million. The amount of such tax will be calculated at your highest
applicable marginal tax rate and the interest will be calculated at your
applicable underpayment rate.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE APPLICATION TO YOU
OF THE INSTALLMENT METHOD AS WELL AS THE MECHANICS, DESIRABILITY AND EFFECTS OF
ELECTING OUT OF SUCH METHOD.
Gain or loss, if any, recognized on the exchange should be capital gain or
loss (except to the extent of accrued market discount on your existing notes)
and generally will be long-term capital gain or loss if the existing notes have
been held for more than one year at the time of the exchange. The deductibility
of losses, if any, recognized on the exchange may be subject to certain
limitations.
If the exchange is not a recapitalization, your basis in the new notes and
warrants, if any, received in the exchange will be their fair market value
(determined, in the case of the new notes, as described in the first paragraph
of this subsection "- Taxable Exchange") on the date of the exchange. However,
if you report gain from the exchange on the installment method your initial
basis in the new notes will equal your basis in your existing notes increased at
the time of each payment (as described above) by an amount equal to the gross
profit ratio multiplied by the amount of the payment.
It is possible that the Internal Revenue Service may take the position that
some portion of the total consideration paid in the exchange offer and consent
solicitation should not be treated as part of the exchange, but should instead
be treated as a separate payment in the nature of compensation for your consent
to proposed amendments of the indenture governing the existing notes. To the
extent that any portion of the consideration is so treated, that portion would
not be taken into account in determining the consequences to you of the
exchange, as described above, but would instead be taxable to you as ordinary
income.
FOREIGN TAX CREDIT. Any gain that you recognize on the exchange of existing
notes for new notes and cash or warrants will, for purposes of computing your
foreign tax credit limitation, be from United States sources, and will be
considered passive income (unless you are predominantly engaged in the active
conduct of a banking, insurance, financing or similar business, in which case it
will be financial services income). As a result, it is possible that the foreign
tax credit limitation may operate in such a way that you do not receive a
foreign tax credit for any withholding taxes imposed by the Dominican Republic
with respect to cash or warrants (see "Dominican Republic
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Tax Consequences," below). BECAUSE THE APPLICATION OF THE FOREIGN TAX CREDIT IS
QUITE COMPLEX AND WILL DEPEND ON YOUR INDIVIDUAL TAX CIRCUMSTANCES, YOU ARE
URGED TO CONSULT YOUR OWN TAX ADVISOR IN THIS REGARD.
CONSEQUENCES TO U.S. HOLDERS NOT PARTICIPATING IN THE EXCHANGE. If you do
not participate in the exchange, the consequences to you will depend on whether
the adoption of the proposed amendments results in a "significant modification"
of the existing notes (as determined for U.S. federal income tax purposes).
Under Treasury Regulations, a modification of a debt instrument is "significant"
if, based on all the facts and circumstances, the legal rights and obligations
that are altered and the degree to which they are altered are economically
significant. Because the determination of what is a significant modification is
inherently factual, and in light of the absence of controlling legal authority,
Piper Rudnick LLP, our counsel, is unable to render an opinion on this issue.
However, after reviewing the issue with our counsel we believe that the adoption
of the proposed amendments will most likely not result in a significant
modification, and that you should therefore not recognize gain or loss as a
result of the exchange or the adoption of the proposed amendments. Nonetheless,
this conclusion is not free from doubt and no assurance can be given that the
Internal Revenue Service will not take a different position.
If the adoption of the proposed amendments were treated as a significant
modification, the tax consequences to you would depend upon whether the
unmodified existing notes and the modified existing notes are securities for tax
purposes. As discussed above under "Consequences of the Exchange - U.S. Tax
Consequences - Consequences to Exchanging Holders," in general, whether a debt
instrument is classified as a security depends on an overall evaluation of the
nature of the instrument at the time it is issued, including its term. Because,
as of the date of the exchange, the remaining term of the modified existing
notes will be only approximately two years, we believe that, although not free
from doubt, the modified existing notes should not constitute securities.
If the proposed amendments to the existing notes are treated as significant
modifications and either the unmodified existing notes or the modified existing
notes are not securities, you would recognize gain or loss, if any, in an amount
equal to the difference between the fair market value of the modified existing
notes (after adoption of the proposed amendments) and your tax basis in your
existing notes. For this purpose, the fair market value of the modified existing
notes will be determined in the same manner as discussed under "Consequences of
the Exchange - U.S. Tax Consequences - Taxable Exchange". Except for accrued
market discount, any such gain or loss would be capital gain or loss, and such
capital gain or loss would be long-term capital gain or loss if you held the
existing notes for more than twelve months at the date of the modification.
Gain, if any would generally be subject to the installment sale rules discussed
under "Consequences of the Exchange - U.S. Tax Consequences". Your tax basis in
the modified existing notes would be equal to their fair market value on the
date of the modification (less any amount attributable to accrued but untaxed
interest or original issue discount). However, if you report gain from the
modification on the installment method, your initial basis in your modified
existing notes will equal your basis in your existing notes increased at the
time of each principal payment by an amount equal to the gross profit ratio
multiplied by the amount of the principal payment. The holding period for the
modified existing notes would begin on the date immediately following the date
of modification. You would report as ordinary income the portion of the fair
market value of the modified existing notes attributable to accrued but untaxed
interest or original issue discount on the unmodified existing notes in the year
of the modification.
If the adoption of the proposed amendments is treated as a significant
modification and both the modified and unmodified existing notes are securities
for tax purposes, if you do not tender your existing notes you should not
recognize gain or loss as a result of the proposed amendments.
If the adoption of the proposed amendments is treated as a significant
modification, then, whether or not the modified existing notes or the unmodified
existing notes are securities, the modified existing notes should be treated as
though they were newly issued for purposes of determining the consequences to
you of holding the notes (including the "original issue discount" rules).
You should consult your own tax advisor as to the tax consequences to you
if you do not exchange your existing notes.
DOMINICAN REPUBLIC TAX CONSEQUENCES
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CONSEQUENCES TO EXCHANGING HOLDERS. Capital gain or loss realized as a
result of the exchange of notes generally would not be subject to any Dominican
taxes, provided that such exchange or other disposition occurs outside of the
Dominican Republic. The foregoing tax treatment assumes that the bonds will
remain in the form of global bonds registered in the name of a nominee of DTC
and will not be issued in definitive, certificated form. If issued in definitive
certificated form, you would recognize taxable gain or loss as a result of the
exchange measured by the difference between (a) the fair market value of the new
notes on the date of the exchange, plus the amount of cash and the fair market
value of warrants you receive (to the extent such cash and warrants are treated
as being part of the exchange) and (b) your adjusted tax basis in your existing
notes.
Cash received as part of the exchange, if sent from the Dominican Republic
abroad, will be subject to a 25% withholding. If such payment is (1) considered
as additional interest on the existing notes and (2) made to a financial
institution abroad, then the applicable withholding tax will be 5%.
Additionally, the Tax Administration, based on the provisions of Article 64 of
the Rules of Application of the Tax Code, may require payment of a 25%
withholding tax on the warrants received as a part of the exchange if it
considers such warrants as part of a payment being made from the Dominican
Republic abroad. If such warrant is issued to a financial institution abroad,
then the applicable withholding tax will be 5%.
TAX CONSEQUENCES OF OWNING THE NEW NOTES
U.S. TAX CONSEQUENCES
PAYMENTS OF INTEREST. The payment of interest on the new notes (including
any Additional Amounts) generally will be taxable to you as ordinary interest
income at the time the interest is accrued or received, in accordance with your
normal method of accounting for federal income tax purposes.
ORIGINAL ISSUE DISCOUNT. The new notes will have original issue discount to
the extent their stated redemption price at maturity exceeds their issue price,
unless the amount of original issue discount (as so computed) is less than 1/4
of one percent of the face amount, multiplied by the number of full years to
maturity. The new notes' stated redemption price at maturity should be equal to
their face amount. The issue price of the new notes will be determined in the
same manner as discussed under "Consequences of the Exchange - U.S. Tax
Consequences - Taxable Exchange". Therefore, if neither the new notes nor the
existing notes are traded on an established securities market, the new notes
will not have original issue discount.
Generally, if the new notes do have original issue discount, you will be
required to include a portion of the original issue discount in income each year
(subject to possible reduction if your basis in a new note exceeds its issue
price (see "Basis in Excess of Issue Price")), in addition to amounts includible
in respect of interest. The amount so includible is calculated using a
constant-yield method, with the result that you will include increasingly
greater amounts of original issue discount in income for each year over the life
of the new notes.
Under the constant yield method, the amount of original issue discount
includible in income for each accrual period is the sum of the daily portions of
original issue discount for each day during the accrual period on which you held
the new note. In general, an accrual period should correspond to the semi-annual
period between interest payment dates. The amount of original issue discount
allocable to an accrual period will be equal to the new note's adjusted issue
price at the beginning of the accrual period multiplied by the new note's yield
to maturity, less payments of interest on the new note allocable to the accrual
period. The adjusted issue price of a new note will initially be equal to its
issue price, and will be increased over time to reflect the amounts of original
issue discount includible in income. The yield to maturity is the discount rate
that, when applied to all payments under a new note, results in a present value
equal to the issue price.
Any amounts of original issue discount includible in your income with
respect to a new note will increase your basis in the new note.
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BASIS IN EXCESS OF ISSUE PRICE. As discussed above (see "Consequences of
the Exchange -- U.S. Tax Consequences -- Tax-Free Recapitalization"), if the
exchange is treated as a recapitalization your basis in a new note immediately
after the exchange may differ from the issue price of the new note.
If your tax basis in a new note immediately after the exchange is MORE than
its issue price but LESS than or equal to its FACE AMOUNT, the amount of
original issue discount that you must include in income is generally reduced by
the amount of the original issue discount otherwise includible multiplied by a
fraction, the numerator of which is the excess of your basis in the note
immediately after the exchange over its issue price, and the denominator of
which is the excess of the face amount over the issue price.
As an alternative to applying the fraction described above, you may elect
to reduce the original issue discount accruals by treating the new note as
having an issue price equal to your basis immediately after acquisition of the
note and applying the mechanics of the constant yield method (a "constant yield
election"). YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE MECHANICS,
DESIRABILITY AND EFFECTS OF MAKING SUCH AN ELECTION.
If your basis in a new note immediately after the exchange is GREATER than
the FACE AMOUNT of the new note, you will not be required to include any
original issue discount in income. In addition, you may elect to amortize the
excess over the term of the new note, based on the new note's yield to maturity.
You may generally use the amortizable bond premium allocable to an accrual
period to offset interest required to be included in your income with respect to
the note in that accrual period. Under Treasury Regulations, if the amortizable
bond premium allocable to an accrual period exceeds the amount of interest
allocable to the accrual period, the excess would be allowed as a deduction for
the accrual period, but only to the extent of your prior interest inclusion on
the new note. Any excess is generally carried forward and allocable to the next
accrual period. An election to amortize bond premium generally applies to all
taxable debt obligations held by the holder during or after the taxable year to
which election applies and may be revoked only with the consent of the Internal
Revenue Service. If you make a constant yield election (as described above), you
will be deemed to make the election to amortize bond premium for all of your
debt instruments with amortizable bond premium. The election may not be revoked
unless approved by the Internal Revenue Service. YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR AS TO THE MECHANICS, DESIRABILITY AND EFFECTS OF MAKING AN AMORTIZABLE
BOND PREMIUM ELECTION.
SALE, EXCHANGE OR RETIREMENT OF NEW NOTES. Upon the sale, exchange or
retirement of a new note, you will recognize gain or loss measured by the
difference between the amount realized and your adjusted tax basis in the new
note. Your adjusted tax basis in the new note generally will equal your initial
basis in the new note increased by the amount of original issue discount, if
any, previously includible in your income and, in the event gain is reported on
the installment method, increased by the amount of any principal payments
multiplied by the gross profit ratio . Subject to the discussion below of market
discount, gain or loss recognized on the sale, exchange or retirement of the new
note should be capital gain or loss (except with respect to amounts received
upon a disposition attributable to accrued but unpaid interest, which will be
taxable as ordinary income) and generally will be long-term capital gain or loss
if the new note has been held or deemed held for more than one year at the time
of the sale, exchange or retirement.
MARKET DISCOUNT. If you hold an existing note with market discount and the
exchange is treated as a recapitalization (see Consequences of the Exchange -
U.S. Tax Consequences), the market discount rules of the Code would apply to the
new notes. Under these rules, in general, any accrued market discount with
respect to the existing notes at the time of the exchange which is not
recognized on the exchange will carry over to the new notes (and will be treated
as ordinary income upon a future disposition of the new notes). In addition, the
new notes will have unaccrued market discount equal to the excess of the fair
market value of the new notes on the date of the exchange, over your basis in
the new notes increased by the amount of any accrued market discount with
respect to the existing notes (whether such accrued market discount was
recognized as ordinary income on the exchange or carried over).
Any unaccrued market discount will generally accrue over the life of the
new notes on a straight-line-basis (or, at your election, on the constant-yield
method), and, to the extent so accrued, will be taxed as ordinary income
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upon a later disposition of the new notes. Alternatively, you may elect to
include market discount in income currently as it accrues.
Unless you elect to include market discount in income as it accrues, any
deduction for interest expense with respect to debt that you incur to purchase
or carry a debt-interest with market discount may be deferred.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE CONSEQUENCES TO YOU
OF THE MARKET DISCOUNT RULES, INCLUDING THE MECHANICS, EFFECTS AND DESIRABILITY
OF MAKING A CONSTANT-YIELD ACCRUAL ELECTION OR A CURRENT INCLUSION ELECTION.
FOREIGN TAX CREDITS. Subject to certain limitations, you may be entitled to
a credit against your U.S. federal income tax liability, or a deduction in
computing your federal taxable income, for the amount of Dominican income taxes
(if any) withheld by us (which, as described at "Description of New Notes -
Additional Amounts," would include amounts withheld on Additional Amounts paid
by us with respect to Dominican taxes). If you do not claim such a credit, you
may elect to deduct any withheld Dominican taxes. You may be required to provide
the U.S. Internal Revenue Service with a certified copy of the receipt
evidencing payment of such withholding tax imposed in respect of payments on the
new notes in order to claim a U.S. tax credit in respect of such Dominican
withholding tax.
For purposes of the foreign tax credit limitation, interest, original issue
discount and Additional Amounts (if any) paid by us on the new notes will
constitute income from sources outside the United States. However, the character
of such items is not entirely clear. Under one approach, interest (including
Additional Amounts, but not including original issue discount) would be
considered "high withholding tax interest," based on current Dominican law
which, as discussed below, imposes a 5% (or, in the case of payments to a person
other than a financial institution, 25%) withholding tax on interest. However,
because, we have been advised by our Dominican counsel that the Dominican
Republic only imposes a withholding tax on cash payments of interest, original
issue discount would not be treated as high withholding tax interest, but would
instead generally be treated as passive income unless you are predominantly
engaged in the active conduct of a banking, insurance, financing or similar
business (in which case it will likely be considered financial services income).
Under an alternative interpretation, all interest (including Additional
Amounts and original issue discount) with respect to the new notes would be
treated as a single category of income. Under this approach, if there were any
original issue discount, and if the effective rate of withholding tax on all
such income were less than five percent, no such income would be treated as high
withholding tax interest, but would instead be treated as passive income, unless
you are predominantly engaged in the active conduct of a banking, insurance,
financing or similar business (in which case it would be financial services
income); similarly, under this interpretation, if the effective withholding rate
on all interest (including Additional Amounts and original issue discount, if
any) were 5% or greater, all such income would be high withholding tax interest.
The application of the rules concerning foreign tax credits, including the
limitations applicable to foreign tax credits, are complex and will depend on
your overall tax situation. You are urged to consult your own tax advisor as to
the applicability to you of these rules, and as to the election to forego the
foreign tax credit and instead claim a deduction for foreign taxes.
BACKUP WITHHOLDING AND INFORMATION REPORTING--PAYMENTS OF PRINCIPAL AND
INTEREST.
If you are a non-corporate U.S. Holder or non-corporate Non-U.S. Holder,
information reporting requirements generally will apply to all payments of
principal, any premium and interest on the new notes within the United States,
including payments made by wire transfer from outside the United States to an
account you maintain with a fiscal or paying agent in the United States.
Additionally, backup withholding at a rate of 30% will apply to such
payments if you fail to provide an accurate taxpayer identification number or if
you have been notified by the Internal Revenue Service that you have failed to
report all interest and dividends required to be shown on your federal income
tax returns.
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If you are a Non-U.S. Holder for federal income tax purposes, you are
generally exempt from backup withholding and information reporting requirements
with respect to payments of principal and interest, assuming the income is
otherwise exempt from U.S. federal income tax, provided that you comply with
certain certification and identification procedures in order to prove your
exemption.
Special rules apply in the case of new notes held by partnerships.
PROCEEDS FROM THE SALE OF A NOTE. Payment of the proceeds from the sale of
a note to or through the U.S. office of a broker may be subject to information
reporting and backup withholding. If, however, you are a Non-U.S. Holder, you
will not be subject to information reporting or backup withholding if you
certify as to your non-U.S. status or otherwise establish an exemption. Payment
of the proceeds from the sale of a note made to or through a foreign office of a
broker generally will not be subject to information reporting or backup
withholding. Information reporting, but not backup withholding, may apply to
such payments, however, if the broker is:
a U.S. person;
a controlled foreign corporation for U.S. tax purposes;
a foreign person 50% or more of whose gross income is effectively connected
with a U.S. trade or business for a specified three-year period;
a foreign partnership if at any time during its tax year;
one or more of its partners are U.S. persons, as defined in U.S. Treasury
Regulations, who in the aggregate hold more than 50% of the income or capital
interest in the partnership; or
the foreign partnership is engaged in a U.S. trade or business,
unless the broker has documentary evidence in its records that the holder
is a non-U.S. person and does not have actual knowledge that the holder is a
U.S. person or otherwise establishes an exemption.
DOMINICAN REPUBLIC TAX CONSEQUENCES
The payment of interest on the new notes will be subject to a 5% or 25%
withholding tax, depending on whether payments are made to financial
institutions, other corporations or individuals, in each case located outside
the Dominican Republic, which would be required to be withheld by us and paid to
the tax administration at the time interest is paid. If taxes are withheld,
TRICOM, with certain exceptions, would be liable for the payment of additional
amounts so that the U.S. holder would receive the same amounts payable had no
such withholding been imposed (See "Description of New Notes - Additional
Amounts").
Under the principles of territoriality underlying the Dominican
constitution, gain from the sale or exchange of existing notes by a foreign
holder outside of the Dominican Republic would not be subject to taxation by the
Dominican tax authority.
There is no income tax treaty in force between the Dominican Republic and
the United States.
There are no Dominican inheritance, gift, or succession taxes applicable to
the ownership, transfer or disposition of existing notes by a foreign holder
based on the principles of territoriality mentioned above. Nevertheless, such
taxes will generally apply to the transfer at death or by gift of existing notes
by a foreign holder if it occurs within the Dominican Republic. There are no
Dominican stamp, issue, registration or similar taxes or duties payable to
holders of existing notes.
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TAX CONSEQUENCES OF OWNING WARRANTS
U.S. TAX CONSEQUENCES
You will not recognize gain or loss upon the exercise of a warrant. Your
basis in the ADSs received upon exercise of a warrant will be equal to the sum
of your tax basis in the warrant and the price paid upon exercise, and your
holding period in the ADSs received upon exercise will begin on the date of the
exercise.
If a warrant expires unexercised, you will recognize a capital loss equal
to your tax basis in the warrant.
DOMINICAN TAX CONSEQUENCES
Under Dominican law, the exercise of a warrant will not generate any
income, ordinary or capital gains, for the holder. In addition, if a warrant
expires unexercised, you will not recognize a capital loss.
TAX CONSEQUENCES OF OWNING ADSs
U.S. TAX CONSEQUENCES
CASH AND OTHER DISTRIBUTIONS ON ADSS. Distributions made by us with respect
to ADSs (other than distributions in liquidation and certain distributions in
redemption of stock) will generally be taxed as ordinary dividend income to the
extent that such distributions do not exceed our current and accumulated
earnings and profits, as determined in accordance with United States federal
income tax principles. Distributions, if any, in excess of our current and
accumulated earnings and profits will constitute a non-taxable return of capital
and will be applied against and will reduce your tax basis in the ADSs (but not
below zero). To the extent that such distributions exceed your basis in the
shares, the excess generally will be treated as capital gain.
In January 2003, President Bush announced a proposal to eliminate tax on
certain dividends. It cannot be predicted at this time whether such a proposal
will be enacted, nor can it be predicted how such a proposal, if enacted, would
apply to dividends paid by foreign companies such as TRICOM. You are urged to
consult your own tax advisor as to possible changes in law which could affect
the rules discussed above.
Dividends generally will be included in your gross income as ordinary
income when the dividends are received by you or the depositary, as applicable.
Dividends paid in Dominican pesos will be included in your gross income as a
United States dollar amount based on the exchange rate in effect on the day of
receipt by you or the depositary, as applicable. Any gain or loss recognized
upon a subsequent sale or conversion of the Dominican pesos into U.S. dollars
will be United States source ordinary income or loss. Dividends will generally
not be eligible for the dividends-received deduction allowed to corporations.
Dividends generally will be foreign source income for purposes of
determining your foreign tax credit limitation and generally will be "passive"
income. As we have been advised by our local counsel that we would be permitted
to credit the amount withheld against our Dominican corporate income tax, you
might be treated as, in effect, not paying any Dominican tax. Accordingly, any
Dominican tax withheld on such dividends (See "Tax Consequences of Owning ADSs -
Dominican Republic Consequences") may not be a creditable foreign tax in
determining your U.S. tax liability. You are urged to consult your own tax
advisor as to the applicability to you of the foreign tax credit.
CAPITAL GAINS AND LOSSES. You will recognize capital gain or loss on the
sale or other disposition of ADSs in an amount equal to the difference between
the amount realized over your adjusted tax basis in such ADSs. Such capital gain
or loss will be long-term provided you held the ADSs for longer than one year.
The deductibility of capital losses is subject to limitations. Any gain you
recognize on a sale of ADSs generally will be treated as United States source
income for purposes of determining your foreign tax credit limitation.
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BACKUP WITHHOLDING. You may be subject to backup withholding, currently at
the rate of 30%, with respect to dividends paid on the ADSs or the proceeds of a
sale, exchange or redemption of warrants or ADSs unless you provide a correct
taxpayer identification number, certify that you are not subject to backup
withholding and otherwise comply with applicable requirements of the backup
withholding rules, or are exempt from the application of such rules. Any amounts
withheld under these rules will be creditable against your U.S. federal income
tax liability. If you do not provide a correct taxpayer identification number,
you may be subject to penalties imposed by the U.S. Internal Revenue Service.
DOMINICAN REPUBLIC CONSEQUENCES
The following discussion summarizes the principal Dominican Republic income
tax consequences of an investment in the ADRs, ADSs or shares of Class A common
stock by a person who is neither domiciled in nor a resident of the Dominican
Republic for tax purposes and who holds such ADRs, ADSs or shares of Class A
common stock for investment purposes and not for purposes of a trade or
business. The discussion is not intended as tax advice to any particular
investor.
Cash dividends and other distributions paid by us with respect to ADSs or
shares of Class A common stock held by any holder would be subject to a 25%
withholding tax, which would be required to be withheld by us and paid to the
Dominican tax administration at the time a cash dividend or other monetary
distribution is paid.
Under the principles of territoriality underlying the Dominican
constitution, gain from the sale or exchange of ADRs evidencing the ADSs by a
foreign holder outside of the Dominican Republic would not be subject to
taxation by the Dominican tax authority.
There is no income tax treaty in force between the Dominican Republic and
the United States.
There are no Dominican inheritance or succession taxes applicable to the
ownership, transfer or disposition of ADSs by a foreign holder not domiciled in
the Dominican Republic at the moment of death. It is unclear whether Dominican
gift taxes would apply to the transfer or other disposition by gift of shares of
Class A common stock by a non-resident foreign holder; however, ADSs or ADRs are
not subject to Dominican gift taxes. There are no Dominican stamp, issue,
registration or similar taxes or duties payable by holders of ADSs or shares of
Class A common stock.
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LEGAL MATTERS
The validity of the new notes, the warrants and the ADSs issuable upon
exercise of the warrants is being passed upon for us by Piper Rudnick LLP, New
York, New York. The validity of the shares of Class A Common Stock underlying
the ADSs issuable upon exercise of the warrants is being passed upon for us by
our Dominican counsel, Pellerano & Herrera, Santo Domingo, Dominican Republic.
Piper Rudnick LLP may rely, without independent investigation, upon the opinions
of Pellerano & Herrera, Santo Domingo, Dominican Republic, with respect to
matters governed by the laws of the Dominican Republic and Sucre, Arias, Castro
& Reyes, Panama City, Panama, with respect to matters governed by the laws of
Panama. Certain legal matters relating to the exchange offer and consent
solicitation will be passed upon for the dealer manager by Paul, Hastings,
Janofsky & Walker LLP, New York, New York, United States counsel to the dealer
manager, with respect to matters relating to the laws of the State of New York
and those of the United States, and Steel Hector Davis Pena Prieto & Gamundi,
the office of Steel, Hector & Davis, LLP in Santo Domingo, Dominican Republic,
Dominican counsel to the dealer manager, with respect to matters governed by the
laws of the Dominican Republic.
EXPERTS
Our consolidated financial statements at December 31, 2000 and 2001, and
for each of the years in the three-year period ended December 31, 2001, included
in this prospectus and consent solicitation have been audited by KPMG (member
firm of KPMG International in the Dominican Republic), independent public
accountants, as stated in their report appearing in this prospectus and consent
solicitation, and are incorporated in reliance upon the report of such firm as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports on Form 20-F and reports on Form 6-K with the SEC.
You may read and copy this information at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices in
New York, New York and Chicago, Illinois. You can also request copies of the
documents, upon payment of a duplicating fee, by writing to the Public Reference
Section of the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. In addition, the SEC
maintains an Internet site (http://www.sec.gov) that contains certain reports,
proxy statements and other information regarding TRICOM.
This prospectus and consent solicitation incorporates by reference the
following documents:
- our Annual Report on Form 20-F for the year ended December 31, 2001,
which we have previously filed with the SEC and is not delivered with
this prospectus and consent solicitation;
- our report on Form 6-K, dated January 4, 2002, announcing the conclusion
of our rights offering, which we have previously filed with the SEC and
is not delivered with this prospectus and consent solicitation;
- our report on Form 6-K reporting results for the quarter ended March 31,
2002, which we have previously filed with the SEC and is not delivered
with this prospectus and consent solicitation;
- our report on Form 6-K reporting results for the quarter ended June 30,
2002, which we have previously filed with the SEC and is not delivered
with this prospectus and consent solicitation;
- our report on Form 6-K reporting results for the quarter ended September
30, 2002, as amended, which we have previously filed with the SEC and
is not delivered with this prospectus and consent solicitation; and
- our report on Form 6-K announcing a $70 million equity investment,
which we have previously filed with the SEC and is not delivered with
this prospectus and consent solicitation.
In addition, this prospectus and consent solicitation will be deemed to
incorporate by reference:
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- any report on Form 6-K submitted by us to the SEC prior to the
termination of the offering and identified by us as being incorporated
by reference into this prospectus and consent solicitation.
You may request a copy of these filings, at no cost, by contacting us at Ave.
Lope de Vega No. 95, Santo Domingo, Dominican Republic, Attention: Investor
Relations, telephone number: 809-476-4044 or at our website,
www.tdr-investor.com.
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TRICOM, S.A. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
Independent Auditors' Report................................................................F-2
Consolidated Balance Sheets as of December 31, 2000 and 2001 and
September 30, 2002 (unaudited)..............................................................F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999, 2000,
2001 and for the nine month periods ended September 30, 2001 and 2002 (unaudited)...........F-5
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1999,
2000, 2001 and the nine month period ended September 30, 2002 (unaudited)...................F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000,
2001 and the nine month periods ended September 30, 2001 and 2002 (unaudited)...............F-7
Notes to Consolidated Financial Statements..................................................F-9
</Table>
F-1
<Page>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of TRICOM, S.A.:
We have audited the accompanying consolidated balance sheets of TRICOM,
S.A. and subsidiaries as of December 31, 2000 and 2001 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three year-period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TRICOM, S.A.
and subsidiaries as of December 31, 2000 and 2001 and the results of their
operations and their cash flows for each of the years in the three year-period
ended December 31, 2001, in conformity with generally accepted accounting
principles in the United States of America.
As explained in notes 3 and 21 to the consolidated financial statements,
the Company's operations in Panama are pending the final authorization from the
regulators for the interconnection of its digital trunks system to the
Panamanian main network. Such authorization have been challenged by the
competition and, as of the date of this report, are pending final resolution by
the Panamanian Courts.
As discussed in note 27 to the consolidated financial statements, effective
July 1, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations," and certain
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," as required
for goodwill and intangible assets resulting from business combinations
consummated after June 30, 2001.
As explained in note 14 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting for installation
and activation revenues.
KPMG
Santo Domingo, Dominican Republic ---------------------------------
April 19, 2002 Member Firm of KPMG International
F-2
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
ASSETS 2000 2001 2002
--------------- ---------------- ------------------
(UNAUDITED)
Current assets:
Cash on hand and in banks (note 6) $ 18,199,552 $ 12,576,050 $ 7,143,132
Accounts receivable (notes 5, 6, 13 and 22):
Customers 21,970,677 27,537,952 29,734,487
Carriers 8,729,886 4,168,187 2,942,574
Related parties 1,663,396 5,191,359 678,580
Officers and employees 556,577 687,355 1,118,144
Other 1,601,119 1,010,801 2,134,165
--------------- ---------------- ------------------
34,521,655 38,595,654 36,607,950
Allowance for doubtful accounts (2,394,903) (4,097,001) (7,107,658)
--------------- ---------------- ------------------
Accounts receivable, net 32,126,752 34,498,653 29,500,292
Inventories, net:
Equipment and accessories 8,889,385 6,485,541 5,517,728
Other 651,708 568,559 594,384
--------------- ---------------- ------------------
Total inventories 9,541,093 7,054,100 6,112,112
Investments (note 6) - 15,200,000 13,522,815
Prepaid expenses (notes 6 and 18) 7,947,531 5,850,267 2,433,506
Deferred income taxes (note 19) 801,008 1,624,637 946,968
--------------- ---------------- ------------------
Total current assets 68,615,936 76,803,707 59,658,825
--------------- ---------------- ------------------
Mortgage backed securities (note 7) 3,289,459 3,968,711 486,682
Property and equipment, net (notes 4, 6, 9, 12 and 16) 586,223,900 685,916,632 687,544,862
Other assets at cost, net of amortization (notes 6 and 8) 24,310,564 26,214,053 27,448,130
Intangible assets (note 9) - 12,135,877 12,135,877
Goodwill, net of amortization (note 9) - 24,375,646 24,375,646
--------------- ---------------- ------------------
$ 682,439,859 $ 829,414,626 $ 811,650,022
=============== ================= ==================
</Table>
See accompanying notes to consolidated financial statements
F-3
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<Table>
<Caption>
AT
AT DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2001 2002
--------------- ---------------- ------------------
(UNAUDITED)
Current liabilities:
Notes payable (notes 6, 10, 11 and 16):
Borrowed funds - banks $ 82,131,865 $ 86,872,001 $ 41,144,696
Borrowed funds - related parties 31,410,612 27,076,366 43,744,287
Commercial paper - 29,242,556 16,471,936
Current portion of long-term debt 3,213,939 30,493,532 28,441,428
--------------- ---------------- ------------------
116,756,416 173,684,455 129,802,347
--------------- ---------------- ------------------
Current portion of capital leases - related party (notes
6 and 12) 5,308,310 6,643,766 1,040,615
Accounts payable (notes 6 and 13):
Carriers 13,835,276 8,831,981 9,825,780
Related parties 2,093,385 6,868,834 282,904
Suppliers 21,653,727 17,543,401 18,102,693
Other 242,582 3,881,848 866,137
--------------- ---------------- ------------------
37,824,970 37,126,064 29,077,514
Other liabilities (note 14) 19,990,490 14,644,012 16,683,676
Accrued expenses (notes 6 and 15) 14,035,182 20,272,800 20,460,647
--------------- ---------------- ------------------
Total current liabilities 193,915,368 252,371,097 197,064,799
--------------- ---------------- ------------------
Reserve for severance indemnities (notes 2.9 and 9) 9,727 1,639,718 1,053,755
Deferred income taxes (note 19) 974,867 2,172,814 1,658,358
Commercial paper (note 11) - 1,153,759 45,597,566
Capital leases, excluding current portion - related party
(notes 6 and 12) 15,520,965 11,213,000 14,531,321
Long-term debt, excluding current portion (note 16) 261,222,759 305,459,748 337,924,363
--------------- ---------------- ------------------
Total liabilities 471,643,686 574,010,136 597,830,162
--------------- ---------------- ------------------
Minority interest - 1,870,833 -
Shareholders' equity (notes 17 and 23):
Class A common stock at par value RD$10: Authorized
55,000,000 shares; 9,700,000 shares issued at December
31, 2000 and 24,245,920 at December 31, 2001 and
September 30, 2002 6,210,025 14,753,134 14,753,134
Class B stock at par value RD$10: Authorized 25,000,000
shares; 19,144,544 shares issued at December 31, 2000,
December 31, 2001 and September 30, 2002 12,595,095 12,595,095 12,595,095
Additional paid-in-capital 159,981,808 217,290,020 217,290,020
Retained earnings 34,033,002 10,919,165 (28,794,632)
Other comprehensive income-foreign currency translation
(note 2.2) (2,023,757) (2,023,757) (2,023,757)
--------------- ---------------- ------------------
Shareholders equity, net 210,796,173 253,533,657 213,819,860
Commitments and contingencies (notes 3, 16, 18, 19,
20, 21 and 24)
--------------- ---------------- ------------------
$ 682,439,859 $ 829,414,626 $ 811,650,022
=============== ================ ==================
</Table>
See accompanying notes to consolidated financial statements.
F-4
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
NINE MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ------------------------------
1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
Operating revenues (notes 6 and 14):
Toll revenues $ 23,118,149 $ 28,666,107 $ 29,017,817 $ 22,215,869 $ 21,036,788
International revenues 60,592,134 84,187,050 82,024,320 60,862,735 65,155,992
Local service 33,298,534 51,309,514 63,419,066 46,364,483 51,046,301
Cellular and PCS 26,473,985 35,796,234 37,302,337 28,228,114 28,299,772
Data and Internet 560,086 3,461,192 8,268,003 6,024,925 8,072,423
Paging 2,695,531 1,703,963 1,051,368 832,273 494,988
Sale of equipment 7,689,534 5,263,137 2,686,304 2,652,019 1,721,585
Installation and activation fees 15,501,847 13,748,906 14,347,671 9,390,783 3,298,383
Cable - - 4,735,872 - 16,852,246
Other 889,141 161,552 919,427 555,334 416,342
------------- ------------- ------------- ------------- -------------
TOTAL OPERATING REVENUES 170,818,941 224,297,655 243,772,185 177,126,535 196,394,820
------------- ------------- ------------- ------------- -------------
Operating costs:
Transport and access charges (note 21) 43,687,794 68,607,640 68,336,474 49,470,744 57,266,462
Programming costs (note 21) - - 1,225,397 - 4,672,743
Network depreciation 15,982,827 29,341,705 44,510,197 32,464,595 39,624,363
Expense in lieu of income taxes (note 18) 12,763,565 10,173,983 12,646,103 9,002,698 6,246,766
Selling, general and administrative
expenses, including non-network
depreciation expense of $4,854,652,
$6,823,574, $9,922,008, $7,352,477
(unaudited) and $9,611,225 (unaudited)
in 1999, 2000, 2001, September 30,
2001 and September 30, 2002,
respectively (notes 6, 20, 21 and 24) 51,501,272 70,690,895 98,754,972 66,402,482 83,025,654
Cost of equipment sold 3,988,446 2,911,386 2,069,561 2,178,545 1,191,648
Other 1,432,957 1,550,161 1,745,902 1,472,688 1,436,822
------------- ------------- ------------- ------------- -------------
TOTAL OPERATING COSTS 129,356,861 183,275,770 229,288,606 160,991,752 193,464,458
------------- ------------- ------------- ------------- -------------
OPERATING INCOME 41,462,080 41,021,885 14,483,579 16,134,783 2,930,362
------------- ------------- ------------- ------------- -------------
Other income (expenses):
Interest expense (notes 6 and 8) (22,430,031) (34,037,053) (42,108,715) (28,495,020) (46,919,070)
Interest income (note 6) 2,389,329 3,301,031 2,428,316 1,533,802 1,334,087
Foreign currency exchange gain (loss) (202,724) (303,078) (259,951) (289,285) 702,420
Gain on sale of land (note 6) 897,833 - - - -
Gain (loss) on sale of fixed assets
(note 6) - 29,874 (282,713) - 1,284,310
Other, net (note 6) 179,409 (197,118) 1,361,944 515,410 (280,022)
------------- ------------- ------------- ------------- -------------
OTHER EXPENSES, NET (19,166,184) (31,206,344) (38,861,119) (26,735,093) (43,878,275)
------------- ------------- ------------- ------------- -------------
Earnings (loss) before income taxes,
minority interest and cumulative effect
of accounting change 22,295,896 9,815,541 (24,377,540) (10,600,310) (40,947,913)
Income taxes (note 19) (141,660) (588,377) (511,376) (250,861) (636,717)
------------- ------------- ------------- ------------- -------------
Earnings (loss) before minority interest
and cumulative effect of accounting
change 22,154,236 9,227,164 (24,888,916) (10,851,171) (41,584,630)
Minority interest - - 1,775,079 155,047 1,870,833
------------- ------------- ------------- ------------- -------------
Earnings (loss) before cumulative effect
of accounting change 22,154,236 9,227,164 (23,113,837) (10,696,124) (39,713,797)
Cumulative effect of accounting change:
Organization costs (119,711) - - - -
Installations and activations revenues
(note 14) - (16,452,799) - - -
------------- ------------- ------------- ------------- -------------
NET EARNINGS (loss) $ 22,034,525 $ (7,225,635) $ (23,113,837) $ (10,696,124) $ (39,713,797)
============= ============= ============= ============= =============
Earnings (loss) per common share - basic
and diluted Earnings before cumulative
effect of accounting change 0.89 0.33 (0.78) (0.37) (0.92)
Cumulative effect of accounting change - (0.59) - - -
------------- ------------- ------------- ------------- -------------
Net earnings (loss) per common share
- basic and diluted $ 0.89 $ (0.26) $ (0.78) $ (0.37) $ (0.92)
============= ============= ============= ============= =============
Pro forma amounts assuming the change in
accounting principle for installation
and activation fees retroactively:
Net earnings (loss) $ 17,183,884 $ 9,227,164 $ (23,113,837) $ (10,696,124) $ (39,713,797)
============= ============= ============= ============= =============
PRO FORMA EARNINGS PER COMMON SHARE -
BASIC AND DILUTED $ 0.69 $ (0.26) $ (0.78) $ (0.37) $ (0.92)
============= ============= ============= ============= =============
AVERAGE NUMBER OF COMMON SHARES USED IN
CALCULATION:
BASIC 24,844,544 27,723,665 29,571,266 28,844,544 43,390,464
============= ============= ============= ============= =============
DILUTED 24,888,709 27,896,666 29,571,266 28,844,544 43,390,464
============= ============= ============= ============= =============
</Table>
See accompanying notes to consolidated financial statements.
F-5
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 2000, AND NINE MONTH
PERIOD ENDED SEPTEMBER 30, 2002 (UNAUDITED)
<Table>
<Caption>
NUMBER OF COMMON SHARES ISSUED COMMON STOCK
------------------------------ ------------------------------ ADDITIONAL
CLASS A CLASS B CLASS A CLASS B PAID IN CAPITAL
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 1998 5,700,000 19,144,544 $ 3,750,000 $ 12,595,095 $ 94,015,852
Stock-based compensation to
non-employees (note 24) - - - - 273,000
Transfer to legal reserve (note 23) - - - - -
Net earnings - - - - -
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 1999 5,700,000 19,144,544 3,750,000 12,595,095 94,288,852
Issuance of common shares, Net of
issuance cost of $6,852,774 (note 17) 4,000,000 - 2,460,025 - 64,687,201
Stock-based compensation to
non-employees (note 24) - - - - 1,005,755
Net loss - - - - -
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 2000 9,700,000 19,144,544 6,210,025 12,595,095 159,981,808
Issuance of common shares in payment of
company acquisition (notes 9, 17 and
28) 3,375,000 - 1,991,250 - 19,676,250
Issuance of common shares, net of
issuance cost of $1,331,096 (note 17) 11,170,920 - 6,551,859 - 36,801,108
Stock-based compensation to
non-employees (note 24) - - - - 830,854
Net loss - - - - -
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 2001 24,245,920 19,144,544 $ 14,753,134 $ 12,595,095 $ 217,290,020
Net loss (unaudited) - - - - -
-------------- -------------- -------------- -------------- --------------
Balance at September 30, 2002
(Unaudited) 24,245,920 19,144,544 $ 14,753,134 $ 12,595,095 $ 217,290,020
============== ============== ============== ============== ==============
<Caption>
OTHER
RETAINED EARNINGS COMPREHENSIVE
------------------------------ INCOME-FOREIGN
APPROPRIATED UN- CURRENCY SHAREHOLDERS'
LEGAL RESERVE APPROPRIATED TRANSLATION EQUITY, NET
-------------- -------------- -------------- --------------
Balance at December 31, 1998 $ 1,172,188 $ 18,051,924 $ (2,023,757) $ 127,561,302
Stock-based compensation to
non-employees (note 24) - - - 273,000
Transfer to legal reserve (note 23) 480,819 (480,819) - -
Net earnings - 22,034,525 - 22,034,525
-------------- -------------- -------------- --------------
Balance at December 31, 1999 1,653,007 39,605,630 (2,023,757) 149,868,827
Issuance of common shares, Net of
issuance cost of $6,852,774 (note 17) - - - 67,147,226
Stock-based compensation to
non-employees (note 24) - - - 1,005,755
Net loss - (7,225,635) - (7,225,635)
-------------- -------------- -------------- --------------
Balance at December 31, 2000 1,653,007 32,379,995 (2,023,757) 210,796,173
Issuance of common shares in payment of
company acquisition (notes 9, 17 and
28) - - 21,667,500
Issuance of common shares, net of
issuance cost of $1,331,096 (note 17) - - - 43,352,967
Stock-based compensation to
non-employees (note 24) - - - 830,854
Net loss - (23,113,837) - (23,113,837)
-------------- -------------- -------------- --------------
Balance at December 31, 2001 $ 1,653,007 $ 9,266,158 $ (2,023,757) $ 253,533,657
Net loss (unaudited) - (39,713,797) - (39,713,797)
-------------- -------------- -------------- --------------
Balance at September 30, 2002
(Unaudited) $ 1,653,007 $ (30,447,639) $ (2,023,757) $ 213,819,860
============== ============== ============== ==============
</Table>
See accompanying notes to consolidated financial statements.
F-6
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
NINE MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -------------------------
1999 2000 2001 2001 2002
------------- ------------- -------------- ---------- -------------
(UNAUDITED)
Cash flows provided by operating activities:
Net earnings (loss) $ 22,034,525 $ (7,225,635) $ (23,113,837) $ (10,696,124) $ (39,713,797)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation 20,837,480 36,165,279 54,432,205 39,817,072 49,235,588
Amortization of debt issue cost 1,499,497 1,958,610 2,253,822 1,705,598 2,078,417
Allowance for doubtful accounts 5,420,717 3,499,893 5,519,059 5,173,937 5,893,869
Amortization of radio frequency rights 198,333 320,186 660,086 465,338 465,338
Goodwill amortization - - 47,031 31,354 -
Provision for equipment pending installation - - 1,014,605 - -
Foreign exchange gains 101,835 - - - -
Expenses for severance indemnities 328,807 760,740 1,987,129 1,070,374 1,474,840
Cumulative effect of accounting change
in installations and activations
revenues - 16,452,799 - - -
Cumulative effect of accounting change
in organizations costs 119,711 - - - -
Deferred income tax, net 33,660 491,890 374,318 (67,139) 163,213
Value of consulting services received
in exchange for stock warrants 273,000 1,005,755 830,854 752,987 -
Minority interest - - (1,775,079) (155,047) (1,870,833)
Loss (gain) on sale of fixed assets, net - (836,054) 282,713 - (1,284,310)
Gain on sale of land (897,833) - - - -
Net changes in assets and liabilities:
Accounts receivable (13,407,676) (9,497,912) (839,867) (3,679,003) (895,508))
Inventories (4,213,002) 160,162 2,498,234 388,478 (1,011,124)
Prepaid expenses (3,532,125) (1,310,464) 2,162,909 4,218,965 3,416,761
Long-term accounts receivable 68,937 22,619 - - -
Other assets (3,944,266) (9,765,092) (3,946,042) (9,079,172) (3,777,832)
Accounts payable 9,005,096 12,429,429 (3,094,374) (8,998,679) (8,048,550)
Other liabilities (3,624,114) (252,016) (7,885,779) (1,618,006) 2,039,664
Accrued expenses 1,563,855 (1,258,728) 4,635,412 2,051,308 187,847
Reserve for severance indemnities (340,279) (782,427) (2,040,943) (1,033,948) (2,060,803)
------------- ------------- ------------- ------------- -------------
Total adjustments 9,491,633 49,564,669 57,116,293 31,044,417 46,006,577
------------- ------------- ------------- ------------- -------------
Net cash provided by operating activities 31,526,158 42,339,034 34,002,456 20,348,293 6,292,780
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities (note 9 and 28):
Cancellation (acquisition) of investments (546,185) (578,887) (15,862,209) (698,730) 5,159,214
Proceeds from maturity of US Treasury
Bonds and irrevocable restricted funds 54,470,478 - - - -
Proceeds from sale of land 2,724,458 - - - 5,028,573
Proceeds from sale of fixed assets - 2,405,494 41,653 - -
Business acquisitions, net of cash acquired - - (47,416,009) - -
Acquisition of land (1,826,625) - - - -
Acquisition of property and equipment (119,182,223) (151,221,583) (113,229,826) (96,083,468) (52,654,969)
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (64,360,097) (149,394,976) (176,466,391) (96,782,198) (42,467,182)
------------- ------------- ------------- ------------- -------------
</Table>
(continued)
See accompanying notes to consolidated financial statements
F-7
<Page>
TRICOM, S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<Table>
<Caption>
NINE MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -----------------------------
1999 2000 2001 2001 2002
-------------- -------------- -------------- ------------- -------------
(UNAUDITED)
Cash flows from financing activities (notes 9 and
28):
Borrowed funds from banks 111,580,042 226,440,816 117,508,250 36,602,673 -
Principal payments to banks (69,643,536) (207,910,973) (115,281,528) - (26,404,587)
Proceeds from issuance of commercial paper - - 30,396,315 14,234,905 31,673,187
Borrowed funds from related parties 62,233,725 71,727,978 82,699,726 29,931,765 22,479,879
Principal payments to related parties (69,929,694) (58,213,312) (87,033,972) (35,577,626) (5,811,868)
Capital lease payments (361,292) (22,745,278) (6,317,907) (3,264,593) (2,284,830)
Re-payment of Carifa bonds (32,000,000) - - - -
Payments of long-term debt - (10,315,216) (3,133,887) (2,061,541) (23,278,189)
Minority interest - - - 4,507,131 -
Deposit for acquisition of common stocks - - - 40,000,000 -
Proceeds from issuance of long-term debt 29,087,227 45,664,687 74,650,469 11,961,530 34,367,892
Issuance of common stock - 67,147,226 43,352,967 - -
-------------- -------------- -------------- ------------- -------------
Net cash provided by financing activities 30,966,472 111,795,928 136,840,433 96,334,244 30,741,484
Effect of exchange rate changes on cash on hand and
in banks (50,377) - - - -
-------------- -------------- -------------- ------------- -------------
Net increase (decrease) in cash and on hand and in
banks (1,917,844) 4,739,986 (5,623,502) 19,900,339 (5,432,918)
Cash on hand and in banks at beginning of the period 15,377,410 13,459,566 18,199,552 18,199,552 12,576,050
-------------- -------------- -------------- ------------- -------------
Cash on hand and in banks at the end of the period $ 13,459,566 $ 18,199,552 $ 12,576,050 $ 38,099,891 7,143,132
============== ============== ============== ============= =============
Supplementary information:
Interest paid (net of capitalization) (23,373,038) (33,785,503) (40,731,785) (31,740,635) (47,278,737)
Capital lease obligation incurred $ 26,244,000 $ 17,691,845 $ 3,345,398 $ - -
============== ============== ============== ============= =============
</Table>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-8
<Page>
TRICOM, S.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 2001
1 ORGANIZATION AND NATURE OF BUSINESS
The consolidated financial statements of TRICOM, S. A. (the Company) include
operations of the following companies engaged in the telecommunication and
media industry, and with operations in the Dominican Republic, New York,
U.S.A. and the Republic of Panama.
TRICOM, S. A. (Parent Company)
GFN Comunicaciones, S. A.
TRICOM Centroamerica, S. A.
Call Tel Corporation
TRICOM USA, Inc. and Subsidiaries
TRICOM Latinoamerica, S. A. and Subsidiaries
TCN Dominicana, S. A. (TCN or Telecable)
TRICOM, S. A. (TRICOM or the Company) is a diversified telecommunications
company, which provides international and domestic long distance, basic local
service, mobile, Internet and broadband services in the Dominican Republic and
long distance service through subsidiaries in the United States.
The Company's operations in the Dominican Republic are governed by the
Telecommunications Law (Law No.153-98) and by a Concession Agreement signed
with the Dominican Government and confirmed by the National Congress on April
30, 1990. This agreement is for an initial term of 20-year through June 30,
2010, subject to renewal for an additional 20-year term. Law No. 153-98
establishes a basic framework to regulate the installation, maintenance and
operation of telecommunications networks and the provision of
telecommunications services and equipment. The law adopted the "Universal
Services Principle" by guaranteeing access to telecommunications services at
affordable prices in low-income rural and urban areas. The law creates a fund
for the development of the telecommunications sectors that is supported by a
2% tax on industry participants' billings of all telecommunication services.
TRICOM USA, Inc. (TRICOM USA) is a Company organized under the Laws of
Delaware and authorized by the United States Federal Communications Commission
(FCC) to operate as a facilities-based carrier in the United States.
TRICOM Latinoamerica, S. A. is a company organized under the Laws of the
Cayman Islands, on May 12, 2000. The activity of this company is to act as
holding of the telecommunication operations in Central America and the
Caribbean.
TCN Dominicana, S. A. is a company organized on September 13, 2001, under the
laws of the Dominican Republic, and engaged in the operation of three cable
television systems and networks in the Dominican Republic.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
TRICOM, S. A.(Parent Company) and its majority owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
F-9
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses. Actual results could differ from those
estimates and assumptions.
2.2 FOREIGN CURRENCIES
The Company's functional currency is the US Dollar. Monetary assets and
liabilities denominated in other currencies are translated to US Dollars at
the exchange rate prevailing at the date of the financial statements. The
exchange differences resulting from this conversion are charged or credited to
foreign currency exchange gains or losses in the accompanying consolidated
statements of operations. The transactions expressed in other currencies are
translated at the exchange rated prevailing at the time the transaction takes
place.
Subsidiaries whose functional currency is other than the US Dollar are
translated following the guidelines in SFAS 52; accordingly, assets and
liabilities are translated to US Dollars at the exchange rate prevailing at
the date of the consolidated financial statements. Revenues and expenses are
translated at the average rate at the end of each month. Foreign exchange
differences arising from transactions in other currencies are charged or
credited to operations, while translation difference arising from the
conversion of the financial statements in other currencies is recognized in
comprehensive income or expense in stockholders' equity.
As of December 31, 2000 and 2001, the rates used by the Company to translate
Dominican peso denominated accounts at year-end were RD$16.69 and RD$17.05,
respectively, and RD$19.05 (unaudited) as of September 30, 2002. Panamanian
Balboas (B/.) are at par with the US dollar.
2.3 CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company considers, as
cash and cash equivalents, cash on hand, cash in banks, time deposits and
highly liquid debt instruments with original maturities, at the time of
purchase, of three months or less.
2.4 ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts receivables is established through a
charge to an expense account. The Company, after analyzing current market
trends and collection history of its receivable portfolio has estimated that,
as a general rule, customers receivable balances over 90 days past due are
uncollectible and, are therefore reserved.
2.5 INVENTORIES
Inventories are valued at the lower of average cost or market.
2.6 PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Construction costs and equipment
installations in process are maintained as construction projects until they
are completed and/or equipment is placed in service. Depreciation is recorded
from first full month that the assets are placed in service.
F-10
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2.7 DEPRECIATION AND AMORTIZATION
The depreciation method used by the Company is the straight-line method, that
is, the uniform distribution of cost over the estimated useful lives of the
corresponding assets. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or the estimated
useful life of the improvement.
The estimated useful lives of assets are as follows:
<Table>
<Caption>
Years
-----
Buildings and improvements 50
Furniture, equipment and transportation equipment 3-15
Leasehold improvements 5-10
Communications and transmission equipment 15
Computer equipment 6.67
Other equipment 5-10
</Table>
2.8 OTHER ASSETS
Deferred debt issue costs and bank debt are amortized over the debt service
period of the related debt.
The radio frequency rights are amortized on a straight-line basis over their
useful lives, which range from 15 to 20 years.
Deferred commissions on prepaid calling cards are recognized when the deferred
revenues are recorded. Commissions expense on sales of calling cards outside
of the Dominican Republic are recognized based on the minutes used. Commission
expenses on sales of calling cards within the Dominican Republic is recorded
when the collections of outstanding invoices to distributors and/or
wholesalers are made.
Cellular service plans which include the price of the telephone equipment,
generate deferred assets for the net cost of the equipment, which is amortized
over the initial contract period of 18 months, from the month following the
equipment is delivered.
2.9 SEVERANCE INDEMNITIES
According to the Labor Code of the Dominican Republic, employers are required
to pay severance indemnities to those workers whose labor contracts are
terminated without just cause. Just cause is defined in the Labor Code as
including misstatements by an employee in his job application, termination of
an employee within three months of his hire for poor performance, dishonesty,
threats of violence, willful or negligent destruction of property, unexcused
absence or termination of the job for which the employee was hired. The
Company maintains a minimal reserve to cover severance indemnities based on
its experience. As of December 31, 2001 and September 30, 2002, the liability
for severance indemnities includes $1,625,215 and $1,043,218 (unaudited),
respectively, which relates primarily to the obligations for employees of TCN
Dominicana, S. A., assumed in connection with the Company's acquisition in
2001.
2.10 REVENUE RECOGNITION
TOLL REVENUES
Toll revenues are amounts received by the Company from customers in the
Dominican Republic for international and domestic long distance calls. These
revenues are recognized as the calls are made.
F-11
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INTERNATIONAL SETTLEMENT REVENUES
International settlement revenues represent amounts due from
telecommunications carriers for calls (based on minutes) originated outside
the Dominican Republic, which terminate into the Company's Dominican network
as per operating agreements between the Company and each of such carriers.
These revenues are recognized as the minutes are provided.
PREPAID CALLING CARD REVENUES
The Company recognizes revenue from prepaid calling cards based on card usage.
The Company accounts for cash received or credit extended from the sale of the
prepaid calling cards as deferred revenues, which are then recognized as the
cards are used. This revenue may be part of the toll or international revenues
depending on the call destination.
LOCAL SERVICE REVENUE
Local service revenue consists of wire line rent, local measured service
(represents minutes used by local customers which are billed at established
rates or tariffs per actual minutes of call duration) as well as charges for
"Custom Local Access Signaling Services" (CLASS). CLASS represents value-added
services which include call forwarding, three-way calling, call waiting and
voice mail. It also features vertical services such as incoming-call
identification, call trace, call blocking, automatic return of the most recent
incoming call, call redial, and selective forwarding and programming to permit
for distinctive ringing for incoming calls requested for local customers,
which are billed in addition to rent. Local service revenues also include
collect call revenues and revenues from other miscellaneous wire line
services. These revenues are recognized as the services are rendered.
CELLULAR AND PCS REVENUES
Represents fees received for mobile cellular and PCS services, including
interconnection charges for incoming calls to the Company's cellular and PCS
subscribers (these revenues do not include international and domestic long
distance calls generated by cellular or PCS units). Cellular and PCS fees
consist of fixed monthly access fees and per-minute usage charges, as well as
additional charges for custom or vertical features, which include call
waiting, call forwarding, three-way calling and voice mail, and for other
miscellaneous cellular and PCS services. These revenues are recognized as the
services are rendered.
DATA AND INTERNET
Represents fees received for data transmission services via ATM (Asynchronous
Transfer Mode), Frame-Relay, wireless Internet and other such services to
residential and corporate customers. These revenues are recognized as the
services are rendered.
PAGING
Paging revenues consist of fixed monthly charges for nationwide service and
the use of paging equipment and activation fees. These revenues are recognized
as these services are rendered.
SALES OF EQUIPMENT
These revenues consist of sales and rental fees charges to customers for
communication equipment, including private branch exchanges, key telephone
systems, residential telephones, cellular handsets and paging units. These
revenues are recognized upon sale to the customer.
F-12
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INSTALLATION AND ACTIVATION FEES
Revenues from installations consist of amounts charged by the Company to its
clients for the installation of local access lines, private interchange,
central telephone systems, as well as charges for the activation of cellular
phones and PCS. Effective January 1, 2000, the Company adopted Staff
Accounting Bulletin (SAB 101), issued by the Securities and Exchange
Commission (SEC), which establishes certain criteria regarding revenue from
installation and activation. As a result of this adoption, revenues are
recognized over the estimated average service life based on the Company's
experience (initially this was calculated as 35 months). In previous years,
these revenues were recognized as generated.
As a result of a review of the average service lives based on the Company's
experience relative to client maintenance during the last three years,
effective October 1, 2001, the Company revised the estimated average service
life period for the amortization of the installation and activation revenue.
Consequently, the recognition period for these revenues was changed to 24
months.
INCOME FOR CABLE TV SERVICES
Consists of fees received for the transmission of television channels and
programs in the Dominican Republic, as well as other cable related services.
These revenues are recognized as the services are provided.
OTHER
Other revenues represent revenues that are not generated from the Company's
core business activities, including commissions and revenues from the sale of
miscellaneous products. These revenues are recognized when the service or
product is delivered.
2.11 CAPITALIZATION OF INTEREST
Interest is capitalized on qualified projects and included as part of project
costs during the period necessary for installation.
During the years ended December 31, 1999, 2000 and 2001 and for the nine month
periods ended September 30, 2001 and 2002, interest capitalized as part of
construction projects amounted to approximately $11,900,000, $11,300,000,
$9,800,000, $8,800,000 (unaudited) and $2,730,000 (unaudited), respectively.
2.12 EXPENSE IN LIEU OF INCOME TAX
The parent company TRICOM, S. A. pays a tax, which is based on a percentage of
the Company's domestic gross revenues (less deductions for access to the local
network) plus a percentage of the Company's net international settlement
revenues. An accrual is made for any difference between the dates when these
items are reported to the tax authorities and when they are reported in the
accompanying consolidated statements of operations.
2.13 INCOME TAXES
In the case of subsidiary TRICOM USA, income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
F-13
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2.14 EARNINGS PER COMMON SHARE
Basic earnings per share have been computed based on the weighted average
number of common shares outstanding. Diluted earnings per share reflect the
increase in average common shares outstanding that would result from the
assumed exercise of outstanding stock options, calculated using the treasury
stock method.
The following table reconciles weighted average common shares outstanding used
in the calculation of basic earnings (loss) per common share to the number of
shares used in the calculation of diluted earning (loss) per share for the
years 1999, 2000 and 2001 and for the nine month periods ended September 30,
2001 and 2002:
<Table>
<Caption>
FOR THE NINE MONTH PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -------------------------------
1999 2000 2001 2001 2002
---------- ---------- ---------- ----------- ----------
(UNAUDITED) (UNAUDITED)
Weighted average number of common shares
outstanding - basic...................... 24,844,544 27,723,665 29,571,266 28,844,544 43,390,464
Dilutive effect of potential common shares
issuable upon exercise of employee stock
options and warrants..................... 44,165 173,001 - - -
---------- ---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding - diluted.................... 24,888,709 27,896,666 29,571,266 28,844,544 43,390,464
========== ========== ========== ========== ==========
</Table>
For 2001 and 2002, all stock options and warrants are excluded from
consideration of diluted loss per share because of the Company's net loss.
2.15 PENSION PLAN
From September 1, 2000 a pension administration company has managed the
Company's plan, which was converted to a defined contribution plan. Under this
arrangement, both the Company and the employee make fixed contributions to the
employee's account. The contributions made by the Company are recognized as
monthly expenses. Prior to September 1, 2000, the Company had a contributory
defined benefit pension and retirement plan that included all personnel. The
cost of the plan had been determined based on actuarial studies and includes
amortization of past service costs over the estimated average life of its
employees.
2.16 IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for long-lived assets in accordance with the provision of
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less cost to sell.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial
accounting and reporting for the impairment of disposal of long-lived assets.
This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the
F-14
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
carrying amount of the asset exceeds the fair value of the asset. The Company
is required to adopt SFAS No. 144 on January 1, 2002. The Company does not
anticipate any impact because of the adoption of this statement.
2.17 ADVERTISING COSTS
Advertising costs are expensed as incurred. For the years ended December 31,
1999, 2000 and 2001 and for the nine month periods ended September 30, 2001
and 2002 these costs amounted to $5,431,834, $4,204,391, $6,074,121,
$4,661,737 (unaudited) and $5,997,059 (unaudited), respectively, and are
included as part of selling, general and administrative expenses in the
accompanying consolidated statements of operations.
2.18 STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting prescribed
by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" issued in March 2000, in
accounting for its fixed plan stock options. As such, compensation expense is
recorded on the date of grant only if the market price of the underlying stock
exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans.
As allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123.
2.19 GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired during 2001, is accounted for as follows:
The goodwill resulting from the purchase of 51% interest in the subsidiary in
Panama during March of 2001 is amortized on a straight-line basis over the
expected periods to be benefited, generally over 40 years.
The goodwill resulting from the acquisition of TCN Dominicana, S.A. during
October 2001 is not being amortized in accordance with the provisions of SFAS
142.
Goodwill acquired in business combinations completed before July 1, 2001
continues to be amortized and tested for impairment prior to the full adoption
of SFAS 142 on January 1, 2002.
The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
Effective January 1, 2002, in accordance with SFAS 142, Goodwill and Other
Intangible Assets, goodwill is no longer amortized. However it must be tested
annually for impairment. This impairment test is calculated at reporting unit
levels, which are the cable and cellular segments. The goodwill impairment
test has two steps. The first identifies potential impairment by comparing the
fair value of a reporting unit with its book value, including goodwill. If the
fair value of the reporting unit exceeds the carrying amount, goodwill is not
impaired and the second step is not necessary. If the carrying value exceeds
the fair value, the second step calculates the possible impairment loss by
comparing the implied fair value of goodwill with the carrying amount. If the
implied goodwill is less than the carrying amount, a write-down is recorded.
F-15
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2.20 RECLASSIFICATION
For the year ended December 31, 2001, the Company has classified as a separate
line item in operating revenues in the consolidated statements of operations,
data and Internet revenues. Previously, these revenues were included as part
of local service revenues and totaled $560,086 and $3,461,192 for the years
ended December 31, 1999 and 2000. Prior years have been reclassified to
conform to the year 2001 presentation.
2.21 INVESTMENT SECURITIES
Investment securities at September 30, 2002, December 31, 2001 and 2000
consists of mortgage-backed securities. The Company classifies its securities
as held-to-maturity. Held-to-maturity securities are those securities in which
the Company has the ability and intent to hold the security until maturity.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts.
A decline in the market value of held-to-maturity security below cost that is
deemed to be other than temporary results in a reduction in carrying amount to
fair value. The impairment is charged to earnings and a new cost basis for the
security is established. Premiums and discounts are amortized or accreted over
the life of the related held-to-maturity security as an adjustment to yield
using the effective interest method. Interest income is recognized when
earned.
3 LIQUIDITY
As of December 31, 2000 and 2001 and September 30, 2002, the Company's current
liabilities exceed its current assets by $125.3, $175.6 and $137.4 million
(unaudited), respectively. This is mainly a result of the short-term debt
acquired in the Dominican Republic with local banks and related entities which
is due on demand. Dominican banks generally make short-term loans with
intentions of renegotiating interest rates in the event that the market
conditions change. These debts generally are not repaid at maturity. The
Company is dependent upon the continued renewal of these loans annually and
semi-annually. Based upon its prior experience, the Company expects that it
will be able to renew substantially all of these loans in 2002, although such
renewals cannot be assured.
The Company has identified an action plan to harmonize its financial situation
under the best conditions offered by Dominican banks. As a result, during the
first quarter of 2002, management renegotiated approximately $30.5 million of
its short-term debts with local banks on a long-term basis. Such debts have
been reclassified in the consolidated balance sheet, as long-term debt, as of
December 31, 2001. The Company is continuing its efforts to renegotiate, on a
long-term basis additional amounts of its short term borrowings.
For the year ended December 31, 2001, the Company generated $34 million of
cash flow from operations. Additionally, the Company funded its long term
development plan through additional short and long-term borrowings and sale of
Class A common stock for net proceeds of approximately $43 million primarily
to one of its principal stockholders. The Company is currently reviewing its
operating and capital needs and may revise or curtail its planned capital
expenditures, if necessary. Management believes that cash flow from operations
combined with available borrowings will be sufficient to fund its operating
and capital needs through the end of 2002.
Additionally, during 2001, the Company acquired the largest cable television
company of the Dominican Republic. Management estimates that the projected
future cash flows from the operations of this subsidiary will augment the cash
flows projected by its telecommunications subsidiaries and together will
improve the financial position of the Company.
While the Company's Panama telecommunications subsidiary initiated its digital
trunking operation in April, 2002 using Motorola's iDEN(R) technology. Such
subsidiary has not yet signed interconnection agreements
F-16
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
with telecommunications companies operating in Panama. It may not be able to
do so until certain lawsuits and legal proceedings are settled. An adverse
ruling to the Company in this case could have a material negative impact on
the Company's financial position and results in the future operations. (See
note 21).
4 PROPERTY AND EQUIPMENT
A detail of property and equipment at December 31, 2000 and 2001 is as
follows:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
(unaudited)
Operations and communications:
Land ..................................... $ 7,118,634 $ 11,902,288 $ 8,841,486
Buildings and improvements ............... 15,861,346 19,758,611 19,707,675
Furniture and equipment .................. 10,324,397 12,975,140 12,032,761
Communications equipment ................. 156,045,089 216,321,333 242,493,848
Transmission equipment ................... 283,120,786 354,830,797 419,210,584
Other equipment .......................... 32,538,363 25,624,184 31,660,497
-------------- -------------- --------------
505,008,615 641,412,353 733,946,851
Less accumulated depreciation .............. 70,891,750 114,543,201 152,522,562
-------------- -------------- --------------
Sub-total, operations and communications . 434,116,865 526,869,152 581,424,289
<Caption>
(unaudited)
Property and equipment:
Buildings ................................ 9,037,820 9,391,263 9,870,361
Furniture and office equipment ........... 20,133,420 31,972,835 33,402,684
Transportation equipment ................. 4,636,530 6,612,102 6,894,913
Leasehold improvements ................... 4,807,139 6,307,745 10,973,120
Data processing equipment ................ 33,590,043 45,459,879 56,660,088
-------------- -------------- --------------
72,204,952 99,743,824 117,801,166
Less accumulated depreciation ............ 21,157,407 31,725,040 43,256,213
-------------- -------------- --------------
Sub-total, property and equipment ...... 51,047,545 68,018,784 74,544,953
-------------- -------------- --------------
Communications equipment pending
obsolescence (a) ....................... 16,872,746 21,536,007 11,522,727
Cable company equipment pending
installation (a) ....................... - 3,451,697 4,931,388
Equipment in transit (b) ................. 5,789,586 4,396,131 232,363
Construction in process (c) .............. 78,397,158 61,644,861 14,889,142
-------------- -------------- --------------
Property and equipment, net ............ $ 586,223,900 $ 685,916,632 $ 687,544,862
============== ============== ==============
</Table>
(a) Communication equipment, net of allowance for obsolescence and cable
company equipment pending installation correspond to assets, acquired for
future installation into the network of the Company. Those assets are
recorded at average cost, which is lower than market cost.
(b) Equipment in transit represents accumulated costs of equipment imported by
TRICOM, S. A. and TCN, for which additional import related costs are still
to be incurred.
(c) A detail of construction in process at December 31, 2000 and 2001 and
September 30, 2002 is as follows:
F-17
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
(UNAUDITED)
Operation and communication
Buildings ............................... $ 3,104,105 $ 563,058 $ 950,117
Transmission equipment (i) .............. 48,302,135 40,173,633 3,176,123
Cells ................................... 17,075,909 13,630,164 4,317,854
Other Property and equipment: ......... 9,915,009 7,278,006 6,445,048
-------------- -------------- -------------
$ 78,397,158 $ 61,644,861 $ 14,889,142
============== ============== =============
</Table>
(i) As of December 31, 2000, this item includes mainly switches and optic
fiber projects for the Company's network in Dominican Republic. As of
December 31, 2001, this item includes approximately $24.7 million for a
network to provide trunking services with Motorola's iDEN(R)
technology, primarily in the Republic of Panama. (See note 21).
5 ACCOUNTS RECEIVABLE
Changes in the allowance for doubtful accounts were as follows:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------------------ ----------------
1999 2000 2001 2002
-------------- -------------- -------------- ----------------
(UNAUDITED)
Allowance at beginning of year ............. $ 740,687 $ 4,307,563 $ 2,394,903 $ 4,097,001
Increase for the year, net ................. 5,420,717 3,499,893 5,519,059 5,893,869
Write-off during the year .................. (1,853,841) (5,412,553) (3,816,961) (2,883,212)
-------------- -------------- -------------- --------------
Allowance at end of year ................... $ 4,307,563 $ 2,394,903 $ 4,097,001 $ 7,107,658
============== ============== ============== ==============
</Table>
6 TRANSACTIONS WITH RELATED PARTIES
The Company is an indirect subsidiary of GFN Corporation Limited, a financial
group which has investments in banking, insurance, publishing and other
businesses. The transactions with related parties are under ordinary
commercial terms and conditions similar to those that would be transacted with
third parties.
The transactions with related parties consist principally of bank accounts,
investments in certificates of deposits, loans, insurance services,
advertising, advisory services and real estate leases.
A detail of balances with related companies at December 31, 2000 and 2001 and
September 30, 2002, is as follows:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- --------------
(UNAUDITED)
Assets:
Cash in banks ............................ $ 3,677,466 $ 4,689,200 $ 806,371
Deposits (a) ............................. 13,054,686 6,292,398 3,482,899
Accounts receivable (b) .................. 1,663,396 5,191,359 678,580
Investments (c) .......................... - 15,200,000 13,522,815
Prepaid expenses - insurance ............. 4,472,055 4,456,265 970,292
Other assets - deposits ................ 86,580 86,580 86,580
============== ============== ==============
Liabilities:
Borrowed funds (d) ..................... 31,410,612 27,076,366 43,744,287
Commercial paper (e) ................... - 1,964,942 25,877,043
</Table>
F-18
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- --------------
Accounts payable ....................... 2,093,385 6,868,834 282,904
Accrued expenses - interest payable .... - 338,497 963,662
Capital leases ......................... 20,829,275 17,856,766 15,571,936
Long-term debt (note 16) ............... - - 22,000,000
========== ========== ==========
</Table>
(a) At December 31, 2000 includes $2,185,005 in a non-interest bearing time
deposit. At December 31, 2000 and 2001 includes $10,198,900 and
$2,000,000, respectively, in interest bearing deposits, which earn
interest at rates between 9% and 11% at December 31, 2000 and 10% per
annum at December 31, 2001. Additionally, at December 31, 2000 and 2001
and September 30, 2002, includes RD$11,195,335 ($670,781), RD$73,185,385
($4,292,398) and RD$66,349,225 (US$3,482,899) (unaudited), respectively,
in certificates of deposit, which earn interest rates of 20% per annum
at December 31, 2000 from 15% to 20% per annum at December 31, 2001 and
September 30, 2002.
(b) The Company contracts services from a related party engaged in managing
the collection of past due accounts. This related party also provides
these services to other related companies. During the year ended
December 31 2000 and 2001 and for the nine month periods ended September
30, 2001 and 2002, the Company recognized collection recoveries from
customer accounts previously written off of $3,087,728, $2,450,205 and
$2,328,855 (unaudited) and $330,710 (unaudited), respectively. These
amounts are included, net of increase in the allowance for doubtful
accounts, in selling, general and administrative expenses in the
accompanying consolidated statements of operations. At December 31,
2000, the Company had amounts receivable from the related party of
$1,566,447, which was collected in January 2001. As of December 31,
2001, accounts receivable includes $3,737,542 related to an insurance
claim filed with Segna, S. A., a related company, related to the loss of
communications equipment. The amount of the claim represents the
Company's undepreciated cost basis.
(c) At December 31, 2001 and September 30, 2002, correspond to certificates
of deposit that earn between 9% and 10% per annum, respectively.
(d) Correspond to financing letters of credit and open accounts with annual
interest rates that range from 10% to 11.50% per annum at December 31,
2000, 9.5% to 12% per annum at December 31, 2001 and from 9.50% to
11.50% per annum at September 30, 2002.
At December 31, 2001 and September 30, 2002, the Company has available
unsecured, short- term lines of credit for approximately $41,800,000 and
$14,120,000 (unaudited), respectively.
(e) At December 31, 2001 and September 30, 2002, represent obligations from
the issuance of commercial paper in favor of related companies amounting
to $818,344 and $22,155,754 (unaudited), respectively, and at annual
interest rates ranging from 8% to 11% and from 11.50% to 14.93% at
December 31, 2001 and September 30, 2002, respectively, and
RD$19,549,500 and RD$70,890,556 (unaudited), respectively (equivalent to
$1,146,598 and $3,721,289 (unaudited) at December 31, 2001 and September
30, 2002, respectively) at rates ranging from 14% to 16% annual interest
at December 31, 2001 and from 15% to 20% annual interest at September
30, 2002.
F-19
<Page>
A detail of transactions with related parties during the years ended December
31, 1999, 2000 and 2001 and for the nine month periods ended September 30,
2001 and 2002, is as follows:
<Table>
<Caption>
FOR THE NINE MONTH PERIOD
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------- -----------------------------
1999 2000 2001 2001 2002
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Operating revenues - communications
services revenues $ 1,970,646 $ 1,948,321 $ 3,687,902 $ 2,578,488 $ 2,708,007
Selling, general and administrative expenses:
Insurance premiums 2,000,473 4,071,713 4,379,992 3,226,227 3,860,598
Leased premises and equipment 108,578 157,600 122,568 90,382 241,662
Security services 77,382 227,001 267,725 201,946 173,896
Pension plan contributions 586,921 738,058 739,247 588,885 547,720
Advertising services 74,104 250,232 1,031,539 522,128 391,650
Professional services 167,470 234,348 128,957 96,717 -
Other - - 213,677 162,351 109,055
Other income (expenses):
Interest incurred on loans (710,537) (5,713,690) (5,751,382) (4,247,410) (4,044,702)
Interest earned 265,423 1,805,780 1,906,029 1,145,298 1,322,814
Gain on sale of land (a) 897,833 - - - -
Other (b) - 806,180 - - -
Gain on sale of fixed assets (c) - - - - 1,284,310
Bank charges (135,640) (151,600) (56,732) (20,103) (2,704)
Equipment purchased (Motorola) 23,097,157 20,279,706 20,196,766 19,885,253 2,556,539
============= ============= ============= ============= =============
</Table>
(a) During 1999, the Company bought from an unaffiliated third party a
parcel of land that was subsequently sold to a related party. The sale
price was $2,724,458 (RD$44,000,000) and the acquisition cost was
$1,826,625 (RD$29,500,000). This transaction generated a gain on sale of
land of $897,833, which is presented as gain on sale of land in other
income (expenses) in the consolidated statements of operations.
(b) In July 2000 the Company sold all operational assets related to the
operations of the Internet business portal to a related company in the
Dominican Republic for $2,315,412 in cash. The gain on the sale of this
asset was $806,180, and is included as part of other, net in other
income (expenses) in the accompanying consolidated statements of
operations.
(c) In April and September 2002 the Company sold fixed assets to related
parties for amounts of $3,972,758 (unaudited) and $1,050,445
(unaudited), respectively, approximately $5,020,000 (unaudited). These
transactions generated a gain of fixed assets of $1,284,310 (unaudited)
which is presented as a separate line item in other income (expenses) in
the consolidated statement of operations as of September 30, 2002
(unaudited).
7 MORTGAGE BACKED SECURITIES
At December 31, 2000 and 2001 and September 30, 2002, consist of mortgage
backed securities, which have been purchased from savings and loan
associations in the Dominican Republic. These contracts earn interest at rates
between 9% and 12% per annum at December 31, 2000, 7% and 12% per annum at
December 31, 2001 and 10% per annum at September 30, 2002. These investments
are maintained as compensating balances for mortgage loans made by these
savings and loans associations to certain officers and employees of the
Company.
F-20
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
8 OTHER ASSETS
Other assets at December 31, 2000, 2001 and September 30, 2002 consisted of
the following:
<Table>
<Caption>
AT DECEMBER 31,
------------------------------- AT SEPTEMBER
2000 2001 30, 2002
-------------- -------------- --------------
(UNAUDITED)
Deferred debt issue costs and bank debt,
net (a) $ 7,303,063 $ 8,852,320 $ 7,923,202
Deposits with international carriers (b) 214,340 207,575 192,008
Deposits 1,976,585 2,133,880 2,155,427
Radio frequency rights, net (c) 10,766,390 11,029,074 10,563,736
Other (d) 4,050,186 3,991,204 6,613,757
-------------- -------------- --------------
$ 24,310,564 $ 26,214,053 $ 27,448,130
============== ============== ==============
</Table>
(a) Represent commissions paid to brokers and other expenses incurred at the
time of, and directly related to, the issuance of the Senior Notes and
prepaid interest on bank debt. For the years ended December 31, 1999,
2000, 2001 and for the nine month periods ended at September 30, 2001 and
2002, amortization of deferred debt issue cost and bank debt amounted to
$1,499,497, $1,958,610, $2,253,822 and $1,705,598 (unaudited) and
$2,078,417 (unaudited), respectively, and are included as part of interest
expense in the accompanying consolidated statements of operations.
(a) At December 31, 2000 and 2001 and September 30, 2002, deposits with
international carriers represent security deposits made by TRICOM for the
installation of international circuits. These deposits will be recovered
at the termination of the agreements. These agreements mature each year
and are automatically renewed unless otherwise terminated by the parties.
(c) Represent payments for the frequency usage rights to expand the cellular
capacity of the Company in the Dominican Republic, as well as payments for
the acquisition of the frequency rights for El Salvador, Guatemala and
Panama, as part of the plans to expand the Company in Central America and
the Caribbean. For the years ended December 31, 1999, 2000, 2001 and the
nine month periods ended September 30, 2001 and 2002, the amortization
expense amounted to $198,333, $320,186, $660,086 and $465,338 (unaudited)
and $465,338 (unaudited) respectively, and are included as part of
selling, general and administrative expenses in the accompanying
consolidated statements of operations.
(d) At December 31, 2000 and 2001 and September 30, 2002 include deferred
commissions related to prepaid calling cards of $3,591,760 and $2,175,183
and $3,176,872 (unaudited), respectively. Also at December 31, 2001 and
September 30, 2002, this account includes $1,325,398 and $2,295,503
(unaudited), respectively, corresponding to the net deferred asset
associated with cellular phone packages offered which include telephone
equipment. The basic rate per minute of such packages is higher than other
regular packages offered by the Company. At December 31, 2001 and
September 30, 2001 and 2002, the amortization expense associated with net
deferred assets of cellular phone packages was $390,977, $0 (unaudited),
and $1,369,917 (unaudited), respectively, and is included as part of
selling, general and administrative expenses in the accompanying
consolidated statements of operations.
9 ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS
On October 26, 2001, the Company completed the acquisition of 100% of the
outstanding stock of TCN Dominicana, S. A. (TCN). TCN is engaged in operating
cable television systems and is the largest such Company in the Dominican
market. The purchase price consisted in cash payments of approximately
$42,300,000 and 3,375,000 TRICOM shares with an approximate value of
$21,700,000 as of the date the agreement was announced for a total cost of
approximately $64,000,000. The acquisition of TCN increases the size and scope
of the Company's services offered to customers and generates synergies between
communications and cable operations. The purchase price was determined by the
TCN's leading competitve
F-21
<Page>
position in the cable industry and the valuation of its growth prospects. The
TCN acquisition was accounted for using the purchase method of accounting.
TRICOM assumed control of the operations of TCN from September 13, 2001. From
September 13, 2001 to the date of closing, there were no significant
unsatisfied conditions necessary for the final execution of the transaction.
The conditions during that period consisted primarily of ministerial legal
conditions. Consequently, the consolidated financial statements include the
accounts of TCN from October 1, 2001.
Allocation of the purchase price to the estimated fair value of assets
acquired and liabilities assumed at the date of the acquisition is as follows:
<Table>
Current assets $ 8,052,540
Property and equipment 32,208,572
Other non-current assets 77,977
Intangible Assets 12,135,877
Goodwill 21,914,327
-------------
Total assets acquired 74,389,293
-------------
Less:
Current liabilities 7,544,934
Other non-current liabilities 2,834,434
-------------
Total liabilities assumed 10,379,368
-------------
Net assets acquired $ 64,009,925
=============
</Table>
Of the $12,135,877 of acquired intangible assets, $9,303,602 was assigned to
cable license and $2,832,275 to broadcasting contracts. These assets are not
subject to amortization, because they have indefinite lives. As a result,
under the provisions of SFAS 142, these amounts will not be amortized from the
date of acquisition but will be measured for impairment in accordance with the
Company's established accounting policy. (See note 27). The goodwill was
assigned to the cable segment.
The following unaudited supplemental pro forma information presents the
results of operation of the Company as if the TCN acquisition had taken place
on January 1, 2000 and 2001, respectively.
<Table>
<Caption>
2000 2001
-------------- --------------
Revenues $ 241,165,176 $ 257,825,370
Earnings (loss) before cumulative effect of
accounting change 11,638,778 (21,532,336)
Net loss (4,814,020) (21,532,336)
Loss per share-basic and diluted (0.17) (0.73)
============== ==============
</Table>
The unaudited pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of results of
operations which actually would have resulted had TCN acquisition occurred as
of January 1, 2000 and 2001.
In March 2001, the Company acquired 51% of the outstanding shares of Cellular
Communications of Panama, S. A. (subsequently renamed TRICOM Panama, S. A.) a
Panamanian Corporation engaged in wireless communications. The total cost of
this acquisition, including transaction expenses amounted to $6,303,074 of
which $5,272,774 was paid in cash and $1,030,300 through the contribution of a
non-exclusive license for software developed by TRICOM.
F-22
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allocation of the purchase price to the estimated fair value of assets
acquired and liabilities assumed at the date of the acquisition of the 51% of
the Company's equity is as follows:
<Table>
Current assets $ 177,717
Property and equipment 3,305,797
Other non-current assets 666,035
Goodwill 2,508,350
-------------
Total assets acquired 6,657,899
-------------
Less:
Current liabilities 351,695
Other non-current liabilities 3,130
-------------
Total liabilities assumed 354,825
-------------
Net assets acquired $ 6,303,074
=============
</Table>
INTANGIBLE ASSETS
There were no acquisitions of intangible assets during the nine month period
ended September 30, 2002. The components of intangible assets as of December
31, 2001 and September 30, 2002 are as follows:
<Table>
Cable license $ 9,303,602
Broadcasting contracts 2,832,275
-------------
$ 12,135,877
-------------
</Table>
The intangible assets are determined to have an indefinite useful life due to
their expected ability to generate cash flows indefinitely. The cable license
is based on an agreement signed with the Dominican government, which agreement
has an indefinite life. In the case of broadcasting contracts, the contracts
can be renewed automatically withour additonal payment, as long as the Company
complies with the terms of the agreements.
GOODWILL
As of December 31, 2001 and September 30, 2002, the composition of goodwill
and intangible assets is as follows:
<Table>
Acquisition of TCN $ 21,914,327
Acquisition of Cellular Communications of
Panama, S. A. (subsequently TRICOM Panama,
S. A.) 2,508,350
-------------
24,422,677
Less amortization 47,031
-------------
Balance at December 31, 2001 $ 24,375,646
=============
</Table>
The goodwill is assigned to the cable and cellular segment and is not
deductible for tax purposes.
Effective January 1, 2002, the Company adopted completely SFAS 141 and SFAS
142. SFAS 141 requires business combinations initiated after June 30, 2001 to
be accounted for using the purchase method of accounting. It also specifies
the types of acquired intangible assets that are required to be recognized and
reported separate from goodwill. SFAS 142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for impairment. There
was no impairment of goodwill upon adoption of SFAS 142.
F-23
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net loss and loss per share for the nine month period ended September 31,
2001, adjusted to exclude amortization expense for goodwill no longer
amortized under SFAS 142, is as follows:
<Table>
Net loss:
Reported net loss $ (10,696,124)
Amortization of goodwill 31,354
-------------
$ (10,664,770)
=============
Basic and diluted loss per common share:
Reported net loss $ (0.37)
-------------
Amortization of goodwill -
Adjusted net loss $ (0.37)
=============
</Table>
10 BORROWED FUNDS - BANKS
Funds borrowed by the Company consist of:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
(UNAUDITED)
Funds denominated in US dollars (a) $ 45,609,165 $ 51,012,974 $ 22,977,997
International Bank of Miami (IBM) (b) 33,047,565 29,817,971 18,166,699
Funds denominated in Dominican. pesos (c) 3,475,135 6,041,056 -
-------------- -------------- --------------
$ 82,131,865 $ 86,872,001 $ 41,144,696
============== ============== ==============
</Table>
(a) At December 31, 2000 and 2001 and September 30, 2002, these amounts
represent loans with local and international banks, which accrued interest
at annual rates ranging from 9.8% to 12% at December 31, 2000, from 5.25%
to 12.50% at December 31, 2001 and September 30, 2002.
(b) At December 31, 2000 and 2001 and September 30, 2002, represent working
capital loans for an amount of $10,284,791, $6,101,654 and $1,945,607
(unaudited), respectively, and for trade finance purposes for an amount of
$22,762,774, $23,716,317 and $16,221,092 (unaudited), respectively. These
loans have interest rates ranging from 11% to 12% per annum at December
31, 2000, from 10.25% to 11.25% per annum at December 31, 2001 and from
10.50% to 11.50% per annum at September 30, 2002.
(c) At December 31, 2000, these loans were RD$58,000,000 bearing interest at a
rate of 26% per annum. At December 31, 2001, these loans represented
RD$103,000,000 bearing interest at rates ranging from 15% to 16.50% per
annum.
Normally these loans are renewable at maturity and are due on demand.
At December 31, 2001 and September 30, 2002, the Company had available unused
lines of credit with local and international banks for approximately
$30,600,000 and $8,100,000 (unaudited), respectively.
11 COMMERCIAL PAPER
At December 31, 2001 and September 30, 2002, commercial paper issued by the
Company consist of:
F-24
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
2001 2002
-------------- --------------
(UNAUDITED)
Commercial paper in US dollars (a) $ 26,914,427 $ 55,505,073
Commercial paper in Dominican pesos (b) 3,481,888 6,564,429
-------------- --------------
Total commercial paper 30,396,315 62,069,502
Less short-term commercial paper 29,242,556 16,471,936
-------------- --------------
Long-term commercial paper $ 1,153,759 $ 45,597,566
-------------- --------------
</Table>
(a) Bears interest at annual rates between 8% and 12% at December 31, 2001 and
from 8% to 14.93% at September 30, 2002.
(b) Commercial paper in Dominican pesos for a total amount of RD$59,366,190 at
December 31, 2001 and RD$125,052,373 (unaudited) at September 30, 2002,
which bears interest at annual rates between 13% and 16% at December 31,
2001 and between 15% and 25.5% annual rates at September 30, 2002.
Commercial paper issued by the Company are non-redeemable until maturity.
These obligations are issued through the related company "Acciones y Valores,
S. A." to a related bank and through "Valores Profesionales, S.A." At December
31, 2001 and September 30, 2002, the Company has a facility that would allow
for the issuance of additional commercial paper in the amount of $13,085,573
and RD$140,633,210 ($8,249,317) in 2001 and $4,494,927 (unaudited) and
RD$134,947,628 ($7,083,865) (unaudited) in 2002.
The following is a schedule of the maturity for such debt at December 31, 2001
and September 30, 2002:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
2001 2002
-------------- --------------
(UNAUDITED)
One to three months $ 3,072,221 $ 12,411,712
Three to six months 5,607,451 3,152,560
Six months to one year 20,562,884 907,664
More than one year 1,153,759 45,597,566
============== ==============
</Table>
12 CAPITAL LEASES
Since December 1999, the Company has entered into various capital lease
contracts with a related party. These contracts will mature at various dates
during the next four years. Assets recorded under these leases consist of:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
(UNAUDITED)
Communications equipment and other equipment $ 42,488,488 $ 45,696,681 $ 45,696,681
Transportation 1,176,001 1,276,815 1,276,815
Machinery and equipment 271,356 307,748 307,748
-------------- -------------- --------------
43,935,845 47,281,244 47,281,244
Less accumulated depreciation 2,350,834 11,169,666 18,286,651
-------------- -------------- --------------
$ 41,585,011 $ 36,111,578 $ 28,994,593
============== ============== ==============
</Table>
F-25
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A schedule of the lease payment requirements under these capital leases is as
follows:
<Table>
<Caption>
YEAR ENDING
YEAR ENDING DECEMBER 31, SEPTEMBER 30,
------------------------------------------- --------------
(UNAUDITED)
2002 $ 9,584,940 $ -
2003 8,816,113 5,017,861
2004 4,988,675 5,017,861
2005 204,172 5,017,861
2006 - 5,017,861
2007 - 2,509,312
-------------- --------------
Total lease payments 23,593,900 22,580,756
Less related taxes 2,527,882 2,419,695
-------------- --------------
Minimum lease payments 21,066,018 20,161,061
Less amount representing interest
(12% to 12.875%) 3,209,252 4,589,125
-------------- --------------
Present value of capital lease
obligations 17,856,766 15,571,936
Less current maturities of capital
lease obligations 6,643,766 1,040,615
-------------- --------------
Capital lease obligations $ 11,213,000 $ 14,531,321
============== ==============
</Table>
13 TRANSACTIONS WITH CARRIERS
Accounts receivable from carriers arise from the interconnection services of
inbound calls, while accounts payable result from interconnection services of
outbound calls. These charges are based on minutes billed. Amounts paid to
carriers constitute one of the main operating costs of the Company.
Net amounts receivable and payable for these activities at December 31, 2000
and 2001 and September 30, 2002 were as follows:
<Table>
<Caption>
AT DECEMBER 31,
------------------------------------------------------------
2000 2001 AT SEPTEMBER 30, 2002
------------------------------------------------------------ -----------------------------
(UNAUDITED)
RECEIVABLE PAYABLE RECEIVABLE PAYABLE RECEIVABLE PAYABLE
------------- ------------ ------------- ------------ ------------- ------------
Inbound $ 13,699,020 $ - $ 7,119,043 $ - $ 6,201,256 $ -
Outbound (4,969,134) 12,323,898 (2,950,856) 7,080,318 (3,258,682) 8,282,456
Payable accounts
Interconnection
Operations - 1,511,378 - 1,751,663 - 1,543,324
------------- ------------ ------------- ------------ ------------- -------------
$ 8,729,886 $ 13,835,276 $ 4,168,187 $ 8,831,981 $ 2,942,574 $ 9,825,780
============= ============= ============= ============= ============= =============
</Table>
14 OTHER LIABILITIES
Other liabilities at December 31, 2000 and 2001 and September 30, 2002
consisted of the following:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
(UNAUDITED)
Customer advances $ 1,256,345 $ 2,467,875 $ 2,862,925
Deferred revenues:
</Table>
F-26
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
Calling cards 3,622,686 7,112,025 10,093,730
Installations and activation 14,654,886 4,718,921 3,225,823
Other 456,573 345,191 501,198
-------------- -------------- --------------
$ 19,990,490 $ 14,644,012 $ 16,683,676
============== ============== ==============
</Table>
Effective January 1, 2000, the Company adopted the Staff Accounting Bulletin
(SAB 101) "Revenue Recognition" issued by the Securities and Exchange
Commission (SEC). The adoption of SAB 101 resulted in a change in the revenue
recognition policy regarding installation and activation revenues. Such change
required the Company to recognize net revenues from installation and
activation over the average service life based on the experience of the
Company (35 months). This change in the revenue recognition method required
the Company to recognize a cumulative effect of accounting change in net
revenues from installations and activations for $16,452,799, which is
presented as a separate item in the accompanying consolidated statements of
operations. The adoption of this bulletin did not affect the cash flows of the
Company.
Effective October 1, 2001, the Company updated its estimate of the average
service life period of its customers for purposes of the recognition of
deferred income from activations and installations, as a result, the service
life was revised from 35 to 24 months. This revision was done based on the
average service lives of the Company's customers during the last three years.
As of December 31, 2000 and 2001, the Company has recognized revenue of
$8,940,040 and $7,512,759, respectively, associated with the accounting change
to the adoption of SAB 101 to January 1, 2000. This revenue is included as
part of revenue from installation and activation in the accompanying
consolidated statements of operations.
15 ACCRUED EXPENSES
A summary of accrued expenses at December 31, 2000 and 2001 and September 30,
2002 is as follows:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- --------------
2000 2001 2002
-------------- -------------- --------------
(UNAUDITED)
Expense in lieu of income
tax payable $ 627,543 $ 2,320,633 $ -
Interest payable 9,854,165 11,331,294 8,893,210
ITBIS (Net sales tax) 1,058,522 1,830,470 1,327,912
Employees bonus - - 1,755,536
Other 2,494,952 4,790,403 8,483,989
-------------- -------------- --------------
$ 14,035,182 $ 20,272,800 $ 20,460,647
============== ============== ==============
</Table>
16 LONG-TERM DEBT
Long-term debt is summarized as follows:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
(UNAUDITED)
Senior notes (a) $ 200,000,000 $ 200,000,000 $ 200,000,000
Bank loans:
Nine loans granted by Banco Lopez de Haro, S. A. and Banco de Desarrollo
Industrial, S. A. for a total amount of RD$103,586,975 at December 31,
2000, eleven loans for a total amount of RD$186,373,755 at December 31,
2001 and eleven loans for a total amount of
</Table>
F-27
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
RD$168,472,890 (unaudited) at September 30, 2002 with interest ranging from
24% to 26% per annum at December 31, 2000, from 15% to 18% per annum at
December 31, 2001 and from 25% to 27% per annum at September 30, 2002.
These loans are payable in monthly installments of RD$4,535,210 at December
31, 2001 (approximately $265,995) and RD$5,579,780 (unaudited)
(approximately $292,902) at September 30, 2002, including principal plus
interest, beginning in January 2000 through December 2008; five of these
loans are secured by the communications equipment being financed, of
TRICOM, S. A. (Parent Company) with a carrying value of approximately
$7,300,000 at December 31, 2000, $6,800,000 at December 31, 2001. At
September 30, nine of these loans are secured by equipment with a carrying
value of approximately $7,735,212.
(unaudited) and two of these loans are secured by mortgage with a market
value of RD$90,000,000 (US$4,800,000) (unaudited). 6,206,529 10,931,012 8,843,721
Loans with the Private Export Funding Corporation disbursed under a credit
guarantee facility from the Export-Import Bank of the United States
(EXIMBANK) to purchase equipment from US suppliers. As of December 31, 2000
and 2001 and September 30, 2002 the amounts of $20,230,169, $26,333,154 and
$31,440,648 (unaudited), respectively, was outstanding. These loans are
disbursed under the $36,005,530 facility. As of December 31, 2001 and
September 30, 2002 the amount of $5,426,869 and $15,177,689 (unaudited) is
disbursed under the $20,000,000 facility. At December 31, 2000 and 2001,
the Company had $35,775,361, $24,245,507, respectively, available under
both facilities. At September 30, 2002, the Company had not availability
under both facilities. Interest is payable semi-annually at a variable rate
of 30-day LIBOR plus 2.25% for interim loans and at a fixed rate applicable
to the 3-year US Treasury Obligations plus 2% after a certain date. 20,230,169 31,760,023 46,618,337
</Table>
F-28
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
At December 31, 2000 and 2001 and September 30, 2002, these loans have an
interest rate of 8.87% per annum and interest rates ranging from 4.19% to
6.48% per annum, respectively. The principal amount is payable in up to 10
semi-annual installments of approximately $3,311,674 each, which
amortization begins partially on March 15, 2002 and through September 15,
2002 until December 15, 2007. These loans are guaranteed by TRICOM USA,
Inc.
Loan with Banco Popular de Puerto Rico disbursed under a credit facility of
$15,000,000 at an interest rate of LIBOR plus 4%. At December 31, 2000 and
2001 and September 30, 2002 this loan has an interest rate of 10.78%, 6.12%
and 5.82% per annum, respectively. Interest is payable on a monthly basis
and principal is
payable in 3 installments of $3,000,000 in September 2003, $4,000,000 in
December 2003 and $8,000,000 in September 2004. This loan is guaranteed by
TRICOM USA, Inc. 15,000,000 15,000,000 15,000,000
Unsecured loans with Banco Mercantil, S. A. for the amount of
RD$150,000,000 at December 31, 2001 and RD$97,800,000 (unaudited) at
September 30, 2002. At December 31, 2001 and September 30, 2002 this loan
has an interest rate of 17.50% and 30% per annum, respectively, which can
be adjusted every 30 to 60 days as per market conditions. Interest is
payable on a monthly basis and principal is due on April 2004. - 8,797,654 5,133,859
At September 30, 2002, represents an unsecured loan with M.D.R. for the
amount of $3,000,000 (unaudited). At September 30, 2002 this loan has an
interest rate of 14% per annum, which can be adjusted every 30 to 60 days
as per market conditions. Interest is payable on a monthly basis and
principal is due on April 2004. - - 3,000,000
Loan with General Electric Capital Corporation of Puerto Rico (GE Capital)
</Table>
F-29
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
for $8,000,000. This loan has an interest rate of 30-day LIBOR plus 2.75%,
payable on a monthly basis. At December 31, 2000 and 2001 and September 30,
2002 this loan has an interest rate of 9.53%, 5.39% and 4.62% per annum,
respectively. The principal amount is payable in 36 consecutively monthly
installments of $222,222 beginning on February 1, 2001. This loan is
secured by transmission and communication equipment at a cost of
$15,864,000. The Company's loan agreement with GE Capital includes the
maintenance of certain financial ratios. The loan agreement provides a
grace period for the Company to cure covenants violations within 90 days
from the written notification received from GE Capital. The Company failed
to meet certain covenants requirements at December 31, 2001 for which GE
Capital issued the Company waivers as of that date. In April 2002, the
Company and GE Capital signed an amendment to the loan agreement which
eliminates the application of the financial covenants to the three month
periods ended March 31, 2002 and June 30, 2002 an amends the financial
covenants, originally required, for periods ending after June 30, 2002.
Consequently the debt obligation with maturity after December 31, 2002 has
been classified as a long-term obligation. 8,000,000 5,555,548 3,777,763
Loan with Popular Bank & Trust, Ltd. for $27,235,700. This loan has a fixed
interest rate of 10.25% p. a. for one year, which can be modified annually
according to market conditions. Interest is payable on a monthly basis and
principal is payable on 20 quarterly installments of $972,704 each,
beginning on January 26, 2002 and a final payment of $7,781,620. This loan
is secured by an irrevocable stand by letter of credit issued by
Bancredito, S. A. - 27,235,700 24,317,588
Unsecured loans with Banco Popular Dominicano, S. A. disbursed under a
credit facility of $6,800,000. At December 31, 2001 and September 30, 2002,
include RD$92,400,000 loan (approximately - 6,669,114 6,433,770
</Table>
F-30
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
US$5,419,355) and US$4,850,394 (unaudited) at September 30, 2002) has an
interest rate of 18% and 25.75% per annum, respectively and the $1,249,758
and $1,583,376 (unaudited), respectively, loan has an interest rate of 9.5%
per annum and ranging rates from 11% to 11.5% per annum, respectively,
which can be modified every 30 to 60 days according to market conditions.
Interest is payable on a monthly basis and principal is payable in six
equal and consecutive semi-annual installments of approximately $1,133,000
each, beginning in September 2004 and ending on March 2007.
Loans with Banco BHD, S. A. and BHD Cayman disbursed under a credit
facility of $12,000,000. At December 31, 2001, outstanding under this
facility includes a RD$18,500,000 loan (approximately $1,085,044) at an
interest rate of 16% per annum, which can be modified every 30 to
60 days as per market conditions. Loans for a total of $10,133,163 and
$10,963,930 at December 31, 2001 and September 30, 2002, respectively, have
interest rates ranging from 11% to 12%, which can be modified as per market
conditions. At December 30, 2001 and September 30, 2002 principal repayment
is as follows: $6,000,000 is payable in 20 equal and consecutive quarterly
installments including capital plus interest of $396,335 each, commencing
in May 30, 2002; $2,000,000 is payable at maturity on May 30, 2006 with
interest payable on a monthly basis; the remaining principal amount is
payable in three equal and consecutive monthly installments of $1,000,000
beginning in September 30, 2003, with interest payable on a monthly basis.
Two of these loans are secured by a mortgage valued at RD$141,246,550
($8,000,000), the other by liens on telecommunications equipment of the
company for a total amount of approximately $5,000,000. - 11,218,206 10,963,930
Loans with Banco Dominicano del Progreso, S. A. disbursed under a credit
facility of $5,000,000. At December 31, 2001 - 3,786,023 5,000,000
</Table>
F-31
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
and September 30, 2002, these loans have interest rates ranging from 10.5%
to 12% per annum and 11% per annum, respectively, which can be modified
semiannually as per market conditions. Interest is payable on a monthly
basis and principal at maturity in March 2007. These loans are secured by a
mortgage valued at $6,900,000.
At September 30, 2002, represents an unsecured loan with Export Development
Canada for an amount of $1,870,000 (unaudited). This loan has an interest
rate of 30-day LIBOR plus 4% (equivalent to an effective rate of 7.95%),
payable on a semiannual basis. At September 30, 2002, this loan has an
interest rate of 7.95% per annum. Principal amount is payable in 5 equal
and consecutive semi-annual installments of $374,000 beginning in September
30, 2002. - - 1,870,000
Two unsecured loans with Bancredito (Panama), S. A. and Bancredito, S. A.
for a total amount of $22,000,000 (unaudited). At September 30, 2002, these
loans have an interest rate of 11.5% per annum, which can be adjusted every
30 to 60 days as per market conditions. Interest is payable on a monthly
basis and principal is due on July 1, 2007. - - 22,000,000
At September 30, 2002, represents loan with Financial Card Corporation to
be repaid on 56 monthly installments of principal and interest of $70,978
(unaudited) beginning on April 2003, with maturity on November 30, 2007.
This loan has an interest rate of 12.50% per annum and is secured with a
mortgage on property with a market value of RD$26,950,000 (US$1,414,698). - - 3,000,000
At September 30, 2002 represents two loans with Banco Profesional de
Desarrollo, S. A. for RD$17,100,000 (unaudited) and RD$27,900,000
(unaudited). These loans have an interest rate of 25% per annum. Interest
is payable on a monthly basis and principal is due on - - 2,362,204
</Table>
F-32
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------- ----------------
2000 2001 2002
-------------- -------------- ----------------
June 2005. One of these loans is secured by equipment with a book value of
RD$23,854,744 (US$1,252,218).
At September 30, 2000 represents an unsecured loan with Banco de Reservas
de la Republica Dominicana for RD$58,000,000. This loan has an interest
rate of 28% per annum. Interest is payable on a monthly basis and principal
is due on October 21, 2005 - 3,044,619
At September 30, 2002, represents an unsecured loan with Banco de Reservas
de la Republica Dominicana for $5,000,000. This loan has an interest rate
of 11% per annum. interest is payable on a monthly basis and principal is
due on October 21, 2005. - - 5,000,000
$15,000,000 revolving line of credit with Hamilton Bank due on May 14, 2002
and was extended until October, 2002. This loan bears interest at Citibank,
N.A. prime rate plus 0.05%. At December 31, 2000 and 2001 and September 30,
2002 this loan has an interest rate of 10%, 5.25% and 5.25% per annum,
respectively. This line of credit is guaranteed by TRICOM, S.A. (Parent
Company) and by Bancredito, S.A. 15,000,000 15,000,00 -
-------------- -------------- --------------
Total bank loans 64,436,698 135,953,280 166,365,791
-------------- -------------- --------------
Total long-term debt 264,436,698 335,953,280 366,365,791
-------------- -------------- --------------
Less current portion of long-term debt 3,213,939 30,493,532 28,441,428
-------------- -------------- --------------
Long-term debt excluding current portion $ 261,222,759 $ 305,459,748 $ 337,924,363
============== ============== ==============
</Table>
The aggregate principal maturities due on these long-term debt obligations
from December 31, 2001 and September 30, 2002 is as follows:
<Table>
<Caption>
YEAR ENDING DECEMBER 31, SEPTEMBER 30,
----------------------------------- ------------- -------------
(UNAUDITED)
2002 $ 30,493,532 $ -
2003 20,914,484 28,441,428
2004 231,620,946 245,052,048
2005 18,014,766 31,098,570
2006 and thereafter 32,909,552 61,773,745
============= =============
</Table>
F-33
<Page>
(a) Senior Notes
On August 15, 1997, the Company issued $200,000,000 aggregate principal amount
of 11 3/8% Senior Notes due in 2004 (the "Senior Notes"). Interest on the Senior
Notes is payable in semi-annual installments on March 1st and September 1st of
each year.
The Senior Notes may be redeemed at any time at the option of the Company, in
whole or in part, after September 1, 2001, at a premium declining to par after
September 1, 2003, plus accrued and unpaid interest, and additional amounts, if
any, through the redemption date. The Senior Notes are senior unsecured
obligations of the Company ranking pari passu in right of payment with all other
existing and future senior debt, and will rank senior to any future subordinated
indebtedness.
The indenture for the Senior Notes contains certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries, as
defined in the indenture, to incur additional indebtedness and issue preferred
stock, pay dividends or make other distributions, repurchase equity interests or
subordinated indebtedness, engage in sale and leaseback transactions, create
certain liens, enter into certain transactions with affiliates, sell assets of
the Company or its Restricted Subsidiaries, engage in any business other than
the telecommunications business, issue or sell equity interests of the Company's
Restricted Subsidiaries or enter into certain mergers and consolidations.
The Senior Notes are guaranteed fully, unconditionally and jointly and severally
by each of the Company's restricted subsidiaries, as defined in the indenture
for the Senior Notes, each of which is wholly owned by the Company. Separate
financial statements of each of the guarantor subsidiaries have not been
presented herein because management has determined that such separate financial
statements would not be material to the holders of the Senior Notes.
Summarized condensed consolidated financial information of TRICOM, S. A. (Parent
Company), the subsidiaries guarantors on a combined basis (GFN Comunicaciones,
TRICOM Centroamerica, S. A., Call Tel, TRICOM USA and Subsidiaries, Tricom
Latinoamerica, S.A., Tricom, S.A. -Panama- and TCN Dominicana, S.A.), and the
subsidiary not guarantor (Tricom Panama, S.A. - formerly Cellular Communications
of Panama, S.A. -) at December 31, 2000 and 2001 and September 30, 2002 and for
the years ended December 31, 1999, 2000 and 2001 and for the nine month periods
ended September 30, 2001 and 2002 is as follows (see note 1):
F-34
<Page>
BALANCE SHEET DATA AT DECEMBER 31, 2000:
<Table>
<Caption>
TRICOM, S.A. SUBSIDIARIES SUBSIDIARIES CONSOLIDATING TOTAL
ASSETS PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS CONSOLIDATED
------ --------------- --------------- --------------- --------------- ---------------
Current assets:
Cash on hand and in banks $ 17,241,951 $ 957,601 $ - $ - $ 18,199,552
Accounts receivable, net 42,620,337 39,460,594 - (49,954,179) 32,126,752
Other current assets 17,049,765 1,239,867 - - 18,289,632
--------------- --------------- --------------- --------------- ---------------
Total current assets 76,912,053 41,658,062 - (49,954,179) 68,615,936
Property and equipment net 557,465,684 28,758,216 - - 586,223,900
Other non-current assets 58,932,766 9,207,733 - (40,540,476) 27,600,023
--------------- --------------- --------------- --------------- ---------------
Total assets $ 693,310,503 $ 79,624,011 - $ (90,494,655) $ 682,439,859
=============== =============== =============== =============== ===============
<Caption>
LIABILITIES AND STOCKHOLDERS' TRICOM S.A. SUBSIDIARIES SUBSIDIARIES CONSOLIDATING TOTAL
EQUITY PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS CONSOLIDATED
- ----------------------------- --------------- --------------- --------------- --------------- ---------------
Current liabilities:
Notes payable $ 116,756,416 $ - $ - $ - $ 116,756,416
Current portion of capital
leases 5,308,310 - - - 5,308,310
Accounts payable 68,895,750 18,883,399 - (49,954,179) 37,824,970
Other current liabilities 29,800,403 4,225,269 - - 34,025,672
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 220,760,879 23,108,668 - (49,954,179) 193,915,368
Other non-current liabilities 261,753,451 15,974,867 - - 277,728,318
--------------- --------------- --------------- --------------- ---------------
Total liabilities 482,514,330 39,083,535 - (49,954,179) 471,643,686
Stockholders' equity 210,796,173 40,540,476 - (40,540,476) 210,796,173
--------------- --------------- --------------- --------------- ---------------
Total liabilities and
stockholders' equity $ 693,310,503 $ 79,624,011 $ - $ (90,494,655) $ 682,439,859
=============== =============== =============== =============== ===============
</Table>
F-35
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
BALANCE SHEET DATA AT DECEMBER 31, 2001:
<Table>
<Caption>
TRICOM, S.A. SUBSIDIARIES SUBSIDIARIES CONSOLIDATING
ASSETS PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
------ --------------- --------------- --------------- --------------- ------------------
Current assets:
Cash on hand and in banks $ 11,200,148 $ 1,182,280 $ 193,622 $ - $ 12,576,050
Accounts receivable, net 87,640,800 17,706,131 835,546 (71,683,824) 34,498,653
Other current assets 27,076,558 2,287,371 365,075 - 29,729,004
--------------- --------------- --------------- --------------- ---------------
Total current assets 125,917,506 21,175,782 1,394,243 (71,683,824) 76,803,707
Property and equipment net 581,160,158 100,344,145 4,412,329 - 685,916,632
Other non-current assets 84,173,618 16,452,492 799,973 (34,731,796) 66,694,287
--------------- --------------- --------------- --------------- ---------------
Total assets $ 791,251,282 $ 137,972,419 $ 6,606,545 $ (106,415,620) $ 829,414,626
=============== =============== =============== =============== ===============
<Caption>
TRICOM S.A. SUBSIDIARIES SUBSIDIARIES CONSOLIDATION TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS CONSOLIDATED
- ------------------------------------ --------------- --------------- --------------- --------------- ---------------
Current liabilities:
Notes payable $ 158,259,504 $ 15,424,951 $ - $ - $ 173,684,455
Current portion of capital
leases 6,643,766 - - - 6,643,766
Accounts payable 33,536,089 72,631,604 2,642,195 (71,683,824) 37,126,064
Other current liabilities 25,986,347 8,790,651 139,814 - 34,916,812
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 224,425,706 96,847,206 2,782,009 (71,683,824) 252,371,097
Other non-current liabilities 313,291,919 8,340,609 6,511 - 321,639,039
--------------- --------------- --------------- --------------- ---------------
Total liabilities 537,717,625 105,187,815 2,788,520 (71,683,824) 574,010,136
Minority interest - - - 1,870,833 1,870,833
Stockholders' equity 253,533,657 32,784,604 3,818,025 (36,602,629) 253,533,657
--------------- --------------- --------------- --------------- ---------------
Total liabilities and
stockholders' equity $ 791,251,282 $ 137,972,419 $ 6,606,545 $ (106,415,620) $ 829,414,626
=============== =============== =============== =============== ===============
</Table>
BALANCE SHEET DATA AT SEPTEMBER 30, 2002 (UNAUDITED):
<Table>
<Caption>
TRICOM, S. A. SUBSIDIARIES SUBSIDIARY CONSOLIDATING TOTAL
ASSETS PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS CONSOLIDATED
------ --------------- --------------- --------------- --------------- ---------------
Current assets:
Cash on hand and in banks $ 5,101,176 1,840,918 201,038 - 7,143,132
Accounts receivable, net 108,185,919 20,473,799 694,158 (99,853,584) 29,500,292
Other current assets 19,719,304 2,796,387 499,710 - 23,015,401
--------------- --------------- --------------- --------------- ---------------
Total current assets 133,006,399 25,111,104 1,394,906 (99,853,584) 59,658,825
Property and equipment, net 569,870,130 112,441,426 5,233,306 - 687,544,862
Other non-current assets 73,454,564 13,019,453 791,185 (22,818,867) 64,446,335
--------------- --------------- --------------- --------------- ---------------
Total assets $ 776,331,093 150,571,983 7,419,397 (122,672,451) 811,650,022
=============== =============== =============== =============== ===============
</Table>
F-36
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
LIABILITIES AND STOCKHOLDERS' TRICOM, S. A. SUBSIDIARIES SUBSIDIARY CONSOLIDATING TOTAL
EQUITY PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS CONSOLIDATED
----------------------------- --------------- --------------- --------------- --------------- ---------------
Current liabilities:
Notes payable $ 121,710,686 7,852,033 239,628 - 129,802,347
Current portion of
capital leases 1,040,615 - - - 1,040,615
Accounts payable 18,296,542 102,582,460 8,052,096 (99,853,584) 29,077,514
Other current liabilities 28,105,927 8,400,796 637,600 - 37,144,323
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 169,153,770 118,835,289 8,929,324 (99,853,584) 197,064,799
Other non-current liabilities 393,357,463 7,407,900 - - 400,765,363
--------------- --------------- --------------- --------------- ---------------
Total liabilities 562,511,233 126,243,189 8,929,324 (99,853,584) 597,830,162
Minority interest - - - - -
Stockholders' equity 213,819,860 24,328,794 (1,509,927) (22,818,867) 213,819,860
--------------- --------------- --------------- --------------- ---------------
Total liabilities and
stockholders' equity $ 776,331,093 150,571,983 7,419,397 (122,672,451) 811,650,022
=============== =============== =============== =============== ===============
</Table>
F-37
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999:
<Table>
<Caption>
TRICOM, S.A. SUBSIDIARIES SUBSIDIARIES CONSOLIDATING
PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
--------------- --------------- --------------- --------------- ------------------
Operating revenues $ 155,895,506 $ 36,179,982 $ - $ (21,256,547) $ 170,818,941
Operating costs (115,133,014) (35,480,394) - 21,256,547 (129,356,861)
--------------- --------------- --------------- --------------- ---------------
Operating income 40,762,492 699,588 - - 41,462,080
Other expense, net (18,608,256) (868,817) - 310,889 (19,166,184)
--------------- --------------- --------------- --------------- ---------------
Earnings (loss) before income
taxes and cumulative effect
of accounting change 22,154,236 (169,229) - 310,889 22,295,896
Income taxes - (141,660) - - (141,660)
--------------- --------------- --------------- --------------- ---------------
Earnings (loss) before
cumulative effect of
accounting change 22,154,236 (310,889) - 310,889 22,154,236
Cumulative effect of account
change in organization costs (119,711) - - - (119,711)
--------------- --------------- --------------- --------------- ---------------
Net earnings (loss) $ 22,034,525 $ (310,889) $ - $ 310,889 $ 22,034,525
=============== =============== =============== =============== ===============
</Table>
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000:
<Table>
<Caption>
TRICOM S.A. SUBSIDIARIES SUBSIDIARIES NOT CONSOLIDATING
PARENT CO. GUARANTORS GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
--------------- --------------- ---------------- --------------- ------------------
Operating revenues $ 188,897,636 $ 65,697,691 $ - $ (30,297,672) $ 224,297,655
Operating costs (150,954,070) (62,619,372) - 30,297,672 (183,275,770)
--------------- --------------- --------------- --------------- ---------------
Operating income 37,943,566 3,078,319 - - 41,021,885
Other expenses, net (28,716,402) (1,273,401) - (1,216,541) (31,206,344)
--------------- --------------- --------------- --------------- ---------------
Earnings before income taxes
and cumulative effect of
accounting change 9,227,164 1,804,918 - (1,216,541) 9,815,541
Income taxes - (588,377) - - (588,377)
--------------- --------------- --------------- --------------- ---------------
Earnings before cumulative
effect of accounting change 9,227,164 1,216,541 - (1,216,541) 9,227,164
Cumulative effect of change in
accounting for installations
and activation revenues (16,452,799) - - - (16,452,799)
--------------- --------------- --------------- --------------- ---------------
Net earnings (loss) $ (7,225,635) $ 1,216,541 $ - $ (1,216,541) $ (7,225,635)
=============== =============== =============== =============== ===============
</Table>
F-38
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001:
<Table>
<Caption>
TRICOM, S.A. SUBSIDIARIES SUBSIDIARIES CONSOLIDATING
PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
--------------- --------------- --------------- --------------- ------------------
Operating revenues $ 185,307,689 $ 80,126,179 $ 489,202 $ (22,150,885) $ 243,772,185
Operating costs (169,708,189) (77,618,572) (4,112,730) 22,150,885 (229,288,606)
--------------- --------------- --------------- --------------- ---------------
Operating income 15,599,500 2,507,607 (3,623,528) - 14,483,579
Other expense, net (38,713,337) (1,276,722) 717 1,128,223 (38,861,119)
--------------- --------------- --------------- --------------- ---------------
Earnings (loss) before income
taxes and minority interest (23,113,837) 1,230,885 (3,622,811) 1,128,223 (24,377,540)
Income taxes - (511,376) - - (511,376)
--------------- --------------- --------------- --------------- ---------------
Earnings (loss) before
cumulative effect of
accounting change (23,113,837) 719,509 (3,622,811) 1,128,223 (24,888,916)
Minority interest - - - 1,775,079 1,775,079
--------------- --------------- --------------- --------------- ---------------
Net earnings (loss) $ (23,113,837) $ 719,509 $ (3,622,811) $ 2,903,302 $ (23,113,837)
=============== =============== =============== =============== ===============
</Table>
STATEMENTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001
(UNAUDITED):
<Table>
<Caption>
TRICOM, S.A. SUBSIDIARIES SUBSIDIARIES CONSOLIDATING
PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
--------------- --------------- --------------- --------------- ------------------
Operating revenues $ 136,370,277 $ 55,522,747 $ 424,404 $ (15,190,893) $ 177,126,535
Operating costs (123,628,643) (51,778,728) (775,274) 15,190,893 (160,991,752)
--------------- --------------- --------------- --------------- ---------------
Operating (loss) income 12,741,634 3,744,019 (350,870) - 16,134,783
Other income (expense), net (23,437,758) (824,117) 34,448 (2,507,666) (26,735,093)
--------------- --------------- --------------- --------------- ---------------
Earnings (loss) before income
taxes and minority interest (10,696,124) 2,919,902 (316,422) (2,507,666) (10,600,310)
Income taxes - (250,861) - - (250,861)
--------------- --------------- --------------- --------------- ---------------
Earnings (loss) before
minority interest (10,696,124) 2,669,041 (316,442) (2,507,666) (10,851,171)
Minority interest - - - 155,047 155,047
--------------- --------------- --------------- --------------- ---------------
Net earnings (loss) $ (10,696,124) $ 2,669,041 $ (316,422) $ (2,352,619) $ 10,696,124
=============== =============== =============== =============== ===============
</Table>
F-39
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
STATEMENTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002
(UNAUDITED):
<Table>
<Caption>
TRICOM, S.A. SUBSIDIARIES SUBSIDIARY CONSOLIDATING
PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
------------- ------------- ------------- ------------- ------------------
Operating revenues $ 141,694,643 $ 77,500,927 $ 1,359,299 $ (24,160,049) $ 196,394,820
Operating costs (130,332,747) (80,935,467) (6,356,293) 24,160,049 (193,464,458)
------------- ------------- ------------- ------------- ------------------
Operating income 11,361,896 (3,434,540) (4,996,994) - 2,930,362
Other income (expenses), net (50,865,932) (501,071) (330,960) 7,819,688 (43,878,275)
------------- ------------- ------------- ------------- ------------------
Earnings (loss) before income
taxes and cumulative effect
of accounting change (39,504,036) (3,935,611) (5,327,954) 7,819,688 (40,947,913)
Income taxes (209,761) (426,956) - - (636,717)
------------- ------------- ------------- ------------- ------------------
Earnings (loss) before
minority interest (39,713,797) (4,362,567) (5,327,954) 7,819,688 (41,584,630)
Minority interest - - - 1,870,833 1,870,833
------------- ------------- ------------- ------------- ------------------
Net earnings (loss) $ (39,713,797) $ (4,362,567) $ (5,327,954) $ 9,690,521 $ (39,713,797)
============= ============= ============= ============= ==================
</Table>
CASH FLOW DATA FOR THE YEAR ENDED DECEMBER 31, 1999:
<Table>
<Caption>
TRICOM S.A. SUBSIDIARIES SUBSIDIARIES NOT CONSOLIDATING
PARENT CO. GUARANTORS GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
------------- ------------- ---------------- ------------- ------------------
Net cash provided by (used in)
operating activities $ 38,455,777 $ (6,929,619) $ - $ - $ 31,526,158
Net cash used in investing
activities (62,214,283) (2,145,814) - - (64,360,097)
Net cash provided by financing
activities 21,539,440 9,427,032 - - 30,966,472
Effect of exchange rate changes
on cash on hand and in banks (50,412) 35 - - (50,377)
------------- ------------- --------------- ------------- ------------------
Net increase (decrease) in (2,269,478) 351,634 - - (1,917,844)
cash on hand and in banks ------------- ------------- --------------- ------------- ------------------
Cash on hand and in banks at
beginning of the year 15,114,242 263,168 - - 15,377,410
------------- ------------- --------------- ------------- ------------------
Cash on hand and in banks at the
end of the year $ 12,844,764 $ 614,802 $ - $ - $ 13,459,566
============= ============= =============== ============= ==================
</Table>
F-40
<Page>
CASH FLOW DATA FOR THE YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
TRICOM, S.A. SUBSIDIARIES SUBSIDIARY CONSOLIDATING
PARENT CO. GUARANTORS NOT GUARANTOR ADJUSTMENTS TOTAL CONSOLIDATED
------------- ------------- ------------- ------------- ------------------
Net cash provided by (used in)
operating activities $ 54,506,114 $ (12,167,080) $ - $ - $ 42,339,034
Net cash used in investing
activities (161,904,855) (21,770,121) - 34,280,000 (149,394,976)
Net cash provided by financing
activities 111,795,928 34,280,000 - (34,280,000) 111,795,928
------------- ------------- ------------- ------------- ------------------
hand and in banks 4,397,187 342,799 - - 4,739,986
Cash on hand and in banks at
beginning of the year 12,844,764 614,802 - - 13,459,566
------------- ------------- ------------- ------------- ------------------
Cash on hand and in banks at the
end of the year $ 17,241,951 $ 957,601 $ - $ - $ 18,199,552
============= ============= ============= ============= ==================
</Table>
CASH FLOW DATA FOR THE YEAR ENDED DECEMBER 31, 2001:
<Table>
<Caption>
TRICOM S.A. SUBSIDIARIES SUBSIDIARIES NOT CONSOLIDATING
PARENT CO. GUARANTORS GUARANTORS ADJUSTMENTS TOTAL CONSOLIDATED
------------- ------------- ---------------- ------------- ------------------
Net cash provided by (used in) $
operating activities $ 31,164,129 $ 5,983,861 $ (3,145,534) $ - $ 34,002,456
Net cash used in investing
activities (186,848,944) (22,587,259) (2,597,256) 33,053,654 (178,979,805)
Net cash provided by financing
activities 149,643,012 16,828,077 5,936,412 (33,053,654) 139,353,847
------------- ------------- ---------------- ------------- ------------------
Net increase (decrease) in (6,041,803) 224,679 193,622 - (5,623,502)
cash on hand and in banks
Cash on hand and in banks at
beginning of the year 17,241,951 957,601 - - 18,199,552
------------- ------------- ---------------- ------------- ------------------
Cash on hand and in banks at the $
end of the year $ 11,200,148 $ 1,182,280 $ 193,622 $ - $ 12,576,050
============= ============= ================ ============= ==================
</Table>
F-41
<Page>
CASH FLOW DATA FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 (UNAUDITED):
<Table>
<Caption>
TRICOM S.A. SUBSIDIARIES SUBSIDIARIES NOT CONSOLIDATING
PARENT CO. GUARANTORS GUARANTORS ADJUSTMENTS TOTAL CONSOLIDATED
------------- ------------- ---------------- ------------- ------------------
Net cash provided by (used in)
operating activities $ 16,381,683 $ 3,232,136 $ (6,437,566) $ 7,172,040 $ 20,348,293
Net cash used in investing
activities (54,945,109) (32,597,802) (2,183,398) (7,055,889) (96,782,198)
Net cash provided by financing
activities 57,951,258 29,778,708 8,720,429 (116,151) 96,334,244
------------- ------------- ---------------- ------------- ------------------
Net increase (decrease) in
cash on hand and in banks 19,387,832 413,042 99,465 - 19,900,339
Cash on hand and in banks at
beginning of the period 17,241,951 957,601 - - 18,199,552
------------- ------------- ---------------- ------------- ------------------
Cash on hand and in banks at the
end of the period $ 36,629,783 $ 1,370,643 $ 99,465 $ - $ 38,099,891
============= ============= ================ ============= ==================
</Table>
CASH FLOW DATA FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002 (UNAUDITED):
<Table>
<Caption>
TRICOM S.A. SUBSIDIARIES SUBSIDIARIES NOT CONSOLIDATING
PARENT CO. GUARANTORS GUARANTORS ADJUSTMENTS TOTAL CONSOLIDATED
------------- ------------- ---------------- ------------- ------------------
Net cash provided by (used in)
operating activities $ (21,809,222) $ 32,721,072 $ 1,444,010 $ (6,063,080) $ 6,292,780
Net cash used in investing
activities (28,707,000) (13,525,277) (1,676,222) 1,441,317 (42,467,182)
Net cash provided by financing
activities 44,417,250 (18,537,157) 239,628 4,621,763 30,741,484
------------- ------------- ---------------- ------------- ------------------
Net increase (decrease) in
cash on hand and in banks (6,098,972) 658,638 7,416 - (5,432,918)
Cash on hand and in banks at
beginning of the year 11,200,148 1,182,280 193,622 - 12,576,050
------------- ------------- ---------------- ------------- ------------------
Cash on hand and in banks at the
end of the period $ 5,101,176 $ 1,840,918 $ 201,038 $ - $ 7,143,132
============= ============= ================ ============= ==================
</Table>
F-42
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
17 STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 55,000,000 shares of
Class A common stock and 25,000,000 shares of Class B common stock.
All of the Company's outstanding shares are duly authorized, validly issued and
fully paid. Both classes of capital stock vote together as a single class,
except on any matter that would adversely affect the rights of either class.
The Class A common stock has one vote per share and the Class B has ten votes
per share. The economic rights of each class of capital stock are identical.
During the second quarter of 2000, the Company sold 4,000,000 Class A common
shares in a public offering for US$74.0 million, net of issuance costs of
$6,852,774. The proceeds of this issuance were used for capital expenditures
associated with increasing the capacity and coverage of local access, mobile
and data networks and to expand international facilities to support increased
traffic volume and to fund working capital.
In October 2001, the Company issued 3,375,000 shares in favor of the previous
shareholders of TCN Dominicana, S. A. as part of the purchase price of the
company. The value of these shares amounted to $21.7 million, determined based
on the average price of the shares of TRICOM, S. A. immediately before and
after the date the agreement was announced.
During the last quarter of 2001, the Company completed a Rights Offering of
common stock to shareholders. This offer was done as a result of the commitment
of $40,000,000 for the purchase of shares by Oleander Holding, one of the
Company's major shareholders, a subsidiary of GFN Corporation, Ltd. During the
second quarter of 2001as a result of this offer, the company issued 11,170,920
shares for a total net proceeds of approximately $43.3 million, net of issuance
cost of $1,331,096.
18 EXPENSE IN LIEU OF INCOME TAXES
In accordance with the terms of the Concession Agreement signed with the
Dominican Government, as revised on February 20, 1996 TRICOM, S. A. (Parent
Company) has an exemption from income tax but is required to pay a fixed tax
equal to 10% of gross domestic revenues, after deducting charges for access to
the local network, plus 10% of net international settlement revenues. This tax
will never be less than RD$18,000,000 ($1,055,718) annually.
During the year ended December 31, 2000 the Government required the Company to
pay RD$7,500,000 ($449,371) as an advance deposit against future tax amounts
due. As of December 31, 2000, there is RD$6,120,000 (equivalent to $366,687) of
the original payment included in prepaid expenses in the accompanying
consolidated balance sheets. This advance was consumed during 2001.
19 INCOME TAXES
The subsidiaries operate in several jurisdictions and different tax regimes, of
which the most relevant operations are located in the Dominican Republic,
United States of America and Panama. Accordingly, each subsidiary must file
income and other tax returns for its operations in such jurisdictions. Because
of the differences in the tax legislation in each country, each of the
individual subsidiaries must file separate income tax returns instead of one on
a consolidated basis. Therefore, the information about corporate income tax
expense for the years ended December 31, 1999, 2000 and 2001 and for the nine
month periods ended September 30, 2001 and 2002, respectively, represents the
sum of the tax obligations of each of the consolidated subsidiaries.
F-43
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of income taxes are as follow:
<Table>
<Caption>
NINE MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------------------
1999 2000 2001 2001 2002
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
Current
U.S. Federal $ (71,701) $ (96,487) $ (1,215) $ (608) $ -
Dominican Republic(a) - - (135,843) - (473,504)
U.S. State (36,299) - - (183,114) -
----------- ----------- ----------- ----------- -----------
(108,000) (96,487) (137,058) (183,722) 473,504
Deferred tax (33,660) (491,890) (374,318) (67,139) (163,213)
----------- ----------- ----------- ----------- -----------
$ (141,660) $ (588,377) $ (511,376) $ (250,861) $ (636,717)
=========== =========== =========== =========== ===========
</Table>
(a) As of December 31, 2001 and September 30, 2002, the
applicable taxes of the subsidiary dedicated to the cable
television operations in the Dominican Republic, was
determined at 1.5% of the gross operating income of the
Company for a three month period and seventeen days ending
December 31, 2001 and for the nine month period ended
September 30, 2002, as established by the fiscal
regulations (See note 30).
The components of deferred tax assets and liabilities in the
United States are as follows:
<Table>
<Caption>
AT DECEMBER 31, AT SEPTEMBER 30,
---------------------------------------- --------------------------
1999 2000 2001 2001 2002
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
Deferred tax assets:
Deferred revenues $ 737,410 $ 211,304 $ 910,711 $ 633,863 $ 318,917
Net operating loss carry forward 45,856 195,064 487,340 290,482 531,682
Tax credit carry forward 100,825 132,961 132,961 66,481 96,369
Other 65,099 261,679 93,625 - -
----------- ----------- ----------- ----------- -----------
Total deferred tax assets 949,190 801,008 1,624,637 990,826 946,968
Deferred tax liabilities:
Property and equipment 631,159 974,867 1,588,780 794,390 1,189,055
IRC SEC 481 (a) adjustment - - 559,071 279,536 229,590
Other - net - - 24,963 23,620 239,713
----------- ----------- ----------- ----------- -----------
Total deferred tax liabilities 631,159 974,867 2,172,814 1,097,546 1,658,358
----------- ----------- ----------- ----------- -----------
Deferred tax, net $ 318,031 $ (173,859) $ (548,177) $ (106,720) $ (711,390)
=========== =========== =========== =========== ===========
</Table>
The Company has not recorded a valuation allowance for the
deferred tax assets because it believes that sufficient book and
taxable income will be generated to realize the benefit of these
tax assets.
At December 31, 2001 and September 30, 2002, the Company has net
operating loss carryforwards ("NOLS") aggregating approximately
$586,472 and $755,535 (unaudited), respectively, expiring in the
year 2019. In addition, the Company has alternative minimum tax
credit carryforwards aggregating approximately $132,961 with no
expirations.
Subsidiaries operating in Cayman Islands and Panama are exempt
from income taxes as long as they operate outside Cayman Islands
and Panama.
F-44
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
20 PENSION BENEFITS
Beginning September 1, 2000, AFP Siembra, S. A. a related pension management
company, has managed the Company's pension plan as individual defined
contribution accounts similar to the United States 401(k) plan. The plan
management company maintains the investments on behalf of the plan participants
and reports changes in the value of the individual accounts on a unit
investment system. Each individual is to have his or her own individual
capitalization account which was opened with total contributions to date plus
accumulated return. Under this arrangement, the Company contributes 5% of the
employee's salary and the employee contributes 4%. During the four month period
ended December 31, 2000 and for the year ended December 31, 2001 and for the
nine month periods ended September 30, 2001 and 2002, the Company's expense for
this plan was approximately $207,000, $739,000, $588,885 (unaudited) and
$547,720 (unaudited) is included as part of selling, general and administrative
expenses in the accompanying consolidated statements of operations.
The pension management company guarantees a minimum return of 1.5% over the
mean of the average bid interest rate offered by certificates of deposit from
Dominican commercial and multiple services banks reported by the Central Bank
of the Dominican Republic, determined monthly, considering the date in which
the funds entered the individual account.
The pension management company commits to permanently maintain on deposit with
banks 90% of the instruments that comprise the total amount of the portfolio of
funds being managed. The cost of this service is RD$50 (approximately $3) per
employee per month, which is deducted monthly from the contributions that the
employer (the Company) makes. The pension management company earns 1% annually
on the cumulative balance of each account under its management.
Prior to September 1, 2000, substantially all of the employees of the Company
were included in a defined benefit plan that was established by Grupo
Financiero Nacional, S.A. The benefits were based on the years of service and
the employees' compensation during the last several years before retirement.
This plan was administered by the Pension and Retirement Plan of the Grupo
Financiero Nacional, S. A.
The Company made annual contributions to the Plan based on contribution levels
determined by independent actuaries. The Company's pension expense was
approximately $587,000 and $531,000 in the years ended December 31, 1999 and
2000, respectively, and is included as part of selling, general and
administrative expenses in the accompanying consolidated statements of
operations.
21 COMMITMENTS AND CONTINGENCIES
A summary of commitments and contingencies at December 31, 2001 and September
30, 2002 is as follows:
(a) Commitments
(i) Since 1995, TRICOM has entered into operating leases with related
companies. The total expense under these leases in 1999, 2000 and
2001 and for the nine month periods ended September 30, 2001 and 2002
was $108,578, $157,600, $122,568, $90,382 (unaudited) and $241,662
(unaudited), respectively, and are included as part of selling,
general and administrative expenses in the consolidated statements of
operations.
(ii) TRICOM maintains contracts with foreign entities for the traffic
of overseas calls. Such contracts require each entity to obtain the
necessary facilities to establish, maintain and operate its
respective terminals. The cost of each contract is based upon
negotiated rates, which are computed based on the amount of traffic
each month. For the years ended December 31, 1999, 2000 and 2001 and
for the nine month periods ended September 30, 2001 and 2002 this
cost was $3,706,683, $4,916,317, $6,622,358, $4,073,282 (unaudited)
and $3,764,634 (unaudited), respectively, and is included in the cost
of satellite connections in the accompanying consolidated statements
of operations.
F-45
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(iii) On May 8, 1997, the Federal Communications Commission (FCC)
issued an order to adopt the provisions of the Telecommunications Act
of 1996 relating to the preservation and advancement of universal
telephone service (the "Universal Service Fund"). The Universal
Service Order requires all telecommunications carriers providing
interstate telecommunications services to contribute to universal
service by contribution to a fund (the "Universal Service Fund").
Universal Service Fund contributions were assessed based upon
intrastate, interstate and international end-user gross
telecommunications revenue effective January 1 through December 31.
At December 31, 1999, 2000, 2001 and September 30, 2002 the Company
contributed $141,141, $251,386, $50,067 and $37,710 (unaudited),
respectively, to the "Universal Service Fund" on end-user
telecommunications revenue of $4,756,792 in 1999, $3,582,572 in 2000,
$710,299 in 2001, and $531,665 (unaudited) in the nine month period
ended September 30, 2002. The contribution paid are included as part
of selling, general and administrative expenses in the accompanying
consolidated statements of operations.
(iv) The subsidiary dedicated to the televised cable systems
operations, has contracts with television and network companies of
the United States of America for the transmission of its programs in
the Dominican Republic. Such companies require monthly payments, that
range between $0.10 and $5.85 per subscriber. The term of these
contracts fluctuate between two and three years and are renewable at
the option of the parties. At December 31, 2001 and September 30,
2001 and 2002, the total amount of these payments was $941,375, $0
(unaudited) and $2,202,142 (unaudited), respectively, which are
included as part of the programming costs in the accompanying
consolidated statements of operations.
(v) The telecommunications law of the Dominican Republic (Law 153-98)
establishes that the companies operating in this sector pay to the
Instituto Dominicano de Telecomunicaciones (INDOTEL) a monthly fee
equivalent to 2% of its international net income. As of December 31,
1999, 2000 and 2001 and September 30, 2001 and 2002, the expense for
this concept was $566,549, $364,434, $228,340, $144,542 (unaudited)
and $351,954 (unaudited), respectively.
(b) Other Lease Obligations
The Company maintains operating leases for the use of office space,
telecommunications centers, commercial offices, warehouse, an automobile, an
aircraft and others. These operating leases are renewable at the end of the
lease period, which is usually one year. Expenses for these leases in 1999,
2000 and 2001 and for the nine month periods ended September 30, 2001 and 2002
were approximately $476,000, $1,754,000, $2,600,000, $1,950,000 (unaudited) and
$2,450,000 (unaudited), and are included in selling, general and administrative
expenses in the consolidated statements of operations. The commitment for lease
payments for the next five years is as follow:
<Table>
<Caption>
Year Amount
----------------- ------------
2002 $ 2,730,545
2003 2,821,165
2004 2,939,181
2005 3,068,231
2006 and future 11,159,965
------------
</Table>
(c) Legal Proceedings
(i) In August 1999, a Dominican company and two individual plaintiffs
sued the Company before Dominican courts for alleged losses and
damages of up to approximately RD$200,000,000 (approximately
$12,000,000) resulting from the imprisonment by Dominican authorities
of two
F-46
<Page>
of the individuals for 15 days. The plaintiffs alleged that their
imprisonment was the result of an investigation by the local district
attorney and the police that the Company instigated following an
irregular increase in telephonic traffic at certain telephone
numbers. The court rejected the action for lack of evidence. However,
the plaintiffs appealed, and the case is pending decision. After
consulting with legal counsel, the Company believes that this matter
will not have a material adverse effect on its results of operations
and financial position in the case of an adverse decision.
(ii) As of December 31, 2001, the Company has been involved in other
lawsuits and legal proceedings arising from the ordinary conduct of
its business. Such claims generally relate to tortuous and
contractual actions for damages. Claims pursuant to such suits and
proceedings amount to approximately $7,400,000 (RD$126,000,000).
Management has evaluated these suits and proceedings and believes
that the final resolution of these matters will not have a material
adverse effect on the Company's results of operations and financial
position.
No amounts have been recorded in the accompanying financial
statements related to these legal proceedings.
(iii) In August 2001, BSC of Panama, S. A., a subsidiary of
BellSouth, requested that the regulator initiate a legal review
before the Third Chamber of the Panamanian Supreme Court of Justice,
of the interpretation given by the regulator to the definition of
"Conventional Trunking System Services" found in Resolution No.
JD-025 of December 12, 1996. This case is pending final decision by
the Supreme Court.
Also in August 2001, BSC of Panama, S. A. obtained a general
precautionary measure from the Seventh Civil Court of the First
Judicial Circuit ordering Tricom Panama, S. A. to cease the
installation of its Motorola iDEN(R)technology network. This decision
was immediately appealed by Tricom Panama, S. A., and on December 20,
2001 the First Superior Court decided the appeal in Tricom Panama's
favor, revoking the aforementioned precautionary measure.
In September 2001, BSC of Panama, S. A., filed a petition for
declaratory judgment for damages against Tricom Panama, S. A. before
the Seventh Civil Circuit Court of the First Judicial Circuit of
Panama. This suit seeks that the courts order Tricom Panama to: (i)
remove its iDEN(R)system and other equipments in Panama and (ii) pay
a minimum indemnity of $20,000,000 for alleged damages. Tricom Panama
has filed a counterclaim against BSC of Panama, S. A. As it considers
their allegations are unfair and geared to limit their entrance to
the Panamanian market. This suit is in discovery stage.
Also in September 2001, BSC de Panama, S. A. filed a complaint for
contempt by Tricom Panama, S. A. of the Seventh Civil Circuit Court's
precautionary measure. This suit is pending decision by the court.
Management believes, based on the advice of its Panamanian legal
counsel, that BellSouth should not succeed in its claims because:
- BellSouth cannot claim any damages caused by TRICOM Panama
activities, since TRICOM Panama operations are protected under
a legitimate Conventional Trunking System Services license; and
- the ENTE is the only authority empowered to declare that the
telecommunications services provided by TRICOM Panama are not
conventional trunking services, or that the iDEN(R) system
cannot be used to provide conventional trunking systems.
F-47
<Page>
Based on these facts, no reserve for losses, if any, was
accrued in the accompanying consolidated financial statements
as of December 31, 2001 and September 30, 2002 (unaudited). If
BellSouth prevails in its claims, the Company may be forced to
discontinue its business in Panama and, as a result, would not
generate any revenue from the iDEN(R) operations in Panama,
lose all or a material portion of the investment or be required
to pay damages to BellSouth.
(d) Severance indemnities
Companies based in the Dominican Republic maintain reserves under the
provisions of U.S. Statement of Financial Accounting Standards "SFAS" No.5 to
cover the ultimate payment of severance indemnities. Severance expense amounted
to $328,807, $760,740, $1,987,129, $1,070,374 (unaudited) and $1,474,840
(unaudited) in the years ended December 31, 1999, 2000 and 2001 and for the
nine month periods ended September 30, 2001 and 2002 and are included as part
of selling, general and administrative expenses in the accompanying
consolidated statement of operations.
(e) Other
During the year 2001, the taxing authorities of the Dominican Republic audited
the tax returns of the Company and its compliance with the tax law as it
relates to withholdings and other taxes for the years 1999, 2000 and through
June 2001. The results of this tax audit are still not known, however,
management is confident that the final results will not be significant (See
note 30).
22 BUSINESS AND CREDIT CONCENTRATION
In the normal course of business, the Company has accounts receivable from
carriers. Although the Company's exposure to credit risk associated with
non-payment by these carriers is affected by conditions or occurrences within
the industry, most of these receivables are due from large, well-established
companies. The Company does not believe that this concentration of credit risk
represents a material risk of loss.
23 LEGAL RESERVE
Article 58 of the Code of Commerce of the Dominican Republic requires all
companies to segregate at least 5% of net earnings as a legal reserve until
such reserve reaches 10% of paid- in capital. This reserve is not available for
dividend distribution, except in case of dissolution of the corporation.
24 STOCK OPTION PLAN
On May 4, 1998, the Company initiated a Long-term Incentive Plan, in which
certain employees could be granted options to purchase shares of the Company's
common stock. The Plan is administered by the Board of Directors of the Company
and has the authority to determine which employees will participate in the
Plan.
The Plan authorizes grants of options to purchase up to 750,000 shares of
authorized but unissued common stock. Stock options are granted with an
exercise price equal to the stock's fair market value at the date of grant. All
stock options have ten-year terms and vest and become exercisable after one and
three years from the date of grant.
At December 31, 2000 and 2001 and September 30, 2002, there were 230,370,
266,053 and 316,950 additional shares available for grant under the Plan,
respectively.
F-48
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have been increased to the pro-forma amounts indicated
below.
<Table>
<Caption>
2000 2001
------------- --------------
Net loss - as reported $ (7,225,635) $ (23,113,837)
============= ==============
Net loss - pro forma $ (7,929,562) $ (23,538,234)
============= ==============
Net loss per share:
As reported - basic and diluted $ (0.26) $ (0.78)
============= ==============
Pro-forma - basic and diluted $ (0.28) $ (0.80)
============= ==============
</Table>
<Table>
<Caption>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
Balance, December 31, 1998 477,664 $ 12.95
Granted (a) 251,420 8.06
Cancelled (a) (415,664) 13.00
--------- ----------------
Balance, December 31, 1999 313,420 8.96
Granted 207,245 20.45
Surrendered (1,035) 8.06
--------- ----------------
Balance, December 31, 2000 519,630 13.53
Granted (b) 486,757 6.82
Cancelled (b) (453,130) 13.90
Surrendered (69,310) 8.35
--------- ----------------
Balance, December 31, 2001 483,947 $ 7.17
Surrendered (unaudited) (50,897) 7.62
--------- ----------------
Balance, September 30, 2002
(unaudited) 433,050 7.12
========= ================
</Table>
(a) Corresponds to the reduction in the exercise price from $13.00 to
$8.06 of options granted in 1998.
(b) In 2000, the Board of Directors approved a stock option repricing
pursuant to which the Company's employees could elect to cancel granted
options in exchange for new options with an exercise price of $7.00, which
was Company's common stock on New York Stock Exchange. Approximately
520,000 options were eligible for repricing, of which the Company
cancelled 453,130 options and granted 241,994 options.
The number of repriced options was also reduced proportionately. All other
conditions were unchanged. Effective July 1, 2000, the FASB issued Financial
Interpretation No. 44 (FIN 44) which amended APB 25 and requires "variable"
accounting for all stock option repricing retroactive to December 15, 1998. As
a result, these options will require variable accounting until they are
exercised, cancelled, forfeited or expired. Under variable accounting,
compensation expense must be measured by the difference between the exercise
price and the market price of the Company's stock at each reporting period
amortized over the vesting period. The effect of the application of FIN 44
during 2000 and 2001 was not significant.
Exercise prices of options outstanding as of December 31, 2001 ranged from
$3.65 to $16.00. The following table provides certain information with respect
to stock options outstanding at December 31, 2001:
F-49
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
OPTIONS OUTSTANDING
--------------------------------------------------------
WEIGHTED AVERAGE
WEIGHTED AVERAGE REMAINING
RANGE OF EXERCISE PRICES NUMBER OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE
------------------ ---------------- ----------------
Under $4.00 5,000 $ 3.65 10.00
$4.00 - $6.00 47,700 5.65 9.90
$6.01 - $8.00 402,877 6.99 9.08
$8.01 - $10.00 7,870 8.10 7.55
$10.01 - $16.00 20,500 14.90 7.63
------------------ ---------------- ----------------
483,947 $ 7.17 9.08
================== ================ ================
</Table>
<Table>
<Caption>
OPTIONS EXERCISABLE
-------------------------------------
WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES NUMBER EXERCISABLE EXERCISE PRICE
- ------------------------ ------------------ ----------------
Under $4.00 $ - $ -
$4.00 - $6.00 - -
$6.01 - $8.00 1,500 6.63
$8.01 - $10.00 - -
$10.00 - $16.00 2,813 13.00
------------------ ----------------
4,313
==================
</Table>
The weighted-average fair value at date of grant for options granted during 2000
and 2001 were $5.83 and $2.60, respectively and was estimated using the
Black-Scholes option valuation model with the following weighted-average
assumptions.
<Table>
<Caption>
2000 2001
----------- -----------
Expected life in years 7.50 7.50
Interest rate 5.10 5.02
Volatility 79.94 70.56
Expected dividends - -
=========== ===========
</Table>
Warrants:
In October, 1999 the Company entered into an agreement with a third party to
provide investor relations service for a period of two years. The Company
granted warrants to purchase 300,000 Class A common shares of the Company at an
exercise price of $8.875 per share. At December 31, 2000 and 2001 the Company
had 250,000 and 300,000 shares vested for this contract.
The Company is recognizing an expense for the fair value of these options using
the Black-Scholes options pricing model as follow:
The 150,000 shares vested in 1999 were valued at the fair value of the shares at
the date of grant and the 100,000 shares vested in the year 2000 were valued at
the fair value of the shares at the date they were vested. The Company had
50,000 shares that are not vested at December 31, 2000, that are valued at the
fair value at December 31, 2000. At December 31, 2001 the shares related to this
contract are valued at the fair value of the shares the date they were vested.
For the years ended December 31, 1999, 2000 and 2001 the Company recognized an
expense of $273,000, $1,005,755 and $830,854, respectively, which is included as
part of selling, general and administrative expenses in the accompanying
consolidated statements of operations.
F-50
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
25 QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables contain selected unaudited consolidated quarterly
financial data for the Company:
<Table>
<Caption>
2000
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Total operating revenues $ 50,229,735 53,081,404 57,919,395 63,067,121
Operating costs, including
depreciation charges of
$7,552,734; $8,390,173;
$9,168,662 and
$11,053,710 for each
quarter, respectively 39,401,870 44,406,622 47,125,015 52,342,263
------------- -------------- ------------- --------------
Operating income 10,827,865 8,674,782 10,794,380 10,724,858
Other income (expenses), net (8,172,126) (6,818,441) (7,297,368) (8,918,409)
------------- -------------- ------------- --------------
Earnings before income taxes
and cumulative effect of
accounting change 2,655,739 1,856,341 3,497,012 1,806,449
Income taxes (130,250) (140,568) (160,210) (157,349)
------------- -------------- ------------- --------------
Earnings before cumulative
effect of accounting
change 2,525,489 1,715,773 3,336,802 1,649,100
Cumulative effect of
accounting change for
installation and
activation revenues (16,452,799) - - -
------------- -------------- ------------- --------------
Net earnings (loss) $ (13,927,310) 1,715,773 3,336,802 1,649,100
============= ============== ============= ==============
Earnings (loss) per share $ (0.56) 0.06 0.12 0.06
============= ============== ============= ==============
Number of common shares used
in calculation 24,844,544 28,361,028 28,844,544 28,844,544
============= ============== ============= ==============
</Table>
<Table>
<Caption>
2001
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Total operating revenues $ 57,449,378 59,023,070 60,654,087 66,645,650
</Table>
F-51
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
2001
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Operating costs, including
depreciation charges of
$12,069,872;
$13,367,554; $14,378,645
and $14,616,134 for each
quarter, respectively 50,064,775 52,895,448 58,031,531 68,296,852
------------- -------------- ------------- --------------
Operating income (loss) 7,384,603 6,127,622 2,622,556 (1,651,202)
Other income (expenses), net (9,389,238) (9,275,545) (8,070,310) (12,126,026)
------------- -------------- ------------- --------------
Loss before income taxes and
minority interest (2,004,635) (3,147,923) (5,447,754) (13,777,228)
Income taxes 16,139 (117,000) (150,000) (260,515)
------------- -------------- ------------- --------------
Loss before minority interest (1,988,496) (3,264,923) (5,597,754) (14,037,743)
Minority interest - 60,026 95,021 1,620,032
------------- -------------- ------------- --------------
Net loss $ (1,988,496) (3,204,897) (5,502,733) (12,417,711)
============= ============== ============= ==============
Loss per share $ (0.07) (0.11) (0.19) (0.39)
============= ============== ============= ==============
Number of common shares used
in calculation 28,844,544 28,844,544 28,844,544 31,751,432
============= ============== ============= ==============
</Table>
During the fourth quarter of 2001, the Company recognized expense for
approximately $4 million for concept of allowance for obsolescence of equipment
pending installation, as well as expenses incurred during the year corresponding
to operational expenses related to the development of the Company's network in
Panama.
<Table>
<Caption>
2002
------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER
------------- -------------- -------------
Total operating revenues $ 64,050,634 66,732,101 65,612,085
Operating costs, including
depreciation charges of
$16,074,171; $16,179,743
and $16,981,674 for each
quarter, respectively 62,574,605 66,096,744 64,793,109
------------- -------------- -------------
Operating income (loss) 1,476,029 635,357 818,976
Other income (expenses), net (12,601,928) (15,764,147) (15,512,200)
------------- -------------- -------------
Loss before income taxes
and minority interest (11,125,899) (15,128,790) (14,693,224)
Income taxes (136,994) (20,084) (479,639)
------------- -------------- -------------
</Table>
F-52
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
Loss before minority interest (11,262,893) (15,148,874) (15,172,863)
Minority interest 712,650 916,503 241,680
------------- -------------- -------------
Net loss $ (10,550,243) (14,232,371) (14,931,183)
============= =========== =============
Loss per share $ (0.24) (0.33) (0.34)
============= =========== =============
Number of common shares
used in calculation 43,390,464 43,390,464 43,390,464
============= =========== =============
</Table>
26 SEGMENT INFORMATION
In the fourth quarter of 1998, the Company adopted Financial Accounting
Standards Board Statement No. 131, "Disclosures about Segment of an Enterprise
and Related Information", which establishes standards for reporting information
about a company's operating segments. The Company has divided its operations
into five reportable segments: Wireline, Cellular, International, cable (from
2001) and Others based upon similarities in revenue generation, cost
recognition, marketing and management of its businesses.
The reporting segments follow the same accounting policies used for the
company's consolidated financial statements and described in the summary of
significant accounting policies. Management evaluates a segment's performance
based upon profit or loss from operations before income taxes.
The segments and a description of their business is as follows: Wireline which
includes local access lines. Cellular which includes prepaid and postpaid
mobile communication products and services. International which includes long
distance carrier services. Cable which includes cable services revenues and
Other which includes services such as paging, Internet, data services, local
prepaid calling cards and customer contact services.
GEOGRAPHIC
<Table>
<Caption>
1999
-------------------------------------------------------------
DOMINICAN
UNITED STATES REPUBLIC ELIMINATIONS (A) CONSOLIDATED
------------- ----------- --------------- ------------
International settlement
revenues $ 35,510,406 46,338,275 (21,256,547) 60,592,134
Other 490,836 109,735,971 - 110,226,807
------------- ----------- --------------- ------------
Total operating revenues 36,001,242 156,074,246 (21,256,547) 170,818,941
Operating costs 35,007,605 115,605,803 (21,256,547) 129,356,861
------------- ----------- --------------- ------------
Operating income $ 993,637 40,468,443 - 41,462,080
============= =========== =============== ============
Identifiable assets $ 25,525,617 514,417,693 (8,464,849) 531,478,461
============= =========== =============== ============
</Table>
<Table>
<Caption>
2000
---------------------------------------------------------------------------
DOMINICAN CENTRAL
UNITED STATES REPUBLIC AMERICA ELIMINATIONS (A) CONSOLIDATED
------------- ----------- ----------- --------------- ------------
International settlement
revenues $ 65,667,150 48,817,572 - (30,297,672) 84,187,050
Other 29,768 140,080,837 - - 140,110,605
------------- ----------- ----------- --------------- -----------
Total operating revenues 65,696,918 188,898,409 - (30,297,672) 224,297,655
Operating costs 62,056,005 151,435,223 82,214 (30,297,672) 183,275,770
------------- ----------- ----------- --------------- -----------
</Table>
F-53
<Page>
TRICOM, S.A. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<Table>
<Caption>
Operating income (loss) $ 3,640,913 37,463,186 (82,214) - 41,021,885
============= =========== =========== =============== ===========
Identifiable assets $ 38,107,771 697,291,056 34,383,027 (87,341,995) 682,439,859
============= =========== =========== =============== ===========
</Table>
<Table>
<Caption>
2001
---------------------------------------------------------------------------
DOMINICAN CENTRAL
UNITED STATES REPUBLIC AMERICA ELIMINATIONS(A) CONSOLIDATED
------------- ----------- ----------- --------------- -------------
International settlement
revenues $ 74,777,278 29,175,816 - (21,928,774) 82,024,320
Other 613,029 160,867,745 267,091 - 161,747,865
------------- ----------- ----------- --------------- -----------
Total operating revenues 75,390,307 190,043,561 267,091 (21,928,774) 243,772,185
Operating costs 72,628,186 173,462,997 5,126,197 (21,928,774) 229,288,606
------------- ----------- ----------- --------------- -----------
Operating income (loss) $ 2,762,121 16,580,564 (4,859,106) - 14,483,579
============= =========== =========== =============== ===========
Identifiable assets $ 42,749,104 799,206,711 46,128,961 (58,670,150) 829,414,626
============= =========== =========== =============== ===========
</Table>
<Table>
<Caption>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002 (UNAUDITED)
----------------------------------------------------------------------------
DOMINICAN CENTRAL
UNITED STATES REPUBLIC AMERICA ELIMINATIONS(A) CONSOLIDATED
------------- ----------- ----------- --------------- ------------
International settlement
revenues $ 60,285,959 29,030,082 - (24,160,049) 65,155,992
Other 292,023 129,432,948 1,513,857 - 131,238,828
------------- ----------- ----------- --------------- ------------
Total operating revenues 60,577,982 158,463,030 1,513,857 (24,160,049) 196,394,820
Operating costs 66,918,756 143,650,066 7,055,685 (24,160,049) 193,464,458
------------- ----------- ----------- --------------- ------------
Operating income (loss) $ (6,340,774) 14,812,964 (5,541,828) - 2,930,362
============= =========== =========== =============== ============
Identifiable assets $ 42,596,611 787,617,162 55,054,452 (73,618,203) 811,650,022
============= =========== =========== =============== ============
</Table>
(a) Revenues costs: Corresponds to elimination of the gross income
revenues between subsidiaries and the Company. Identifiable
assets: Corresponds to eliminations of intercompany accounts and
investments in common stock between TRICOM, S.A. (Parent
Company) in the Dominican Republic and the subsidiaries in the
United States and Central America.
PRODUCTS AND SERVICES
<Table>
<Caption>
1999
-------------------------------------------------------------------------
WIRELINE CELLULAR INTERNATIONAL OTHERS(A) CONSOLIDATED
------------ ------------ ------------- ------------ ------------
Revenues $ 62,572,264 35,346,554 60,592,134 12,307,989 170,818,941
============ ============ ============= ============ ============
Operational income 21,085,005 9,846,875 10,185,960 344,240 41,462,080
============ ============ ============= ============ ============
Proforma operational income
assuming the change for
accounting principle in
installation and activation
retroactively 17,193,219 8,768,309 10,185,960 344,240 36,491,728
============ ============ ============= ============ ============
Identifiable assets 177,806,707 110,876,334 25,590,381 217,205,039 531,478,461
============ ============ ============= ============ ============
Depreciation expense 11,080,231 5,605,645 2,928,174 1,223,430 20,837,480
============ ============ ============= ============ ============
Capital expenditures $ 79,065,923 42,573,958 7,602,493 16,183,849 145,426,223
============ ============ ============= ============ ============
</Table>
F-54
<Page>
<Table>
<Caption>
2000
-------------------------------------------------------------------------
WIRELINE CELLULAR INTERNATIONAL OTHERS(A) CONSOLIDATED
------------ ------------ ------------- ------------ ------------
Revenues $ 83,491,208 42,450,018 84,187,050 14,169,379 224,297,655
============ ============ ============= ============ ============
Operational income 19,874,568 14,957,724 2,932,170 3,257,423 41,021,885
============ ============ ============= ============ ============
Identifiable assets 228,852,370 194,248,738 38,341,447 220,997,304 682,439,859
============ ============ ============= ============ ============
Depreciation expense 27,109,500 5,185,718 1,953,356 1,916,705 36,165,279
============ ============ ============= ============ ============
Capital expenditures $ 42,975,001 90,751,943 9,476,159 25,710,325 168,913,428
============ ============ ============= ============ ============
</Table>
<Table>
<Caption>
2001
----------------------------------------------------------------------------------------
WIRELINE CELLULAR INTERNATIONAL CABLE OTHERS(A) CONSOLIDATED
------------ ------------ ------------- ------------ ------------ ------------
Revenues $ 98,645,084 44,045,919 82,024,320 4,735,872 14,320,990 243,772,185
============ ============ ============= ============ ============ ============
Operational income (loss) 13,852,143 4,148,474 590,585 1,009,621 (5,117,244) 14,483,579
============ ============ ============= ============ ============ ============
Identifiable assets 348,967,885 194,052,349 69,895,502 78,146,866 138,352,024 829,414,626
============ ============ ============= ============ ============ ============
Depreciation expense 38,252,541 10,546,909 2,502,516 533,544 2,596,695 54,432,205
============ ============ ============= ============ ============ ============
Capital expenditures 55,655,735 17,780,482 1,537,326 4,815,026 36,786,655 116,575,224
============ ============ ============= ============ ============ ============
</Table>
<Table>
<Caption>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002 (UNAUDITED)
-----------------------------------------------------------------------------------------
WIRELINE CELLULAR INTERNATIONAL CABLE OTHERS(A) CONSOLIDATED
------------ ------------ ------------- ------------ ------------ ------------
Revenues $ 67,089,612 34,402,179 65,155,992 16,852,246 12,894,791 196,394,820
============ ============ ============ ============ ============ ============
Operational income (loss) 386,427 (3,643,784) (1,470,741) 2,814,757 4,843,703 2,930,362
============ ============ ============ ============ ============ ============
Identifiable assets 342,215,735 177,323,313 85,249,050 66,669,485 140,192,439 811,650,022
============ ============ ============ ============ ============ ============
Depreciation expense 27,765,831 12,564,203 3,667,706 2,484,396 2,753,452 49,235,588
============ ============ ============ ============ ============ ============
Capital expenditures 20,767,964 3,564,866 384,325 8,557,138 19,380,676 52,654,969
============ ============ ============ ============ ============ ============
</Table>
(a) Other (identifiable assets) include administrative/corporate assets
which are not revenue generating. Also includes construction in process and
communication equipment pending installation, which at December 31, had not
been placed in service and were not specifically associated with any
business segment. Other remaining assets do not meet any quantifiable test
for determining reportable segments.
During 2001, the Company conducted a detail analysis of its identifiable
assets by products and services . As a result of such analysis, the Company
identified that assets included as part of the Cellular product
corresponded to the Wireline product. The amount of these net assets
increased to $73,331,613 that was reclassified in the year 2000 in
conjunction with the depreciation expenses.
27 NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (SFAS No.
141) and SFAS 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS
141 requires that the purchase method of accounting to be used for all business
combinations. SFAS No. 141 specifies criteria that intangible assets acquired
in a business combination must meet to be recognized and reported separately
from goodwill. SFAS No. 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. In accordance with the provision of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual
F-55
<Page>
values, and reviewed for impairment in accordance with SFAS No. 121 and
subsequently, SFAS No. 144 after its adoption.
The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and SFAS
No. 142 is effective January 1, 2002. Goodwill and intangible assets determined
to have an indefinite useful life acquired in a purchase business combination
completed after June 30, 2001, but before SFAS No. 142 is adopted in full, are
not amortized. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 continued to be amortized and tested for
impairment prior to the full adoption of SFAS No. 142.
Upon adoption of SFAS No. 142, the Company is required to evaluate its existing
intangible assets and goodwill that were acquired in purchase business
combinations, and to make any necessary reclassifications in order to conform
with the new classification criteria in SFAS No. 141 for recognition separate
from goodwill. The Company will be required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. If an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Impairment is measured as the excess of carrying value over the fair
value of an intangible asset with an indefinite life. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.
Effective January 1, 2002, the Company adopted SFAS 142 which specifies the
types of acquired intangible assets that are required to be recognized and
reported separate from goodwill. SFAS 142 requires that goodwill and certain
intangibles no longer be amortized but instead tested for impairment at least
annually. There was no impairment of goodwill upon adoption of SFAS 142.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires the Company to record fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible
long-lived asset that result from the acquisition, construction development
and/or normal use of the assets. The Company also records a corresponding asset
which is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and change in the
estimated future cash flows underlying the obligation. The Company is required
to adopt SFAS No. 143 on January 1, 2003.
In August, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial
accounting and reporting for the impairment of disposal of long-lived assets.
This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carry amount of the asset exceeds the
fair value of the asset. The Company is required to adopt SFAS No. 144 on
January 1, 2002. The Company does not anticipate any impact because of the
adoption of this statement.
28 NON-CASH FINANCING AND INVESTING ACTIVITIES
During the years 2000 and 2001, the Company entered into capital leases for
$17,691,845 and $3,345,398, respectively. (See note 12).
During the year 2001, as part of the acquisition of TCN Dominicana, S. A., the
Company issued 3,375,000 Class A common stock with a value of $21,667,500. (See
note 9).
F-56
<Page>
29 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amount and estimated fair values of
the Company's financial instruments at December 31, 2000 and 2001. The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. Amount in
parentheses represent liabilities.
<Table>
<Caption>
2000 2001
------------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
Cash on hand and in banks $ 18,199,552 18,199,552 12,576,050 12,576,050
Accounts receivable 32,126,752 32,126,752 34,498,654 34,498,654
Investments (certificates
of deposits) - - 15,200,000 15,200,000
Notes payable to banks
and related parties (116,756,416) (116,756,416) (173,684,455) (173,684,455)
Accounts payable (37,824,970) (37,824,970) (37,126,064) (37,126,064)
Other liabilities (19,990,490) (19,990,490) (14,644,012) (14,644,012)
Accrued expenses (14,035,182) (14,035,182) (20,272,800) (20,272,800)
Commercial paper - - (30,396,315) (30,396,315)
Capital leases (20,829,275) (20,829,275) (17,856,766) (17,856,766)
Long-term debt- banks (64,436,698) (63,799,499) (135,953,280) (134,904,676)
Long-term debt - senior
notes (200,000,000) (186,000,000) (200,000,000) (168,000,000)
============= ============= ============= =============
</Table>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash on hand and in banks, investments in certificates of deposits, notes
payable to banks and related parties, accounts payable, other liabilities and
accrued expenses: The carrying amounts approximate fair value because of the
short maturity of these instruments. Accounts receivable are adjusted by their
valuation allowance and, therefore, are presented at realizable value which
approximates fair value.
Capital lease, commercial paper and long-term debt - banks: The fair value of
these debts was estimated by discounting the future cash flows of each
instrument at rates currently offered to the Company for similar debt
instruments by the Company's bankers.
Long-term debt - senior notes: The fair value of this long term debt was
estimated based on quoted market prices on the last business day of the year.
30 SUBSEQUENT EVENTS (UNAUDITED)
(a) On July 30, 2002, the President of the United States of America
signed the Sarbanes-Oxley Act of 2002. This Act affects public companies,
some provisions became effective upon enactment, while others have
delayed implementation or must wait for preparation of the rules and
regulations to be prepared by the Securities and Exchange Commission
(SEC). The SEC is still working on the regulatory framework to implement
this law.
(b) On June 4, 2002, Presidential Decree No. 405-02, modified the tax
system imposed on all telecommunications providers in the Dominican
Republic. In consequence, effective September 1, 2002, TRICOM, S. A. is
paying taxes as stipulated in the Tax Code of the Dominican Republic (Law
11-92), as amended by the Law No. 147-00 of December of 2000. The Code as
amended, establishes that the Company's
F-57
<Page>
taxation is to be determined based on the highest value between 25% of
net taxable income or 1.5% of the gross earnings. The expense under this
concept during the month of September of 2002 was $209,791.
(c) During the second and third quarter of 2002, the Company renegotiated
short-term debts with related and unrelated parties for approximately
$40.2 million.
(d) At December 31, 2002 the Company received a $70 million equity
investment from a group of private investors, including the Company's
chairman and chief executive officer. The full amount of the proceeds was
used to repay short-term debt reducing the company's interest
requirements. The Company issued 21,212,121 shares of the company's Class
A common stock at a price of $3.30 per share. After the investment, the
Company has 64,602,585 total shares outstanding, including 45,458,041
Class A shares.
Dominican taxes assessment
In June 2002, the Company received notice from the Dominican tax service
claiming that it owed additional amounts in respect of taxes in lieu of
income taxes for the period from January 1, 1999 through June 30, 2001 (the
last day through which Dominican authorities have audited tax payments) and
for withholding tax on the wholly-owned subsidiary, TRICOM Latinoamerica and
on certain other payments.
The Service claims the Company miscalculated the tax in lieu of income tax
payable under the concession agreement. The concession agreement provided the
Company pays, within the first ten days of each month (1) 10% of gross
domestic revenues collected by the Company during the preceding month for
telephone services, telegraph services, paging services, cellular services,
local, national and international call services, as well as for any data
transmission or broadcast services and other related telecommunications
services minus access charges paid to other carriers for interconnection and
(2) 10% of net settlement revenues collected from foreign correspondent
carriers for the use of the Company's network for termination of
international long distance calls. The Service claims that this tax was
required to be calculated based upon accrued revenues not collections and
seeks RD$98.8 million ($5.3 million), plus penalties and interest.
The Service also claims that the Company was required to withhold and pay to
the tax service 25% of the amount of the investment in TRICOM Latinoamerica,
S. A., for approximately $35 million. The 25% withholding tax generally
applies to payments from Dominican source income for services to
non-Dominican vendors and to certain dividends. The Service seeks RD$168.1
million ($9.0 million), plus penalties and interest, with respect to this
claim.
The Company contested the notice with the Service, indicating that it was in
full compliance with the terms in the concession agreement in calculating the
tax based on collections rather than accrued revenues and that there is no
requirement to withhold tax on investments in a wholly owned subsidiary. On
August 27, 2002, the Service rejected substantially all of our response and
calculated the aggregate liability on the two claims, including penalties and
interest, as RD$668.3 million ($35.5 million). The Service, however, agreed
to drop the claims for withholding tax on other payments to non-Dominican
service providers.
The Company appealed the Tax Service determination to the Ministry of Finance
and both; the Company and the Tax Service have the right to appeal any
determination by the Ministry of Finance to the tax courts. The Company
considers that it has complied with its tax obligations and believes that it
will not be required to pay a substantial amount in assessments, penalties
and interest.
F-58
<Page>
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER AND CONSENT SOLICITATION IS:
JPMORGAN CHASE BANK
BY OVERNIGHT COURTIER AND BY HAND
DELIVERY AFTER 4:30 P.M. ON EXPIRATION
DATE:
<Table>
BY HAND DELIVERY TO 4:30 P.M.
BY REGISTERED OR CERTIFIED MAIL:
JPMorgan Chase Bank JPMorgan Chase Bank JPMorgan Chase Bank
4 New York Plaza - 15th Floor 4 New York Plaza - 15th Floor 4 New York Plaza - 15th Floor
New York, NY 10004 New York, NY 10004 New York, NY 10004
</Table>
TELEPHONE NUMBER: 1 (212) 623-5159
FACSIMILE NUMBER: 1 (212) 623-6207 OR 1 (212) 623-6214
Any questions or requests for assistance or additional copies of this
prospectus and consent solicitation and the letter of transmittal and consent
may be directed to the information agent at its telephone number and address set
forth below. You may also contact your broker, dealer, commercial bank or trust
company or other nominee for assistance concerning the exchange offer and
consent solicitation.
THE INFORMATION AGENT FOR THE EXCHANGE OFFER AND SOLICITATION OF CONSENTS IS:
D.F. KING & CO., INC.
<Table>
NORTH AMERICA EUROPE
48 Wall Street No. 2 London Wall Buildings, 2nd Floor
New York, NY 10005 London Wall, London EC2M 5PP
Banks and Brokers Call Collect: 1 (212)269-5550 United Kingdom
All Others Call Toll Free: 1 (800) 866-4425 Tel: +44 (0)207 920 9700
</Table>
THE DEALER MANAGER AND THE SOLICITATION AGENT IS:
BEAR, STEARNS & CO. INC.
Global Liability Management Group
383 Madison Avenue
New York, NY 10179
Telephone Number inside the United States: 1 (877) 696-2327 (toll free)
Telephone Number outside the United States: 1 (212) 272-5112
<Page>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There are no statutory provisions under applicable Dominican law for the
indemnification or insuring of directors against liability.
Pursuant to Dominican law, shareholders are asked to vote upon the
performance of management at annual shareholders' meetings. Our vigilance
officer delivers a report on the financial performance of TRICOM and other
issues related to management's performance. If the holders of a majority of the
votes entitled to be cast approve management's performance, all shareholders are
deemed to have released the directors and officers from claims or liability to
TRICOM or its shareholders arising out of actions taken or any failure to take
actions by any of them on behalf of TRICOM during the prior fiscal year, with
certain exceptions, and shareholders will likely fail in any suit brought in a
Dominican court with respect to such acts or omissions. Officers and directors
may not be released from any claims or liability for criminal acts, fraud,
self-dealing or gross negligence. If the shareholders do not approve
management's performance, the vigilance officer's report may form the basis of
any suit brought by the shareholders against the officers and directors of
TRICOM.
Article 48 of the our by-laws provides that we shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom he or
she is the legal representative, is or was a director, officer, employee or
agent of TRICOM, or serves or served any other enterprise as a director,
officer, employee or agent at the request of TRICOM.
We shall pay any expenses reasonably incurred by a director or officer in
defending any civil, criminal, administrative or investigative action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by us under Article 48 or otherwise. We may,
by action of its Board of Directors, provide for the payment of such expenses
incurred by employees and agents of TRICOM as we deem appropriate.
ITEM 21. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<Table>
<Caption>
EXHIBIT DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------------------
1.1 Dealer Manager Agreement, dated December 18, 2002, among TRICOM, S.A., the guarantors named therein and
Bear, Stearns & Co. Inc.
3.1 Amended and Restated Bylaws of TRICOM, S.A. with English translation thereof (incorporated by reference to
Exhibit 3 to our Amendment No. 1 to the Registration Statement on Form F-1, filed on May 1, 1998 (file no.
333-08574)).
4.1 Form of Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to our Amendment No. 1
to Registration Statement on Form F-1, filed on May 1, 1998 (file no. 333-08574)).
4.2 Form of American Depositary Receipt (included as part of Exhibit 4.3) (incorporated by reference to Exhibit
4.2 to our Registration Statement on Form F-1, filed on April 2, 1998 (file no. 333-08574)).
</Table>
II-1
<Page>
<Table>
4.3 Form of Deposit Agreement between The Bank of New York, TRICOM, S.A. and owners and holders of American
Depositary Receipts (incorporated by reference to Exhibit 4.3 to our Registration Statement on Form F-1,
filed on April 2, 1998 (file no. 333-08574)).
4.4 Indenture, dated as of August 21, 1997, between The Bank of New York, as Trustee, and TRICOM, S.A.
(incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-4, filed on December 29,
1997 (file no. 333-08150)).
4.5* Supplemental Indenture, dated as of , between TRICOM, S.A. and The Bank of New York, as trustee, for the
senior notes due 2004.
4.6* Indenture, dated as of , among TRICOM, S.A, the guarantors named therein and The Bank of New York, as
trustee, for the senior notes due 20 .
4.7* Form of Warrant Agreement.
5.1* Opinion of Piper Rudnick LLP as to the legality of the securities being registered hereby.
5.2* Opinion of Pellerano & Herrera as to certain matters under Dominican law.
8.1* Tax Opinion of Piper Rudnick LLP.
8.2* Tax Opinion of Pellerano & Herrera.
10.1 IDEN(R) Infrastructure Supply Agreement, dated July 11, 2000, between Motorola, Inc. and TRICOM Latinoamerica
(incorporated by reference to Exhibit 4.1 to our Form 20-F/A, filed on November 21, 2001 (file no.
001-14816)).
10.2 Concession Agreement, dated February 20, 1996, between the Dominican State and TRICOM, S.A. (incorporated
by reference to Exhibit 10.1 to our Registration Statement on Form F-4, filed on December 29, 1997 (file
no. 333-08150)).
10.3 Concession Agreement, dated April 30, 1990, between the Dominican State and TRICOM, S.A. (incorporated by
reference to Exhibit 10.2 to our Registration Statement on Form F-4, filed on December 29, 1997 (file no.
333-08150)).
10.4 Interconnection Agreement, dated May 17, 1994, between Compania Dominicana de Telefonos, C. por A.
(Codetel) and TRICOM, S.A. (incorporated by reference to Exhibit 10.3 to our Registration Statement on
Form F-4, filed on December 29, 1997 (file no. 333-08150)).
10.5 Addendum to Interconnection Agreement, dated January 2, 1998, between Codetel and TRICOM, S.A.
(incorporated by reference to Exhibit 10.4 to our Amendment No. 1 to Registration Statement on Form F-1,
filed on May 1, 1998 (file no. 333-08574)).
10.6 Amended and Restated Shareholders Agreement among TRICOM, S.A., Motorola, Inc. and Oleander Holding, Inc.
(incorporated by reference to Exhibit 10.7 to our Amendment No. 1 to Registration Statement on Form F-1,
filed on May 1, 1998 (file no. 333-08574)).
10.7 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to our Amendment No. 1 to
Registration Statement on Form F-1, filed on May 1, 1998 (file no. 333-08574)).
10.8 The Guaranty, dated August 21, 1997, issued by each of TRICOM's subsidiaries in favor of the holders of
the existing notes under the Indenture, dated August 21, 1997
</Table>
II-2
<Page>
<Table>
(incorporated by reference to Exhibit 4.2 to our Registration
Statement on Form F-4, filed on December 29, 1997 (file no.
333-08150)).
12.1** Statements re computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG (member firm of KPMG International in the Dominican Republic).
23.2* Consent of Piper Rudnick LLP (included as part of Exhibit 5.1 and 8.1 above).
23.3* Consent of Pellerano & Herrera (included as part of Exhibit 5.2 and 8.2 above).
24.1** Power of Attorney for directors and officers of TRICOM, S.A.
25.1 Form T-1 Statement of Eligibility of Trustee.
99.1* Form of Letter of Transmittal and Consent.
99.2* Form of Letter to Noteholders.
99.3* Form of Letter to Brokers.
99.4* Form of Letter to clients of Brokers
99.5* Exchange Agent Agreement, dated as of , between TRICOM, S.A. and JPMorgan Chase Bank.
99.6* Information Agent Agreement dated as of December 18, 2002 , between TRICOM, S.A. and D.F. King & Co., Inc.
</Table>
- ----------
* To be filed by amendment.
**Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution;
II-3
<Page>
Provided, however, paragraphs (i) and (ii) do not apply if the information
required in a post-effective amendment is incorporated by referenced from
periodic reports filed by the Registrant under the Securities Exchange Act of
1934, as amended.
(2) That, for determining any liability under the Securities Act, to treat
post-effective amendment as a new registration statement of the securities
offered, and the offering of securities at the time to be the initial bona fide
offering.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) To include any financial statements required by Item 8A of form 20-F at the
start of any delayed offering or through a continuous offering.
Provided, however, that financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished if the registrant
includes in the prospectus, by means of a post-effective amendment, financial
statements required pursuant to paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as current as
the date of those financial statements.
(b) That, for purposes of determining any liability under the Securities Act of
1933, each of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(j) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the Trust
Indenture Act.
(k) The undersigned registrant hereby undertakes: (1) to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 , or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means; and (2) to arrange or provide for a facility in the
U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (1) above include information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
II-4
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM, S.A.
By: /s/ CARL H. CARLSON
--------------------------------------
Carl H. Carlson
EXECUTIVE VICE PRESIDENT, CHIEF
OPERATING OFFICER, MEMBER OF THE
OFFICE OF THE PRESIDENT AND
TREASURER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA President, Chairman of the Board of March 20, 2003
- --------------------------------------------------- Directors and Chief Executive
Manuel Arturo Pellerano Pena Officer (Principal Executive
Officer)
* Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Hector Castro Noboa
* Executive Vice President of March 20, 2003
- --------------------------------------------------- International Business Development,
Marcos J. Troncoso Member of the Office of the
President and Secretary of the
Board of Directors
/s/ CARL H. CARLSON Executive Vice President, Chief March 20, 2003
- --------------------------------------------------- Operating Officer, Member of the
Carl H. Carlson Office of the President and
Treasurer
* Chief Financial Officer and Vice March 20, 2003
- --------------------------------------------------- President of International
Ramon Tarrago Division (Principal Financial
Officer and Principal Accounting
Officer)
* Director March 20, 2003
- ---------------------------------------------------
Juan Felipe Mendoza
Director March __, 2002
- ---------------------------------------------------
Anibal de Castro
</Table>
II-5
<Page>
<Table>
Director March __, 2003
- ---------------------------------------------------
Ralph Smith
Director March __, 2003
- ---------------------------------------------------
Kevin Wiley
* Director March 20, 2003
- ---------------------------------------------------
Richard Haning
Director March __, 2003
- ---------------------------------------------------
Theodore Schaffner
* Director March 20, 2003
- ---------------------------------------------------
Marino Ginebra
* Director March 20, 2003
- ---------------------------------------------------
Edwin Corrie
</Table>
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
II-6
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
CALL TEL CORPORATION
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* Treasurer of the Board of Directors March 20, 2003
- ---------------------------------------------------
Carlos F. Vargas
* Director March 20, 2003
- ---------------------------------------------------
Carlos R. Romero Bobadilla
* Director March 20, 2003
- ---------------------------------------------------
Ramon S. Tarrago Medina
* Director March 20, 2003
- ---------------------------------------------------
Virgilio L. Cadena Del Rosario
</Table>
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
II-7
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
GFN COMUNICACIONES, S.A.
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
* Director March 20, 2003
- ---------------------------------------------------
Carlos R. Romero Bobadilla
* Director March 20, 2003
- ---------------------------------------------------
Ramon Tarrago Medina
* Director March 20, 2003
- ---------------------------------------------------
Virgilio L. Cadena Del Rosario
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-8
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TCN-DOMINICANA, S.A.
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
VICE PRESIDENT OF THE BOARD OF
DIRECTORS
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
* Chairman of the Board of Directors March 20, 2003
- ---------------------------------------------------
Marino Ginebra
* Vice President of the Board of March 20, 2003
- ----------------------------------------------------- Directors
Manuel Arturo Pellerano Pena
/s/ MARCOS J. TRONCOSO Secretary of the Board of Directors March 20, 2003
- -----------------------------------------------------
Marcos J. Troncoso
* Chief Executive Officer (Principal March 20, 2003
- --------------------------------------------------- Executive Officer)
Carlos F. Vargas
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-9
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM CENTROAMERICA, S. A.
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* Treasurer of the Board of Directors March 20, 2003
- ---------------------------------------------------
Carlos F. Vargas
* Director March 20, 2003
- ---------------------------------------------------
Carlos R. Romero Bobadilla
* Director March 20, 2003
- ---------------------------------------------------
Ramon S. Tarrago Medina
* Director March 20, 2003
- ---------------------------------------------------
Virgilio L. Cadena Del Rosario
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-10
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM INTERNATIONAL SERVICES, INC.
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
Director March __, 2003
- ---------------------------------------------------
Richard Gasink
Director March __, 2003
- ---------------------------------------------------
Jesus Barona
Director March __, 2003
- ---------------------------------------------------
Kevin Wiley
* By: /s/ CARL H. CARLSON
------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-11
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003
TRICOM LATINOAMERICA, S. A.
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President off the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Director and Secretary of the Board
Marcos J. Troncoso of Directors
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division and
Carlos F. Vargas Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-12
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM, S. A. (a Guatemalian corporation)
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Ramon S. Tarrago Medina Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-13
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM, S. A. (a Nicaraguian corporation)
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
* Director March 20, 2003
- ---------------------------------------------------
Carlos D. Pellerano Paradas
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-14
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM, S. A. (a Panamanian corporation)
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
* Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary off the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-15
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM, S.A. de C.V.
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-16
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM TELECOMUNICACIONES, S.A. (a Costa
Rican corporation)
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Director
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
* By: /s/ CARL H. CARLSON
--------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-17
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003
TRICOM TELECOMUNICACIONES, S.A.
(a Hondurian corporation)
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- --------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H. CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- --------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
* Director March 20, 2003
- ---------------------------------------------------
Carlos D. Pellerano Paradas
* By: /s/ CARL H. CARLSON
-------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-18
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santo Domingo, Dominican
Republic on March 20, 2003.
TRICOM USA, INC.
By: /s/ MANUEL ARTURO PELLERANO PENA
--------------------------------------
Manuel Arturo Pellerano Pena
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
<Table>
<Caption>
Name Title Date
---- ----- ----
/s/ MANUEL ARTURO PELLERANO PENA Chairman of the Board of Directors March 20, 2003
- ----------------------------------------------------- and Chief Executive Officer
Manuel Arturo Pellerano Pena (Principal Executive Officer)
/s/ CARL H.CARLSON Vice President of the Board of March 20, 2003
- --------------------------------------------------- Directors
Carl H. Carlson
/s/ MARCOS J. TRONCOSO Executive Vice President and March 20, 2003
- ----------------------------------------------------- Secretary of the Board of Directors
Marcos J. Troncoso
* First Vice President, Comptroller March 20, 2003
- --------------------------------------------------- and Administrative Division, Chief
Carlos F. Vargas Financial Officer and Treasurer of
the Board of Directors (Principal
Financial Officer and Principal
Accounting Officer)
Director March __, 2003
- ---------------------------------------------------
Kevin Wiley
* Director March 20, 2003
- ---------------------------------------------------
Richard D. Haning
Director March __, 2003
- ---------------------------------------------------
Ralph Smith
* By: /s/ CARL H. CARLSON
------------------------
Carl H. Carlson,
Attorney-in-Fact
</Table>
II-19
<Page>
SIGNATURE OF AUTHORIZED REPRESENTATIVE
Pursuant to the Securities Act of 1933, as amended, the undersigned, the
duly authorized representative in the United States of TRICOM, S.A., Call Tell
Corporation, GFN Comunicaciones, S.A., TCN-Dominican, S.A., TRICOM
Centroamerica, S. A., TRICOM Latinoamerica, S. A., TRICOM, S.A. (a Guatemalian
corporation), TRICOM, S.A. (a Nicaraguian corporation), TRICOM, S.A. (a
Panamanian corporation), TRICOM, S.A. de C.V., TRICOM Telecomunicaciones, S.A.
(a Costa Rican corporation) and TRICOM Telecomunicaciones, S.A. (a Hondurian
corporation).
has signed this Registration Statement in Santo Domingo, Dominican Republic on
March 20, 2003.
TRICOM USA, INC.
By: /s/ CARL H. CARLSON
---------------------------------------------
Carl H. Carlson
EXECUTIVE VICE PRESIDENT, CHIEF
OPERATING OFFICER, MEMBER OF
THE OFFICE OF THE
PRESIDENT AND TREASURER
II-20
<Page>
EXHIBITS
<Table>
<Caption>
EXHIBIT DESCRIPTION
- ------- -----------
1.1 Dealer Manager Agreement, dated December 18, 2002, among TRICOM, S.A., the guarantors named therein and
Bear, Stearns & Co. Inc.
3.1 Amended and Restated Bylaws of TRICOM, S.A. with English translation thereof (incorporated by reference to
Exhibit 3 to our Amendment No. 1 to the Registration Statement on Form F-1, filed on May 1, 1998 (file no.
333-08574)).
4.1 Form of Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to our Amendment No. 1
to Registration Statement on Form F-1, filed on May 1, 1998 (file no. 333-08574)).
4.2 Form of American Depositary Receipt (included as part of Exhibit 4.3) (incorporated by reference to Exhibit
4.2 to our Registration Statement on Form F-1, filed on April 2, 1998 (file no. 333-08574)).
4.3 Form of Deposit Agreement between The Bank of New York, TRICOM, S.A. and owners and holders of American
Depositary Receipts (incorporated by reference to Exhibit 4.3 to our Registration Statement on Form F-1,
filed on April 2, 1998 (file no. 333-08574)).
4.4 Indenture, dated as of August 21, 1997, between The Bank of New York, as Trustee, and TRICOM, S.A.
(incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-4, filed on December 29,
1997 (file no. 333-08150)).
4.5* Supplemental Indenture, dated as of , between TRICOM, S.A. and The Bank of New York, as trustee, for
the senior notes due 2004.
4.6* Indenture, dated as of , among TRICOM, S.A, the guarantors named therein and The Bank of New York,
as trustee, for the senior notes due 20 .
4.7* Form of Warrant Agreement.
5.1* Opinion of Piper Rudnick LLP as to the legality of the securities being registered hereby.
5.2* Opinion of Pellerano & Herrera as to certain matters under Dominican law.
8.1* Tax Opinion of Piper Rudnick LLP.
8.2* Tax Opinion of Pellerano & Herrera.
10.1 IDEN(R) Infrastructure Supply Agreement, dated July 11, 2000, between Motorola, Inc. and TRICOM Latinoamerica
(incorporated by reference to Exhibit 4.1 to our Form 20-F/A, filed on November 21, 2001 (file no.
001-14816)).
10.2 Concession Agreement, dated February 20, 1996, between the Dominican State and TRICOM, S.A. (incorporated
by reference to Exhibit 10.1 to our Registration Statement on Form F-4, filed on December 29, 1997 (file
no. 333-08150)).
</Table>
<Page>
<Table>
10.3 Concession Agreement, dated April 30, 1990, between the Dominican State and TRICOM, S.A. (incorporated by
reference to Exhibit 10.2 to our Registration Statement on Form F-4, filed on December 29, 1997 (file no.
333-08150)).
10.4 Interconnection Agreement, dated May 17, 1994, between Compania Dominicana de Telefonos, C. por A.
(Codetel) and TRICOM, S.A. (incorporated by reference to Exhibit 10.3 to our Registration Statement on
Form F-4, filed on December 29, 1997 (file no. 333-08150)).
10.5 Addendum to Interconnection Agreement, dated January 2, 1998, between Codetel and TRICOM, S.A.
(incorporated by reference to Exhibit 10.4 to our Amendment No. 1 to Registration Statement on Form F-1,
filed on May 1, 1998 (file no. 333-08574)).
10.6 Amended and Restated Shareholders Agreement among TRICOM, S.A., Motorola, Inc. and Oleander Holding, Inc.
(incorporated by reference to Exhibit 10.7 to our Amendment No. 1 to Registration Statement on Form F-1,
filed on May 1, 1998 (file no. 333-08574)).
10.7 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.11 to our Amendment No. 1 to
Registration Statement on Form F-1, filed on May 1, 1998 (file no. 333-08574)).
10.8 The Guaranty, dated August 21, 1997, issued by each of TRICOM's subsidiaries in favor of the holders of
the existing notes under the Indenture, dated August 21, 1997 (incorporated by reference to Exhibit 4.2 to
our Registration Statement on Form F-4, filed on December 29, 1997 (file no. 333-08150)).
12.1** Statements re computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG (member firm of KPMG International in the Dominican Republic).
23.2* Consent of Piper Rudnick LLP (included as part of Exhibit 5.1 and 8.1 above).
23.3* Consent of Pellerano & Herrera (included as part of Exhibit 5.2 and 8.2 above).
24.1** Power of Attorney for directors and officers of TRICOM, S.A.
25.1 Form T-1 Statement of Eligibility of Trustee.
99.1* Form of Letter of Transmittal and Consent.
99.2* Form of Letter to Noteholders.
99.3* Form of Letter to Brokers.
99.4* Form of Letter to clients of Brokers
99.5* Exchange Agent Agreement, dated as of , between TRICOM, S.A. and JPMorgan Chase Bank.
99.6* Information Agent Agreement dated as of December 18. 2002, between TRICOM, S.A. and D.F. King & Co., Inc.
</Table>
- ----------
* To be filed by amendment.
II-22
<Page>
** Previously filed.
II-23