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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission File Number 000-29085



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IMPSAT Fiber Networks, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-1910372                          
|(state or other jurisdiction of incorporation or organization) |  | (IRS employer identification number)

Elvira Rawson de Dellepiane 150

Piso 8, C1107BCA

Buenos Aires, Argentina

(5411) 5170-0000

(Address, including
zip code, and telephone number, including area code, of registrants principal executive offices)

Securities registered
pursuant to Section 12(b) of the Act: None



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange On Which Registered

Securities registered pursuant to Section 12(g) of the Act: common stock, par value $0.01
per share



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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES ̈NO  x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES ̈NO  x

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    YES  x    NO ̈

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ̈

Indicate by check mark whether the registrant is large accredited filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and larger accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES ̈NO  x

Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    YES  x    NO ̈

The aggregate market value of our common stock held by non-affiliates was approximately $61.2 million as of June 30, 2006, the last business day of
our most recently completed second fiscal quarter (based upon the closing price for the common stock as reported on such date by the Nasdaq Over-the-Counter Bulletin Board).

There were 10,153,231 shares of common stock outstanding on March 31, 2007.

In this Report, Company, IMPSAT, we, us and our refer to IMPSAT Fiber Networks, Inc. and its
subsidiaries.



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TABLE OF CONTENTS



|              |  |          |  |                                                                                                              |  |   
|------------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|              |  | Page    
|PART I        |  | 3       
|              |  | ITEM 1.  |  | BUSINESS                                                                                                     |  | 3 
|              |  | ITEM 1A. |  | RISK FACTORS                                                                                                 |  | 12
|              |  | ITEM 1B. |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 23
|              |  | ITEM 2.  |  | PROPERTIES                                                                                                   |  | 23
|              |  | ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                            |  | 24
|              |  | ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS                                                          |  | 25
|              | 
|PART II       |  | 26      
|              |  | ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 26
|              |  | ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                                      |  | 28
|              |  | ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 29
|              |  | ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                    |  | 56
|              |  | ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 57
|              |  | ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 57
|              |  | ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                      |  | 57
|              |  | ITEM 9B. |  | OTHER INFORMATION                                                                                            |  | 58
|              | 
|PART III      |  | 58      
|              |  | ITEM 10. |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  | 58
|              |  | ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                       |  | 60
|              |  | ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 69
|              |  | ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |  | 71
|              |  | ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 72
|              | 
|PART IV       |  | 73      
|              |  | ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS                                                         |  | 73
|EXHIBIT INDEX |  | 74      
|SIGNATURES    |  | 76      



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PART I



|Item 1. | BUSINESS
|------- | --------

General

We are a provider of private network telecommunications, Internet and information technology services to over 4,700 corporate and government clients in
Latin America. We offer integrated data transmission, data center and value added services, Internet solutions and voice solutions, with an emphasis on broadband transmission, for national and multinational companies, financial institutions,
governmental entities and other business customers. We have operations in Argentina, Colombia, Venezuela, Ecuador, Brazil, Chile, Peru and the United States. Through these operations, we provide our customers with services throughout Latin America
and the Caribbean. We provide our services through our networks, which consist of owned fiber optic and wireless links, teleports, data centers and earth stations and leased fiber optic and satellite links.

We have an extensive pan-Latin American infrastructure, comprised of our Broadband Network (as defined below) and data center facilities. At
December 31, 2006, our Broadband Network (Broadband Network) consisted of 15 metropolitan area fiber optic networks and wireless links extending over 1,000 route kilometers in some of the largest cities in Latin America, long-haul
fiber optic backbones in Brazil, Argentina, Chile and Colombia extending over 8,880 route kilometers and capacity on undersea cable systems. Our Broadband Network enables connections between and among major Latin American countries, combined with
satellite capabilities, global telecommunications connections and Internet access connecting major cities to other locations in Latin America, the Caribbean and the United States. Our extensive infrastructure also includes 15 data centers
(Data Centers) owned and operated by us, located in the largest cities in Argentina, Brazil, Colombia, Peru, Ecuador, Chile and Venezuela, which complement the Broadband Network.

Our comprehensive solutions consist of any combination of our service offerings, including the enhanced and additional services that we are able to offer
using our Broadband Network and Data Center facilities. Our Broadband Network supports a variety of advanced transmission technologies including Dense Wave Division Multiplexing, or DWDM, Asynchronous Transfer Mode, or ATM, Multi-protocol Label
Switching, or MPLS and Internet Protocol, or IP. Through our Data Centers, we are able to manage mission critical applications and co-location services to carriers, including the rental of secure space, equipment provisioning and operation
maintenance services and interconnections in meet-me-room facilities.

History

Our operations began in Argentina in 1990 under the name IMPSAT S.A. (IMPSAT Argentina). We began expanding our operations outside of
Argentina with the establishment of operations in Colombia, IMPSAT S.A. (IMPSAT Colombia) in 1991, and Venezuela, Telecomunicaciones Impsat S.A. (IMPSAT Venezuela) in 1992. In 1994, IMPSAT Corporation was organized as a
Delaware holding company to combine the then-current Impsat businesses in Argentina, Colombia and Venezuela and its future businesses. Thereafter, new operating subsidiaries were created in Ecuador, Impsatel del Ecuador S.A. (IMPSAT
Ecuador) in 1994, the United States, IMPSAT USA, Inc. (Impsat USA) in 1995, and Brazil, Impsat Comunicacoes Ltda. (IMPSAT Brazil) in 1998. In January 2000, we changed our Companys name from IMPSAT Corporation to
IMPSAT Fiber Networks, Inc. During 2001, we commenced operations in Chile, Impsat Chile S.A. (IMPSAT Chile), and Peru, Impsat Peru S.A. (IMPSAT Peru).

On June 11, 2002, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code with the bankruptcy court. On
September 4, 2002, we filed our plan of reorganization, which we refer to as the Plan, with the bankruptcy court. During our bankruptcy proceedings, we operated our business and managed our assets in the ordinary course as a
debtor-in-possession. By order dated December 16, 2002, the bankruptcy court confirmed the Plan. In accordance with the terms of the Plan, we formally emerged from bankruptcy on March 25, 2003, which we refer to as the Effective Date.
As a result of our Chapter 11 reorganization we reduced our indebtedness by more than $700 million.

Proposed Acquisition of the Company by Global
Crossing

The Merger

On
October 26, 2006, we entered into a definitive agreement with Global Crossing Limited, a Bermuda corporation (Global Crossing) and GC Crystal Acquisition, Inc., a Delaware corporation (MergerCo.), a wholly owned
subsidiary of Global Crossing (the Merger Agreement) to be acquired in a merger transaction (the Merger). Under the terms of the Merger Agreement, our stockholders will receive $9.32 in cash, without interest, for each share
of our common stock they hold (the Merger Consideration). Each outstanding option or warrant to purchase our common stock of a per share



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exercise price lower than the Merger Consideration will be converted into the right to receive a cash amount equal to the Merger Consideration less the
exercise price for such option or warrant, as the case may be, net of any applicable taxes. In addition, Global Crossing will refinance, purchase, defease, repay or assume the Companys outstanding indebtedness as of the effective time of the
Merger. As a result of the Merger, the Company will become a wholly-owned subsidiary of Global Crossing and will cease to be a public company.

We expect the Merger to be completed before May 25, 2007 after the satisfaction or waiver of the conditions precedent set forth in the Merger Agreement, including the receipt of the remaining regulatory approval in Venezuela. On
February 22, 2007, the parties amended the Merger Agreement, among other things, to extend the date by which either party may terminate the Merger Agreement, from March 26, 2007 to April 16, 2007, to allow for more time to satisfy the
conditions precedent (the Final Termination Date). On March 15, 2007, the parties further amended the Merger Agreement to additionally extend the Final Termination Date to May 25, 2007, coincident with the date on which an
affiliate of Global Crossing is required to redeem certain notes if the Merger Agreement has not theretofore closed.

Upon the closing of
the Merger, shares of our common stock will be held by Global Crossing and will no longer be traded on the Nasdaq OTC Bulletin Board. See Recent Developments and Forward Looking Statements for additional information. The
Merger Agreement contains certain termination rights for both us and Global Crossing. The Merger Agreement provides that in certain circumstances, upon termination, we would be required to pay Global Crossing a termination fee of $5,000,000. A more
detailed description of the Merger Agreement is available in the Current Report on Form 8-K that we filed with the SEC on October 30, 2006.

In connection with the Merger Agreement, Morgan Stanley & Co., Incorporated (Morgan Stanley), W.R. Huff Asset Management Co., LLC (WR Huff), as well as several of our officers and a director (in their
capacities as either a stockholder and/or beneficial owner of our common stock and/or a noteholder), entered into support agreements with Global Crossing. Pursuant to the support agreements, the parties agreed to support and vote in favor of the
Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and WR Huff and Morgan Stanley agreed to tender all of their Series A 6% Senior Guaranteed Senior Notes due 2011 (the Series A Notes) and Series
B 6% Senior Guaranteed Senior Notes due 2011 (the Series B Notes) in the offer to purchase the Series A Notes and the Series B Notes as contemplated in the Merger Agreement. The support agreements will terminate upon the earlier of the
consummation of the Merger or the termination of the Merger Agreement. The Merger Agreement and the forms of the support agreements are attached as an exhibit to a Current Report on Form 8-K filed by us with the SEC on October 30, 2006.

Stockholder Merger Approval

A special
meeting of the Companys stockholders was held on January 17, 2007, and the shareholders voted in favor of the adoption of the Merger Agreement. The results of the stockholder meeting were reported in a Current Report on Form 8-K filed by
us with the SEC on January 17, 2007.

Tender Offer

Pursuant to the terms of the Merger Agreement, we commenced an offer to purchase all of the outstanding Series A Notes and Series B Notes at 101% of the outstanding principal amount thereof, plus accrued interest
thereon (if any) to the payment date. The closing of the offer to purchase is contingent upon the occurrence of the closing of the Merger.

Consent
Solicitation

In addition, we commenced a separate consent solicitation with respect to each of the indentures for the Series A Notes
and Series B Notes, which sought certain amendments to the indentures that will only become effective upon consummation of the Merger. Because we received the requisite consents from the holders of the Series A Notes and the holders of the Series B
Notes, the Company executed and delivered supplemental indentures, which set forth the amendments to the indentures governing the Notes. The results of the consent solicitation along with the supplemental indentures were filed on a Current Report on
Form 8-K filed by us with the SEC on November 17, 2007.

Our Organizational Structure

Our organizational structure currently consists of four operational units, as follows:



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| |  |  | Sales & Services, which is responsible for sales and for ensuring customer satisfaction with our services;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Products & Marketing, which manages our comprehensive portfolio of products, product upgrades, new product development and launches;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Network Operations, which manages our telecommunications infrastructure and searches for the most efficient technologies available in the market; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Corporate Services, which provides support to our Sales and Services, Product and Marketing and Network Operations units through its five subdivisions:
Administration and Audit, Finance and Treasury, Human Resources, Planning and Control and Process and Information Technology.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The objective of these units is to provide consistent delivery of services to our customers across the Company. These units have served, and are expected to continue to serve, as the foundation for our success and sustained growth. Our
current structure enables us to focus on our customers needs and clearly define accountability within our organization. Furthermore, it assists us in controlling our expenses and investments and attaining operational efficiency. We believe
this structure has played an important role in the Companys achievements, which we expect will continue into 2007.

Our Services

Our comprehensive solutions consist of any combination of our service offerings, including the enhanced and additional services that we are able to
offer using our Broadband Network and Data Center facilities. These service offerings are currently classified into four categories, specifically, broadband and satellite data transmission services, value added services, Internet services, and
telephony services, which are more fully described below.

Data Transmission Services. We offer our customers a broad range of
end-to-end network service combinations for their point-to-point and point-to-multipoint telecommunications needs, ranging from simple connections to customized private network solutions. We offer our network services over our proprietary and leased
networks, which are comprised of metropolitan area fiber optic rings and wireless networks, fiber optic and satellite links.



| |  |  | Connection Services. We provide our customers with IP multiple protocol label switching (IP MPLS) services, clear channels, frame relay services
and ATM services to support their specific transmission requirements. Increasingly, companies are selecting IP Services to meet their transmission requirements. IP MPLS, frame relay and ATM services are typically purchased by customers requiring the
reliable and rapid transmission of voice, data and video traffic. Clear channels are typically purchased by customers that constantly transmit large amounts of such traffic. For corporate customers, speed connections vary from low capacity
(sub-rates) to 100 Mbps. For Carriers, bandwidth may go up to 10 gigabits per second. We are able to access customers with multiple technologies, such as copper, wireless, fiber and satellite.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Private Network Services. For customers that require significant bandwidth and reliable data transmission between a number of sites, we offer customized
private networks that combine fiber optic, fixed wireless and satellite technology. Our IP MPLS transport capabilities allow us to offer a variety of other integrated services including, VoIP, video conferencing, network monitoring, trouble shooting
reports, quality control and other value added services. Our consultative sales process ensures that each private network is designed to meet the evolving specific business and systems requirements of each customer. In addition, we offer an
outsourcing solution for customers without technical personnel, or who choose not to operate, manage and maintain their own telecommunications networks.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Value Added Services. We offer value added services, including managed security and applications hosting services through our advanced data center facilities. We also offer information technology solutions and
data center services designed to facilitate our customers needs and optimize our customers business processes.



| |  |  | Data Center Services. We have established 15 data center facilities that offer hosting services by integrating our broadband services with advanced value
added solutions in the region. We offer our clients a complete set of data center services ranging from housing and hosting, to more complex managed solutions, including disaster recovery, applications management, business continuity, and security
services, in order to manage mission critical applications. We also offer co-location services to carriers, including the rental of secure space, equipment provisioning and operation, maintenance services and interconnections in meet-me-room
facilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Information Technology Solutions. As part of our end-to-end solutions, we also offer a variety of information technology services, including the design and
implementation of business continuity solutions, disaster recovery and managed security services and other consulting services. As companies increasingly rely on their networks and attacks are more frequent and sophisticated, information security
has become indispensable. Our managed security
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | portfolio goes from a basic firewall to a complex consultancy to comply with the International Organization for Standardizations standard 27001. These
offerings are differentiated through our infrastructure and our specialists skills, which address our customers needs with a consultancy approach.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Internet Services. We have offered Internet access services to corporate and ISP customers since 1996. Our Broadband Network links our Latin
American Internet backbone, which is managed as a single autonomous system, to the U.S. Internet through our U.S.-based point of presence using our fiber optic and leased satellite links.



| |  |  | Corporate Internet Services. As part of providing our customers with a total telecommunications solution, we currently offer our corporate customers Internet
access services including line provisioning, managed security services and consulting, media streaming services, equipment provisioning and installation, primary and secondary domain registration and maintenance and technical support.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wholesale Internet Services. We provide a complete Internet service for ISPs, including managed line provisioning for domestic and international backbone
connections between points of presence, access to our co-location sites and server services (e-mail and hosting services), managed security services, managed modem and roaming services, as well as the use of our network operation and help desk
services.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Telephony Services. We provide switched telephony services as permitted by the licenses granted in the
countries in which we operate. In Argentina, Brazil and Peru we offer basic local and long distance services as well as a complete portfolio of value added services, including toll-free numbers, calling cards, VoIP services, public telephony and
wholesale long distance services to carriers. In Chile and the United States, we only offer wholesale international long-distance, and we are interconnected with major international carriers. The switching platform that supports the telephony
operations includes both traditional circuit and new packet switching technologies. Through this platform, we offer managed services, such as virtual and hosted PBX, web conferencing and broadband telephony.

The following table shows our Companys net revenues breakdown by service for the years ended December 31, 2004, 2005 and 2006:



|                                 |  |                               |         |                  |   |            |  |      |                  |  |            |         |  |      |  
|-------------------------------- |  | ----------------------------- | ------- | ---------------- | - | ---------- |  | ---- | ---------------- |  | ---------- | ------- |  | ---- | -
|                                 |  | December 31,2004              |         | December 31,2005 |   | %change(1) |  |      | December 31,2006 |  | %change(1) |        
|                                 |  | (dollar amounts in thousands) |        
|Broadband and satellite          |  | $                             | 161,964 |                  | $ | 172,852    |  | 6.7  | %                |  | $          | 184,668 |  | 6.8  | %
|Internet                         |  |                               | 26,125  |                  |   | 30,591     |  | 17.1 |                  |  |            | 36,063  |  | 17.9 |  
|Value added services(2)          |  |                               | 16,674  |                  |   | 24,874     |  | 49.2 |                  |  |            | 35,755  |  | 43.7 |  
|Telephony                        |  |                               | 21,673  |                  |   | 24,967     |  | 15.2 |                  |  |            | 27,293  |  | 9.3  |  
|                                 |  |                               |         |                  |   |            |  |      |                  |  |            |         |  |      |  
|Total net revenues from services |  | $                             | 226,436 |                  | $ | 253,284    |  | 11.9 | %                |  | $          | 283,779 |  | 12.0 | %
|                                 |  |                               |         |                  |   |            |  |      |                  |  |            |         |  |      |  

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|(1) | Increase (decrease) compared to previous year.
|--- | ----------------------------------------------

|(2) | Value added services includes revenues from our data center services, systems integration and other information technology solutions services.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

Our Infrastructure

Our infrastructure is
comprised of a fully integrated terrestrial fiber optic network, long-haul, high capacity fiber optic backbones and capacity on undersea cable systems, all enabling connections between and among major Latin American countries, combined with
satellite capabilities, global telecommunications connections and Internet access connecting major cities to other locations in Latin America, the Caribbean and the United States, and fifteen advanced data center facilities throughout major cities
in Latin America. We also maintain Network, Data Center and Security Operations Centers to monitor and manage service performance, and offer additional value added services. Our extensive infrastructure, which is adaptable to new technologies,
allows us to offer customers an array of interconnection and service solutions, high quality services and the support of a reputable and reliable telecommunications provider. Our infrastructure also reduces our costs for leased satellite capacity
and leased telecommunications links as a percentage of our net revenues, creates a high capacity, pan-Latin American IP backbone and allows us to cost-effectively develop new solutions to meet the changing needs of, and offer more bandwidth
intensive services to, our customers.

The Broadband Network

Metropolitan Area Networks. We operate 15 metropolitan area networks, composed of a combination of fiber optic and microwave links, covering a
total of more than 1,000 route kilometers. Our first metropolitan area network was established in Buenos Aires, Argentina in 1990. In addition, we currently provide services over our metropolitan area networks in



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Córdoba, Mendoza and Rosario, Argentina; Bogotá, Medellín and Cali, Colombia; Rio de Janeiro, Curitiba, São Paulo and Belo
Horizonte, Brazil; Caracas, Venezuela; Quito and Guayaquil, Ecuador; and Lima, Peru.

Fiber Optic Long-Haul Capacity. The long-haul
segment of our Broadband Network, which comprises a seamless long-haul, high capacity fiber optic backbone extending over 8,880 route kilometers, stretches from Santiago, Chile to Buenos Aires, Argentina, passing through Mendoza, Córdoba and
Rosario; in Brazil, it covers Curitiba, Belo Horizonte, Rio de Janeiro and São Paulo. It also includes a fiber optic connection between Paraná, Argentina and Curitiba, Brazil, which is currently unlit. We also own and operate a long
haul fiber optic network connecting the cities of Cali, Medellín and Bogotá in Colombia. To link the Broadband Network to other parts of Latin America and the world, we have purchased IRU capacity on Global Crossings undersea
digital fiber optic cable systems (and associated terrestrial capacity) between the United States and Latin America, including Global Crossings South American network, as well as leased capacity from other undersea fiber optic cable operators.
This capacity enables us to transmit telecommunications traffic seamlessly from the United States to major countries in South America using the latest fiber optic technology.

Teleports. We own or lease, and operate, teleports in Buenos Aires, Argentina; São Paulo, Brazil; Bogotá, Colombia; Caracas,
Venezuela; Quito, Ecuador; Lima, Peru; and Fort Lauderdale, Florida, United States. We also own and operate regional teleports in Mendoza, Córdoba, Rosario, Argentina; Medellín, Cali Colombia; Guayaquil, Ecuador; and Rio de Janeiro and
Curitiba, Brazil, as well as operate over 150 other small network nodes.

Satellite Services. Our satellite systems use both C-band
(4-6 GHz) and Ku-band (11-14 GHz) frequencies. As of December 31, 2006, we had a total available leased capacity of approximately 633 MHz. We will contract additional leased satellite capacity if business requires. A portion of our satellite
capacity is leased by our wholly-owned subsidiary, International Satellite Capacity Holding, Ltd. This subsidiarys principal function is to lease private telecommunications capacity from telecommunications carriers and then sublease this
capacity at market rates to our operating subsidiaries. We believe that this method of centralizing our leasing of telecommunications capacity provides us with better terms. We are currently in the process of upgrading the technologies used to
provide satellite services, which we believe will allow us to optimize our satellite capacity.

The Data Centers

To complement our Broadband Network, we operate 15 advanced data center hosting facilities with an aggregate of approximately 500,000 gross square
feet, including functional facilities, building shell, space for new modules, and corresponding office space, in major cities in Latin America. These facilities, which are capable of supporting advanced application hosting services, are located in
Buenos Aires, Mendoza, Córdoba and Rosario, Argentina; São Paulo, Rio de Janeiro and Curitiba, Brazil; Santiago, Chile; Fort Lauderdale, Florida, United States; Bogotá and Cali, Colombia; Caracas, Venezuela; Quito and Guayaquil,
Ecuador; and Lima, Peru.

Data center services are managed through our Data Center Operations Centers (DOCs), which currently
are responsible for the delivery, service, support and operations processes of every data center in the region and the management of service level agreements for data center services, seven days a week, 24 hours a day. Following the consummation of
the Merger, however, our U.S. data center will only be managed through a DOC that is located in the United States, pursuant to an amendment to Global Crossings existing Network Security Agreement (defined below). See
BusinessRegulation. Our processes and procedures are based on the Information Technology Infrastructure Library (ITIL), the international standards for IT operations, and overseen by highly-skilled personnel. The DOCs
enable customers to delegate IT operations and support to a specialized company to provide services in world-class data centers, and focus on their core business.

In addition, we maintain a Security Operation Center (SOC), operating seven days a week, 24 hours a day, which offers monitoring and management of systems to detect viruses, worms and illegal access and
real time intrusion detection and vulnerability management to prevent attacks before they can be executed and cause costly damage. The SOC provides analysis, implementation and maintenance of security polices, on-line follow up, auditing of security
policies, executive and technical reports, incident response and crisis management. The SOC offers the customer the ability to outsource its monitoring and administration requirements and to maintain a single point of contact for security
administration.

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Network Operation Centers

To monitor our network and the provision of services to our customers, we have local Network Operations Centers (NOCs) in each country in
which we operate. The NOCs support local network operations by offering customer service and technical support 24 hours a day, 7 days a week. We also maintain a global network operations center (GNOC) in Argentina. The GNOC proactively
monitors the backbone throughout the region and works in conjunction with the local NOCs to resolve issues detected.

Customers

Overview.We have grown rapidly since the commencement of our operations in 1990. Our customer base has increased from 125 corporate customers in
two countries at December 31, 1992 to 4,718 corporate customers in eight countries at December 31, 2006. Larger entities, which often have significant needs for reliable, cost- effective data transmissions and other telecommunications
services, were the first to use our customized telecommunications services. As a result, a significant portion of our revenues has been derived from our largest customers. A significant number of our customers, including a number of our largest
customers, are in Argentina and Colombia, which, having commenced in 1990 and 1992, respectively, are the locations of our longest-standing operations. Our customer base in Brazil has grown from 48 at the end of 1998 to 533 at the end of 2006. As
our business further matures and as we extend the operation of the Broadband Network, we expect that the average size of our customers will decline.

Our customers consist of leading national and multinational corporations and private sector companies, financial institutions, major governmental agencies, and carriers, including Global Crossing Ltd., Instituto
Nacional de Hipodromos, British Telecom, Petrobras and HSBC. These customers typically have complex telecommunications and IT needs that require customized solutions and high level of customer satisfaction. Our ten largest customers accounted for
approximately 21.4% of our revenues in 2006 and approximately 19.7% in 2005.

Our ten largest customers as of December 31, 2006 were:



| |  |  | subsidiaries of Global Crossing Ltd., a Bermuda-headquartered corporation that offers carrier and wholesale telecommunications services over worldwide terrestrial
and submarine fiber optic networks;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | British Telecom, one of Europes leading providers of telecommunications services;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Petrobras, Brazils largest industrial corporation, a global integrated energy company that explores, produces, refines, markets and transports petroleum and
its by-products worldwide, with operations in 11 other countries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Corporacion Nacional de Ahorro y Vivienda, or Conavi, one of Colombias largest financial institutions;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | Instituto Nacional de Hipodromos, a Venezuelan horse racing track;
| | - |  | ------------------------------------------------------------------



| |  |  | subsidiaries of AT&T, Inc., one of the global leaders in local, long distance, Internet and transaction-based voice and data services;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | subsidiaries of Telefónica S.A., a global telecommunications operator, offering local and long distance, cellular, and Internet and transaction-based voice
and data services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | HSBC Bank Brasil S.A., one of the largest privately-owned banks in Brazil;
| | - |  | --------------------------------------------------------------------------



| |  |  | AMERICANAS.COM S/A COMÉRCIO ELETRÔNICO, one of the largest companies focused on retail commerce through Internet, telephone, catalogue and television
services in Latin America; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Government of the Province of Buenos Aires, the local government of the Province of Buenos Aires.
| | - |  | -------------------------------------------------------------------------------------------------



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The following table shows our customer concentration by country as of the dates indicated.



|          |                                               |                    |  |      |   |  |       |  |      |   |  |       |  |      |  
|--------- | --------------------------------------------- | ------------------ |  | ---- | - |  | ----- |  | ---- | - |  | ----- |  | ---- | -
|Country   |                                               | As of December 31, | 
|          | 2004                                          |                    |  | 2005 |   |  | 2006  | 
|          | (number of customers and percentage of total) |                   
|Argentina |                                               | 1,236              |  | 37.3 | % |  | 1,842 |  | 42.5 | % |  | 2,087 |  | 44.2 | %
|Colombia  |                                               | 788                |  | 23.8 |   |  | 839   |  | 19.4 |   |  | 762   |  | 16.2 |  
|Brazil    |                                               | 451                |  | 13.6 |   |  | 502   |  | 11.6 |   |  | 533   |  | 11.3 |  
|Venezuela |                                               | 200                |  | 6.0  |   |  | 244   |  | 5.6  |   |  | 284   |  | 6.0  |  
|Ecuador   |                                               | 263                |  | 7.9  |   |  | 401   |  | 9.2  |   |  | 466   |  | 9.9  |  
|USA       |                                               | 85                 |  | 2.6  |   |  | 100   |  | 2.3  |   |  | 93    |  | 2.0  |  
|Chile     |                                               | 113                |  | 3.4  |   |  | 126   |  | 2.9  |   |  | 125   |  | 2.6  |  
|Peru      |                                               | 178                |  | 5.4  |   |  | 282   |  | 6.5  |   |  | 368   |  | 7.8  |  
|          |                                               |                    |  |      |   |  |       |  |      |   |  |       |  |      |  
|Total     |                                               | 3,314              |  | 100  | % |  | 4,336 |  | 100  | % |  | 4,718 |  | 100  | %
|          |                                               |                    |  |      |   |  |       |  |      |   |  |       |  |      |  

Customer Contracts.Our contracts with our customers have in the past typically ranged in
duration from six months to five years and have generally been three-year contracts. Our top 30 customers have had contracts with us for an average length of approximately 7 years.

Except in Argentina and Brazil, the majority of our contracts with customers provide for payment in U.S. dollars or for payment in local currency linked
to the exchange rate between the local currency and the U.S. dollar at the time of invoicing. The revenues of our customers are generally denominated in local currencies. Although our customers include some of the largest and most financially sound
companies and financial institutions in their markets, devaluation of local currencies relative to the U.S. dollar and foreign exchange controls restricting the exchange or convertibility of such currencies could have a material adverse effect on
the ability of our customers to pay us for our services. Currency devaluations and foreign exchange controls could also result in our customers seeking to renegotiate their contracts with us or, alternatively, defaulting on their contracts.

Sales, Marketing and Customer Services

We view our relationship with our customers as a long-term partnership in which customer satisfaction is of paramount importance. For this reason, we have organized our sales and marketing efforts to focus on our target customer groups,
developed a tiered approach to customer service, and integrated our sales, marketing and customer service functions. We emphasize the highest quality in our sales, marketing and customer services and an enduring commitment to providing fast and
flexible responses to customer demands.

Sales & Marketing

We have 563 employees in our sales and marketing group (including a sales force of 173), who are focused on three types of customers:
(i) multi-national corporations, large established national companies (segregated by industry sector) and government agencies; (ii) carriers and wholesale customers; and (iii) small and medium-sized companies in specific sectors.

The sales team assigned to multi-national corporations, large established national companies and government agencies is further subdivided
and assigned to specific industries, including Financial Services, Oil & Gas, Retail, Utilities, Technology and Government. Its approach is consultative, offering customized and integrated solutions, and focuses on establishing a long-term
partnership with these customers, enabling both up-selling and cross-selling opportunities. The sales teams assigned to carriers and wholesale customers focus on developing strategic partnerships to meet large volume requirements on a commoditized
basis for incorporation into their product offerings. The sales team assigned to small and medium-sized companies in specific sectors focuses on identifying new customer opportunities, offering customers customized solutions utilizing standard
products and bundling of services. We also use the services of third-party sales representatives to assist in generating sales and to manage the contractual process with potential customers.

In addition to their sales responsibilities, our sales teams are deeply involved in the post-sale customer service function.

Customer Service

In order to
efficiently meet the customer service needs of our customers, we adapt and tailor our customer service function to match the scale and complexity of the solutions we provide, as specified below.



| |  |  | Customers that utilize complex, customized solutions composed of a variety of different services are assigned a multi-task customer service team, comprised of a
sales executive and service delivery and assurance engineers. This
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | teams objective is to develop and maintain long-term, cooperative relationships with these customers and to provide us with an in-depth understanding
of the customers evolving telecommunications service requirements and levels of service satisfaction. This team oversees all phases of initial customer contact, service planning, installation and ongoing service.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customers who require standardized or bundled solutions are serviced by dedicated sales teams with shared centralized support, along with available assistance from
our call centers, which operate 24 hours a day, 365 days a year.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Competition

We compete on the basis of our experience, network quality and coverage, customer service, range of services offered and price. Our competitors fall into
four broad categories:



| |  |  | the monopoly public telephony operators (PTOs) in each country where we operate;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | other large international telecommunications carriers;
| | - |  | ------------------------------------------------------



| |  |  | companies that operate competing satellite and terrestrial data transmission businesses; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | information technology providers.
| | - |  | ---------------------------------

The PTOs have extended their focus beyond local and long-distance telephony services, dedicating resources towards the private telecommunications network systems segment, our primary target segment. PTOs generally have significant
competitive advantages, including (i) close ties with national regulatory authorities, (ii) control over connections to local telephone lines, (iii) the ability to subsidize competitive services with revenues generated from other
services they provide on a monopoly or duopoly basis and (iv) a reluctance of regulators to adopt policies and grant regulatory approvals that will result in increased competition.

Additionally, other major telecommunications carriers, including PTOs, have entered, or indicated their intention to enter, the Latin American
telecommunications market as deregulation in Latin America and elsewhere opens new market opportunities. In particular, PTOs, including Telmex in Mexico and Telefonica in Spain have expanded their regional presence through acquisitions of
competitors in specific countries.

We believe that by maintaining our position as a reliable, high quality provider of telecommunications
services, while strengthening the quality of our network and the breadth of service offerings through our Broadband Network, we will be able to maintain our current customers and successfully attract new customers, even with competition from the
PTOs and other international carriers entering our market.

We believe that we are able to compete successfully in data transmission
services because we offer a broad array of services, provide high quality, custom-designed services that are tailored to meet the specific needs of each customer and have a greater geographical footprint for our Broadband Network than our current
competitors among these providers.

By delivering end-to-end solutions through our data center and broadband infrastructure, we compete
with large international IT vendors and local integrators by capitalizing on the convergence of telecommunications and IT services.

Our
principal competitors include:



| |  |  | Telmex, the leading telecommunications company in Mexico, which offers long distance and basic telephony services, data and video services, Internet access as well
as integrated telecommunications solutions for corporate customers in Mexico, and, reinforced by the acquisition of the assets of several telecommunications companies in Latin America, including AT&T Latin America, Techtel, Embratel, Chilesat,
and Metrored.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Spains Telefonica S.A., which provides through its affiliates fixed line and cellular telecommunications services, data transmission services and audiovisual
content and media services in Spain, Latin America and other regions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Telecom Italia SpA, a global telecommunications provider, which operates through affiliates in Latin America principally in the field of mobile telephony (but also
fixed-network, Internet, data transmission, telex and telegraphy) services in Argentina (through its ownership stake in Telecom Argentina held through Nortel Inversora), Bolivia, Brazil (through its wholly-owned TIM Brasil Group), and Paraguay, with
publicly-announced goals of developing a continent-wide GSM network in South America.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | System integration and outsourcing providers IBM, EDS, HP and other local vendors such as Tivit, Sonda, Synapsis, GMD and Adexus.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



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Competing technologies may not become available that could negatively affect our position. For example,
technologies such as DSL can significantly enhance the speed of traditional copper lines. These technologies enable our PTO competitors to offer customers high-speed services without undergoing the expense of replacing their existing twisted-pair
copper networks. Our private telecommunications services could also face future competition from entities using or proposing to use new or emerging voice and data transmission services or technologies that are not widely available in Latin America,
such as wireless-based systems dedicated to data distribution services.

Rates are not regulated in our countries of operation, and the
prices for our services are strongly influenced by market forces. We believe that increasing competition will result in increased pricing pressures. We have faced and expect to continue to face declining prices and may experience margin pressure as
the PTOs in the countries where we have operations modernize their facilities, adapt to a competitive marketplace and place greater emphasis on data telecommunications and as other companies enter the Latin American telecommunications market. These
price and margin declines have also accelerated, and will likely continue to do so, as new competitors enter our markets.

The principal
barriers to entry for prospective providers of private telecommunications network and IT services such as ours are the infrastructure to provide quality services, the development of the requisite understanding of customer needs, technological,
commercial experience and the comprehension of, and experience with, the complex regulatory environments in Latin America and the Caribbean. See Risk Factors  We face significant competition in Latin America, PTOs have
competitive advantages in the marketplace and International telecommunications carriers have greater resources than we do.

Regulation

Domestic Service. We are subject to regulation by the national telecommunications authorities of the
various countries in which we operate. As a result, our operations require us to procure permits and licenses from these authorities. While we believe that we have received all required authorizations to offer our services in the countries in which
we operate, the conditions governing our service offerings remain subject to future legislation or regulation that could materially affect our business and operations.

Cross-Border Service. We provide integrated data, voice and video transmission services between and among forty Latin American and Caribbean countries and the United States. International private line services
are traditionally provided by local carriers in each country, acting as correspondents and establishing dedicated telecommunications links between their facilities. Due to our pan-Latin American presence, however, we are often able to provide our
services using our own facilities and personnel at both ends of the private line circuit. As a result of this end-to-end control, we maintain customer service and quality assurance at both ends of the circuit and realize better profit margins.

In countries where we do not maintain equipment on customer premises or where we are not authorized to operate in such a fashion, we use
our facilities in the originating country to connect with a correspondent local carrier in the destination country, or vice-versa. To date, we have signed correspondent agreements with carriers in several Latin American and Caribbean countries.

Employees

As of December 31,
2006, we employed a total of 1,251 persons, of whom 445 were employed by IMPSAT Argentina, 225 by IMPSAT Brazil, and 250 by IMPSAT Colombia. Except with respect to our chief executive officer and our chief financial officer, whose employment
contracts recently automatically renewed for an additional one-year term, we do not have any long-term employment contracts with any of our employees, including management. None of our employees are members of any union, however, IMPSAT Brazil is
required by law, to negotiate certain labor terms and conditions, such as salaries and wages, with industry-specific unions, and obtain approval of its employees. We believe that our relations with our employees are good.

OTHER INFORMATION

General information about us can
be found at www.impsat.com. The information contained on or connected to our web site is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the
Securities and Exchange Commission (SEC). Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our web site as soon as
reasonably practicable after we file them with, or furnish them to, the SEC. These



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reports may also be obtained at the SECs public reference room at 450 Fifth Street, N.W., Washington, DC 20549. The SEC also maintains a web site at
www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Impsat.



|Item 1A. | RISK FACTORS
|-------- | ------------

In addition to other information in
this Report, the following risk factors should be carefully considered in evaluating IMPSAT and its business because such factors either currently or potentially may have a significant impact on our business, operating results and financial
condition. As a result of the risk factors set forth below and elsewhere in this Report and the risks discussed in IMPSATs other SEC filings, actual results could differ materially from those projected in any forward-looking statements.

Risks Related to Our Business

We have a history of incurring losses that may make it difficult to fund our future operations.

We have yet to
establish any history of profitable operations. We recorded net losses of $14.2 million in 2004, $36.2 million in 2005 and $35.6 million in 2006. Increased competition, adverse economic conditions in our countries of operation and other factors
have negatively affected our financial condition and business operations. Our revenues may not be capable of funding our operations and, therefore, we may need to obtain additional financing to achieve and sustain profitability, and to fund our
operating requirements. There can be no assurance that such additional financing will be available on favorable terms, on a timely basis or at all. If additional funding is not available or is available on terms that are not acceptable to us, our
ability to fund our operations will be significantly impaired.

We are vulnerable to currency fluctuations, devaluations and
restrictions on our ability to expatriate local earnings or convert local currencies into U.S. dollars. These factors may increase our losses, cause fluctuations in our operating results and adversely affect our ability to pay our indebtedness.

A significant portion of our costs, including lease payments for certain satellite and fiber optic capacity, purchases of capital
equipment, and payments of interest and principal on our indebtedness, is payable in U.S. dollars. Our results of operations and financial conditions are therefore vulnerable to currency devaluations. Following the pesification
decree, our contracts that were governed by Argentine law, denominated in foreign currency and existing as of January 6, 2002 were mandatorily converted into monetary obligations denominated in pesos at an exchange rate of one U.S.
dollar to one peso, subject to adjustment pursuant to the Argentine CER consumer price index. Currently, we have two contracts subject to CER adjustment. In Brazil, our customer contracts with Brazilian counterparties cannot be denominated in
U.S. dollars or linked to the exchange rate between the Brazilian real and the U.S. dollar, although we are permitted to amend the pricing of our services for our long-term telecommunications service contracts with our customers annually
based on changes in the consumer price index in Brazil for the prior year. The inflation adjustment provisions in these laws do not eliminate completely the currency exchange risk facing our operations in Argentina and Brazil. For example, contracts
entered into between Argentine parties after the pesification decrees enactment that are initially denominated in pesos may not thereafter be adjusted according to the CER or any other consumer price index. Also,
changes in the consumer price indices in Argentina and Brazil may lag or be lower than changes in the exchange rate between the Argentine and Brazil local currency and the U.S. dollar and therefore may not fully allow us to address the impact of a
devaluation of those currencies against the U.S. dollar. Our operations in Argentina and Brazil represented a significant portion of our consolidated net revenues in 2006. Accordingly, our operations in Argentina and Brazil have exposed us, and will
increase our exposure, to exchange rate risks.

Except in Brazil and Argentina, our and our subsidiaries contracts with customers
generally provide for payment in U.S. dollars or for payment in local currency linked to the exchange rate between the local currency and the U.S. dollar at the time of invoicing. Accordingly, inflationary pressures on local economies in the other
countries in which we operate did not have a material effect on our net revenues during 2006. However, given that the exchange rate is generally set at the date of invoicing and that we in some cases experience substantial delays in collecting
receivables, our operations in those other countries are also exposed to exchange rate risk.

Substantial or continued devaluations in
local currencies relative to the U.S. dollar could have a material adverse effect on the ability of our customers to absorb the costs of a devaluation. This could result in our customers seeking to renegotiate their contracts with us or, failing
satisfactory renegotiation, defaulting on or canceling their contracts. Our competitors and



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potential future competitors, including PTOs and large, multinational telecommunications companies, may be less exposed to currency risk or may be better
able to hedge their currency risk and could thereby gain a relative competitive advantage in the event of a currency devaluation.

Latin
American economies have experienced shortages in foreign currency reserves and restrictions on the ability to expatriate local earnings and convert local currencies into U.S. dollars. Any such restrictions may limit or impede our ability to transfer
or to convert such currencies into U.S. dollars and to expatriate such funds for the purpose of making timely payments of interest and principal on our indebtedness. It could also limit the ability to make payments to suppliers of leased capacity or
telecommunication equipment. Currency devaluations in one country may have adverse effects in another country. For example, in 2001 and 2002, Argentina imposed exchange controls and transfer restrictions substantially limiting the ability of
companies to make payments abroad. While these restrictions have been substantially eased, Argentina may tighten exchange controls or transfer restrictions in the future to prevent capital flight, counter a significant depreciation of the
peso or address other unforeseen circumstances. In addition, in Venezuela, the conversion of bolivares into U.S. dollars at the official exchange rate established by the Venezuelan Central Bank and the Venezuelan Ministry of Finance is
generally limited to the current exchange control regime. Accordingly, the acquisition of foreign currency by Venezuelan companies to honor foreign debt or to pay dividends (or to make payments to vendors overseas) is subject to registration and
subject to a process of application and approval by the Comisión de Administración de Divisas (CADIVI) and to the availability of foreign currency within the guidelines set forth by the National Executive Power for the
allocation of foreign currency.

We face numerous risks that could adversely affect our Broadband Network.

Operating the Broadband Network may have a negative impact on our results of operations.

Our operation of the Broadband Network (defined in BusinessThe Broadband Network), which may include the expansion into new services
for our business customers, could involve any one or more of the following:



| |  |  | regulatory risks, including obtaining the appropriate licenses;
| | - |  | ---------------------------------------------------------------



| |  |  | capital expenditures; and
| | - |  | -------------------------



| |  |  | competition from large, well-financed international telecommunications carriers.
| | - |  | --------------------------------------------------------------------------------

Our ability to obtain new capital that we might require in the future to remain technologically competitive may be negatively affected by many factors
beyond our control.

Our future capital requirements will depend upon many factors, including:



| |  |  | the cost, timing and extent of upgrading or maintaining our networks and services;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | our enhancement and development of services, directly or through our subsidiaries;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | our ability to react to developments in the industry, including regulatory changes;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the need to enter into market segments with higher volumes but lower margins;
| | - |  | -----------------------------------------------------------------------------



| |  |  | the status of competing services; and
| | - |  | -------------------------------------



| |  |  | our results of operations.
| | - |  | --------------------------

Further development of the Broadband Network will require additional resources that we may not have.

We may need to adapt
the Broadband Network to respond to:



| |  |  | requests by our customers for coverage of our Broadband Network beyond its existing footprint;
| | - |  | ----------------------------------------------------------------------------------------------



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| |  |  | changes in our customers service requirements; and
| | - |  | ---------------------------------------------------



| |  |  | technological advances by our competitors.
| | - |  | ------------------------------------------

We may require additional financial, operational and managerial resources to expand or adapt the Broadband Network to accommodate new services and technologies. If we are unable to expand or adapt the Broadband Network to respond to these
developments on a timely basis, and at a commercially reasonable cost, our business may be materially adversely affected.

We may
need to expand the footprint of our metropolitan area networks.

We operate over 15 metropolitan area networks in Argentina,
Colombia, Brazil, Venezuela, Ecuador and Peru. See BusinessThe Broadband Network. In those countries, the coverage footprints of our metropolitan area networks are generally smaller than those of the dominant PTO or incumbent
carriers. Accordingly, in order to maintain or improve our competitive position in those markets, we might be required to incur capital expenditures to expand the footprints of our metropolitan area networks in future periods. There can be no
assurance that we will have the capital resources necessary to make an investment in any such expansion of our metropolitan area networks.

We face significant competition in Latin America.

The telecommunications industry in Latin America is highly
competitive. We expect that competition in the industry will maintain its intensity. We compete on the basis of our experience, quality, customer service, range of services offered and price.

We have experienced pricing pressure for some of our services, and we expect to continue to face pricing pressure. We may further experience declining
operating profit margins as the PTOs in the countries in which we operate become more competitive and place greater emphasis on data telecommunications.

PTOs have competitive advantages in the marketplace.

As mentioned above, in most of our
markets, our principal competitor is the local PTO or an affiliate of the local PTO, who generally has significant competitive advantages. For example, Telecom Argentina and Telefonica are the PTOs in Argentina. In Brazil, our principal competitors
are Embratel (Telmex), Brasil Telecom, Telefonica, and Telemar.

In the future, the PTOs may devote substantially more resources to the
sale, marketing and provision of services that compete with us, which could have a material adverse effect on our business, results of operations and financial condition.

International telecommunications carriers have greater resources than we do.

We also compete
with operators of satellite data transmission networks and terrestrial telecommunications links and face actual or potential competition from large international telecommunications carriers and from other industry participants. International
telecommunications carriers, whose principal focus has traditionally been long distance telephony services, may increasingly focus on the private telecommunications network systems segment of the telecommunications market as deregulation continues.
Many of these potential competitors have substantially greater financial and other resources than we do. In addition, consolidation of telecommunications companies and the formation of strategic alliances within the telecommunications industry could
give rise to significant new competitors.

Downturn and further consolidation in the telecommunications industry could negatively
affect our operations.

Regional economic difficulties, which occurred during the last several years, have had a materially
negative impact on the telecommunications market in Latin America. The rate at which the industry improves is critical to our ability to improve overall financial performance. The financial difficulties experienced by other participants in the
telecommunications industry resulted in some of our competitors purchasing the assets of these troubled companies. This consolidation, in some cases, has resulted in multiple smaller competitors being absorbed into relatively few large entities
(with significantly greater financial and other resources than we have, including greater access to financing), thereby increasing the operating profit margin



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pressures that we face. In particular, Spains Telefónica S.A. and Telmex (Teléfonos de México S.A. de C.V.) have significantly
expanded their presence and acquisitions in recent years in the Latin American region. As a result of this industry consolidation, potential customers and suppliers may prefer to do business with competitors that have greater financial and other
resources.

Our failure to acquire, integrate and operate new technologies and the intellectual property and proprietary rights of
others could harm our competitive position and prevent us from using necessary technology.

The telecommunications industry is
characterized by rapid and significant technological advancements and the introduction of new products and services. We do not possess significant intellectual property rights with respect to the technologies we use and are dependent on third
patties for the development of and access to new technology. In addition, we generally own the customer premises equipment used to provide our services and we own the fiber optic networks, including switching equipment that constitutes the Broadband
Network. Therefore, technological changes that render our equipment and the Broadband Network out of date, less efficient or more expensive to operate than newer equipment could require us to incur substantial increases in capital expenditures to
upgrade or replace such equipment.

We cannot predict the effect of technological changes, such as changes relating to emerging wireline
and wireless transmission technologies and the use of the Internet for traditional voice, data or other broadband services, on our business. In addition, it is impossible for us to predict with any certainty which emergent technology relevant to our
business will prove to be the most economic, efficient or capable of attracting new customers. A reduction in the demand for data transmission services or a failure by us to obtain and adapt to new technology in our markets could have a material
adverse effect on our ability to compete successfully.

Additionally, while we do not believe that there exists any technology patented by
others, or other intellectual property owned by others, that is necessary for us to provide our services and that is not now subject to a license allowing us to use it, there can be no assurances in this regard. If such intellectual property is
owned by others and not licensed by us, we would have to negotiate a license for the use of that property. We may not be able to negotiate such a license at a price that is acceptable or at all. This could force us to cease offering products and
services incorporating such property, thereby adversely affecting operating results.

Our competitors could take advantage of new or
competing technologies to our detriment.

Although we believe we have the flexibility to act quickly to take advantage of any
significant technological development, new competing technologies may negatively affect our business. For example, technologies such as digital subscriber line, or DSL, significantly enhances the speed of traditional copper lines. DSL or other
technologies enable our PTO competitors to offer high-speed services without undergoing the expense of replacing their existing copper networks. Widespread use of DSL in our markets could materially improve the last mile advantage held
by our competitors. Our telecommunications network services also may face competition from entities that use new or emerging voice and data transmission services or technologies that currently are not widely available in Latin America. Furthermore,
competing technologies may gain market and commercial acceptance. We are limited by our existing cash resources and our anticipated constraints on availability of financing from making any significant capital expenditures to acquire any new
technologies. If these developing or new technologies are successful, they may provide significant long-term competition that could have a material adverse effect on our business, results of operations and financial condition.

We may be subject to significant liabilities due to a tax on antennas imposed by the City of Buenos Aires and other municipalities.

In September 2003, the City of Buenos Aires notified several telecommunication companies, including us, that it will start
collecting a tax on all antennas within the city, as provided by the City Fiscal Code. Through December 31, 2006, we have received invoices totaling approximately $34.8 million, but have not accrued amounts relating to this matter. We have
formally objected to the legality of the tax and to certain factual assumptions used in calculating the tax, and have rejected each of the notices in an administrative proceeding filed with the tax authorities of the City of Buenos Aires. If
required to pay this tax at the current rate and based on invoices received from the City of Buenos Aires through December 31, 2006, we estimate that we would be subject to an additional tax of approximately $8.6 million per year. In December
2006, we filed an objection with respect to the tax on antennas assessed for the final quarter of 2006. In our objection, we reaffirmed our position that such a tax is both illegal and based on false assumptions. Our objection is pending resolution
before the Citys



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tax authorities. In addition, we have received claims of a similar nature from the Municipality of Quilmes in Argentina in the amount of approximately $12.5
million, plus defaulted interest. We cannot assure you that we will not be forced to pay the City of Buenos Aires, or the Municipality of Quilmes, an amount representing the full (or a portion of the) invoiced amount of the tax, or that we will not
receive similar invoices from other municipalities in Argentina. Additionally, we cannot assure you that any of our assets will not be attached in connection with either of these claims or that we will not be required to post a bond representing the
full (or a portion of the) invoiced amount during any legal proceeding challenging these claims. These events could have a material adverse effect on our financial condition and on our ability to meet our obligations.

We face regulatory risks and uncertainty with respect to local laws and regulations.

Our business is dependent upon the procurement and maintenance of licenses to provide various telecommunications network services in the countries in
which we operate. We believe that we have all licenses required for the conduct of our current operations. We expect that those licenses that are subject to expiration will be renewed in due course upon our application to the appropriate
authorities. Due to the political and economic risks associated with the countries in which we operate, we cannot assure you that we will be able to maintain our licenses or that they will be renewed upon their expiration. The loss, or substantial
limitation upon the terms, of our licenses could have a material adverse effect on our results of operations. We cannot assure you that we will succeed in obtaining all requisite regulatory approvals to operate in those countries in which we may
desire to do business.

In addition, we may not be able to maintain our existing franchises, permits and rights-of-way that we need for our
business. We may also be unable to obtain and maintain the other franchises, permits and rights-of-way that we require. In particular, we are involved in several legal proceedings that, among other things, challenge amounts payable by us, and
additional such proceedings could be instituted. Such proceedings may increase our costs and adversely affect our profitability. Moreover, a sustained and material failure to obtain or maintain required rights could materially adversely affect our
performance in the affected area and our operating results.

Local laws and regulations differ significantly among the jurisdictions in
which we operate and in which we may operate in the future. The interpretation and enforcement of these laws and regulations vary and are often based on the informal views of the local ministries which, in some cases, might be subject to influence
by the PTOs. The conditions governing our service offerings may be altered by future legislation or regulation. In some of our principal existing and target markets, laws and regulations prohibit or limit our provision of certain telecommunications
services.

Our earnings will deteriorate if we cannot collect on our customer accounts.

As of December 31, 2006, our gross trade accounts receivable were $52.2 million compared to $46.1 million as of December 31, 2005. We recorded
a provision for doubtful accounts of $1.3 million in 2006 compared to a net reversal of a provision of $1.1 million in 2005. At December 31, 2006, our allowance for doubtful accounts covered approximately 104.2% of our gross trade accounts
receivable past due more than six months, compared to 96.4% as of December 31, 2005. As our business increases with small and medium customers and in relation to any economic contractions in our principal countries of operation, we may
experience an increase in uncollectable accounts receivable. Difficulties in collecting amounts due from our customers could have a material adverse effect on our business, results of operations and financial condition.

Our historical financial information is not comparable to our current financial condition and results of operations.

As a result of our emergence from bankruptcy during March 2003, we have been operating our business with a new capital structure since April 1,
2003. We were also subject to fresh-start reporting prescribed by GAAP. As a result of its fresh-start reporting, on April 1, 2003, the carrying value of our fixed assets and the related depreciation expense and interest expense due to changes
in our debt structure, among other things, changed considerably from that reflected in our historical consolidated financial statements. Accordingly, our financial condition and results of operation for the periods prior to April 1, 2003 are
not comparable to results of operations reflected in our historical financial statements, making it difficult to assess our future prospects based on historical performance.

In our 2005 and 2006 audits, our independent registered public accounting firm issued a going concern opinion expressing doubt as to
our continuing financial viability.



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As a result of our current liquidity position, amount of debt obligations and operating results, our
independent registered public accounting firm, Deloitte & Touche LLP, issued a going concern opinion in connection with their audit of our consolidated financial statements for the year ended December 31, 2006. Deloitte
also issued a going concern opinion in connection with their audit of our consolidated financial statements for the year ended December 31, 2005. These opinions expressed substantial doubt as to our ability to continue as a going
concern. The going concern opinions could have an adverse impact on our ability to execute our business plan, result in the reluctance on the part of certain potential business partners to do business with us, result in the inability to obtain new
business due to potential customers concern about our ability to deliver services, or adversely affect our ability to raise additional capital.

Based on the principal and/or amortization payments due under our indebtedness beginning in 2007, we may need to raise additional capital to fund such payments or further refinance a significant portion of our
indebtedness if the proposed Merger with an indirect wholly-owned subsidiary of Global Crossing does not occur.

On June 11,
2002, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. On September 4, 2002, we filed the Plan with the bankruptcy
court. By order dated December 16, 2002, the bankruptcy court confirmed the Plan. In accordance to the terms of the Plan, we formally emerged from bankruptcy on March 25, 2003.

Beginning in March 2005, we were required to commence repayment, in installments, of the principal amount of our restructured senior debt owed by our
subsidiaries to certain of their vendor financiers who elected to participate in the Plan. In addition, interest on the guaranteed senior notes issued under the Plan, which we refer to as the Senior Notes, that was payable in kind between the
Effective Date and March 28, 2005, was required to be paid in cash commencing in the third quarter of 2005. On July 29, 2005, we entered into amended and restated financing agreements to restructure $125.6 million of our vendor
indebtedness (the Amendments), which we refer to as Senior Secured Notes, which was issued by IMPSAT Argentina pursuant to the Second Amended and Restated Financing Agreement, dated as of July 29, 2005 (the Argentina Financing
Agreement), and IMPSAT Brazil pursuant to the Second Amended and Restated Financing Agreement, dated as of July 29, 2005 (the Brazil Financing Agreement and together with the Argentina Financing Agreement, the Financing
Agreements), each of which are guaranteed by the Company, and which are held by affiliates of certain members of our Board of Directors. Pursuant to the Amendments, we made an initial principal repayment of $18.3 million and modified the terms
of the Financing Agreements such that the remaining outstanding principal amounts ($38.9 million owed by IMPSAT Argentina and $68.4 million owed by IMPSAT Brazil) would be repaid in the aggregate amounts of $5 million in 2006, $20 million in 2007,
$25 million in 2008 and $57.3 million in March 2009. The amended indebtedness bears interest at a rate of 12% per annum, payable semi-annually in arrears, as compared to 10% per annum for the period prior to the effectiveness of the
amendments. The parties also agreed to amendments to the financial covenants in the agreements to reflect current financial and operating conditions. The amended indebtedness was subject to optional prepayment at a cost of 101% until July 29,
2006 and at par thereafter. Each of IMPSAT Argentina and IMPSAT Brazil (with respect to the Amendment to which it is a party), on the one hand, and the lenders of the amended indebtedness, on the other hand, have an option to further amend the
agreements governing such indebtedness to provide that the Company will be the primary borrower, and IMPSAT Argentina and IMPSAT Brazil the respective guarantors of the portions of the indebtedness currently owed by them, subject to certain terms
and conditions. The terms and conditions of the amendments were negotiated by a special committee of the Companys Board of Directors that was formed to explore recapitalization alternatives.

On March 15, 2007, the Company and its subsidiaries in Argentina and Brazil entered into amendments to the Argentina Financing Agreement and the
Brazil Financing Agreement, which provided for the extension of the interest payment date under the Argentina Financing Agreement and the interest and principal payment dates under the Brazil Financing Agreement from March 25, 2007 to
May 25, 2007, and the waiver through the first quarter of 2008 of the Debt Service Coverage Ratio, as defined in the Brazil Financing Agreement.

In the event that the Merger does not close, we may need to raise additional capital or refinance our existing debt. In that event, we may be unable to secure such additional capital or enter into a refinancing
favorable to the Company.

Additionally, our subsidiaries have financial obligations for an aggregate principal amount of $41.5 million
that do not carry our guaranty. This amount comprises bonds issued by IMPSAT Colombia in local currency with a current book value of $20.1 million, several bank and leasing lines in Colombia for an aggregate of $11.2 million; a defaulted obligation
of IMPSAT Argentina totaling approximately $7.6 million in outstanding principal; and a number of bank lines in Brazil ($0.9 million), Peru ($1.0 million), Argentina ($0.2 million) and Chile ($0.5 million).



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We continue to be leveraged and our debt service requirements make us more vulnerable to economic
downturns in the markets we service or in the economy in general.

At December 31, 2006, our total consolidated debt was
$241.1 million. Because of our substantial indebtedness, we are highly leveraged. This means that our payments on our borrowings are significant in relation to our revenue and cash flow. This leverage exposes us to significant risk in the event of
downturns in our business, in our industry or in the economy generally, because, in the event of such downturns, our cash flows would decrease, however, our required payments in respect of our indebtedness will not.

Our current indebtedness restricts our ability to obtain additional financing and, because we may be more leveraged than some of our competitors, may
place us at a competitive disadvantage. Also, the indentures and other financing agreements that we entered into contain covenants that impose operating and financial restrictions on us. These covenants could adversely affect our ability to finance
future operations, potential acquisitions or capital needs or to engage in other business activities that may be in our interest. For example, during the third and fourth quarter of 2006, IMPSAT Brazil failed to comply with the Capital Expenditure
Ratio and the Debt Service Coverage Ratio, as defined in the Brazil Financing Agreement, on its approximately $63.4 million of Senior Secured Notes. On October 5, 2006, the Company obtained a waiver from the holder of these notes of the Capital
Expenditure Ratio and Debt Service Coverage Ratio covenants for the applicable period and through September 2007. In addition, on March 15, 2007, the Company and IMPSAT Brazil entered into an amendment to the Brazil Financing Agreement, which
provided for the waiver through the first quarter of 2008 of the Debt Service Coverage Ratio. As of December 31, 2006, the Company was in compliance with all of its other debt covenants. There can be no assurance that we will be able to avoid
non-compliance and obtain waivers in the future.

As a result of the implementation of our plan of reorganization, we have a
significant concentration of holders of our shares of our common stock.

As part of the Plan, a small number of holders of claims
received distributions of a significant number of shares of our common stock or of securities convertible into or exercisable for such common stock. If those holders were to act as a group, they would be in a position to control the outcome of
actions requiring stockholder approval, including and the approval of mergers or other business combinations, regardless of the approval of other stockholders. The concentration of ownership could also facilitate or hinder a negotiated change of
control of the Company and, consequently, affect the value of the common stock.

As a result of the implementation of the Plan, our initial
directors were nominated by certain initial holders of our securities. As long as these initial holders continue to hold a certain percentage of our common stock or securities convertible into our common stock, common stockholders will not have the
right to elect individuals to our Board of Directors and, as a result, they will have little or no participation in our business affairs.

Further, the possibility that one or more of the holders of significant numbers of shares of the common stock may determine to sell all or a large portion of their shares of common stock in a short period of time may adversely affect the
market price of the common stock.

There is a limited trading market for our common stock.

There is currently a limited trading market for our common stock, which began trading on the Nasdaq OTC Bulletin Board under the symbol IMFN
on June 13, 2003. Prior to June 13, 2003, there was no established market for our common stock since the date of our emergence from bankruptcy. There can be no assurance that an active trading market for our common stock will develop or be
sustained. In addition, as a result of the Merger, the Company will become a wholly-owned subsidiary of Global Crossing and will cease to be a public company.

We are restricted in our ability to pay dividends.

We do not anticipate paying any dividends
on our common stock in the foreseeable future. In addition, the covenants under the indentures governing our Senior Notes and under other financing agreements we have entered into limit the ability of our Company to pay dividends. Certain
institutional investors may only invest in dividend paying securities or may operate under other restrictions that may prohibit or limit their ability to invest in our common stock.



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The operation, administration, maintenance and repair of our systems are subject to risks that
could lead to disruptions in our services and the failure of our systems to operate as intended for their full design life.

Each
of our systems is subject to the risks inherent in large-scale, complex fiber-optic telecommunications systems. The operation, administration, maintenance and repair of our systems require the coordination and integration of sophisticated and highly
specialized hardware and software technologies and equipment located throughout Latin America. Our systems may not continue to function as expected in a cost-effective manner. The failure of the hardware or software to function as required could
render a system unable to perform at design specifications.

Interruptions in service or performance problems, for whatever reason, could
undermine confidence in our services and cause us to lose customers or make it more difficult to attract new ones. In addition, because many of our services are critical to our customers businesses, a significant interruption in service could
result in lost profits or other loss to customers. We often provide customers with guaranteed service level commitments. If we are unable to meet these guaranteed service level commitments for whatever reason, we may be obligated to provide our
customers with credits, generally in the form of free service for a short period of time, which could negatively affect our operating results.

The
Merger Agreement imposes limitations on our ability to operate our business.

Until the closing of the Merger, we may not take
certain actions with respect to the operation of our business without Global Crossings consent. In addition, the pending Merger creates business uncertainty and diverts managements attention from ongoing business concerns. These
limitations, uncertainty and diversion of attention may impair our results of operations. As a result of these restrictions, our operations may be adversely effected.

Risks Related to Latin America

Economic and political conditions in Latin America pose
numerous risks to our operations.

Substantially all of our revenues are derived from operations in Latin America. During 2005 and
2006, approximately 30.8% and 26.6% of our consolidated net revenues were provided by IMPSAT Argentina, and approximately 24.4% and 23.4% were provided by IMPSAT Colombia. Our Company also has operations in Venezuela, Brazil, the United States,
Ecuador, Chile and Peru. Of these, Argentina, Brazil, Venezuela, Ecuador and Peru, where we have significant operations, have experienced political and economic instability in recent years. Moreover, as events in the Latin American region have
demonstrated, negative economic or political developments in one country in the region can lead to or exacerbate economic or political crises elsewhere in the region. Furthermore, events in recent years in other developing markets have placed
pressures on the stability of the currencies of a number of countries in Latin America, including Argentina, Brazil, Colombia and Venezuela. While certain areas in the Latin American region have experienced economic growth, this recovery remains
fragile. Pressures on the local currencies in the countries in which we operate are likely to have an adverse effect on many of our customers, which, in turn, could adversely affect us. Volatility in regional currencies and capital markets has also
had an adverse effect on our ability and that of our customers to gain access to international capital markets for necessary financing and refinancing. A lack of international capital sources for emerging market borrowers could have a material
adverse effect on us and many of our customers.

While Argentinas economy appears to be recovering, it still faces political
and financial instability.

A significant portion of our operations, properties and customers are located in Argentina. Net
revenues from our Argentine operations, acting through IMPSAT Argentina, for each of 2005 and 2006 represented approximately 30.8% and 26.6% of our consolidated net revenues during those years. Accordingly, our financial condition and results of
operations depend to a significant extent on macroeconomic and political conditions prevailing from time to time in Argentina.

The
Argentine economy has experienced significant volatility in recent decades, including numerous periods of low or negative growth and high and variable levels of inflation and devaluation. Since the peak of the most recent economic crisis during the
first half of 2002, Argentinas economy has experienced positive growth. The GDP increased during 2004 by 8.8%, and although the value of Argentinas currency showed volatility compared to the U.S. dollar, it stabilized in 2005. During
2006, Argentinas gross domestic product (GDP) grew by 8.0%. With growing wage pressures and some monetary accommodations on account of unsterilized foreign exchange interventions, we expect an annual inflation rate of approximately
11.4% in 2007. However, there can be no assurance that the Argentine economy will continue to grow at



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current rates, or at all, in the future. If Argentinas economic growth slows, stops or contracts, there could result a material adverse effect on
IMPSAT Argentinas and our consolidated cash flows, financial condition and results of operations.

The severe economic crisis in 2001
and 2002 resulted in the withdrawal of a significant amount of deposits from the Argentine financial system in a short period of time. This precipitated a liquidity crisis, which prompted the Argentine government to impose exchange controls and
transfer restrictions and to require the conversion of dollar deposits and loans into pesos at asymmetric rates for depositors and financial institutions. Ultimately, many financial institutions became insolvent. As a result, the Argentine
Central Bank was forced to provide substantial financial aid to many banks. Many Argentine financial institutions remain weakened by the effects of the economic crisis and the Argentine governments response to it, and depositors
confidence in the financial system remains fragile. In addition, during this economic crisis, political and economic uncertainty and the Argentine governments emergency economic measures lead to the virtual paralysis of private sector
activity. Since that time many companies have ceased operations or filed some form of bankruptcy or reorganization proceeding. The recovery of the private sector is predicated in part on economic growth and in part on the ability of many private
sector companies to restructure their own defaulted debt obligations with domestic and international creditors and gain access to financing. If the private sector fails to recover fully, Argentinas economic growth could be adversely affected,
which would have a material adverse effect on us and many of our customers.

In December 2001, Argentinas government declared a
freeze on further payments on its outstanding sovereign debt, among other measures. Since that time, the Argentine government has explored alternatives to refinance that debt. On September 11, 2003, Argentina was able to reach an
agreement with the International Monetary Fund (the IMF) to refinance $31 billion of indebtedness with the IMF, staged over a three-year period. In return, Argentina agreed to implement economic reform and to negotiate with private
creditors of over $80 billion of sovereign indebtedness upon which Argentina had defaulted. Since then, Argentina has at times engaged in lengthy negotiations with the IMF and other multilateral institutions and has faced various suspensions of
scheduled disbursements and incurred payment delays. In August 2004, the IMF announced a delay of its quarterly review of Argentinas compliance with the conditions of the September 2003 stand-by agreement in order to further assess the
countrys compliance with required structural reforms and its progress in the renegotiation of utility contracts and in the debt restructuring process. The Argentine government subsequently announced that it would postpone further negotiations
with the IMF through December 31, 2004 (and, consequently, forego additional IMF disbursements totaling $1.8 billion prior to that date), in order to concentrate on the restructuring of its defaulted debt.

On June 1, 2004, the Argentine government announced a proposal for the restructuring of Argentinas defaulted external indebtedness. On
December 9, 2004, President Kirchner signed two decrees officially authorizing a global debt exchange offer to restructure external indebtedness owed to external private creditors. In the months following the launch of the Argentine
governments external debt restructuring proposals, the plan was vigorously rejected by a host of different informal creditor groups, which lobbied with institutional and individual investors and international financial agencies for substantial
amendments and sought support from the IMF, among others, for curtailing further aid to Argentina until desired amendments were made to the Argentine governments proposal. Despite this opposition, in February 2005, a large majority of these
creditors agreed to exchange their defaulted debt for new bonds worth approximately 35 cents on the dollar. As a consequence of its default on its sovereign debt, Argentina presently lacks access to financing from private international capital
markets and other private sources. This lack of access to private financing is expected to continue.

In January 2006 Argentina prepaid its
entire outstanding obligations to the IMF, totaling $9.9 billion. This repayment was made with International Reserves and the Central Bank was compensated with 10-year, dollar-denominated, non-transferable notes.

Argentina is therefore likely to depend on the IMF and other multilateral lending as its main source of foreign capital in the near- to medium-term.
Argentinas limited access to foreign capital could be curtailed, which could have a material adverse effect on Argentinas economic prospects. These circumstances could have a material adverse effect on IMPSAT Argentinas and our
consolidated cash flows, financial condition and results of operations.

Although the Argentine peso has appreciated, continued
political and financial instability in Argentina could adversely affect its valuation.

Following the collapse of Argentinas
dollar-peso parity regime and the implementation of a floating exchange rate system in early 2002, the peso has fluctuated significantly. After trading as low as 3.87 pesos to the U.S. dollar in June 2002, and generally
appreciating against the U.S. dollar since early 2003, it recently depreciated. At December 31, 2005, the



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exchange rate was 3.03 pesos to the U.S. dollar and at December 31, 2006, the exchange rate had depreciated to 3.07 pesos to the U.S.
dollar. This depreciation in 2006 was a consequence of Central Bank interventions directed towards an International Reserves level recomposition.

A devaluation of the Argentine peso would affect our consolidated financial statements by generating foreign exchange transaction gains or losses on dollar-denominated monetary assets and liabilities of IMPSAT Argentina and generally
would result in a decrease, in U.S. dollar terms, in our revenues, costs and expenses in Argentina.

In February 2002, the Argentine
government instituted the pesification decree. Generally, this decree mandates that all monetary obligations arising from agreements subject to Argentine law denominated in foreign currency and existing as of January 6, 2002
are mandatorily converted into monetary obligations denominated in pesos at an exchange rate of one U.S. dollar to one peso. Contracts denominated in pesos before the decree continued to be denominated in pesos, unaffected by
the decree. Currently, a significant number of IMPSAT Argentinas customer contracts and a large percentage of its operating cash inflows are now denominated in pesos. However, IMPSAT Argentinas debt service payments and a
significant portion of its costs (including capital equipment purchases and payments for certain leased satellite and terrestrial capacity) remain denominated and payable in U.S. dollars. Accordingly, our financial condition and results of
operations in Argentina are dependent upon IMPSAT Argentinas ability to generate sufficient pesos (in U.S. dollar terms) to pay its costs, expenses and to satisfy our debt service requirements. New developments which result in
devaluation of the peso against the U.S. dollar could have a material adverse effect on our consolidated cash flows, financial condition, and results of operations.

Uncertainties exist surrounding the ultimate resolution of Argentinas economic and political instability, and actual results could differ from those estimates and assumptions utilized. The Argentine economic and
political situation continues to evolve and the Argentine government may enact future regulations or policies that, when finalized and adopted, may adversely and materially impact, among other items: (i) the realized revenues we receive for
services offered in Argentina; (ii) the timing of repatriations of any dividends or other cash flows from IMPSAT Argentina to us; (iii) our asset valuations; and (iv) our peso-denominated monetary assets and liabilities.

Brazilian economic and political conditions may have a direct impact on our operations.

Brazil, as the largest country and economy in Latin America, represents a significant existing and potential market for us. Our Company, acting through
IMPSAT Brazil, has expanded its operations in Brazil since that subsidiarys inception in 1998. Revenues from services from our Brazilian operations for 2005 and 2006 represented approximately 18.9% and 23.6%, respectively, of our consolidated
net revenues for such periods. For 2006, our operations in Brazil represented the second largest source of revenues among the eight countries in which we operate. Accordingly, our operations in Brazil subject our financial condition and results of
operations to various additional economic and political risks.

The Brazilian government frequently intervenes in the Brazilian economy and
occasionally makes significant changes in policy and regulations. Our business, financial condition and result of operations in Brazil may be adversely affected by such changes in policy and regulations involving factors outside of our control, such
as monetary and fiscal policies, currency fluctuations, energy shortages, and, other political, social and economic developments in or affecting Brazil.

In early 1999, the Brazilian government allowed the real to float freely, resulting in a 38% devaluation against the U.S. dollar from January 14, 1999 through December 31, 2000. From 2000 through
2002, Brazils currency experienced further significant devaluations against the U.S. dollar. These had a negative effect on our real-denominated revenues. In addition, currency devaluations can also create inflationary pressures.
Inflation itself, as well as some governmental measures to combat inflation, had significant negative effects on the Brazilian economy in the past. However, at December 31, 2005 and 2006, Brazils currency had appreciated against the U.S.
dollar by 13.4% and 9.48%, respectively.

At December 31, 2005, the real traded at a rate of R$2.34 = $1.00. During
2006, the real appreciated further, trading at a rate of R$2.14=$1.00 at December 31, 2006. At March 15, 2007, the real traded at a rate of R$2.10 = $1.00. Brazils GDP increased by around 2.6% during 2005, its
best performance since 1994, but increased by 3.6% in 2006. Despite appreciation of the real against the U.S. dollar during 2004, the stabilization of inflation, and expansion in the economy, growth slowed in the fourth quarter of 2005,
raising cautions about the economic rebounds sustainability. Failure to successfully implement necessary economic reforms and measures to preserve social and political stability and achieve economic growth in Brazil could prompt adverse
responses from the international capital markets and investor community and halt or reverse any economic recovery in that country. The political and economic volatility in Brazil have had, and can



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be expected to continue to have, a material adverse effect on IMPSAT Brazils and our overall financial condition and results of operations. In
addition, a significant depreciation of the real against the U.S. dollar would adversely affect our future results.

Political
and economic conditions in Venezuela may have an adverse impact on our operations.

Continuation or worsening of the political and
economic conditions in Venezuela could materially and adversely impact our future business, operations, financial condition and results of operations. After over four years of civil unrest in Venezuela, removal and reinstatement of that
countrys head of state, President Hugo Chávez, and a failed recall referendum calling for removal of Mr. Chávez from office in August 2004, Mr. Chávez won re-election on December 3, 2006, for an additional
six-year term. In his re-election inaugural speech, Mr. Chavez asked for deep and integral changes in the 1999 Constitution, including the possibility of unlimited re-elections. On January 31, 2007, further to President
Chavezs request, the Venezuelan National Assembly passed the Ley Habilitante, or the Enabling Law, which grants the President the power to rule by decree for the next eighteen (18) months, and allows him to carry out the nationalization
of certain businesses in the electricity, energy and telephony sectors. In furtherance of his January 2007 announcement to nationalize Venezuelas largest telecommunications company, Compañía Anónima Nacional
Teléfonos de Venezuela (CANTV), and private businesses in the energy and electrical sectors and other strategic sectors, in early February Venezuela announced it had agreed with U.S.-based Verizon to buy its stake in CANTV, and
plans to launch a public offer by April 2007 to increase its share. The Venezuelan minister of telecommunications and current director of the Comisión Nacional de Telecomunicaciones (CONATEL), the countrys telecommunications
regulatory authority, has indicated that the nationalization of CANTV does not imply the nationalization of the telecommunications sector as a whole.

It is very difficult to predict the economic and regulatory impact of President Chávezs statement, or to predict whether the Venezuelan government will, in fact, effectuate such a plan of nationalization.
While the Presidents remarks only identified CANTV by name, there is no assurance that such a plan of nationalization, if realized, would not also extend to other businesses in the telecommunications sector, including our business. The
government has also announced plans to modify the nations constitution and telecommunications law, and we cannot predict the impact of such amendments to our business.

Since 2004, and despite continued civil unrest, the Venezuelan economy has been able to sustain growth. The growth appears to be stimulated by the
Venezuelan governments emphasis on servicing specific areas, such as health and education, and nourishing subsidies, and private sector expansion motivated by construction, commerce and financial sectors.

Recent approval of modifications in the laws of the Central Bank of Venezuela, known as Ley del Banco Central de Venezuela, and the creation of a fund to
promote the growth of the nation, known as Fondo de Desarrollo Nacional (FONDEN), have changed the structure and the manner in which the public sector finances are managed. These modifications provide the executive power with greater
access to national resources, with limited supervision by the legislative power. It suggests the government may use certain of its international reserves for investment in social welfare. It is estimated FONDEN will commence with $6.0 million in
funding.

In addition, the Venezuelan government imposed foreign exchange and price controls, which commenced in February 2003, making it
difficult for our customers in Venezuela to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls also limit our ability to convert local currency into U.S. dollars and transfer
funds out of Venezuela. The Venezuelan Government, through an agency called CADIVI, controls the flow of currency out of Venezuela. Requests for payments abroad for imports, services, financial debt or capital repatriations must be submitted to
CADIVI, which approves the applications on a case-by-case basis, depending on the circumstances and the availability of foreign currency, causing long delays in the payments. In particular, CADIVI has been reluctant and cautious to authorize
payments for services such as satellite capacity and software licensing, which, if this continues, could limit our ability to obtain the supplies required by our operation because of inability to make payment in a timely manner. Moreover, after a
number of devaluations, the bolivar is set at a fixed exchange rate against the U.S. dollars of Bs. 2,150 = $1.00. This exchange rate has been in effect since March 2, 2005. We cannot assure you that this rate of exchange will be in
place for any period of time.

Continuation or worsening of the political and economic conditions in Venezuela could materially and
adversely impact our future business, operations, financial condition and results of operations



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|Item 1B. | UNRESOLVED STAFF COMMENTS.
|-------- | --------------------------

None.



|Item 2. | PROPERTIES
|------- | ----------

Metropolitan Area Networks. We
operate 15 metropolitan area networks, composed of a combination of fiber optic and microwave links, covering a total of 1,000 route kilometers. Our first metropolitan area network was established in Buenos Aires, Argentina in 1990. In addition, we
currently provide services over our metropolitan area networks in Córdoba, Mendoza and Rosario, Argentina; Bogotá, Medellín and Cali, Colombia; Rio de Janeiro, Curitiba, São Paulo and Belo Horizonte, Brazil; Caracas,
Venezuela; Quito and Guayaquil, Ecuador; and Lima, Peru.

From 1995 to 2005, we managed and operated a fiber optic network covering 352
route kilometers in Bogotá, Colombia, pursuant to a joint venture with Empresa de Telecomunicaciones de Santafe de Bogotá, the Colombian PTO that provides local telephone service in the Bogotá region. We constructed our own
metropolitan fiber optic network in Bogotá, Colombia during 2006. This network covers only a portion of the area served by our prior network and therefore requires us to lease links from third parties in areas that are not covered by our new
dedicated network.

Fiber Optic Long-Haul Capacity. The long-haul segment of our Broadband Network, which comprises a seamless
long-haul, high capacity fiber optic backbone extending over 8,880 route kilometers, stretches from Santiago, Chile to Buenos Aires, Argentina, passing through Mendoza, Córdoba and Rosario; in Brazil, it covers Curitiba, Belo Horizonte, Rio
de Janeiro and São Paulo. It also includes a fiber optic connection between Paraná, Argentina and Curitiba, Brazil, which is currently unlit. We also own and operate a long haul fiber optic network connecting the cities of Cali,
Medellín and Bogotá in Colombia. To link the Broadband Network to other parts of Latin America and the world, we have purchased IRU capacity on Global Crossing Ltd.s undersea digital fiber optic cable systems (and associated
terrestrial capacity) between the United States and Latin America, including Global Crossings South American network, as well as leased capacity from other undersea fiber optic cable operators. This capacity enables our Company to transmit
telecommunications traffic seamlessly from the United States to major countries in South America using the latest fiber optic technology.

Data Centers.To compliment our Broadband Network infrastructure, we operate 15 advanced data center hosting facilities with an aggregate of approximately 500,000 gross square feet, including functional facilities, building shell,
space for new modules, and corresponding office space in each, in major cities in Latin America. These facilities, which are capable of supporting advanced application hosting services, are located in Buenos Aires, Mendoza, Córdoba and
Rosario, Argentina; São Paulo, Rio de Janeiro and Curitiba, Brazil; Santiago, Chile; Fort Lauderdale, Florida, United States; Bogotá, Colombia; Caracas, Venezuela; Quito, Ecuador; and Lima, Peru.

Teleports. We own and operate teleports in Buenos Aires, Argentina; São Paulo, Brazil; Bogotá, Colombia; Caracas, Venezuela; Quito,
Ecuador; Lima, Peru; and Fort Lauderdale, Florida, United States. We also own and operate regional teleports in Mendoza, Córdoba, Rosario, Argentina; Medellín, Cali Colombia; Guayaquil, Ecuador; and Rio de Janeiro and Curitiba, Brazil,
as well as operate over 150 other small network nodes.

Satellite Services.Our satellite transmissions use both C-band (4-6 GHz)
and Ku-band (11-14 GHz) frequencies. As of December 31, 2006, we had a total available leased capacity of approximately 633 MHz. Our lease payments for satellite capacity totaled approximately $19.1 million in 2006. We will contract
for additional leased satellite capacity if business requires. A portion of our satellite capacity is leased by our wholly-owned subsidiary, International Satellite Capacity Holding, Ltd. This subsidiarys principal function is to lease private
telecommunications capacity from telecommunications carriers and then sublease this capacity at market rates to our operating subsidiaries. We believe that this method of centralizing our leasing of telecommunications capacity provides us with
better terms. We are currently in the process of upgrading the technologies used to provide satellite services. We believe this will allow us in the mid term to optimize our satellite capacity, although it might require additional investment.

In addition, our corporate headquarters are located in Buenos Aires, Argentina at buildings and property that are owned by us. Our
administrative and sales offices are primarily located within our operations facilities, located in each of the countries in which we operate. We also own commercial real property at various locations in Argentina, Colombia, Brazil and Venezuela. As
of December 31, 2006, we leased several properties in the various countries in which we operate. For more information regarding properties used to operate our business, see Our Infrastructure.



23



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|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------

IPO Allocations Class
Action. On November 1, 2001, a lawsuit was filed in the United States District Court for the Southern District of New York (the Court) against our Company (the IPO Class Action), certain individuals who were then
officers and directors of our Company and the underwriters to our initial public offering. This lawsuit alleged on behalf of a proposed class of all shareholders that our Company and its underwriters violated various provisions of the securities
laws in connection with an initial public offering in February 2000. Pursuant to the Plan, the plaintiffs in the IPO Class Action received in connection with their claims the assignment of any insurance proceeds that we receive in connection with
the litigation, but otherwise the claims of the plaintiffs against us or any of our other assets have been discharged as part of the Plan. In February 2005, the Court granted preliminary approval for a proposed settlement of the IPO Class Action.
The settlement is subject to certain final determinations by the Court, which has been considering the settlement since preliminary approval.

Employee Severance Litigation. On December 26, 2003, a lawsuit was filed in an Argentine court against IMPSAT Argentina by the former chairman of our Board of Directors, Mr. Enrique Pescarmona. This lawsuit alleged that
IMPSAT Argentina failed to pay Mr. Pescarmona severance compensation in the amount of $2.9 million which the plaintiff believes is required by Argentine labor law in connection with his termination from us upon the effectiveness of the Plan.
Discovery is currently ongoing. We believe that we have meritorious defenses to the allegations in the complaints and we are defending the litigation vigorously.

Brazilian Tax Claims.In October 2004 the Brazilian tax authorities issued two tax infraction notices against IMPSAT Brazil for the collection of the Import Duty and the Tax on Manufactured Products, plus fines
and interests. The notice informed IMPSAT Brazil that the taxes were levied because a specific document (Declaração de NecessidadeStatement of Necessity) was not provided by IMPSAT Brazil at the time of importation,
in breach of MERCOSUR rules. The total amount of the tax assessment was approximately $4.3 million at December 31, 2006. Oppositions were filed on behalf of IMPSAT Brazil arguing that the Argentine exporter (Corning Cable Systems Argentina
S.A.) complied with the MERCOSUR rules and a favorable first instance decision was granted. However, due to the amount involved, the case was remitted to the official compulsory review by the Federal Taxpayers Council. The administrative final
decision is still pending.

In addition, in December 2004, the tax authorities of the State of São Paulo, in Brazil, issued an
infraction notice for collection of Tax on Distribution of Goods and Services (ICMS) supposedly due on the lease of movable properties by comparing such activity to communications services, on which the ICMS state tax is actually levied.
The total amount of this tax assessment was approximately $5.2 million at December 31, 2006, including interest and fines. A defense was filed on behalf of IMPSAT Brazil, arguing that the lease of assets could not be treated as a communication
service subject to ICMS. The defense was rejected in the first administrative level, and an appeal to State Administrative Court was then filed, which is pending judgment. We believe there are good grounds to have the tax assessment cancelled.
However, if the tax assessment is not cancelled in the administrative level for any reason, judicial measures may be adopted to remove such tax assessment.

Argentina Tax Claims.On December 31, 2006, the tax authorities of the City of Buenos Aires, Argentina, sent us a tax assessment for the fourth quarterly installment of 2006 relating to a purported tax for
the use of the air space in and around the City in respect of the our antennas and supporting structures in the amount of approximately $1.7 million. Included in the notice was a statement of additional assessments covering earlier years (2003
through 2005) and the first three quarters of 2006. The total amount for these earlier periods was approximately $33.1 million. Through December 31, 2006, we have received invoices totaling approximately $34.8 million, but have not accrued
amounts relating to this matter. If required to pay this tax at the current rate and based on the assumptions used by the City of Buenos Aires, we estimate that we will be subject to an additional tax of approximately $8.6 million per year. This
estimate is based on invoices received from the City of Buenos Aires through December 31, 2006 and the Citys recently enacted 2007 Fiscal Code. We had previously received notices from the City for these types of taxes, one of which
related to the fiscal year 2003. The notices followed a request from the City in 2003 for information regarding the ownership of antennas for purposes of imposition of the tax. We have formally objected to the legality and certain factual
assumptions used in calculating the tax and have rejected each of the notices in an administrative proceeding filed before the City of Buenos Aires. We learned in July 2005 that the City had rejected our objection to the legality of the tax through
a Providencia which we have rejected by us and is also the subject of the administrative proceeding. In December 2006, we filed an objection of the notice and antenna tax assessment for the last quarter of 2006. In our objection, we
reaffirmed our objection to the legality of the tax. Our objection is pending resolution before the Citys tax authorities. We believe, based on our analysis of the issue and the advice of our legal counsel, that no tax is owed and we intend to
vigorously defend against any requirement that we pay the tax.See Risk FactorsWe



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may be subject to significant liabilities due to a tax on antennas imposed by the City of Buenos Aires and other municipalities.

In addition, in late December 2006, the tax authorities of the Municipality of Quilmes in Argentina sent us a notice of provisional tax assessment with
respect to the installation and inspection of antennas for the years 2001 through 2006 in the amount of approximately $12.5 million, plus defaulted interest. We believe, based on our analysis and the advice of our legal counsel, that either no tax
is owed or the amount of such tax is significantly less than the amount asserted in the notice. We intend to vigorously defend against this provisional tax assessment. See Risk FactorsWe may be subject to significant liabilities due to a
tax on antennas imposed by the City of Buenos Aires and other municipalities.

We are also involved in or subject to various
litigation and legal proceedings incidental to the normal conduct of our business, including with respect to regulatory and foreign tax assessment matters.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

On December 15, 2006, a proxy statement was mailed to all security holders regarding the Merger. A special meeting of the Companys stockholders was held on January 17, 2007, and the shareholders voted in favor of the
adoption of the Merger Agreement. The results of the stockholder meeting were reported in a Current Report on Form 8-K filed by us with the SEC on January 17, 2007.



25



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##### Table of Contents

PART II



|Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

In accordance with the Plan, all pre-existing equity interests of IMPSAT Fiber Networks, Inc. were cancelled on the Effective Date. Our common stock,
issued pursuant to the Plan, began to trade on the Nasdaq Over-the-Counter Bulletin Board June 30, 2003 under the new symbol IMFN. As of March 15, 2007, there were nine holders of record of our common stock, not including
beneficial owners in nominee or street name. We have not paid any cash dividends on our common stock in the past three years, and do not anticipate paying any in the foreseeable future. In addition, the terms of our Senior Notes and other financing
agreements we have entered into restrict our ability to pay dividends on our common stock.

The following tables show the high and low
sales price of the common stock for quarters during the last two fiscal years, as reported on the Nasdaq Over-the-Counter Bulletin Board.



|        |      |      |      |  |   |     
|------- | ---- | ---- | ---- |  | - | ----
|Quarter |      | 2005
|        | High |      | Low 
|First   |      | $    | 6.50 |  | $ | 5.30
|Second  |      | $    | 6.50 |  | $ | 5.28
|Third   |      | $    | 7.45 |  | $ | 5.80
|Fourth  |      | $    | 7.50 |  | $ | 5.82
|        |     
|Quarter |      | 2006
|        | High |      | Low 
|First   |      | $    | 7.50 |  | $ | 6.50
|Second  |      | $    | 9.30 |  | $ | 8.00
|Third   |      | $    | 8.50 |  | $ | 6.97
|Fourth  |      | $    | 9.25 |  | $ | 8.00

The information required concerning compensation plans under which equity securities of our
Company are authorized for issuance is referenced in Item 12 of this Report.



26



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##### Table of Contents

LOGO

Prepared by CSRP (www.crsp.uchicago.edu), Center for Research in Security Prices, Graduate School of Business, The University of
Chicago. Used with permission. All right reserved.

©Copyright 2007



27



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##### Table of Contents

|Item 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following selected
financial data are for our Company on a consolidated basis in accordance with U.S. GAAP. The following financial data have been derived from our Companys audited consolidated financial statements for the respective years. The selected
financial data set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and notes included at the back of this Report.

Upon our emergence from bankruptcy on the Effective Date, we have adopted fresh start reporting as required by the American
Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, which we refer to as SOP 90-7. As a result of the implementation of SOP 90-7 fresh start
reporting, the consolidated financial statements of our Company from and after its emergence from bankruptcy, which we refer to as the Successor Company, will not be comparable to the consolidated financial statements of our Company in prior
periods, which we refer to as the Predecessor Company.



|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|------------------------------------------------------------------- |  | -------------------------- | -------- | - | ------------------------------- | - | ------- | --------------------------------- |  | - | ----------------------- | - |  | -------------------- | ------- | - | -------------------- | - | ------- | - |  | - | ------- | -
|                                                                    |  | Year EndedDecember 31,2002 |          |   | Three MonthsEnded March 31,2003 |   |         | Nine MonthsEnded December 31,2003 |  |   | Year Ended December 31, |  
|                                                                    |  | PredecessorCompany2002     |          |   | PredecessorCompany 2003         |   |         | Successor Company 2003            |  |   | SuccessorCompany2004    |   |  | SuccessorCompany2005 |         |   | SuccessorCompany2006 |  
|Statement of operations data:                                       |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Net revenues:                                                       |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Broadband and satellite                                             |  | $                          | 173,265  |   |                                 | $ | 41,382  |                                   |  | $ | 120,855                 |   |  | $                    | 161,964 |   |                      | $ | 172,852 |   |  | $ | 184,668 |  
|Internet                                                            |  |                            | 27,243   |   |                                 |   | 5,733   |                                   |  |   | 18,308                  |   |  |                      | 26,125  |   |                      |   | 30,591  |   |  |   | 36,063  |  
|Value added services                                                |  |                            | 14,191   |   |                                 |   | 4,781   |                                   |  |   | 10,557                  |   |  |                      | 16,674  |   |                      |   | 24,874  |   |  |   | 35,755  |  
|Telephony                                                           |  |                            | 14,327   |   |                                 |   | 4,106   |                                   |  |   | 13,568                  |   |  |                      | 21,673  |   |                      |   | 24,967  |   |  |   | 27,293  |  
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total net revenues from services                                    |  |                            | 229,026  |   |                                 |   | 56,002  |                                   |  |   | 163,288                 |   |  |                      | 226,436 |   |                      |   | 253,284 |   |  |   | 283,779 |  
|Sales of equipment                                                  |  |                            | 1,168    |   |                                 |   | 74      |                                   |  |   | 926                     |   |  |                      | 1,279   |   |                      |   | 690     |   |  |   | 1,190   |  
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total net revenues                                                  |  |                            | 230,194  |   |                                 |   | 56,076  |                                   |  |   | 164,214                 |   |  |                      | 227,715 |   |                      |   | 253,974 |   |  |   | 284,969 |  
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Costs and expenses:                                                 |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Direct costs:                                                       |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Contracted services                                                 |  |                            | 19,199   |   |                                 |   | 4,125   |                                   |  |   | 13,376                  |   |  |                      | 21,285  |   |                      |   | 24,379  |   |  |   | 25,935  |  
|Other direct costs                                                  |  |                            | 25,935   |   |                                 |   | 4,696   |                                   |  |   | 18,353                  |   |  |                      | 20,647  |   |                      |   | 28,909  |   |  |   | 35,573  |  
|Leased capacity                                                     |  |                            | 74,679   |   |                                 |   | 17,407  |                                   |  |   | 49,516                  |   |  |                      | 67,632  |   |                      |   | 74,990  |   |  |   | 75,724  |  
|Cost of equipment sold                                              |  |                            | 576      |   |                                 |   | 48      |                                   |  |   | 803                     |   |  |                      | 963     |   |                      |   | 631     |   |  |   | 371     |  
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total direct costs                                                  |  |                            | 120,389  |   |                                 |   | 26,276  |                                   |  |   | 82,048                  |   |  |                      | 110,527 |   |                      |   | 128,909 |   |  |   | 137,603 |  
|Salaries and wages                                                  |  |                            | 47,894   |   |                                 |   | 10,727  |                                   |  |   | 35,639                  |   |  |                      | 46,339  |   |                      |   | 50,597  |   |  |   | 60,828  |  
|Selling, general and administrative                                 |  |                            | 28,204   |   |                                 |   | 5,553   |                                   |  |   | 19,824                  |   |  |                      | 23,581  |   |                      |   | 22,335  |   |  |   | 25,394  |  
|Gain on extinguishment                                              |  |                            | (16,367  | ) |                                 |   |        |                                   |  |   | (14,253                 | ) |  |                      | (115    | ) |                      |   |         |   |  |   |         |  
|Depreciation and amortization                                       |  |                            | 82,766   |   |                                 |   | 19,358  |                                   |  |   | 29,535                  |   |  |                      | 44,797  |   |                      |   | 55,324  |   |  |   | 60,309  |  
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total costs and expenses                                            |  |                            | 262,886  |   |                                 |   | 61,914  |                                   |  |   | 152,793                 |   |  |                      | 225,129 |   |                      |   | 257,165 |   |  |   | 284,134 |  
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Operating (loss) income                                             |  |                            | (32,692  | ) |                                 |   | (5,838  | )                                 |  |   | 11,421                  |   |  |                      | 2,586   |   |                      |   | (3,191  | ) |  |   | 835     |  
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Other income (expenses):                                            |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Interest income                                                     |  |                            | 1,907    |   |                                 |   | 200     |                                   |  |   | 1,068                   |   |  |                      | 1,136   |   |                      |   | 1,433   |   |  |   | 943     |  
|Interest expense(1)                                                 |  |                            | (75,815  | ) |                                 |   | (1,909  | )                                 |  |   | (14,435                 | ) |  |                      | (21,106 | ) |                      |   | (32,394 | ) |  |   | (31,975 | )
|Net (loss) gain on foreign exchange                                 |  |                            | (91,884  | ) |                                 |   | 9,969   |                                   |  |   | 17,566                  |   |  |                      | 5,804   |   |                      |   | 10,131  |   |  |   | 7,049   |  
|Recognition of other-than-temporary decline in value of investments |  |                            | (794     | ) |                                 |   |        |                                   |  |   |                        |   |  |                      |        |   |                      |   |        |   |  |   |        |  
|Reorganization items                                                |  |                            | (23,297  | ) |                                 |   | 726,127 |                                   |  |   |                        |   |  |                      |        |   |                      |   |        |   |  |   |        |  
|Legal settlement                                                    |  |                            | 26,229   |   |                                 |   |        |                                   |  |   |                        |   |  |                      |        |   |                      |   |        |   |  |   |        |  
|Other (loss) income, net                                            |  |                            | (5,896   | ) |                                 |   | 2,923   |                                   |  |   | (4,689                  | ) |  |                      | 840     |   |                      |   | (7,735  | ) |  |   | (8,238  | )
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Total other (expenses) income                                       |  |                            | (169,550 | ) |                                 |   | 737,310 |                                   |  |   | (490                    | ) |  |                      | (13,326 | ) |                      |   | (28,565 | ) |  |   | (32,221 | )
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|(Loss) income before income taxes                                   |  |                            | (202,242 | ) |                                 |   | 731,472 |                                   |  |   | 10,931                  |   |  |                      | (10,740 | ) |                      |   | (31,756 | ) |  |   | (31,386 | )
|Provision for foreign income taxes                                  |  |                            | (2,273   | ) |                                 |   | (406    | )                                 |  |   | (1,454                  | ) |  |                      | (3,479  | ) |                      |   | (4,492  | ) |  |   | (4,257  | )
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Net (loss) income                                                   |  | $                          | (204,515 | ) |                                 | $ | 731,066 |                                   |  | $ | 9,477                   |   |  | $                    | (14,219 | ) |                      | $ | (36,248 | ) |  | $ | (35,643 | )
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Net (loss) income per common share: Basic                           |  | $                          | (2.24    | ) |                                 | $ | 8.00    |                                   |  | $ | 0.96                    |   |  | $                    | (1.42   | ) |                      | $ | (3.61   | ) |  | $ | (3.52   | )
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  
|Diluted                                                             |  | $                          | (2.24    | ) |                                 | $ | 8.00    |                                   |  | $ | 0.72                    |   |  | $                    | (1.42   | ) |                      | $ | (3.61   | ) |  | $ | (3.52   | )
|                                                                    |  |                            |          |   |                                 |   |         |                                   |  |   |                         |   |  |                      |         |   |                      |   |         |   |  |   |         |  



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|                                                |  |        |  |        |  |        |  |       |  |        |  |       
|----------------------------------------------- |  | ------ |  | ------ |  | ------ |  | ----- |  | ------ |  | ------
|Weighted average number of common shares: Basic |  | 91,429 |  | 91,429 |  | 9,917  |  | 9,994 |  | 10,054 |  | 10,121
|                                                |  |        |  |        |  |        |  |       |  |        |  |       
|Diluted                                         |  | 91,429 |  | 91,429 |  | 16,057 |  | 9,994 |  | 10,054 |  | 10,121
|                                                |  |        |  |        |  |        |  |       |  |        |  |       

---

|(1) | Contractual interest expense of $128.0 million for the year ended December 31, 2002 and $21.8 million for the three months ended March 31, 2003 (Predecessor Company).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                            |                     |                    |                   |      |  |      |         |      |   |         |  |   |         |  |   |        
|----------------------------------------------------------- | ------------------- | ------------------ | ----------------- | ---- |  | ---- | ------- | ---- | - | ------- |  | - | ------- |  | - | -------
|                                                            |                     | As of December 31,
|                                                            | Predecessor Company |                    | Successor Company
|                                                            | 2002                |                    |                   | 2003 |  | 2004 |         | 2005 |   | 2006   
|Balance Sheet Data:                                         |                     |                    |                   |      |  |      |         |      |   |         |  |   |         |  |   |        
|Cash and cash equivalents                                   |                     | $                  | 32,563            |      |  | $    | 61,498  |      | $ | 63,655  |  | $ | 24,070  |  | $ | 21,315 
|Trading investments                                         |                     |                    | 23,021            |      |  |      | 2,474   |      |   |        |  |   |        |  |   |       
|Total current assets                                        |                     |                    | 106,016           |      |  |      | 109,064 |      |   | 108,891 |  |   | 73,490  |  |   | 77,957 
|Property, plant and equipment, net                          |                     |                    | 403,948           |      |  |      | 315,817 |      |   | 317,310 |  |   | 309,892 |  |   | 294,748
|Investments in common stock                                 |                     |                    | 86                |      |  |      | 1,873   |      |   |        |  |   |        |  |   |       
|Total assets                                                |                     |                    | 520,683           |      |  |      | 440,629 |      |   | 443,907 |  |   | 399,543 |  |   | 387,541
|Total current liabilities                                   |                     |                    | 402,986           |      |  |      | 82,086  |      |   | 115,450 |  |   | 111,172 |  |   | 153,050
|Total short-term debt and current portion of long-term debt |                     |                    | 281,680           |      |  |      | 11,851  |      |   | 47,748  |  |   | 19,772  |  |   | 36,355 
|Total long-term debt, net                                   |                     |                    | 27,592            |      |  |      | 249,394 |      |   | 233,335 |  |   | 228,331 |  |   | 204,714
|Other long-term liabilities                                 |                     |                    | 15,280            |      |  |      | 11,904  |      |   | 16,109  |  |   | 16,295  |  |   | 12,203 
|Liabilities subject to compromise                           |                     |                    | 727,522           |      |  |      |        |      |   |        |  |   |        |  |   |       
|Stockholders (deficiency) equity                           |                     |                    | (722,615          | )    |  |      | 97,245  |      |   | 79,013  |  |   | 43,745  |  |   | 10,405 



|                                 |                     |                        |         |                  |                           |   |                  |                              |  |                   |                          |   |                  |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------- | ------------------- | ---------------------- | ------- | ---------------- | ------------------------- | - | ---------------- | ---------------------------- |  | ----------------- | ------------------------ | - | ---------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                 |                     | Year EndedDecember 31, |         |                  | Three MonthsEndedMarch 31 |   |                  | Nine MonthsEndedDecember 31, |  |                   | Years Ended December 31, |  
|                                 | Predecessor Company |                        |         | SuccessorCompany |                           |   | SuccessorCompany |                              |  | Successor Company |                          |   | SuccessorCompany |  
|                                 | 2002                |                        |         | 2003             |                           |   | 2003             |                              |  | 2004              |                          |   | 2005             |   |         | 2006 | 
|Other Financial Data:            |                     |                        |         |                  |                           |   |                  |                              |  |                   |                          |   |                  |   |         |      |  |   |         |   |  |   |         |  
|Cash flow provided by (used in): |                     |                        |         |                  |                           |   |                  |                              |  |                   |                          |   |                  |   |         |      |  |   |         |   |  |   |         |  
|Operating activities             |                     | $                      | 27,533  |                  |                           | $ | 11,503           |                              |  | $                 | 19,219                   |   |                  | $ | 35,518  |      |  | $ | 32,449  |   |  | $ | 40,867  |  
|Investing activities             |                     |                        | (12,776 | )                |                           |   | (6,229           | )                            |  |                   | 12,619                   |   |                  |   | (34,327 | )    |  |   | (34,305 | ) |  |   | (35,330 | )
|Financing activities             |                     |                        | (17,246 | )                |                           |   | (1,857           | )                            |  |                   | (6,482                   | ) |                  |   | 2,737   |      |  |   | (37,611 | ) |  |   | (7,689  | )
|Capital expenditures             |                     |                        | 21,652  |                  |                           |   | 3,266            |                              |  |                   | 18,213                   |   |                  |   | 39,379  |      |  |   | 34,305  |   |  |   | 35,613  |  



|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Overview

We are a provider of private telecommunications network and Internet services. We offer
integrated data, voice, data center and Internet solutions, with an emphasis on broadband transmission, for national and multinational companies, financial institutions, governmental agencies and other business customers. We have operations in
Argentina, Colombia, Brazil, Venezuela, Ecuador, Chile, Peru and the United States and also provide our services in other countries in Latin America and the Caribbean. We provide telecommunications, data center and Internet services through our
networks, which consist of owned fiber optic and wireless links, teleports, data centers, earth stations and leased fiber optic and satellite links.

Reorganization

As previously disclosed in our filings with the SEC, we filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York on June 11, 2002 (the Bankruptcy Case). We subsequently filed the Plan in the Bankruptcy Case, which Plan was
confirmed in the Bankruptcy Case and became effective on the Effective Date, March 25, 2003, at which time we emerged from bankruptcy. Pursuant to the Plan, we substantially reduced our outstanding debt and annual interest expense and increased
our liquidity. At December 31, 2002, prior to the effectiveness of the Plan, our long-term debt, including current maturities and estimated liabilities subject to the Chapter 11 proceeding, aggregated approximately $1.09 billion. Also at
December 31, 2002, our total indebtedness (including unpaid accrued interest through the petition date related to the Plan) aggregated $1.04 billion



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and our cash, cash equivalents and trading investments totaled $55.6 million. As of March 31, 2003, upon the effectiveness of the Plan, our total
indebtedness was reduced to approximately $267.5 million, and our cash, cash equivalents and trading investments totaled approximately $61.9 million.

Upon our emergence from bankruptcy on March 25, 2003, we adopted fresh start reporting as required by SOP 90-7. Under SOP 90-7 fresh start reporting, a new reporting entity is considered to be created
and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start reporting is applied. Among other things, this required us to allocate the reorganization value of our reorganized Company
to its specific tangible and identifiable assets and liabilities. As a result of the implementation of SOP 90-7 fresh start reporting, the consolidated financial statements of our Company from and after its emergence from bankruptcy are not
comparable to the consolidated financial statements in prior periods.

Revenues

The majority of our revenues are generated through contracts for the provision of services over a set duration of time. The customer generally pays an
installation charge at the beginning of the contract and a monthly fee based on the quantity and type of equipment installed. Except in Argentina and Brazil, the fees stipulated in the majority of our contracts with customers are denominated in U.S.
dollar or U.S. dollar equivalents. Services (other than installation fees) are billed on a monthly, predetermined basis, which coincides with the rendering of the services. We report our revenues net of deductions for sales taxes. Our contracts with
our customers have in the past typically ranged in duration from six months to five years and have generally been three-year contracts. Under the Argentine pesification decree described below under Currency Risks, if a
contract denominated in pesos is entered into after the decrees enactment, payments under that contract are not entitled to be adjusted by any price or related index. Accordingly, in order to mitigate our inflation risk, our
peso-denominated contracts in Argentina are typically for shorter terms ranging from three to six months. The customer generally pays an installation charge at the beginning of the contract and a monthly fee based on the quantity and type of
equipment installed. Except in Argentina and Brazil, the fees stipulated in the majority of our contracts with customers are denominated in U.S. dollar or U.S dollar equivalents. Services (other than installation fees) are billed on a monthly,
predetermined basis, which coincide with the rendering of the services. We report our revenues net of deductions for sales taxes.

We have
experienced, and anticipate that we will continue to experience, downward pressure on our prices as we expand our customer base, confront growing competition for private telecommunications network services and endure the effects of periodic economic
downturns in our countries of operation. When we have renewed and/or expanded our contracts with existing customers, the prices we charge have generally declined. Sales of additional services to our existing clients, however, have offset this
negative impact to our revenues.

Although we believe that our geographic diversification provides some protection against economic
downturns in any particular country, our results of operations and business prospects depend upon the overall financial and economic conditions in Latin America. Most of the countries in which we operate are undergoing, or have experienced in recent
years, political and economic volatility. These conditions have had, and may continue to have, material adverse effects on our business, results of operations and financial condition.

Costs and Expenses

Our costs and expenses principally include:



| |  |  | direct costs;
| | - |  | -------------



| |  |  | salaries and wages;
| | - |  | -------------------



| |  |  | selling, general and administrative expenses; and
| | - |  | -------------------------------------------------



| |  |  | depreciation and amortization.
| | - |  | ------------------------------

Our
direct costs include payments for leased satellite transponder, fiber optic and other terrestrial capacity. Other principal items composing direct costs are contracted services costs and allowance for doubtful accounts. Contracted services costs
include costs of maintenance and installation (and de-installation) services provided by outside contractors. Installation and de-installation costs are the costs we incur when we install or remove earth stations, micro-stations and other equipment
from customer premises. Direct costs also include licenses and other fees, node expenses and sales commissions paid to third-party sales representatives and to our salaried sales force.



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Our selling, general and administrative expenses consist principally of:



| |  |  | publicity and promotion costs;
| | - |  | ------------------------------



| |  |  | fees and other remuneration;
| | - |  | ----------------------------



| |  |  | travel and entertainment;
| | - |  | -------------------------



| |  |  | rent; and
| | - |  | ---------



| |  |  | plant services, insurance and corporate telecommunication and energy expenses.
| | - |  | ------------------------------------------------------------------------------

Currency Risks

Except in Argentina and Brazil, the majority of our contracts with customers provide
for payment in U.S. dollars or for payment in local currency linked to the exchange rate between the local currency and the U.S. dollar at the time of invoicing. Accordingly, inflationary pressures on local economies in the other countries in which
we operate did not have a material effect on our revenues during 2006. Nevertheless, given that the exchange rate is generally set at the date of invoicing and that we in some cases experience substantial delays in collecting receivables, we are
exposed to exchange rate risk, even in countries other than Argentina and Brazil.

Under applicable law, our contracts with customers in
Brazil cannot, and, under certain circumstances, our contracts with customers in Argentina may not, be linked to the exchange rate between the local currency and the U.S. dollar. Accordingly, operations in Argentina and Brazil increase our exposure
to exchange rate risks. Any devaluation of the Argentinepeso or the Brazilian realagainst the U.S. dollar will generally affect our consolidated financial statements by generating foreign exchange gains or losses on
dollar-denominated monetary liabilities and assets and will generally result in a decrease, in U.S. dollar terms, in our revenues, costs and expenses. Because the majority of our debt service payments and a significant portion of our costs
(including capital equipment purchases and payments for certain leased telecommunications capacity) remain denominated and payable in U.S. dollars, our financial condition and results of operations are dependent upon our subsidiaries
(including IMPSAT Argentina and IMPSAT Brazil) ability to generate sufficient local currency (in U.S. dollar terms) to pay their costs and expenses and to satisfy our debt service requirements.

In U.S. dollar terms, our revenues in Argentina and Brazil, which are denominated in local currencies and represent a significant proportion of our
consolidated net revenues, generally increase when the currencies in those countries appreciate against the U.S. dollar, and decrease when those currencies depreciate. The following table shows U.S. dollar exchange rates for the currencies of these
countries at the dates indicated:



|               |                               |                  |  |                  |  |                 
|-------------- | ----------------------------- | ---------------- |  | ---------------- |  | ----------------
|Currency       |                               | December 31,2004 |  | December 31,2005 |  | December 31,2006
|               | (exchange rate per U.S.$1.00)
|Argentina peso |                               | 2.95             |  | 3.03             |  | 3.07            
|Brazil real    |                               | 2.65             |  | 2.34             |  | 2.14            

In addition, as a result of foreign currency exchange and transfer controls established by the
Venezuelan government in February 2003, our contracts with customers in Venezuela are currently being paid in local currency at the fixed exchange rate established by the Venezuelan government between the local currency and the U.S. dollar. As the
exchange control regulations do not permit us to exchange our cash and cash equivalents in local currency into U.S. dollars without specific governmental authorizations, the Venezuelan exchange control regulations have adversely affected our
exchange rate risks for all dollar-denominated liabilities owing by our Venezuelan operating subsidiary and our ability to receive dividends or other distributions from that subsidiary. We cannot predict the duration or other adverse effects that
Venezuelan exchange controls may have on our operating results and financial condition.

Argentina

In early January 2002, the Argentine government abandoned the decade-old fixedpeso-dollar exchange rate and permitted thepeso to float
freely against the U.S. dollar. Thepeso free market opened on January 11, 2002 and traded at 1.65pesos to the U.S. dollar and traded as low as 3.87pesos to the U.S. dollar on June 26, 2002. At both December 31,
2003 and 2004, the exchange rate was 2.95 pesos to the U.S. Dollar. At December 31, 2005, the exchange rate was 3.03 pesos to the U.S. Dollar and December 31, 2006, the exchange rate was 3.07 pesosto the U.S.
Dollar. Currently, IMPSAT Argentinas customer contracts and operating cash inflows are now predominantly denominated inpesos.



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Brazil

At December 31, 2005, thereal traded at a rate of R$2.34 = $1.00, and it appreciated to R$2.14 = $1.00 at December 31, 2006. The daily average exchange rate for the realduring 2006 was
R$2.17= $1.00, as compared to R$2.41 = $1.00 during 2005.

Venezuela

In February 2003, the Venezuelan government imposed foreign exchange and price controls in response to adverse economic conditions resulting from a
nation-wide strike that commenced in December 2002, setting a rate of Bs.1,600 = U.S.$1.00. The exchange controls make it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a
timely basis and also severely limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela in a timely manner without substantial cost. At December 31, 2004, the exchange rate for the bolivar was set
at a rate of Bs.1,920 = $1.00, and on March 30, 2005, the Venezuelan government devalued the bolivar to a rate of Bs. 2,150 = $1.00, where it remains to date. We cannot predict the extent to which we may be affected by future changes in
exchange rates and exchange controls in Venezuela. Future devaluations of the Venezuelan bolivar and/or the implementation of more stringent exchange control restrictions in that country could have a material adverse effect on our financial
condition and results of operations in Venezuela.

Termination of Mexican Operations

During the first quarter of 2003, we determined to close our operations in Mexico, which we initially established in 1994. The sale of our operations
closed during 2003. Accordingly, our results for the year ended December 31, 2003 include revenues and expenses related to the operations and the sale of our Mexican operations, and the results for the years ended December 31, 2004 and
thereafter do not include such revenues or expenses. Our operations in Mexico were not significant.

Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company
has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an
unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. We have no arrangements of the types
described in any of these four categories that we believe may have a material current or future effect on our financial condition, liquidity or results of operations.

Critical Accounting Policies

In the ordinary course of business, the Company makes a number of
estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its financial statements in conformity with GAAP. We use our best judgment based on our knowledge of existing facts and
circumstances and actions that we may undertake in the future, as well as the advice of external experts in determining the estimates that affect our consolidated financial statements. Actual results could differ significantly from those estimates
under different assumptions and conditions. Our most critical accounting policies are:

Revenue Recognition

We record revenues from data, value-added, telephony, and Internet services monthly as the services are provided. Equipment sales are recorded upon
delivery to and acceptance by the customer. Our revenues from installation fees are less than our direct expenses for installations. Therefore, installation fees generally are recognized upon (i) the completion of the installation of customer
premise equipment, and (ii) the invoicing of such fees to the customer. If the installation charges are greater than the direct expenses, the amounts are deferred and recognized over the estimated life of the customer.

We have entered into, or may enter into in the future, agreements with carriers granting indefeasible rights of use (IRUs) and access to
portions of our Broadband Network capacity and infrastructure. Pursuant to some of these agreements, we received fixed advance payments for the IRUs, which would be recognized as revenue over the life of the IRU. Amounts received in advance would be
recorded as deferred revenue.

We record our revenues net of deductions for sales taxes. These taxes are assessed by the governmental
taxing authorities in a number of countries in which we operate based on a percentage of gross revenues and totaled approximately $10.8 million, $14.1 million and $18.2 million for the years ended December 31, 2004, 2005 and 2006, respectively.



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Non-Monetary Transactions

We may exchange capacity on our Broadband Network for capacity from other carriers through the exchange of IRUs. We account for these transactions in accordance with Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29(SFAS No. 153). The amendments made by SFAS No. 153
are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The amendment also eliminates the narrow exception for nonmonetary exchanges of similar productive assets and
replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance.

Property, Plant and Equipment

Our business is capital intensive. We record at cost our telecommunications network assets and other improvements that, in
managements opinion, extend the useful lives of the underlying assets, and depreciate such assets and improvements over their estimated useful lives. Our telecommunications network is highly complex and, due to innovation and enhancements,
certain components of the network may lose their utility faster than anticipated. We periodically reassess the economic lives of these components and make adjustments to their expected lives after considering historical experience and capacity
requirements, consulting with the vendors, and assessing new product and market demands and other factors. When these factors indicate that network components may not be useful for as long as anticipated, we depreciate their remaining book values
over their residual useful lives. The timing and deployment of new technologies could affect the estimated remaining useful lives of our telecommunications network assets, which could have a significant impact on our results of operations in the
future.

Impairment of Long-Lived Assets

We periodically review the carrying amounts of our property, plant, and equipment to determine whether current events or circumstances warrant adjustments to the carrying amounts. As part of this review, we analyze the projected
undiscounted cash flows associated with our property, plant, and equipment. Considerable management judgment is required in establishing the assumptions necessary to complete this analysis. Although we believe these estimates to be reasonable, they
could vary significantly from actual results and our estimates could change based on market conditions. Variances in results or estimates could cause changes to the carrying value of our assets including, but not limited to, recording additional
impairment charges for some of these assets in future periods.

Basis for Translation

We maintain our consolidated accounts in U.S. dollars. The accounts of our subsidiaries are maintained in the currencies of the respective countries. A
subsidiarys functional currency is defined as the currency of the primary environment in which a subsidiary operates and is determined based on managements judgment. When a subsidiarys accounts are not maintained in the functional
currency, the financial statements must be remeasured into the functional currency. This involves remeasuring monetary assets and liabilities using current exchange rates and non-monetary assets and liabilities using historical exchange rates. The
adjustments generated by re-measurement are included in our consolidated statements of operations.

When the local currency of a subsidiary
is determined to be the functional currency, the statements are translated into U.S. dollars using the current exchange rate method. The adjustments generated by translation using the current exchange rate method are accumulated in an equity account
entitled Accumulated other comprehensive income (loss) within our consolidated balance sheets.

Tax and Legal Contingencies

We are involved in foreign tax and legal proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our
liabilities and contingencies in connection with these matters based upon the latest information available. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we have
recorded reserves in our consolidated financial statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, we are unable to make a reasonable estimate of any liability. As
additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly.



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In addition, we may be audited by foreign and state (as it relates to our U.S. operations) tax
authorities. We provide reserves for potential exposures when we consider it probable that a taxing authority may take a sustainable position on a matter contrary to our position. We evaluate these reserves, including interest thereon, on a
quarterly basis to ensure that they have been appropriately adjusted for events that may impact our ultimate payment for such exposures.

Changes in
Policies

These policies, which are those that are most important to the portrayal of our financial condition and results of operations
and require managements most difficult, subjective and complex judgments, often are a result of the need to make estimates about the effect of matters that are inherently uncertain. We have not made any changes in any of these critical
accounting policies during 2006, nor have we made any material changes in any of the critical accounting estimates underlying these accounting policies during 2006.

New Accounting Pronouncements

Prior to January 1, 2006, the Company accounted for stock option
awards granted under the Companys share-based payment in accordance with the recognition and measurement provision of Accounting Principles Board Opinion No. 25. Accounting for Stock Issues to Employees(APB 25) and
related Interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Share-based employee compensation expense was not recognized in the Companys consolidated statement of operations prior to
January 1, 2006, as all stock options awards granted under the plans had an exercise price equal to or greater than the market value of the common stock on the date of the grant. Effective January 1, 2006, the Company adopted the
provisions of SFAS No. 123 (revised 2004), Share-Based Payment(SFAS 123R) using the modified-prospective-transition method. Under this transition method, compensation expense recognized during the year ended
December 31, 2006 included compensation expense for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. In
accordance with the modified-prospective-transition method, results for prior periods have not been restated. As a result of adopting SFAS 123R, the charge to operations for the year ended December 31, 2006 was $332. The impact of adopting SFAS
123R on both basic and diluted earnings per share for the year ended December 31, 2006 was $0.03 per share.

In June 2006, the FASB
issued Interpretation (FIN) 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The accounting provision of FIN 48 will be effective for the Company beginning
January 1, 2007. The Company has not yet completed its evaluation of the impact of adoption on the Companys financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measures(SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances
disclosures about fair value measures required under other accounting pronouncements but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. We are currently reviewing the provisions of SFAS No. 157 to determine the impact of adoption on our financial position or results of operations.

In June 2006, the Emerging Issues Task Force (EITF) issued EITF Issue 06-03, How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation). A consensus was reached that entities may adopt a policy of presenting sales taxes in the statement of operations on either a gross or
net basis. If taxes are significant, an entity should disclose its policy of presenting taxes and the amount of taxes. The guidance is effective for periods beginning after December 15, 2006. Since the Company presents its revenues sales net of
sales taxes, the adoption of EITF Issue 06-03 will have no impact on the presentation of sales tax in its consolidated statements of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities-Including an amendment of FASB Statement No. 115) . SFAS No. 159 permits entities to choose to measure certain
financial assets and liabilities at fair value (the fair value option). Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We are required to adopt SFAS No. 159 in the first quarter of 2008. We are currently assessing the impact of SFAS No. 159 on its consolidated financial statements.

Results of Operations

The following table sets forth
our consolidated statements of operations data in dollar amounts and as a percentage of our sales for the periods indicated:



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|                                             |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|-------------------------------------------- | ----------------------------------------------------------- | ----------------------- | ------- | ---- |  | ----- | ---- |  | - | ------- | - |  | ----- | -- |  | - | ------- | - |  | ----- | --
|                                             |                                                             | Year Ended December 31, |        
|                                             | 2004                                                        |                         |         | 2005 |  |       | 2006 | 
|                                             | (in thousands and as a percentage of consolidated revenues) |                        
|Net revenues :                               |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Net revenues from services :                 |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Broadband and satellite                      |                                                             | $                       | 161,964 |      |  | 71.1  | %    |  | $ | 172,852 |   |  | 68.1  | %  |  | $ | 184,668 |   |  | 64.8  | % 
|Internet                                     |                                                             |                         | 26,125  |      |  | 11.5  |      |  |   | 30,591  |   |  | 12.0  |    |  |   | 36,063  |   |  | 12.7  |   
|Value added services                         |                                                             |                         | 16,674  |      |  | 7.3   |      |  |   | 24,874  |   |  | 9.8   |    |  |   | 35,755  |   |  | 12.5  |   
|Telephony                                    |                                                             |                         | 21,673  |      |  | 9.5   |      |  |   | 24,967  |   |  | 9.8   |    |  |   | 27,293  |   |  | 9.6   |   
|                                             |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Total net revenues from services             |                                                             |                         | 226,436 |      |  | 99.4  |      |  |   | 253,284 |   |  | 99.7  |    |  |   | 283,779 |   |  | 99.6  |   
|Sale of equipment                            |                                                             |                         | 1,279   |      |  | 0.6   |      |  |   | 690     |   |  | 0.3   |    |  |   | 1,190   |   |  | 0.4   |   
|                                             |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Total net revenues                           |                                                             |                         | 227,715 |      |  | 100.0 |      |  |   | 253,974 |   |  | 100.0 |    |  |   | 284,969 |   |  | 100.0 |   
|                                             |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Direct costs :                               |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Contracted services                          |                                                             |                         | 21,285  |      |  | 9.3   |      |  |   | 24,379  |   |  | 9.6   |    |  |   | 25,935  |   |  | 9.1   |   
|Other direct costs                           |                                                             |                         | 20,647  |      |  | 9.1   |      |  |   | 28,909  |   |  | 11.4  |    |  |   | 35,573  |   |  | 12.5  |   
|Leased capacity                              |                                                             |                         | 67,632  |      |  | 29.7  |      |  |   | 74,990  |   |  | 29.5  |    |  |   | 75,724  |   |  | 26.6  |   
|Cost of equipment sold                       |                                                             |                         | 963     |      |  | 0.4   |      |  |   | 631     |   |  | 0.2   |    |  |   | 371     |   |  | 0.1   |   
|                                             |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Total direct costs                           |                                                             |                         | 110,527 |      |  | 48.5  |      |  |   | 128,909 |   |  | 50.8  |    |  |   | 137,603 |   |  | 48.3  |   
|Salaries and wages                           |                                                             |                         | 46,339  |      |  | 20.3  |      |  |   | 50,597  |   |  | 19.9  |    |  |   | 60,828  |   |  | 21.3  |   
|Selling, general and administrative expenses |                                                             |                         | 23,581  |      |  | 10.4  |      |  |   | 22,335  |   |  | 8.8   |    |  |   | 25,394  |   |  | 8.9   |   
|Gain on extinguishment                       |                                                             |                         | (115    | )    |  | (0.1  | )    |  |   |        |   |  |      |    |  |   |        |   |  |       |   
|Depreciation and amortization                |                                                             |                         | 44,797  |      |  | 19.7  |      |  |   | 55,324  |   |  | 21.8  |    |  |   | 60,309  |   |  | 21.2  |   
|Interest expense, net                        |                                                             |                         | 19,970  |      |  | 8.8   |      |  |   | 30,961  |   |  | 12.1  |    |  |   | 31,032  |   |  | 10.9  |   
|Net gain on foreign exchange                 |                                                             |                         | 5,804   |      |  | 2.5   |      |  |   | 10,131  |   |  | 4.0   |    |  |   | 7,049   |   |  | 2.5   |   
|Other income (expense), net                  |                                                             |                         | 840     |      |  | 0.4   |      |  |   | (7,735  | ) |  | (3.0  | )  |  |   | (8,236  | ) |  | (2.9  | ) 
|Provision for foreign income taxes           |                                                             |                         | (3,479  | )    |  | (1.5  | )    |  |   | (4,492  | ) |  | (1.8  | )  |  |   | (4,257  | ) |  | (1.5  | ) 
|                                             |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   
|Net loss                                     |                                                             | $                       | (14,219 | )    |  | (6.2  | )%   |  | $ | (36,248 | ) |  | (14.3 | )% |  | $ | (35,643 | ) |  | (12.5 | )%
|                                             |                                                             |                         |         |      |  |       |      |  |   |         |   |  |       |    |  |   |         |   |  |       |   

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Revenues.Our total net revenues for 2005 and 2006 equaled $254.0 million and $285.0 million, respectively. Net
revenues are composed of net revenues from services and sales of equipment.

Our net revenues from services for 2006 totaled $283.8
million, an increase of $30.5 million (or 12.0%) compared to 2005. Our net revenues from services during 2006 included net revenues from:



| |  |  | satellite and broadband data transmission services;
| | - |  | ---------------------------------------------------



| |  |  | Internet services, which is composed of our Internet backbone access and managed modem services;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | value-added services, including hosting, housing, managed security, and other information technology services, and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | telephony, including local, national and international long-distance services.
| | - |  | ------------------------------------------------------------------------------

The following table shows our revenues from services by business lines for the periods indicated:



|                                 |                               |                   |         |  |      |            |                   |   |         |  |      |                   |  |   |        
|-------------------------------- | ----------------------------- | ----------------- | ------- |  | ---- | ---------- | ----------------- | - | ------- |  | ---- | ----------------- |  | - | -------
|                                 |                               | December 31, 2004 |         |  |      |            | December 31, 2005 |   |         |  |      | December 31, 2006
|                                 |                               | %change(1)        |         |  |      | %change(1) |                   |  
|                                 | (dollar amounts in thousands)
|Broadband and satellite          |                               | $                 | 161,964 |  | 6.7  | %          |                   | $ | 172,852 |  | 6.8  | %                 |  | $ | 184,668
|Internet                         |                               |                   | 26,125  |  | 17.1 |            |                   |   | 30,591  |  | 17.9 |                   |  |   | 36,063 
|Value added services(2)          |                               |                   | 16,674  |  | 49.2 |            |                   |   | 24,874  |  | 43.7 |                   |  |   | 35,755 
|Telephony                        |                               |                   | 21,673  |  | 15.2 |            |                   |   | 24,967  |  | 9.3  |                   |  |   | 27,293 
|                                 |                               |                   |         |  |      |            |                   |   |         |  |      |                   |  |   |        
|Total net revenues from services |                               | $                 | 226,436 |  | 11.9 | %          |                   | $ | 253,284 |  | 12.0 | %                 |  | $ | 283,779
|                                 |                               |                   |         |  |      |            |                   |   |         |  |      |                   |  |   |        



35



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##### Table of Contents

---

|(1) | Increase (decrease) compared to previous year.
|--- | ----------------------------------------------

|(2) | Includes our data center services, systems integration and other information technology solutions services.
|--- | -----------------------------------------------------------------------------------------------------------

The increase in our net revenues from services in 2006, as compared to 2005, was due to increases in revenues from broadband and satellite, Internet,
value added and telephony services, as further described below:



| |  |  | Revenues from broadband and satellite services increased due to higher sales of IP services, primarily in Brazil, Peru, Venezuela and USA.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced higher Internet revenues principally due to higher managed security services and the expansion of Internet accesses to corporate customers, mostly in
Brazil, Colombia and Venezuela.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our revenues from value added services increased due to higher housing, hosting and managed services delivered in our Data Centers, mostly in Brazil, Chile and
Colombia.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced increased revenues from telephony services principally due to higher sales to corporate customers in Peru and Brazil.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

All of our product lines revenues benefited from increased customer base and improved macroeconomic conditions throughout Latin America.

Our net revenues discussed above were also impacted positively in U.S. dollar terms by the appreciation of the Brazilian realagainst the U.S.
dollar during the 2006 as compared to the prior year. In U.S. dollar terms, our revenues in Brazil, which are denominated in local currencies, generally increase when the local currency appreciates against the U.S. dollar, and decrease when the
local currency depreciates.

We had 4,718 customers at December 31, 2006, compared to 4,336 customers at December 31, 2005. In
January 2006, IMPSAT Colombia modified the methodology for calculating its number of customers, to count related entities as one customer, consistent with the practice of the other IMPSAT subsidiaries. The numbers of customers set forth above
reflect this change in methodology.

The following table shows the evolution of our customer base for the periods indicated:



|                 |                    |                    |            |       |  |      |  
|---------------- | ------------------ | ------------------ | ---------- | ----- |  | ---- | -
|                 |                    | As of December 31, |            |       | 
|                 | 2005               |                    | 2006       |       |  |     
|                 | Number ofCustomers |                    | %Change(1) |      
|IMPSAT Argentina |                    | 1,842              |            | 2,087 |  | 13.3 | %
|IMPSAT Colombia  |                    | 839                |            | 762   |  | (9.2 | )
|IMPSAT Brazil    |                    | 502                |            | 533   |  | 6.2  |  
|IMPSAT Venezuela |                    | 244                |            | 284   |  | 16.4 |  
|IMPSAT Ecuador   |                    | 401                |            | 466   |  | 16.2 |  
|IMPSAT Chile     |                    | 126                |            | 125   |  | (0.8 | )
|IMPSAT Peru      |                    | 282                |            | 368   |  | 30.5 |  
|IMPSAT USA       |                    | 100                |            | 93    |  | (7.0 | )
|                 |                    |                    |            |       |  |      |  
|Total            |                    | 4,336              |            | 4,718 |  | 8.8  | %
|                 |                    |                    |            |       |  |      |  

---

|(1) | Increase (decrease) as of December 31, 2006 compared to as of December 31, 2005.
|--- | --------------------------------------------------------------------------------

During 2006, we gained a net total of 382 customers, an increase of 8.8% compared to the prior year, due mainly to an
increase in new customers (mostly medium-sized corporations) in Argentina, Peru and Ecuador. In addition to net revenues from services, our total net revenues for 2006 included revenues from sales of equipment. Revenues from equipment sales for 2006
were $1.2 million, as compared to $0.7 million in 2005. Because equipment sales are ancillary to our core business and are generally engaged in by our Company only on an opportunistic basis, we are currently unable to predict more than minimal sales
of equipment during 2007.



36



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##### Table of Contents

The following table shows, by operating subsidiary, our revenues from services and total revenues (in
each case, including inter-company transactions) for the periods indicated:



|                                                  |                |                         |        |  |      |        |  |   |       
|------------------------------------------------- | -------------- | ----------------------- | ------ |  | ---- | ------ |  | - | ------
|                                                  |                | Year Ended December 31,
|                                                  | 2004           |                         | 2005   |  | 2006
|                                                  | (in thousands)
|IMPSAT Argentina                                  |                |                         |        |  |      |        |  |   |       
|Services                                          |                | $                       | 71,291 |  | $    | 78,122 |  | $ | 75,594
|Sale of equipment                                 |                |                         | 703    |  |      | 42     |  |   | 78    
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 71,994 |  |      | 78,164 |  |   | 75,672
|                                                  |                |                         |        |  |      |        |  |   |       
|IMPSAT Colombia                                   |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 56,532 |  |      | 61,852 |  |   | 66,176
|Sale of equipment                                 |                |                         | 141    |  |      | 128    |  |   | 378   
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 56,673 |  |      | 61,980 |  |   | 66,554
|                                                  |                |                         |        |  |      |        |  |   |       
|IMPSAT Brazil                                     |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 33,420 |  |      | 48,058 |  |   | 66,602
|Sale of equipment                                 |                |                         | 51     |  |      |       |  |   | 638   
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 33,471 |  |      | 48,058 |  |   | 67,240
|                                                  |                |                         |        |  |      |        |  |   |       
|IMPSAT Venezuela                                  |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 33,070 |  |      | 30,986 |  |   | 32,971
|Sale of equipment                                 |                |                         | 70     |  |      | 90     |  |   | 28    
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 33,140 |  |      | 31,076 |  |   | 32,999
|                                                  |                |                         |        |  |      |        |  |   |       
|IMPSAT Ecuador                                    |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 17,616 |  |      | 19,891 |  |   | 21,003
|Sale of equipment                                 |                |                         | 244    |  |      | 364    |  |   | 67    
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 17,860 |  |      | 20,255 |  |   | 21,070
|                                                  |                |                         |        |  |      |        |  |   |       
|IMPSAT Chile                                      |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 7,726  |  |      | 8,591  |  |   | 10,021
|Sale of equipment                                 |                |                         |       |  |      |       |  |   |      
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 7,726  |  |      | 8,591  |  |   | 10,021
|                                                  |                |                         |        |  |      |        |  |   |       
|IMPSAT Peru                                       |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 14,642 |  |      | 15,413 |  |   | 19,614
|Sale of equipment                                 |                |                         |       |  |      |       |  |   |      
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 14,642 |  |      | 15,413 |  |   | 19,614
|                                                  |                |                         |        |  |      |        |  |   |       
|IMPSAT USA                                        |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 27,599 |  |      | 26,960 |  |   | 27,258
|Sale of equipment                                 |                |                         | 71     |  |      | 66     |  |   |      
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 27,670 |  |      | 27,026 |  |   | 27,258
|                                                  |                |                         |        |  |      |        |  |   |       
|International Satellite Capacity Holding, Ltd.(1) |                |                         |        |  |      |        |  |   |       
|Services                                          |                |                         | 11,100 |  |      | 9,847  |  |   | 9,092 
|                                                  |                |                         |        |  |      |        |  |   |       
|Total                                             |                |                         | 11,100 |  |      | 9,847  |  |   | 9,092 
|                                                  |                |                         |        |  |      |        |  |   |       

---

|(1) | This subsidiarys principal function is to lease private telecommunications capacity from
telecommunications carriers and then sublease this capacity at market rates to our operating subsidiaries.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our total net
revenues at IMPSAT Argentina for 2006 totaled $75.7 million, a decrease of $2.5 million (or 3.2%) compared to 2005. The decrease is due primarily to the local currency devaluation, decreased installation charges and to the end of contracts
with certain government clients. Argentina is our largest market in terms of number of customers and revenues. After a four-year period of economic difficulties and contraction that included the default by the Argentine government of its external
public debt and the devaluation of the peso, the Argentine economy has grown during 2005 and 2006. Nonetheless, Argentina continues to experience limited access to international capital markets. A renewed decline in political and economic
conditions in Argentina could materially affect our financial condition and results of operations.



37



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IMPSAT Brazils total net revenues for 2006 totaled $67.2 million, an increase of $19.2 million
(39.9%) compared to 2005. At December 31, 2005, the real traded at a rate of R$2.34 = $1.00 and it appreciated to R$2.14 = $1.00 at December 31, 2006. IMPSAT Brazil increased revenues as a result of
increased delivery of services to existing and new customers. All product lines showed an increase in services and revenues. In addition, revenues at IMPSAT Brazil, benefited from the revaluation of the real, and the improvement of
Brazils economic conditions. Net revenues increased by approximately $13.2 million as a consequence of higher services delivered and $6.0 million as a consequence of currency revaluation. The average daily exchange rate for the real
during 2006 was R$2.17 = $1.00, as compared to the same average in 2005 of R$2.41 = $1.00. However, any future devaluations of therealor contraction of the Brazilian economy would have an adverse effect on IMPSAT
Brazils and our Companys overall financial condition and results of operations.

IMPSAT Colombia recorded total net revenues of
$66.6 million during 2006, compared to $62.0 million for 2005. This increase is mainly attributed to new customer contracts and expansion of services (particularly data center and Internet services) provided to existing customers.

Revenues at IMPSAT Venezuela equaled $33.0 million for 2006, compared to $31.1 million for 2005. Most of the increase is related to
higher Internet, broadband and satellite, and data center services delivered. Venezuela has experienced and continues to experience political and economic uncertainty. The Venezuelan government imposed foreign exchange and price controls during
February 2003, making it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls also limit our ability to convert local currency
into U.S. dollars and transfer funds out of Venezuela and to obtain U.S. dollars required to purchase needed telecommunications equipment and repair parts. The continuation or worsening of this crisis in Venezuela could have a material adverse
effect on IMPSAT Venezuelas results of operations and financial condition.

IMPSAT USA recorded total net revenues of $27.3 million
for 2006, compared to $27.0 million for 2005. The increase is primarily a consequence of new customers for broadband and satellite services. IMPSAT Ecuador recorded total net revenues of $21.1 million for 2006, compared to $20.2 million for 2005.
The increase is due primarily to expansion of customer base and services to existing customers, mainly in broadband and satellite. IMPSAT Peru recorded total net revenues of $19.6 million for 2006, compared to $15.4 million for 2005. The
increase was mainly related to higher telephony, broadband and satellite services. IMPSAT Chile recorded total net revenues of $10.0 million for 2006, compared to $8.6 million for 2005. The increase was primarily due to higher sales of data center
and other value added services.

Direct Costs.Our direct costs for 2006 totaled $137.6 million, an increase of
$8.7 million (or 6.7%), compared to 2005. Direct costs of our subsidiaries are described prior to the elimination of inter-company transactions. The increase in our direct costs is directly attributable to increased sales of services and the
effects of currency revaluation in Brazil. Direct costs decreased in IMPSAT Argentina, due to lower sales. IMPSAT Venezuela and IMPSAT USA, where direct costs decreased as a consequence of lower inter-company transactions.

The following table shows, by operating subsidiary, our direct costs for the periods indicated, and variations between each period:



|                 |              |                    |         |          |  |   |          |   |  |   |        |   |  |      |   
|---------------- | ------------ | ------------------ | ------- | -------- |  | - | -------- | - |  | - | ------ | - |  | ---- | --
|                 |              | As of December 31, |         |          |  |   |          |   | 
|                 | 2005         |                    |         | 2006     |  |   |          |   |  |   |       
|                 | Direct Costs |                    |         | $ Change |  |   | % Change |  
|IMPSAT Argentina |              | $                  | 41,757  |          |  | $ | 40,669   |   |  | $ | (1,088 | ) |  | (2.6 | )%
|IMPSAT Colombia  |              |                    | 33,922  |          |  |   | 34,470   |   |  |   | 548    |   |  | 1.6  | % 
|IMPSAT Brazil    |              |                    | 24,210  |          |  |   | 31,131   |   |  |   | 6,921  |   |  | 28.6 | % 
|IMPSAT Venezuela |              |                    | 12,414  |          |  |   | 11,375   |   |  |   | (1,039 | ) |  | (8.4 | )%
|IMPSAT Ecuador   |              |                    | 9,849   |          |  |   | 10,799   |   |  |   | 950    |   |  | 9.6  | % 
|IMPSAT Chile     |              |                    | 4,672   |          |  |   | 5,538    |   |  |   | 866    |   |  | 18.5 | % 
|IMPSAT Peru      |              |                    | 11,797  |          |  |   | 13,373   |   |  |   | 1,576  |   |  | 13.4 | % 
|IMPSAT USA       |              |                    | 17,461  |          |  |   | 16,774   |   |  |   | (687   | ) |  | (3.9 | )%
|Other(1)         |              |                    | (27,173 | )        |  |   | (26,526  | ) |  |   | 647    |   |  | (2.4 | )%
|                 |              |                    |         |          |  |   |          |   |  |   |        |   |  |      |   
|Total            |              | $                  | 128,909 |          |  | $ | 137,603  |   |  | $ | 8,694  |   |  | 6.7  | % 
|                 |              |                    |         |          |  |   |          |   |  |   |        |   |  |      |   

---

|(1) | This includes direct costs of International Satellite Capacity Holding, Ltd and for all inter-company
transactions.
|--- | -------------------------------------------------------------------------------------------------------------------

(1) Contracted Services.Contracted services costs include costs of maintenance and installation
(and de-installation) services provided by outside contractors. During 2006, our contracted services costs totaled $25.9 million, an increase of



38



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##### Table of Contents

$1.6 million (or 6.4%) compared to 2005. Of this amount, maintenance costs for our telecommunications network infrastructure, including the Broadband
Network, totaled $14.5 million for 2006 compared to $14.2 million during 2005. Installation costs totaled $11.5 million for 2006 compared to $10.2 million in 2005. Our installation costs increased because we had more new
customers and expanded our network during 2006 compared to 2005. In addition, currency revaluation in Brazil served to increase contracted services costs in 2006.

The following table shows, by operating subsidiary, our costs for contracted services for the periods indicated, and variations between each period:



|                 |                     |                    |          |  |   |          |  |   |       |   |  |      |   
|---------------- | ------------------- | ------------------ | -------- |  | - | -------- |  | - | ----- | - |  | ---- | --
|                 |                     | As of December 31, |          |  |   |          |  |  
|                 | 2005                |                    | 2006     |  |   |          |  |   |      
|                 | Contracted Services |                    | $ Change |  |   | % Change | 
|IMPSAT Argentina |                     | $                  | 7,679    |  | $ | 7,618    |  | $ | (61   | ) |  | (0.8 | )%
|IMPSAT Colombia  |                     |                    | 5,246    |  |   | 5,265    |  |   | 19    |   |  | 0.4  | % 
|IMPSAT Brazil    |                     |                    | 4,599    |  |   | 5,757    |  |   | 1,158 |   |  | 25.2 | % 
|IMPSAT Venezuela |                     |                    | 2,013    |  |   | 2,165    |  |   | 152   |   |  | 7.6  | % 
|IMPSAT Ecuador   |                     |                    | 1,902    |  |   | 1,862    |  |   | (40   | ) |  | (2.1 | )%
|IMPSAT Chile     |                     |                    | 992      |  |   | 1,091    |  |   | 99    |   |  | 10.0 | % 
|IMPSAT Peru      |                     |                    | 773      |  |   | 990      |  |   | 217   |   |  | 28.1 | % 
|IMPSAT USA       |                     |                    | 475      |  |   | 442      |  |   | (33   | ) |  | (6.9 | )%
|Other(1)         |                     |                    | 700      |  |   | 745      |  |   | 45    |   |  | 6.4  | % 
|                 |                     |                    |          |  |   |          |  |   |       |   |  |      |   
|Total            |                     | $                  | 24,379   |  | $ | 25,935   |  | $ | 1,556 |   |  | 6.4  | % 
|                 |                     |                    |          |  |   |          |  |   |       |   |  |      |   

---

|(1) | This includes contracted services costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions
|--- | -------------------------------------------------------------------------------------------------------------------------------

(2) Other Direct Costs.Other direct costs principally include licenses and other
fees; sales commissions paid to internal sales personnel and third-party sales representatives; utilities and operational outsourcing in our Data Center facilities; and our provision for doubtful accounts and expenses related to the maintenance and
operations of the telecommunications nodes utilized to support telecommunications services provided to our customers. We recorded other direct costs of $35.6 million, an increase of $6.7 million (or 23.1%) compared to 2005.

Sales commissions paid to our internal sales personnel and third-party sales representatives for 2006 totaled $7.5 million compared to
$7.5 million in 2005.

We recorded a provision for doubtful accounts of $1.3 million for 2006, compared to a net reversal of
$1.1 million for the previous year. The net reversal of 2005 related principally to our settlement with Global Crossing concerning certain disputes that we had with that company. We recorded a net reversal of $1.7 million in connection with the
Global Crossing settlement. At December 31, 2006, our allowance for doubtful accounts covered approximately 104.2% of our gross trade accounts receivable past due more than six months compared to 96.4% at December 31, 2005. The average
days in quarterly gross trade accounts receivable did not change from December 31, 2005 to December 31, 2006, remaining in 50 days.

Our expenses related to the maintenance and operations of our telecommunications nodes totaled $10.7 million for 2006, an increase of $2.6 million (or 31.5%) from the same period in 2005. The increase in such node-related expenses resulted
primarily from required increases in node capacity proportionate to the increase in services provided, higher volumes and prices for energy required for our nodes relative to expansion of our data center and other services, and the appreciation of
the Brazilian real.



39



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##### Table of Contents

The following table shows, by operating subsidiary, other direct costs for the periods indicated, and
variations between each period:



|                 |                    |                    |        |          |  |   |          |   |  |   |       |   |  |       |   
|---------------- | ------------------ | ------------------ | ------ | -------- |  | - | -------- | - |  | - | ----- | - |  | ----- | --
|                 |                    | As of December 31, |        |          |  |   |          |   | 
|                 | 2005               |                    |        | 2006     |  |   |          |   |  |   |      
|                 | Other Direct Costs |                    |        | $ Change |  |   | % Change |  
|IMPSAT Argentina |                    | $                  | 8,648  |          |  | $ | 9,522    |   |  | $ | 874   |   |  | 10.1  | % 
|IMPSAT Colombia  |                    |                    | 6,489  |          |  |   | 7,526    |   |  |   | 1,037 |   |  | 16.0  | % 
|IMPSAT Brazil    |                    |                    | 7,384  |          |  |   | 11,320   |   |  |   | 3,936 |   |  | 53.3  | % 
|IMPSAT Venezuela |                    |                    | 3,292  |          |  |   | 3,240    |   |  |   | (52   | ) |  | (1.6  | )%
|IMPSAT Ecuador   |                    |                    | 1,064  |          |  |   | 1,806    |   |  |   | 742   |   |  | 69.7  | % 
|IMPSAT Chile     |                    |                    | 363    |          |  |   | 1,178    |   |  |   | 815   |   |  | 224.5 | % 
|IMPSAT Peru      |                    |                    | 1,128  |          |  |   | 970      |   |  |   | (158  | ) |  | (14.0 | )%
|IMPSAT USA       |                    |                    | 891    |          |  |   | 1,156    |   |  |   | 265   |   |  | 29.7  | % 
|Other(1)         |                    |                    | (350   | )        |  |   | (1,145   | ) |  |   | (795  | ) |  | 227.1 | % 
|                 |                    |                    |        |          |  |   |          |   |  |   |       |   |  |       |   
|Total            |                    | $                  | 28,909 |          |  | $ | 35,573   |   |  | $ | 6,664 |   |  | 23.1  | % 
|                 |                    |                    |        |          |  |   |          |   |  |   |       |   |  |       |   

---

|(1) | This includes other direct costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions
|--- | ------------------------------------------------------------------------------------------------------------------------

(3) Leased Capacity.Our leased capacity costs for 2006 totaled $75.7 million,
representing 26.6% of our net revenues, as compared to $75.0 million, representing 29.5% of our net revenues, in 2005. The increase in leased capacity costs in 2006 of $0.7 million (or 1.0%) compared to 2005 is attributable to increased revenues and
services.

Our leased capacity costs for satellite capacity for 2006 totaled $19.6 million, a decrease of $3.4 million (or 14.8%)
compared to 2005. The decrease in our leased satellite capacity costs was principally due to reduction in satellite capacity prices and migration of our satellite-based services to terrestrial-based services on our proprietary network or leased
terrestrial links. We had approximately 633 MHz of leased satellite capacity at December 31, 2006 and 709 MHz at December 31, 2005.

Our costs for dedicated leased capacity on third-party fiber optic networks totaled $39.7 million for 2006, an increase of $4.2 million (or 11.9%) compared to 2005. These costs were incurred principally in
Argentina, Brazil, Colombia and USA. We will continue to require leased capacity to provide telecommunications services to clients with facilities outside of the footprint of our Broadband Network in order to provide end-to-end telecommunications
services. The increase in costs for dedicated leased capacity on third-party fiber optic networks was principally due to the migration of our customers from satellite-based services to terrestrial-based services and an increase in services delivered
to our customers. In addition, currency revaluation in Brazil contributed to the increases in these costs. In addition, as a result of our having reached full capacity on international underseas cable IRUs that we purchased in prior years, we have
been required to lease additional international fiber optic capacity in order to meet the international telecommunications needs of our clients. Our customers are increasingly expressing a desire for fiber optic telecommunications, which has
resulted in an increase in leased fiber optic capacity costs and a decrease in leased satellite capacity costs described above.



40



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##### Table of Contents

The following table shows, by operating subsidiary, our leased capacity costs for the periods indicated,
and variations between each period:



|                 |                 |                    |         |          |  |   |          |   |  |   |        |   |  |       |   
|---------------- | --------------- | ------------------ | ------- | -------- |  | - | -------- | - |  | - | ------ | - |  | ----- | --
|                 |                 | As of December 31, |         |          |  |   |          |   | 
|                 | 2005            |                    |         | 2006     |  |   |          |   |  |   |       
|                 | Leased Capacity |                    |         | $ Change |  |   | % Change |  
|IMPSAT Argentina |                 | $                  | 24,060  |          |  | $ | 22,086   |   |  | $ | (1,974 | ) |  | (8.2  | )%
|IMPSAT Colombia  |                 |                    | 21,148  |          |  |   | 20,098   |   |  |   | (1,050 | ) |  | (5.0  | )%
|IMPSAT Brazil    |                 |                    | 11,407  |          |  |   | 13,232   |   |  |   | 1,825  |   |  | 16.0  | % 
|IMPSAT Venezuela |                 |                    | 6,221   |          |  |   | 5,413    |   |  |   | (808   | ) |  | (13.0 | )%
|IMPSAT Ecuador   |                 |                    | 6,184   |          |  |   | 6,673    |   |  |   | 489    |   |  | 7.9   | % 
|IMPSAT Chile     |                 |                    | 2,927   |          |  |   | 2,635    |   |  |   | (292   | ) |  | (10.0 | )%
|IMPSAT Peru      |                 |                    | 9,692   |          |  |   | 11,249   |   |  |   | 1,557  |   |  | 16.1  | % 
|IMPSAT USA       |                 |                    | 12,431  |          |  |   | 10,399   |   |  |   | (2,032 | ) |  | (16.3 | )%
|Other(1)         |                 |                    | (19,080 | )        |  |   | (16,061  | ) |  |   | 3,019  |   |  | (15.8 | )%
|                 |                 |                    |         |          |  |   |          |   |  |   |        |   |  |       |   
|Total            |                 | $                  | 74,990  |          |  | $ | 75,724   |   |  | $ | 734    |   |  | 1.0   | % 
|                 |                 |                    |         |          |  |   |          |   |  |   |        |   |  |       |   

---

|(1) | This includes leased capacity costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions
|--- | ---------------------------------------------------------------------------------------------------------------------------

In connection with services we offer under our licenses to provide domestic and international
long distance telephony connections, we incur costs for interconnection and telephony termination (I&T). We incur costs for frequency rights related to regulatory fees for the rights to use certain frequencies in the countries in
which we operate. Our I&T and frequency rights costs totaled $16.4 million during 2006 (which includes $14.5 million of I&T costs) compared to $16.5 million of I&T and frequency rights costs for 2005 (which includes
$13.8 million of I&T costs), which represents a decrease of $0.1 million (or 0.6%). Interconnection costs increased in 2006, as compared to the same period in 2005, due to increased delivery of telephony services.

The following table shows, by operating subsidiary, our I&T and frequency rights costs for the periods indicated, and variations between each period:



|                 |                          |                    |        |          |  |   |          |   |  |   |        |   |  |       |   
|---------------- | ------------------------ | ------------------ | ------ | -------- |  | - | -------- | - |  | - | ------ | - |  | ----- | --
|                 |                          | As of December 31, |        |          |  |   |          |   | 
|                 | 2005                     |                    |        | 2006     |  |   |          |   |  |   |       
|                 | I&T and frequency rights |                    |        | $ Change |  |   | % Change |  
|IMPSAT Argentina |                          | $                  | 9,313  |          |  | $ | 8,961    |   |  | $ | (352   | ) |  | (3.8  | )%
|IMPSAT Colombia  |                          |                    | 1,519  |          |  |   | 933      |   |  |   | (586   | ) |  | (38.6 | )%
|IMPSAT Brazil    |                          |                    | 1,177  |          |  |   | 960      |   |  |   | (217   | ) |  | (18.4 | )%
|IMPSAT Venezuela |                          |                    | 7      |          |  |   | 3        |   |  |   | (4     | ) |  | (57.1 | )%
|IMPSAT Ecuador   |                          |                    | 349    |          |  |   | 313      |   |  |   | (36    | ) |  | (10.3 | )%
|IMPSAT Chile     |                          |                    | 939    |          |  |   | 593      |   |  |   | (346   | ) |  | (36.8 | )%
|IMPSAT Peru      |                          |                    | 7,148  |          |  |   | 8,712    |   |  |   | 1,564  |   |  | 21.9  | % 
|IMPSAT USA       |                          |                    | 3,886  |          |  |   | 1,664    |   |  |   | (2,222 | ) |  | (57.2 | )%
|Other(1)         |                          |                    | (7,843 | )        |  |   | (5,739   | ) |  |   | 2,104  |   |  | (26.8 | )%
|                 |                          |                    |        |          |  |   |          |   |  |   |        |   |  |       |   
|Total            |                          | $                  | 16,495 |          |  | $ | 16,400   |   |  | $ | (95    | ) |  | (0.6  | )%
|                 |                          |                    |        |          |  |   |          |   |  |   |        |   |  |       |   

---

|(1) | This includes I&T and frequency rights costs of International Satellite Capacity Holding, Ltd and
for all inter-company transactions
|--- | ------------------------------------------------------------------------------------------------------------------------------------

(4) Costs of Equipment Sold.In 2006, we incurred costs of equipment sold of
$0.4 million, compared to costs of equipment sold of $0.6 million for 2005, which represents a decrease of $0.3 million or (41.2%). Although sales of equipment increased, the decrease is attributable to the sales being of different types
of equipment and spread throughout a variety of customers.

Salaries and Wages.Salaries and wages for 2006 totaled
$60.8 million, compared to $50.6 million in 2005. The increase is due to higher headcount and variable compensation, currency revaluation in Brazil, salary increases related to adjustments for inflation a one-time charge of $3.8 million
recorded under the Companys management incentive plan related to Global Crossings proposed acquisition of the Company. Consolidated number of employees increased from 1,208 at December 31, 2005 to 1,251 at December 31, 2006.
This increase was required to sustain revenue growth in Brazil.



41



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##### Table of Contents

Management expects to continue to monitor the size of its total workforce and to make appropriate adjustments as required by financial and competitive
circumstances.

IMPSAT Argentina increased its number of employees to 445 persons as of December 31, 2006, compared to 426 persons as
of December 31, 2005.

IMPSAT Brazil increased its number of employees to 225 persons at December 31, 2006, compared to 208
persons at December 31, 2005.

IMPSAT Colombia increased its number of employees to 250 persons at December 31, 2006, compared to
237 persons at December 31, 2005.

IMPSAT Venezuela decreased its number of employees to 98 persons at December 31, 2006,
compared to 110 persons at December 31, 2005.

IMPSAT USA decreased its number of employees to 57 persons at December 31, 2006,
compared to 63 persons at December 31, 2005.

IMPSAT Peru increased its number of employees to 63 persons at December 31, 2006,
compared to 61 persons at December 31, 2005.

IMPSAT Ecuador increased its number of employees to 80 persons at December 31,
2006, compared to 70 persons at December 31, 2005.

IMPSAT Chile had 33 persons at December 31, 2006, compared to 33 persons at
December 31, 2005.

The following table shows, by operating subsidiary, our salaries and wages expenses for the periods indicated, and
variations between each period:



|                 |                  |                    |          |  |   |          |  |   |        |   |  |       |   
|---------------- | ---------------- | ------------------ | -------- |  | - | -------- |  | - | ------ | - |  | ----- | --
|                 |                  | As of December 31, |          |  |   |          |  |  
|                 | 2005             |                    | 2006     |  |   |          |  |   |       
|                 | Salaries & Wages |                    | $ Change |  |   | % Change | 
|IMPSAT Argentina |                  | $                  | 12,547   |  | $ | 13,754   |  | $ | 1,207  |   |  | 9.6   | % 
|IMPSAT Colombia  |                  |                    | 8,764    |  |   | 8,789    |  |   | 25     |   |  | 0.3   | % 
|IMPSAT Brazil    |                  |                    | 10,484   |  |   | 13,185   |  |   | 2,701  |   |  | 25.8  | % 
|IMPSAT Venezuela |                  |                    | 3,295    |  |   | 3,928    |  |   | 633    |   |  | 19.2  | % 
|IMPSAT Ecuador   |                  |                    | 2,481    |  |   | 2,712    |  |   | 231    |   |  | 9.3   | % 
|IMPSAT Chile     |                  |                    | 1,443    |  |   | 1,669    |  |   | 226    |   |  | 15.7  | % 
|IMPSAT Peru      |                  |                    | 2,198    |  |   | 2,660    |  |   | 462    |   |  | 21.0  | % 
|IMPSAT USA       |                  |                    | 5,602    |  |   | 5,125    |  |   | (477   | ) |  | (8.5  | )%
|Other(1)         |                  |                    | 3,783    |  |   | 9,006    |  |   | 5,223  |   |  | 138.1 | % 
|                 |                  |                    |          |  |   |          |  |   |        |   |  |       |   
|Total            |                  | $                  | 50,597   |  | $ | 60,828   |  | $ | 10,231 |   |  | 20.2  | % 
|                 |                  |                    |          |  |   |          |  |   |        |   |  |       |   

---

|(1) | This includes salaries and wages of International Satellite Capacity Holding, Ltd and charges from the
management incentive plan related to Global Crossings proposed acquisition of the Company.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Selling, General and
Administrative Expenses.Our SG&A expenses consist principally of:



| |  |  | publicity and promotion costs;
| | - |  | ------------------------------



| |  |  | professional fees and other remuneration;
| | - |  | -----------------------------------------



| |  |  | travel and entertainment;
| | - |  | -------------------------



| |  |  | rent; and
| | - |  | ---------



| |  |  | plant services, insurance, and telephone expenses.
| | - |  | --------------------------------------------------

We incurred SG&A expenses of $25.4 million for 2006, representing an increase of $3.1 million (or 13.7%) compared to 2005. The increase is related to higher advisory fees and the effect of the
revaluation of the Real in our expenses in Brazil.



42



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##### Table of Contents

The following table shows, by operating subsidiary, our SG&A expenses for the periods indicated, and
variations between each period:



|                 |                                             |                    |          |  |   |          |  |   |       |   |  |       |   
|---------------- | ------------------------------------------- | ------------------ | -------- |  | - | -------- |  | - | ----- | - |  | ----- | --
|                 |                                             | As of December 31, |          |  |   |          |  |  
|                 | 2005                                        |                    | 2006     |  |   |          |  |   |      
|                 | Selling, General andAdministrative Expenses |                    | $ Change |  |   | % Change | 
|IMPSAT Argentina |                                             | $                  | 6,452    |  | $ | 6,907    |  | $ | 455   |   |  | 7.1   | % 
|IMPSAT Colombia  |                                             |                    | 2,832    |  |   | 2,896    |  |   | 64    |   |  | 2.3   | % 
|IMPSAT Brazil    |                                             |                    | 4,227    |  |   | 5,690    |  |   | 1,463 |   |  | 34.6  | % 
|IMPSAT Venezuela |                                             |                    | 2,073    |  |   | 2,399    |  |   | 326   |   |  | 15.7  | % 
|IMPSAT Ecuador   |                                             |                    | 1,475    |  |   | 1,488    |  |   | 13    |   |  | 0.9   | % 
|IMPSAT Chile     |                                             |                    | 1,341    |  |   | 1,205    |  |   | (136  | ) |  | (10.1 | )%
|IMPSAT Peru      |                                             |                    | 1,058    |  |   | 1,067    |  |   | 9     |   |  | 0.9   | % 
|IMPSAT USA       |                                             |                    | 1,983    |  |   | 2,272    |  |   | 289   |   |  | 14.6  | % 
|Other(1)         |                                             |                    | 894      |  |   | 1,470    |  |   | 576   |   |  | 64.4  | % 
|                 |                                             |                    |          |  |   |          |  |   |       |   |  |       |   
|Total            |                                             | $                  | 22,335   |  | $ | 25,394   |  | $ | 3,059 |   |  | 13.7  | % 
|                 |                                             |                    |          |  |   |          |  |   |       |   |  |       |   

---

|(1) | This includes SG&A expenses of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | --------------------------------------------------------------------------------------------------------------------

Depreciation and Amortization.Our depreciation and amortization expenses for 2006
totaled $60.3 million, an increase of $5.0 million (or 9.0%) compared to depreciation and amortization for 2005. The increase in depreciation and amortization expenses is principally due to an increase in the Companys depreciable fixed
asset base as a result of increased capital expenditures. During 2006, we made purchases of property, plant and equipment totaling $35.6 million. Such additional equipment, which comprises principally customer premises and other central
telecommunications equipment, is depreciated over a shorter period of time than other components of our property, plant and equipment and results in higher depreciation charges in the current periods.

Interest Expense, Net.Our net interest expense for 2006 totaled $31.0 million, consisting of interest expense of $32.0 million and interest
income of $0.9 million. Our net interest expense for 2006 increased by $0.1 million (or 0.2 %) compared to the net interest expense for 2005. Commencing on March 26, 2005, the effective interest rate on our subsidiaries senior
indebtedness increased from 6% per annum to 10% per annum. In connection with the amendment of $107.3 million in outstanding principal amount of this indebtedness in July 2005, the interest rate on such indebtedness was further
increased to 12% per annum. Our indebtedness as of December 31, 2006 totaled $241.1 million, as compared to $248.1 million as of December 31, 2005, as a result of principal payments of $14.7 million, offset by an increase in the
principal amount of our indebtedness of $7.0 million and the revaluation effect on new debt obtained by our subsidiaries for $0.7 million.

Net Gain on Foreign Exchange.We recorded a total net gain on foreign exchange for 2006 of $7.0 million, compared to net gain of $10.1 million for 2005. The net gain on foreign exchange was primarily due to the appreciation of the
Brazilian real on the book value of our monetary assets and liabilities in Brazil, offset by net losses on foreign exchange in Venezuela and Colombia.

IMPSAT Argentina recorded a net loss on foreign exchange for 2006 of $0.2 million as compared to a net loss on foreign exchange for 2005 of $0.7 million. IMPSAT Brazil recorded a net gain on foreign exchange for
2006 totaling $7.7 million, compared to net gains of $12.0 million for 2005.

During February 2004, the Venezuelan government
further devalued the bolivar and fixed the bolivars value to the U.S. dollar at Bs. 1,920.00 = $1.00. On March 3, 2005, the Venezuelan government again devalued its currency by 10.7%, to Bs. 2,150 = $1.00.

Other Income (Expenses), Net. We recorded other expenses, net, for 2006 of $8.2 million, as compared to other expenses, net, of $7.7 million for
2005. Other expenses, net, in 2005 and 2006 are primarily related to debt restructuring costs incurred in 2005 and merger related costs incurred in 2006.

Provision for Foreign Income Taxes.For 2006, we recorded a provision for foreign income taxes of $4.3 million, compared to $4.5 million for 2005. The decrease in the provision for foreign income
taxes in 2006, compared to 2005, was due primarily to a decrease in deferred tax liabilities offset by an increase in taxable income in IMPSAT Argentina, IMPSAT Venezuela and IMPSAT Colombia.



43



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##### Table of Contents

Net Income (Loss).For the year ended December 31, 2006, we recorded a net loss of
$35.6 million. This compares to net loss of $36.2 million in 2005. The decrease in net loss is principally due to a decrease in the provision for foreign income tax offset by the increase in depreciation and amortization expenses.

The following table shows, by operating subsidiary, our net income (loss) for the periods indicated, and variations between each period:



|                 |                   |                    |         |          |  |   |          |   |  |   |         |   |  |        |   
|---------------- | ----------------- | ------------------ | ------- | -------- |  | - | -------- | - |  | - | ------- | - |  | ------ | --
|                 |                   | As of December 31, |         |          |  |   |          |   | 
|                 | 2005              |                    |         | 2006     |  |   |          |   |  |   |        
|                 | Net Income (Loss) |                    |         | $ Change |  |   | % Change |  
|IMPSAT Argentina |                   | $                  | (5,568  | )        |  | $ | (12,380  | ) |  | $ | (6,812  | ) |  | 122.3  | % 
|IMPSAT Colombia  |                   |                    | (6,128  | )        |  |   | 1,858    |   |  |   | 7,986   |   |  | (130.3 | )%
|IMPSAT Brazil    |                   |                    | (6,669  | )        |  |   | (1,243   | ) |  |   | 5,426   |   |  | (81.4  | )%
|IMPSAT Venezuela |                   |                    | 2,705   |          |  |   | 4,468    |   |  |   | 1,763   |   |  | 65.2   | % 
|IMPSAT Ecuador   |                   |                    | 2,143   |          |  |   | 1,495    |   |  |   | (648    | ) |  | (30.2  | )%
|IMPSAT Chile     |                   |                    | 212     |          |  |   | (327     | ) |  |   | (539    | ) |  | (254.2 | )%
|IMPSAT Peru      |                   |                    | (2,387  | )        |  |   | (202     | ) |  |   | 2,185   |   |  | (91.5  | )%
|IMPSAT USA       |                   |                    | (1,043  | )        |  |   | 1,124    |   |  |   | 2,167   |   |  | (207.8 | )%
|Other(1)         |                   |                    | (19,513 | )        |  |   | (30,436  | ) |  |   | (10,923 | ) |  | 56.0   | % 
|                 |                   |                    |         |          |  |   |          |   |  |   |         |   |  |        |   
|Total            |                   | $                  | (36,248 | )        |  | $ | (35,643  | ) |  | $ | 605     |   |  | (1.7   | ) 
|                 |                   |                    |         |          |  |   |          |   |  |   |         |   |  |        |   

---

|(1) | This includes net income (loss) of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | ------------------------------------------------------------------------------------------------------------------------

Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004

Revenues. The increase in our net revenues from services in 2005, as compared to 2004, was due to increases in revenues from
broadband and satellite, Internet, value added and telephony services.



| |  |  | Revenues from broadband and satellite services increased due to higher sales of IP services, primarily in Brazil, Argentina and Ecuador.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced higher Internet revenues principally because of new customers and expansion of services to existing customers, primarily in Brazil, Argentina and
Ecuador.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our revenues from value added services increased primarily because of higher sales of housing and hosting services, and managed services, mainly in Brazil and
Colombia.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We experienced increased revenues from telephony services principally due to higher sales to corporate customers in Argentina and Brazil.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

All of our product lines revenues benefited from increased customer base and improved macroeconomic conditions
throughout Latin America.

We had 4,336 customers at December 31, 2005, compared to 3,314 customers at December 31, 2004. As we
expand, the average size of customer, including the average revenues per customer, has decreased. During 2005 we do not believe that we lost any major customers to our competitors.

Our net revenues at IMPSAT Argentina increased during 2005. Our total net revenues at IMPSAT Argentina for 2005 totaled $78.2 million, an increase
of $6.2 million (or 8.6%) compared to 2004. The increase is mostly related to higher telephony services delivered to corporate customers and higher IP services to new and existing customers in broadband and satellite. Argentina is our largest
market in terms of number of customers and revenues. After a four-year period of economic difficulties and contraction that included the default by the Argentine government of its external public debt and the devaluation of the peso, the
Argentine economy grew during 2004 and 2005. Nonetheless, Argentina continues to experience a lack of access to international capital markets. A renewed decline in political and economic conditions in Argentina, our largest country of operation,
could materially affect our financial condition and results of operations.



44



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##### Table of Contents

IMPSAT Brazils total net revenues for 2005 totaled $48.1 million, an increase of $14.6 million
(43.6%) compared to 2004. At December 31, 2004, the real traded at a rate of R$2.65 = $1.00 and it appreciated to R$2.34 = $1.00 at December 31, 2005. IMPSAT Brazil increased revenues as a result of
increased delivery of services to existing and new customers. All product lines showed an increase in services and revenues. In addition, revenues at IMPSAT Brazil, benefited from the revaluation of the real, and the improvement of
Brazils economic conditions. Net revenues increased by approximately $7.5 million as a consequence of higher services delivered and $7.1 million as a consequence of currency revaluation. The average daily exchange rate for the real
during 2005 was R$2.41 = $1.00, as compared to the same average in 2004 of R$2.92 = $1.00. However, any future devaluations of therealor contraction of the Brazilian economy would have an adverse effect on IMPSAT
Brazils and our Companys overall financial condition and results of operations.

IMPSAT Colombia recorded total net revenues of
$62.0 million during 2005, compared to $56.7 million for 2004. This increase is mainly attributed to the revaluation of revenues denominated in Colombian pesos, new customer contracts and expansion of services (particularly data
center and broadband and satellite services) provided to existing customers. Revenues at IMPSAT Venezuela equaled $31.1 million for 2005, compared to $33.1 million for 2004. Venezuela has experienced and continues to experience political and
economic uncertainty. The Venezuelan government imposed foreign exchange and price controls during February 2003, making it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a
timely basis. These foreign exchange controls also limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela and to obtain U.S. dollars required to purchase needed telecommunications equipment and repair
parts. The continuation or worsening of this crisis in Venezuela could have a material adverse effect on IMPSAT Venezuelas results of operations and financial condition.

IMPSAT USA recorded total net revenues of $27.0 million for 2005, compared to $27.7 million for 2004. The decrease is primarily a consequence of lower
revenues from broadband and satellite services, offset by increased sales of Internet services. IMPSAT Ecuador recorded total net revenues of $20.3 million for 2005, compared to $17.9 million for 2004. The increase is due primarily to expansion of
customer base and services to existing customers, mainly in broadband and satellite capacity, and Internet connections. IMPSAT Peru recorded total net revenues of $15.4 million for 2005, compared to $14.6 million for 2004. The increase was
mainly related to higher telephony services. IMPSAT Chile recorded total net revenues of $8.6 million for 2005, compared to $7.7 million for 2004. The increase was primarily due to higher sales of housing and value added services.

Direct Costs.Our direct costs for 2005 totaled $128.9 million, an increase of $18.4 million (or 16.6%), compared to 2004. Direct costs
of our subsidiaries are described prior to the elimination of inter-company transactions. The increase in our direct costs is directly attributable to increased sales of services and the effects of currency revaluation in Colombia and Brazil, except
in IMPSAT Venezuela and IMPSAT USA, where direct costs decreased due to lower sales of services.

The following table shows, by operating
subsidiary, our direct costs for the periods indicated, and variations between each period:



|                 |              |                    |         |          |  |   |          |   |  |   |        |   |  |       |   
|---------------- | ------------ | ------------------ | ------- | -------- |  | - | -------- | - |  | - | ------ | - |  | ----- | --
|                 |              | As of December 31, |         |          |  |   |          |   | 
|                 | 2004         |                    |         | 2005     |  |   |          |   |  |   |       
|                 | Direct Costs |                    |         | $ Change |  |   | % Change |  
|IMPSAT Argentina |              | $                  | 35,006  |          |  | $ | 41,757   |   |  | $ | 6,751  |   |  | 19.3  | % 
|IMPSAT Colombia  |              |                    | 29,136  |          |  |   | 33,922   |   |  |   | 4,786  |   |  | 16.4  | % 
|IMPSAT Brazil    |              |                    | 17,167  |          |  |   | 24,210   |   |  |   | 7,043  |   |  | 41.0  | % 
|IMPSAT Venezuela |              |                    | 13,922  |          |  |   | 12,414   |   |  |   | (1,508 | ) |  | (10.8 | )%
|IMPSAT Ecuador   |              |                    | 8,270   |          |  |   | 9,849    |   |  |   | 1,579  |   |  | 19.1  | % 
|IMPSAT Chile     |              |                    | 4,226   |          |  |   | 4,672    |   |  |   | 446    |   |  | 10.6  | % 
|IMPSAT Peru      |              |                    | 10,968  |          |  |   | 11,797   |   |  |   | 829    |   |  | 7.6   | % 
|IMPSAT USA       |              |                    | 18,154  |          |  |   | 17,461   |   |  |   | (693   | ) |  | (3.8  | )%
|Other(1)         |              |                    | (26,322 | )        |  |   | (27,173  | ) |  |   | (851   | ) |  | 3.2   | % 
|                 |              |                    |         |          |  |   |          |   |  |   |        |   |  |       |   
|Total            |              | $                  | 110,527 |          |  | $ | 128,909  |   |  | $ | 18,382 |   |  | 16.6  | % 
|                 |              |                    |         |          |  |   |          |   |  |   |        |   |  |       |   

---

|(1) | This includes direct costs of International Satellite Capacity Holding, Ltd and for all inter-company
transactions.
|--- | -------------------------------------------------------------------------------------------------------------------

(1) Contracted Services.Contracted services costs include costs of maintenance and installation
(and de-installation) services provided by outside contractors. During 2005, our contracted services costs totaled $24.4 million, an increase of $3.1 million (or 14.5%) compared to 2004. Of this amount, maintenance costs for our
telecommunications network infrastructure, including the Broadband Network, totaled $14.2 million for 2005 compared to $13.9 million during 2004. Installation costs totaled $10.2 million for 2005 compared to $7.4 million in 2004.
Our installation costs increased because



45



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##### Table of Contents

we had more new customers and expanded our network during 2005 compared to 2004. In addition, currency revaluation in Brazil and Colombia served to increase
contracted services costs in 2005.

The following table shows, by operating subsidiary, our costs for contracted services for the periods
indicated, and variations between each period:



|                 |                     |                    |          |  |   |          |  |   |       |   |  |       |   
|---------------- | ------------------- | ------------------ | -------- |  | - | -------- |  | - | ----- | - |  | ----- | --
|                 |                     | As of December 31, |          |  |   |          |  |  
|                 | 2004                |                    | 2005     |  |   |          |  |   |      
|                 | Contracted Services |                    | $ Change |  |   | % Change | 
|IMPSAT Argentina |                     | $                  | 7,143    |  | $ | 7,679    |  | $ | 536   |   |  | 7.5   | % 
|IMPSAT Colombia  |                     |                    | 4,949    |  |   | 5,246    |  |   | 297   |   |  | 6.0   | % 
|IMPSAT Brazil    |                     |                    | 2,665    |  |   | 4,599    |  |   | 1,934 |   |  | 72.6  | % 
|IMPSAT Venezuela |                     |                    | 1,797    |  |   | 2,013    |  |   | 216   |   |  | 12.0  | % 
|IMPSAT Ecuador   |                     |                    | 1,486    |  |   | 1,902    |  |   | 416   |   |  | 28.0  | % 
|IMPSAT Chile     |                     |                    | 1,048    |  |   | 992      |  |   | (56   | ) |  | (5.3  | )%
|IMPSAT Peru      |                     |                    | 741      |  |   | 773      |  |   | 32    |   |  | 4.3   | % 
|IMPSAT USA       |                     |                    | 703      |  |   | 475      |  |   | (228  | ) |  | (32.4 | )%
|Other(1)         |                     |                    | 753      |  |   | 700      |  |   | (53   | ) |  | (7.0  | )%
|                 |                     |                    |          |  |   |          |  |   |       |   |  |       |   
|Total            |                     | $                  | 21,285   |  | $ | 24,379   |  | $ | 3,094 |   |  | 14.5  | % 
|                 |                     |                    |          |  |   |          |  |   |       |   |  |       |   

---

|(1) | This includes contracted services costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | --------------------------------------------------------------------------------------------------------------------------------

(2) Other Direct Costs.Other direct costs principally include licenses and other
fees; sales commissions paid to internal sales personnel and third-party sales representatives; and our provision for doubtful accounts. We recorded other direct costs of $28.9 million, an increase of $8.3 million (or 40.0%) compared to
2004.

Sales commissions paid to third-party sales representatives for 2005 totaled $7.5 million compared to $7.8 million in
2004, primarily due to increased use of our internal sales force in IMPSAT Brazil instead of third-party sales representatives.

We
recorded a net reversal of our provision for doubtful accounts of $1.1 million for 2005, compared to a net reversal of $3.9 million for the previous year. The net reversal of 2004 related principally to our settlement with Global Crossing
concerning certain disputes that we had with that company. We recorded a net reversal of $1.7 million in connection with the Global Crossing settlement. At December 31, 2005, our allowance for doubtful accounts covered approximately 96.4% of
our gross trade accounts receivable past due more than six months compared to 115.0% at December 31, 2004. The average days in quarterly gross trade accounts receivable decreased from 52 days at December 31, 2004 to 50 days at
December 31, 2005.

The following table shows, by operating subsidiary, other direct costs for the periods indicated, and variations
between each period:



|                 |                    |                    |        |          |  |   |          |   |  |   |       |   |  |       |   
|---------------- | ------------------ | ------------------ | ------ | -------- |  | - | -------- | - |  | - | ----- | - |  | ----- | --
|                 |                    | As of December 31, |        |          |  |   |          |   | 
|                 | 2004               |                    |        | 2005     |  |   |          |   |  |   |      
|                 | Other Direct Costs |                    |        | $ Change |  |   | % Change |  
|IMPSAT Argentina |                    | $                  | 5,523  |          |  | $ | 8,648    |   |  | $ | 3,125 |   |  | 56.6  | % 
|IMPSAT Colombia  |                    |                    | 4,578  |          |  |   | 6,489    |   |  |   | 1,911 |   |  | 41.7  | % 
|IMPSAT Brazil    |                    |                    | 5,528  |          |  |   | 7,384    |   |  |   | 1,856 |   |  | 33.6  | % 
|IMPSAT Venezuela |                    |                    | 2,227  |          |  |   | 3,292    |   |  |   | 1,065 |   |  | 47.8  | % 
|IMPSAT Ecuador   |                    |                    | 691    |          |  |   | 1,064    |   |  |   | 373   |   |  | 54.0  | % 
|IMPSAT Chile     |                    |                    | 226    |          |  |   | 363      |   |  |   | 137   |   |  | 60.6  | % 
|IMPSAT Peru      |                    |                    | 816    |          |  |   | 1,128    |   |  |   | 312   |   |  | 38.2  | % 
|IMPSAT USA       |                    |                    | 1,099  |          |  |   | 891      |   |  |   | (208  | ) |  | (18.9 | )%
|Other(1)         |                    |                    | (41    | )        |  |   | (350     | ) |  |   | (309  | ) |  | 753.7 | % 
|                 |                    |                    |        |          |  |   |          |   |  |   |       |   |  |       |   
|Total            |                    | $                  | 20,647 |          |  | $ | 28,909   |   |  | $ | 8,262 |   |  | 40.0  | % 
|                 |                    |                    |        |          |  |   |          |   |  |   |       |   |  |       |   

---

|(1) | This includes other direct costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

(3) Leased Capacity.Our leased capacity costs for 2005 totaled $75.0 million, representing
29.5% of our net revenues, as compared to $67.6 million, representing 29.7% of our net revenues, in 2004. The increase in leased capacity costs in 2005 of $7.4 million (or 10.9%) compared to 2004 is related to higher services delivered, except in
IMPSAT Venezuela, where leased capacity costs decreased due to reduced inter-company transactions.

Our leased capacity costs for satellite
capacity for 2005 totaled $23.1 million, a decrease of $0.7 million (or 2.9%) compared to 2004. The decrease in our leased satellite capacity costs was principally due to reduction in satellite capacity prices and migration of our
satellite-based services to terrestrial-based services on our proprietary network or leased terrestrial links. We had approximately 709 MHz of leased satellite capacity at December 31, 2005 and 706 MHz at December 31, 2004.

Our costs for dedicated leased capacity on third-party fiber optic networks totaled $35.4 million for 2005, an increase of
$6.3 million (or 21.5%) compared to 2004. These costs were incurred principally in Argentina, Brazil, Colombia and Ecuador. We will continue to require leased capacity to provide telecommunications services to clients with facilities outside of
the footprint of our Broadband Network in order to provide end-to-end telecommunications services. The increase in costs for dedicated leased capacity on third-party fiber optic networks was principally due to the migration of our customers from
satellite-based services to terrestrial-based services and an increase in services requiring fiber optic capacity outside of the footprint of our Broadband Network. In addition, currency revaluations in Brazil and Colombia contributed to the
increases in these costs.

The following table shows, by operating subsidiary, our leased capacity costs for the periods indicated, and
variations between each period:



|                 |                 |                    |         |          |  |   |          |   |  |   |        |   |  |       |   
|---------------- | --------------- | ------------------ | ------- | -------- |  | - | -------- | - |  | - | ------ | - |  | ----- | --
|                 |                 | As of December 31, |         |          |  |   |          |   | 
|                 | 2004            |                    |         | 2005     |  |   |          |   |  |   |       
|                 | Leased Capacity |                    |         | $ Change |  |   | % Change |  
|IMPSAT Argentina |                 | $                  | 20,499  |          |  | $ | 24,060   |   |  | $ | 3,561  |   |  | 17.4  | % 
|IMPSAT Colombia  |                 |                    | 18,449  |          |  |   | 21,148   |   |  |   | 2,699  |   |  | 14.6  | % 
|IMPSAT Brazil    |                 |                    | 8,084   |          |  |   | 11,407   |   |  |   | 3,323  |   |  | 41.1  | % 
|IMPSAT Venezuela |                 |                    | 8,591   |          |  |   | 6,221    |   |  |   | (2,370 | ) |  | (27.6 | )%
|IMPSAT Ecuador   |                 |                    | 5,256   |          |  |   | 6,184    |   |  |   | 928    |   |  | 17.7  | % 
|IMPSAT Chile     |                 |                    | 2,699   |          |  |   | 2,927    |   |  |   | 228    |   |  | 8.4   | % 
|IMPSAT Peru      |                 |                    | 9,240   |          |  |   | 9,692    |   |  |   | 452    |   |  | 4.9   | % 
|IMPSAT USA       |                 |                    | 12,346  |          |  |   | 12,431   |   |  |   | 85     |   |  | 0.7   | % 
|Other(1)         |                 |                    | (17,532 | )        |  |   | (19,080  | ) |  |   | (1,548 | ) |  | 8.8   | % 
|                 |                 |                    |         |          |  |   |          |   |  |   |        |   |  |       |   
|Total            |                 | $                  | 67,632  |          |  | $ | 74,990   |   |  | $ | 7,358  |   |  | 10.9  | % 
|                 |                 |                    |         |          |  |   |          |   |  |   |        |   |  |       |   

---

|(1) | This includes leased capacity costs of International Satellite Capacity Holding, Ltd and for all
inter-company transactions
|--- | ---------------------------------------------------------------------------------------------------------------------------

In connection with services we offer under our licenses to provide domestic and international
long distance telephony connections, we incur costs for interconnection and telephony termination (I&T). We incur costs for frequency rights related to regulatory fees for the rights to use certain frequencies in the countries in
which we operate. Our I&T and frequency rights costs totaled $16.5 million during 2005 (which includes $13.8 million of I&T costs) compared to $14.7 million of I&T and frequency rights costs for 2004 (which includes
$12.1 million of I&T costs), which represents an increase of $1.8 million (or 12.2%). This increase in costs was due primarily to telephony services.

The following table shows, by operating subsidiary, our I&T and frequency rights costs for the periods indicated, and variations between each period:



|                 |                          |                    |          |  |   |          |  |   |       |   |  |       |   
|---------------- | ------------------------ | ------------------ | -------- |  | - | -------- |  | - | ----- | - |  | ----- | --
|                 |                          | As of December 31, |          |  |   |          |  |  
|                 | 2004                     |                    | 2005     |  |   |          |  |   |      
|                 | I&T and frequency rights |                    | $ Change |  |   | % Change | 
|IMPSAT Argentina |                          | $                  | 7,263    |  | $ | 9,313    |  | $ | 2,050 |   |  | 28.2  | % 
|IMPSAT Colombia  |                          |                    | 1,217    |  |   | 1,519    |  |   | 302   |   |  | 24.8  | % 
|IMPSAT Brazil    |                          |                    | 519      |  |   | 1,177    |  |   | 658   |   |  | 126.8 | % 
|IMPSAT Venezuela |                          |                    | 83       |  |   | 7        |  |   | (76   | ) |  | (91.6 | )%
|IMPSAT Ecuador   |                          |                    | 266      |  |   | 349      |  |   | 83    |   |  | 31.2  | % 



47



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##### Table of Contents

|             |  |   |        |   |  |   |        |   |  |   |        |   |  |      |   
|------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | ---- | --
|IMPSAT Chile |  |   | 973    |   |  |   | 939    |   |  |   | (34    | ) |  | (3.5 | )%
|IMPSAT Peru  |  |   | 6,306  |   |  |   | 7,148  |   |  |   | 842    |   |  | 13.4 | % 
|IMPSAT USA   |  |   | 4,202  |   |  |   | 3,886  |   |  |   | (316   | ) |  | (7.5 | )%
|Other(1)     |  |   | (6,110 | ) |  |   | (7,843 | ) |  |   | (1,733 | ) |  | 28.4 | % 
|             |  |   |        |   |  |   |        |   |  |   |        |   |  |      |   
|Total        |  | $ | 14,719 |   |  | $ | 16,495 |   |  | $ | 1,776  |   |  | 12.1 | % 
|             |  |   |        |   |  |   |        |   |  |   |        |   |  |      |   

---

|(1) | This includes I&T and frequency rights costs of International Satellite Capacity Holding, Ltd and
for all inter-company transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

(4) Costs of Equipment Sold.In 2005, we incurred costs of equipment sold of
$0.6 million, compared to costs of equipment sold of $1.0 million for 2004, which represents a decrease of $0.3 million or (34.5%). This decrease was primarily due to lower sales of equipment during 2005.

Salaries and Wages.Salaries and wages for 2005 totaled $50.6 million, compared to $46.3 million in 2004. As part of our continuing effort to
ensure more efficient operations, we further reduced the aggregate number of our employees from 1,236 at December 31, 2004 to 1,208 at December 31, 2005. The appreciation of the Brazilian real and Colombian peso increases in
salaries to compensate for higher cost of living, and severance payments during 2005 resulted in higher salary expenses in U.S. dollar terms as compared to 2004. Salaries and wages increased by approximately $1.8 million as a consequence of the
appreciation of the Brazilian real and $0.9 million as a consequence of the appreciation of the Colombian peso.

IMPSAT
Argentina had 437 employees as of December 31, 2005, compared to 453 employees as of December 31, 2004.

IMPSAT Brazil increased
its number of employees to 199 persons at December 31, 2005, compared to 197 persons at December 31, 2004.

IMPSAT Colombia
decreased its number of employees to 235 persons at December 31, 2005, compared to 246 persons at December 31, 2004.

IMPSAT
Venezuela decreased its number of employees to 110 persons at December 31, 2005, compared to 116 persons at December 31, 2004.

IMPSAT USA decreased its number of employees to 63 persons at December 31, 2005, compared to 69 persons at December 31, 2004.

IMPSAT Peru increased its number of employees to 61 persons at December 31, 2005, compared to 55 persons at December 31, 2004.

IMPSAT Ecuador increased its number of employees to 70 persons at December 31, 2005, compared to 66 persons at December 31, 2004.

IMPSAT Chile decreased its number of employees to 33 persons at December 31, 2005, compared to 34 persons at December 31, 2004.



48



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##### Table of Contents

The following table shows, by operating subsidiary, our salaries and wages expenses for the periods
indicated, and variations between each period:



|                 |                  |                    |          |  |   |          |  |   |       |   |  |       |   
|---------------- | ---------------- | ------------------ | -------- |  | - | -------- |  | - | ----- | - |  | ----- | --
|                 |                  | As of December 31, |          |  |   |          |  |  
|                 | 2004             |                    | 2005     |  |   |          |  |   |      
|                 | Salaries & Wages |                    | $ Change |  |   | % Change | 
|IMPSAT Argentina |                  | $                  | 11,675   |  | $ | 12,547   |  | $ | 872   |   |  | 7.5   | % 
|IMPSAT Colombia  |                  |                    | 7,128    |  |   | 8,764    |  |   | 1,636 |   |  | 23.0  | % 
|IMPSAT Brazil    |                  |                    | 8,634    |  |   | 10,484   |  |   | 1,850 |   |  | 21.4  | % 
|IMPSAT Venezuela |                  |                    | 3,195    |  |   | 3,295    |  |   | 100   |   |  | 3.1   | % 
|IMPSAT Ecuador   |                  |                    | 2,096    |  |   | 2,481    |  |   | 385   |   |  | 18.4  | % 
|IMPSAT Chile     |                  |                    | 1,358    |  |   | 1,443    |  |   | 85    |   |  | 6.3   | % 
|IMPSAT Peru      |                  |                    | 1,980    |  |   | 2,198    |  |   | 218   |   |  | 11.0  | % 
|IMPSAT USA       |                  |                    | 5,821    |  |   | 5,602    |  |   | (219  | ) |  | (3.8  | )%
|Other(1)         |                  |                    | 4,452    |  |   | 3,783    |  |   | (669  | ) |  | (15.0 | )%
|                 |                  |                    |          |  |   |          |  |   |       |   |  |       |   
|Total            |                  | $                  | 46,339   |  | $ | 50,597   |  | $ | 4,258 |   |  | 9.2   | % 
|                 |                  |                    |          |  |   |          |  |   |       |   |  |       |   

---

|(1) | This includes salaries and wages of International Satellite Capacity Holding, Ltd.
|--- | ----------------------------------------------------------------------------------

Selling, General and Administrative Expenses.Our SG&A expenses consist principally of:



| |  |  | publicity and promotion costs;
| | - |  | ------------------------------



| |  |  | professional fees and other remuneration;
| | - |  | -----------------------------------------



| |  |  | travel and entertainment;
| | - |  | -------------------------



| |  |  | rent; and
| | - |  | ---------



| |  |  | plant services, insurance, and telephone expenses.
| | - |  | --------------------------------------------------

We incurred SG&A expenses of $22.3 million for 2005, representing a decrease of $1.2 million (or 5.3%) compared to 2004. Our SG&A expenses for 2005 declined as a result of cost control measures
undertaken by management to reduce advisory fees, travel expenses, advertising and insurance expenses, and a net reversal of taxes provisioned in 2002 at IMPSAT Brazil. In addition, in 2004 IMPSAT Argentina made certain non-recurring municipal tax
payments, which were not required in 2005.

The following table shows, by operating subsidiary, our SG&A expenses for the periods
indicated, and variations between each period:



|                 |                                             |                    |          |  |   |          |  |   |        |   |  |       |   
|---------------- | ------------------------------------------- | ------------------ | -------- |  | - | -------- |  | - | ------ | - |  | ----- | --
|                 |                                             | As of December 31, |          |  |   |          |  |  
|                 | 2004                                        |                    | 2005     |  |   |          |  |   |       
|                 | Selling, General andAdministrative Expenses |                    | $ Change |  |   | % Change | 
|IMPSAT Argentina |                                             | $                  | 7,358    |  | $ | 6,452    |  | $ | (906   | ) |  | (12.3 | )%
|IMPSAT Colombia  |                                             |                    | 2,815    |  |   | 2,832    |  |   | 17     |   |  | 0.6   | % 
|IMPSAT Brazil    |                                             |                    | 4,052    |  |   | 4,227    |  |   | 175    |   |  | 4.3   | % 
|IMPSAT Venezuela |                                             |                    | 1,569    |  |   | 2,073    |  |   | 504    |   |  | 32.1  | % 
|IMPSAT Ecuador   |                                             |                    | 1,197    |  |   | 1,475    |  |   | 278    |   |  | 23.2  | % 
|IMPSAT Chile     |                                             |                    | 1,660    |  |   | 1,341    |  |   | (319   | ) |  | (19.2 | )%
|IMPSAT Peru      |                                             |                    | 1,019    |  |   | 1,058    |  |   | 39     |   |  | 3.8   | % 
|IMPSAT USA       |                                             |                    | 2,039    |  |   | 1,983    |  |   | (56    | ) |  | (2.7  | )%
|Other(1)         |                                             |                    | 1,872    |  |   | 894      |  |   | (978   | ) |  | (52.2 | )%
|                 |                                             |                    |          |  |   |          |  |   |        |   |  |       |   
|Total            |                                             | $                  | 23,581   |  | $ | 22,335   |  | $ | (1,246 | ) |  | (5.3  | )%
|                 |                                             |                    |          |  |   |          |  |   |        |   |  |       |   

---

|(1) | This includes SG&A expenses of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | --------------------------------------------------------------------------------------------------------------------

Depreciation and Amortization.Our depreciation and amortization expenses for 2005
totaled $55.3 million, an increase of $10.5 million (or 23.5%) compared to depreciation and amortization for 2004. The increase in depreciation and amortization expenses is principally due to an increase in the Companys depreciable fixed
asset base as a result of increased



49



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##### Table of Contents

capital expenditures. During 2005, we made purchases of property, plant and equipment totaling $34.3 million. Such additional equipment, which
comprises principally customer premises and other central telecommunications equipment, is depreciated over a shorter period of time than other components of our property, plant and equipment and results in higher depreciation charges in the current
periods. In addition, the increase in depreciation and amortization expenses is due to the depreciation of the Companys goods in warehouses during 2005, totaling $4.0 million.

Interest Expense, Net.Our net interest expense for 2005 totaled $31.0 million, consisting of interest expense of $32.4 million and interest
income of $1.4 million. Our net interest expense for 2005 increased by $11.0 million (or 55.0 %) compared to the net interest expense for 2004. The increase in our net interest expense is due in part to the increase in the rate of interest on
subsidiary indebtedness totaling $113.2 million in outstanding principal amount and to increased withholding taxes on such subsidiary indebtedness repayments. Commencing on March 26, 2005, the effective interest rate on such indebtedness
increased from 6% per annum to 10% per annum. In connection with the amendment of $107.3 million in outstanding principal amount of this indebtedness in July 2005, the interest rate on such indebtedness was further increased to
12% per annum. Our indebtedness as of December 31, 2005 totaled $248.1 million, as compared to $281.1 million as of December 31, 2004, as a result of principal payments of $40.0 million, offset by an increase in the principal
amount of our indebtedness of $2.4 million due to new debt obtained by our subsidiaries. Of our total interest expense for 2005, $3.4 million represents payment in kind accretion to our Senior Notes and certain indebtedness of our
subsidiaries.

Net Gain on Foreign Exchange.We recorded a total net gain on foreign exchange for 2005 of $10.1 million, compared to
net gain of $5.8 million for 2004. The net gain on foreign exchange was primarily due to the appreciation of the Brazilian real on the book value of our monetary assets and liabilities in Brazil, offset by net losses on foreign exchange in
Venezuela.

IMPSAT Argentina recorded a net gain on foreign exchange for 2005 of $0.7 million as compared to a net gain on foreign
exchange for 2004 of $1.0 million. IMPSAT Brazil recorded a net gain on foreign exchange for 2005 totaling $12.0 million, compared to net gains of $10.6 million for 2004.

During February 2004, the Venezuelan government further devalued the bolivar and fixed the bolivars value to the U.S. dollar at Bs.
1,920.00 = $1.00. On March 3, 2005, the Venezuelan government again devalued its currency by 10.7%, to Bs. 2,150 = $1.00.

Other
Income (Expenses), Net. We recorded other expenses, net, for 2005 of $7.7 million, as compared to other income, net, of $0.8 million for 2004. The change in other income (expenses), net, from 2004 to 2005 was due primarily to debt restructuring
costs incurred in 2005.

Provision for Foreign Income Taxes.For 2005, we recorded a provision for foreign income taxes of
$4.5 million, compared to $3.5 million for 2004. The increase in the provision for foreign income taxes in 2005, compared to 2004, was due primarily to increases in deferred tax liabilities in IMPSAT Colombia, and increases in taxable
income in IMPSAT Argentina and IMPSAT Ecuador.

Net Income (Loss).For the year ended December 31, 2005, we recorded a net loss
of $36.2 million. This compares to net loss of $14.2 million in 2004, due primarily to increases in depreciation and interest expenses, as further explained above.



50



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##### Table of Contents

The following table shows, by operating subsidiary, our net income (loss) for the periods indicated, and
variations between each period:



|                 |                   |                    |         |          |  |   |          |   |  |   |         |   |  |        |   
|---------------- | ----------------- | ------------------ | ------- | -------- |  | - | -------- | - |  | - | ------- | - |  | ------ | --
|                 |                   | As of December 31, |         |          |  |   |          |   | 
|                 | 2004              |                    |         | 2005     |  |   |          |   |  |   |        
|                 | Net Income (Loss) |                    |         | $ Change |  |   | % Change |  
|IMPSAT Argentina |                   | $                  | 2,084   |          |  | $ | (5,568   | ) |  | $ | (7,652  | ) |  | (367.2 | )%
|IMPSAT Colombia  |                   |                    | (5,314  | )        |  |   | (6,128   | ) |  |   | (814    | ) |  | 15.3   | % 
|IMPSAT Brazil    |                   |                    | (1,911  | )        |  |   | (6,669   | ) |  |   | (4,758  | ) |  | 249.0  | % 
|IMPSAT Venezuela |                   |                    | 4,556   |          |  |   | 2,705    |   |  |   | (1,851  | ) |  | (40.6  | )%
|IMPSAT Ecuador   |                   |                    | 3,009   |          |  |   | 2,143    |   |  |   | (866    | ) |  | (28.8  | )%
|IMPSAT Chile     |                   |                    | (847    | )        |  |   | 212      |   |  |   | 1,059   |   |  | (125.0 | )%
|IMPSAT Peru      |                   |                    | (1,103  | )        |  |   | (2,387   | ) |  |   | (1,284  | ) |  | 116.4  | % 
|IMPSAT USA       |                   |                    | (1,146  | )        |  |   | (1,043   | ) |  |   | 103     |   |  | (9.0   | )%
|Other(1)         |                   |                    | (13,547 | )        |  |   | (19,513  | ) |  |   | (5,966  | ) |  | 44.0   | % 
|                 |                   |                    |         |          |  |   |          |   |  |   |         |   |  |        |   
|Total            |                   | $                  | (14,219 | )        |  | $ | (36,248  | ) |  | $ | (22,029 | ) |  | 154.9  | % 
|                 |                   |                    |         |          |  |   |          |   |  |   |         |   |  |        |   

---

|(1) | This includes net income (loss) of International Satellite Capacity Holding, Ltd and for all
inter-company transactions.
|--- | ------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

At December 31, 2006, we had total cash and cash equivalents of $21.3 million, as compared to $24.1 million as of December 31, 2005.

As of December 31, 2006, approximately $7.4 million of our cash and cash equivalents were held in Venezuelan bolivars by
IMPSAT Venezuela (based on the official exchange rate at that date of Bs.2,150 = $1.00). Foreign exchange controls instituted in Venezuela since February 2003 make it difficult to repatriate these and any other earnings from our Venezuelan
operations on a timely basis, without substantial cost. We cannot predict the extent to which we may be affected by future changes in exchange rates and exchange controls in Venezuela. Future devaluations of the Venezuelan bolivar and/or the
implementation of stiffer exchange control restrictions in that country could have a material adverse effect on the recorded U.S. dollar value of our cash and cash equivalents held by IMPSAT Venezuela and would result in a loss in future periods in
our consolidated statement of operations.

At December 31, 2006, our total indebtedness was $241.1 million, as compared to $248.1
million at December 31, 2005, of which $0.9 million represented short-term debt, $35.5 million represented current portion of long-term debt and $204.7 million represented long-term debt. Our capital expenditures budget contemplates that
we will need approximately $43.6 million (including amounts spent to date) through the end of 2007 for capital expenditures.

We
remain in default under indebtedness owed to one creditor who voted against the Plan. Under the Plan, the claims of that creditor were contingent obligations arising under guarantees by us of certain primary indebtedness of IMPSAT Argentina.
Notwithstanding our emergence from bankruptcy and the extinguishment of the guarantee as a result, an event of default occurred and is continuing with respect to the related primary underlying indebtedness of IMPSAT Argentina. In addition this
indebtedness, which relates to vendor financing totaling approximately $7.6 million in outstanding principal amount as of December 31, 2006, matured and is due and payable. IMPSAT Argentina had been in discussions with the holder of the
indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. We understand that this holder transferred the defaulted debt obligation to a new holder. IMPSAT Argentina is not in discussions with the new
holder. There is no assurance that IMPSAT Argentina will reach a definitive agreement with this holder to reschedule or restructure such obligations. Under certain circumstances, IMPSAT Argentina could be forced to seek protection or liquidate
under the bankruptcy laws of Argentina.

On July 29, 2005, we entered into amended and restated financing agreements to restructure
$125.6 million of our vendor indebtedness, the Senior Secured Notes, which were issued by IMPSAT Argentina and IMPSAT Brazil pursuant to separate credit agreements that are each guaranteed by us, and which was held by affiliates of certain members
of our Board of Directors. Prior to the amendments, such indebtedness was required to be paid in eight remaining semi-annual principal installments aggregating $15.7 million between September 2005 and March 2009. Pursuant to such amendments, we made
an initial principal repayment of $18.3 million and modified the terms of the agreements such that the remaining outstanding principal amounts will be repaid in the aggregate amounts of $20.0 million in 2007, $25.0 million in 2008 and $57.3 million
in 2009. The amended indebtedness bears interest at a rate of 12% per annum, payable semi-annually in arrears, as compared



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to 10% per annum for the period prior to the effectiveness of the amendments. The parties also agreed to amendments to the financial covenants in the
agreements to reflect current financial and operating conditions. The amended indebtedness was subjected to an optional prepayment at a cost of 101% until July 29, 2006 and at par thereafter. IMPSAT Argentina and IMPSAT Brazil (with respect to
the credit agreement to which it is a party), on the one hand, and the lenders of the amended indebtedness, on the other hand, each have an option to further amend the agreements governing such indebtedness to provide that we shall be the primary
borrower, and IMPSAT Argentina and IMPSAT Brazil the respective guarantors of the portions of the indebtedness currently owed by them, subject to certain terms and conditions. The terms and conditions of the amendments were negotiated by a special
committee of our Board of Directors that was formed to explore recapitalization alternatives. As of December 31, 2006, IMPSAT Brazil was not in compliance with certain financial ratios on its approximately $63.4 million of Senior Secured Notes.

On March 15, 2007, the Company and its subsidiaries in Argentina and Brazil entered into amendments to the Argentina Financing
Agreement and the Brazil Financing Agreement, which provided for the extension of the interest payment date under the Argentina Financing Agreement and the interest and principal payment dates under the Brazil Financing Agreement from March 25,
2007 to May 25, 2007, and the waiver through the first quarter of 2008 of the Debt Service Coverage Ratio, as defined in the Brazil Financing Agreement.

In its audit report on our consolidated financial statements for the year ended December 31, 2006, Deloitte & Touche LLP, our independent registered public accounting firm, included a paragraph that
noted that our current liquidity position, the amount of our debt obligations, and our operating results, raised substantial doubt as to our ability to continue as a going concern. Deloitte issued a similar opinion with respect to our consolidated
financial statements for the year ended December 31, 2005. Based on our current business plan, we will not internally generate sufficient funds to meet our maturing obligations during 2007. If we cannot generate sufficient cash flows to meet
our cash-flow and working capital needs, and to achieve our longer term growth and operational goals, we will require additional financing. There is no assurance that such financing will be available on acceptable terms or at all. The Companys
financial statements included in this Annual Report on Form 10-K have been prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result if we were forced to discontinue
operations. For additional information, see Note 2 to our consolidated financial statements.

As set forth in our consolidated statement of
cash flows, our operating activities provided $40.9 million in net cash flows for 2006, compared to $32.4 million provided by operating activities during 2005. The increase in cash flow provided by operating activities was primarily due to
the decrease in other non-current assets, an increase in other long-term liabilities and an increase in accrued and other liabilities.

For
2006, our investing activities used $35.3 million in net cash flows, compared to $34.3 million of net cash flows used for investing activities during the corresponding period in 2005. The increase in net cash flows used in investing
activities was principally due to an increase in purchases of property, plant and equipment offset by proceeds of $0.3 million from sales of property, plant and equipment. Our capital expenditures in 2006 represented $ 35.6 million of our net
cash flows



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compared to $34.3 million in 2005. During 2006, $7.7 million in net cash flows were used in financing activities. This compares to $37.6 million in
net cash flows used in financing activities during 2005.

At December 31, 2006, we had leased satellite capacity with annual rental
commitments of approximately $13.7 million through the year 2009 under non-cancelable agreements. The Company has entered into contracts for the purchase of satellite capacity for approximately $14.4 million through 2015. In addition, at
December 31, 2006, we had commitments to purchase telecommunications equipment amounting to approximately $5.2 million. Furthermore, we have leased from third parties a series of terrestrial links for the provision of data, Internet and
telephony services to our clients in the different countries in which we operate.

In December 2006, the City of Buenos Aires, Argentina,
sent us a tax assessment for the fourth quarterly installment of 2006 relating to a purported tax for the use of the air space in and around the City in respect of our antennas and supporting structures in the amount of approximately $1.7 million.
Included in the notice was a statement of additional assessments covering earlier years (2003 through 2005) and the first three quarters of 2006. The total amount for these earlier periods was approximately $33.1 million. If required to pay this tax
at the current rate and based on invoices received from the City of Buenos Aires through December 31, 2006, we estimate that we would be subject to an additional tax of approximately $8.6 million per year. We had previously received notices
from the City for these types of taxes, one of which related to the fiscal year 2003. The notices followed a request from the City in 2003 for information regarding our ownership of antennas for purposes of imposition of the tax. We have formally
objected to the legality of the tax and to certain factual assumptions used in calculating the tax, and have rejected each of the notices in an administrative proceeding filed before the City of Buenos Aires. We learned in July 2005 that the City
had rejected our objection to the legality of the tax through a Providencia which we have rejected and is also the subject of the administrative proceeding. In December 2006, we filed an objection with respect to the tax on antennas
assessed for the final quarter of 2006. In our objection, we reaffirmed our position that such a tax is both illegal and based on false assumptions. Our objection is pending resolution before the Citys tax authorities. In addition to the tax
claims of the City of Buenos Aires, we have received claims of a similar nature from the Municipality of Quilmes in Argentina in the amount of approximately $12.5 million, plus defaulted interest. We believe, based on our analysis of the issue and
advice of our legal counsel, that no tax is owed, and we intend to vigorously defend against any requirement that we pay taxes in connection with either of these claims. See Risk FactorsWe may be subject to significant liabilities due to
a tax on antennas imposed by the City of Buenos Aires and other municipalities.

In October 2004 the Brazilian tax authorities issued
two tax infraction notices against IMPSAT Brazil for the collection of the Import Duty and the Tax on Manufactured Products, plus fines and interests. The notice informed IMPSAT Brazil that the taxes were levied because a specific document
(Declaração de NecessidadeStatement of Necessity) was not provided by IMPSAT Brazil at the time of importation, in breach of MERCOSUR rules. The total amount of the tax assessment was approximately $4.3 million at
December 31, 2006. Oppositions were filed on behalf of IMPSAT Brazil arguing that the Argentine exporter (Corning Cable Systems Argentina S.A.) complied with the MERCOSUR rules and a favorable first instance decision was granted. However, due
to the amount involved, the case was remitted to the official compulsory review by the Federal Taxpayers Council. The administrative final decision is still pending.

In addition, in December 2004, the tax authorities of the State of São Paulo, in Brazil, issued an infraction notice for collection of Tax on Distribution of Goods and Services (ICMS) supposedly due
on the lease of movable properties by comparing such activity to communications services, on which the ICMS state tax is actually levied. The total amount of this tax assessment was approximately $5.2 million at December 31, 2006, including
interest and fines. A defense was filed on behalf of IMPSAT Brazil, arguing that the lease of assets could not be treated as a communication service subject to ICMS. The defense was rejected in the first administrative level, and an appeal to State
Administrative Court was then filed, which is pending judgment. We believe there are good grounds to have the tax assessment cancelled. However, if the tax assessment is not cancelled in the administrative level for any reason, judicial measures may
be adopted to remove such tax assessment.

Contractual Obligations and Commitments

The following table sets forth due dates of our contractual obligations as of December 31, 2006: (debt repayments denominated in local currencies
have been calculated at the exchange rate at the year ended December 31, 2006).



|                                   |  |                |        |      |   |        |  |      |        |            |   |        |  |   |         |  |   |        
|---------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---------- | - | ------ |  | - | ------- |  | - | -------
|Type of Obligations                |  | 2007           |        | 2008 |   | 2009   |  | 2010 |        | Thereafter |   | Total 
|                                   |  | (in thousands)
|Short-term debt                    |  | $              | 839    |      |   |        |  |      |        |            |   |        |  |   |         |  | $ | 839    
|                                   |  |                |        |      |   |        |  |      |        |            |   |        |  |   |         |  |   |        
|Long-term debt(1)                  |  |                | 34,239 |      | $ | 42,576 |  | $    | 58,145 |            | $ | 10,050 |  | $ | 92,903  |  |   | 237,913
|Capital lease obligations          |  |                | 1,277  |      |   | 791    |  |      | 174    |            |   | 75     |  |   |         |  |   | 2,317  
|                                   |  |                |        |      |   |        |  |      |        |            |   |        |  |   |         |  |   |        
|Subtotal                           |  |                | 35,516 |      |   | 43,367 |  |      | 58,319 |            |   | 10,125 |  |   | 92,903  |  |   | 240,230
|                                   |  |                |        |      |   |        |  |      |        |            |   |        |  |   |         |  |   |        
|Operating leases                   |  |                | 22,951 |      |   | 17,209 |  |      | 13,511 |            |   |        |  |   |         |  |   | 53,671 
|Purchase obligations(2)            |  |                | 5,206  |      |   |        |  |      |        |            |   |        |  |   |         |  |   |        
|Interest payments                  |  |                | 24,487 |      |   | 27,675 |  |      | 10,297 |            |   | 6,792  |  |   | 12,787  |  |   | 82,038 
|                                   |  |                |        |      |   |        |  |      |        |            |   |        |  |   |         |  |   |        
|Total contractual cash obligations |  | $              | 88,999 |      | $ | 88,251 |  | $    | 82,127 |            | $ | 16,917 |  | $ | 105,690 |  | $ | 376,778
|                                   |  |                |        |      |   |        |  |      |        |            |   |        |  |   |         |  |   |        

---

|(1) | 2007 amount includes the defaulted indebtedness of IMPSAT Argentina totaling approximately $7.6 million
in outstanding principal amount.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(2) | This includes commitments for
satellite capacity and terrestrial links.
|--- | -----------------------------------------------------------------------

Recent Developments

On October 25, 2006, we entered into the Merger Agreement with Global Crossing and MergerCo which provides for our merger with MergerCo. As a result
of the Merger, we will be a wholly-owned subsidiary of Global Crossing and will cease to be a public company.

Under the terms of the
Merger Agreement, our stockholders will receive, upon completion of the Merger, $9.32 in cash, without interest, for each issued and outstanding share of common stock. Each outstanding option or warrant to purchase our common stock of a per share
exercise price lower than the Merger Consideration will be converted into the right to receive a cash amount equal to the Merger Consideration less the exercise price for such option or warrant, as the case may be, net of any applicable taxes.

Our Board of Directors has unanimously approved the Merger Agreement. We, Global Crossing and MergerCo have made customary
representations, warranties and covenants in the Merger Agreement. The covenants of Impsat include, subject to certain exceptions, among other covenants to (i) conduct its business in the ordinary course consistent with past practice between
the execution of the Merger Agreement and consummation of the Merger, (ii) use, together with Global Crossing and MergerCo, commercially reasonable efforts to cause the closing to occur, (iii) hold a stockholder meeting for the purpose of
voting on the adoption of the Merger Agreement and recommend that the stockholders approve and adopt the Merger Agreement and (iv) not solicit proposals relating to an alternative acquisition proposal and subject to certain exceptions, to not
enter into discussions or negotiations concerning, or provide confidential information in connection with, an alternative acquisition proposal.

Pursuant to the terms of the Merger Agreement, we commenced an offer to purchase all of the outstanding Series A Notes and the Series B Notes at 101% of the outstanding principal amount thereof, plus accrued interest thereon (if any) to the
payment date. The closing of the offer to purchase is contingent upon the occurrence of the closing of the Merger.

In addition, as
required by the Merger Agreement, on November 2, 2006, we commenced a consent solicitation with respect to each of the indentures for the Series A and Series B Notes, which sought certain amendments to the indentures that only become effective
upon consummation of the Merger. Because we received the requisite consents from the holders of



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the Series A Notes and the holders of the Series B Notes, the Company executed and delivered supplemental indentures, which set forth the amendments to the
indentures governing the notes. The results of the consent solicitation along with the supplemental indentures were filed on a Current Report on Form 8-K filed by us with the SEC on November 17, 2006.

The consummation of the Merger is subject to a number of conditions, including, among others, (i) approval of the Merger Agreement by our
stockholders in accordance with the Delaware General Corporation Law and our Restated Certificate of Incorporation which was received on January 17, 2007, (ii) absence of any injunction or other order issued by a governmental entity of
competent jurisdiction restraining or prohibiting the consummation of the transactions contemplated by the Merger Agreement, (iii) receipt of certain required regulatory approvals and (iv) the absence of any event or circumstance which has
had or will reasonably be expected to have a material adverse effect on us. Each partys obligation to close is also subject to the accuracy of representations and warranties of and compliance with covenants by the other party to the Merger
Agreement, in each case, as set forth in the Merger Agreement.

A special meeting of the Companys stockholders was held on
January 17, 2007, and the shareholders voted in favor of the adoption of the Merger Agreement. The results of the stockholder meeting were reported in a Current Report on Form 8-K filed by us with the SEC on January 17, 2007.

We expect the Merger to be completed before May 25, 2007 after the satisfaction or waiver of the conditions precedent set forth in the Merger
Agreement, including the receipt of the remaining regulatory approval in Venezuela. On February 22, 2007, the parties amended the Merger Agreement to, among other things, extend the date by which either party may terminate the Merger Agreement,
from March 26, 2007 to April 16, 2007, to allow for more time to satisfy the conditions precedent (the Final Termination Date). On March 15, 2007, the parties further amended the Merger Agreement to additionally extend the
Final Termination Date to May 25, 2007, coincident with the date on which an affiliate of Global Crossing is required to redeem certain notes if the Merger Agreement has not theretofore closed.

The Merger Agreement contains certain termination rights for both us and Global Crossing. The Merger Agreement provides that in certain circumstances,
upon termination, we would be required to pay Global Crossing a termination fee of $5,000,000.

In connection with the Merger Agreement,
Morgan Stanley, WR Huff as well as several of our officers and a director (in their capacities as either a stockholder and/or beneficial owner of our common stock and/or a noteholder), entered into support agreements with Global Crossing. Pursuant
to the support agreements, the parties agree to support and vote in favor of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and WR Huff and Morgan Stanley agreed to tender all of their Series A and
Series B Notes pursuant to and in accordance with the terms of the offer to purchase as contemplated in the Merger Agreement. The support agreements will terminate upon the earlier of the consummation of the Merger or the termination of the Merger
Agreement. The Merger Agreement and the forms of the support agreements are attached as an exhibit to a Current Report on Form 8-K filed by us with the SEC on October 30, 2006.

Related Party Transactions

On March 15, 2007, the Company and its subsidiaries in Argentina and
Brazil entered into amendments with an affiliate of Morgan Stanley to the Argentina Financing Agreement and the Brazil Financing Agreement, which provided for the extension of the interest payment date under the Argentina Financing Agreement and the
interest and principal payment dates under the Brazil Financing Agreement from March 25, 2007 to May 25, 2007, and the waiver through the first quarter of 2008 of one of the financial covenants in the Brazil Financing Agreement.



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Forward Looking Statements

Some of the statements in this Report constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements relate to our
operations that are based on our current expectations, estimates and projections. Words such as may, will, could, would, should, anticipate, predict,
potential, continue, expects, intends, plans, projects, believes, estimates, in our view and similar expressions are used to identify these
forward-looking statements. These statements are only predictions and as such are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon
assumptions as to future events or our future financial performance that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements. As a result, these
statements speak only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

We intend that all forward-looking statements made will be subject to safe harbor protection of the federal securities laws pursuant to Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements include but are not
limited to:



| |  |  | our expectations and estimates as to maintenance and growth of our Broadband Network; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | future financial performance, including growth in sales and income.
| | - |  | -------------------------------------------------------------------

Factors that could cause our actual results to differ materially from those expressed in any forward-looking statements we make include those in the Risk Factors section of this Report, and the following
factors, among others:



| |  |  | the availability and terms of additional capital to fund our continuing efforts;
| | - |  | --------------------------------------------------------------------------------



| |  |  | adequacy of cash from operations for our future liquidity and working capital needs;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | inaccuracies in our forecasts of customer or market demand;
| | - |  | -----------------------------------------------------------



| |  |  | loss of a customer that provides us with significant revenues;
| | - |  | --------------------------------------------------------------



| |  |  | changes in our highly competitive market;
| | - |  | -----------------------------------------



| |  |  | changes in or developments under laws, regulations and licensing requirements;
| | - |  | ------------------------------------------------------------------------------



| |  |  | changes in telecommunications technology;
| | - |  | -----------------------------------------



| |  |  | adverse litigation results;
| | - |  | ---------------------------



| |  |  | currency fluctuations; and
| | - |  | --------------------------



| |  |  | changes in economic and political conditions in the Latin American countries where we operate.
| | - |  | ----------------------------------------------------------------------------------------------

In addition, this Report contains forward-looking statements that involve risks and uncertainties concerning Global Crossings proposed acquisition
of the Company, the Companys expected financial performance, as well as the Companys strategic and operational plans. Actual events or results may differ materially from those described in this written communication due to a number of
risks and uncertainties. The potential risks and uncertainties include, among others, the possibility that the Merger will not close or that the closing may be delayed, the possibility of the occurrence of an event that could constitute a Material
Adverse Effect as defined in the Merger Agreement, the reaction of customers of the Company to the Merger, general economic or political conditions and adverse litigation results.

These factors should not be construed as exhaustive. You should consider the limitations on, and risks associated with, forward-looking statements and
not unduly rely on the accuracy of predictions contained in such forward-looking statements. As noted above, these forward-looking statements speak only as of the date when they are made. We operate in a continually changing business environment,
and new factors that may affect our forward-looking statements emerge from time to time. We do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations, or the occurrence of
unanticipated events after the date of those statements.

Moreover, in the future, the Company, through senior management, may make
forward-looking statements that involve the risk factors and other matters described in this Form 10-K as well as other risk factors subsequently identified, including, among others, those identified in the Companys filings with the SEC on
Form 10-Q and Form 8-K.



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|Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|-------- | ---------------------------------------------------------

The sections below highlight our exposure to interest rate and foreign exchange rate risks. The analyses presented below are illustrative and should not be viewed as predictive of our future financial performance. Additionally, we cannot
assure you that our actual results in any particular year will not differ from the amounts indicated below. However, we believe that these results are reasonable based on our financial instrument portfolio at December 31, 2006 and assuming that
the hypothetical interest rate and foreign exchange rate changes used in the analyses occurred during 2007. We do not hold or issue any market risk sensitive instruments for trading purposes.

Interest Rate Risk.Our cash and cash equivalents consist of highly liquid investments with a maturity of less than 30 days. As a result of the
short-term nature of these instruments, we do not believe that a hypothetical 10% change in interest rates would have a material impact on our future earnings and cash flows related to these instruments. A hypothetical 10% change in interest rates
would also have an immaterial impact on the fair values of these instruments.

We are exposed to interest rate risk on our floating rate
indebtedness, which affects our cost of financing. At December 31, 2006, our total floating rate indebtedness aggregated $40.9 million. Our actual interest rate is not quantifiable or predictable because of the variability of future interest
rates and business requirements. We do not believe such risk is material and we do not customarily use derivative instruments to adjust interest rate risk. As of December 31, 2006, a hypothetical 100 basis point increase in the London Interbank
Offered Rate (LIBOR) would adversely affect our future annual interest cost related to our floating rate indebtedness by approximately $0.1 million annually. The fair value of financing instruments, have been determined using available market
information and interest rates as of December 31, 2006.



|                                 |      |                                     |        |      |  |   |        |   |  |      |        |            |  |       |        |            |   |        |  |   |         |  |   |        
|-------------------------------- | ---- | ----------------------------------- | ------ | ---- |  | - | ------ | - |  | ---- | ------ | ---------- |  | ----- | ------ | ---------- | - | ------ |  | - | ------- |  | - | -------
|                                 |      | Expected Maturities at December 31,
|                                 | 2007 |                                     |        | 2008 |  |   | 2009   |   |  | 2010 |        | Thereafter |  | Total |        | Fair Value
|Senior Notes (fixed rate)        |      | $                                   | 21,690 |      |  | $ | 26,690 |   |  | $    | 58,145 |            |  |       |       |            |   | 92,904 |  | $ | 199,429 |  | $ | 181,545
|Avg. interest rate               |      |                                     | 12.0   | %    |  |   | 11.87  | % |  |      | 11.97  | %          |  |       |        |            |   | 12     |  |   |         |  |   |        
|Term Notes (fixed rate)          |      |                                     | 559    |      |  |   | 126    |   |  |      | 88     |            |  |       |       |            |   |       |  | $ | 771     |  | $ | 771    
|Avg. interest rate               |      |                                     | 8.75   | %    |  |   | 8.55   | % |  |      | 8.96   | %          |  |       |        |            |   |        |  |   |         |  |   |        
|Term Notes (variable rate)       |      |                                     | 6,495  |      |  |   | 16,500 |   |  |      | 81     |            |  |       | 10,125 |            |   |       |  | $ | 33,201  |  | $ | 33,201 
|Avg. interest rate               |      |                                     | 11.22  | %    |  |   | 11.21  | % |  |      | 9.79   | %          |  |       | 12.08  |            |   |        |  |   |         |  |   |        
|Vendor Financing (variable rate) |      |                                     | 7,611  |      |  |   | 51     |   |  |      | 6      |            |  |       |       |            |   |       |  | $ | 7,668   |  | $ | 7,668  
|Avg. Interest rate               |      |                                     | 7.72   | %    |  |   | 18.9   | % |  |      | 18.9   | %          |  |       |        |            |   |        |  |   |         |  |   |        
|                                 |      |                                     |        |      |  |   |        |   |  |      |        |            |  |       |        |            |   |        |  |   |         |  |   |        
|TOTAL                            |      | $                                   | 36,355 |      |  | $ | 43,367 |   |  | $    | 58,328 |            |  | $     | 10,125 |            | $ | 92,904 |  | $ | 241,069 |  | $ | 223,187
|                                 |      |                                     |        |      |  |   |        |   |  |      |        |            |  |       |        |            |   |        |  |   |         |  |   |        

Foreign Currency Risk.A substantial portion of our costs, including lease payments for
certain satellite transponder and fiber optic capacity, purchases of capital equipment, and payments of interest and principal on our indebtedness, is payable in U.S. dollars. To date, we have not entered into hedging or swap contracts to address
currency risks because our contracts with our customers, except in Argentina and Brazil, generally have provided for payment in U.S. dollars or for payment in local currency linked to the exchange rate between the local currency and the U.S. dollar
at the time of invoicing. These contractual provisions are structured to reduce our risk if currency exchange rates fluctuate. However, given that the exchange rate is generally set at the date of invoicing and that in some cases we experience
substantial delays in collecting receivables, we are exposed to some exchange rate risk.

During January 2002, Argentina abandoned the
fixed dollar-to-peso exchange rate and devalued the Argentine peso, and, on February 3, 2002, pursuant to the pesification decree, the Argentine government announced the mandatory conversion of all foreign
currency denominated contractual obligations governed by Argentine law into Argentine pesos at a rate of one Argentine peso to one U.S. dollar. The floating exchange rate at December 31, 2006 was
pesos 3.07 = $1.00. Devaluations of the peso have and will adversely affect IMPSAT Argentinas results of operations and, in turn, our Companys consolidated results of operations and financial condition. As of
December 31, 2006, a hypothetical 10% devaluation of the peso would result in future foreign exchange losses of approximately $4.6 million on our financial debt. During the remainder of 2007, our consolidated results could be impacted
from transaction gains or losses on our dollar-denominated monetary assets and liabilities. Potential balance sheet exposures include the reduction to our consolidated stockholders equity due to the effects of lower net income on retained
earnings.

Pursuant to Brazilian law, our contracts with customers in Brazil cannot be denominated in dollars or linked to the exchange
rate between the Brazilian real and the U.S. dollar. In Brazil, we are permitted to amend the pricing of our services for our long-term telecommunication services contracts with our customers annually based on changes in the consumer price



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index in Brazil for the prior year. In Argentina, obligations that were mandatorily converted to pesos under the pesification
decree may be adjusted pursuant to an index rate based on variations in the Argentine consumer price index. These aspects of the laws in Brazil and Argentina do not eliminate completely the currency exchange risk facing our operations in those
countries. Changes in the consumer price indices in Brazil and Argentina may lag or be lower than changes in the exchange rate between the Brazil and Argentine local currencies and the U.S. dollar and therefore may not fully allow us to address the
impact of a devaluation of those currencies against the U.S. dollar. Also, contracts entered into after the pesification decrees enactment that are initially denominated in pesos are not entitled to be adjusted
according to any other consumer or other price index. Accordingly, our operations in Brazil and Argentina have exposed us, and will increase our exposure, to exchange rate risks. At December 31, 2006, the real traded at a rate of
R2.14 = $1.00. As of December 31, 2006, a hypothetical 10% devaluation of the real would result in foreign exchange losses of approximately $5.8 million on our financial debt.

As discussed above, in response to political and economic turmoil currently affecting Venezuela, the Venezuelan government imposed foreign exchange and
price controls during 2003, making it difficult for our customers in Venezuela to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls could also limit our ability to convert
local currency into U.S. dollars and transfer funds out of Venezuela. At December 31, 2003, the bolivar traded at a rate of Bs.1,600 = $1.00, and on December 31, 2004, it traded at a rate of Bs. 1,920 = $1.00. On
February 6, 2003, the Venezuelan government set a single fixed exchange rate for the bolivar against the U.S. dollar of approximately Bs.1,600 = $1.00 as part of the new currency controls. In February 2004, the Venezuelan government
further devalued its currency to Bs. 1,920 = $1.00. In a number of cases, we have agreed to receive bolivar at the official rate in payment for our services in lieu of U.S. dollars. As a result, our holdings of bolivars at
December 31, 2004 totaled Bs. 7.0 billion (or $ 3.6 million at the official exchange rate at such date). On March 5, 2005, the Venezuelan government again devalued its currency to Bs. 2,150 = $1.00. At December 31, 2006, the
bolivar continued to trade at a rate of Bs. 2,150 = $1.00. The decline in the U.S. dollar value of our cash and cash equivalents denominated in bolivarsas a result of the devaluation of the bolivar will result in a loss in
our consolidated financial statements.

Net revenues from services from our Argentine operations for 2006 and 2005 represented 26.6% and
30.8% of our total net revenues from services. Net revenues from services from our Brazilian operations for the years 2006 and 2005 represented approximately 23.5% and 19.0% of our total net revenues from services. Our net revenues from services in
Venezuela accounted for 11.6% and 12.2% of our net total revenues from services for the years 2006 and 2005, respectively.



|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Information required by this Item is included herein beginning on page F-1.



|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|Item 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

(a) Evaluation of disclosure controls and
procedures.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to
be

disclosed by a public company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a public company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Disclosure controls and procedures include many aspects of internal control over financial reporting.

In connection with the preparation of this annual report on Form 10-K, management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures,
pursuant to Rule 13a-15 under the Exchange Act. Based upon managements evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance
level as of December 31, 2006.

(b) Changes in internal controls.

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2006 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.



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|Item 9B. | OTHER INFORMATION
|-------- | -----------------

None.

PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

Executive Officers and Directors

The following table provides information about our directors and executive officers.



|                     |  |     |  |                                                                                        
|-------------------- |  | --- |  | ---------------------------------------------------------------------------------------
|Name                 |  | Age |  | Position                                                                               
|Ricardo A. Verdaguer |  | 56  |  | President and Chief Executive Officer                                                  
|Héctor Alonso        |  | 49  |  | Executive Vice President and Chief Financial Officer                                   
|Marcelo Girotti      |  | 42  |  | Executive Vice President, Products and Marketing                                       
|Mariano Torre Gómez  |  | 55  |  | Executive Vice President, Sales and Services                                           
|Matias Heinrich      |  | 41  |  | Executive Vice President, Network                                                      
|Guillermo V. Pardo   |  | 56  |  | Senior Vice President, Corporate Finance and Treasury, Secretary and Compliance Officer
|José R. Torres       |  | 48  |  | Senior Vice President, Accounting                                                      
|Bryan E. Bloom       |  | 48  |  | Director                                                                               
|Edward T. Dartley    |  | 42  |  | Director                                                                               
|Thomas Doster IV     |  | 38  |  | Director                                                                               
|Ignacio Troncoso     |  | 52  |  | Director                                                                               

On June 28, 2006, Mr. Edward T. Dartley was appointed as a Category Two Director to fill a vacancy
created by the resignation of Mr. Eric Koza. On November 8, 2006, Mr. Bryan E. Bloom was appointed as a Category Two Director to fill a vacancy created by the removal of Mr. William Connors. On January 25, 2007,
Mr. James E. Bolin resigned from the Board of Directors.

Biographies of Executive Officers and Directors

Ricardo A. Verdaguer has been our President and Chief Executive Officer since September 1994, and was a member of our Board of Directors from
September 1994 through October 2005. Mr. Verdaguer has been director of IMPSAT Argentina since 1988 and served as President of IMPSAT Argentina from April 1988 until February 1994. Mr. Verdaguer is also a director of Claxson Interactive
Group, Inc., a multimedia company headquartered in the United States and Argentina that provides branded entertainment content targeted to Spanish and Portuguese speakers around the world.

Héctor Alonso has been our Executive Vice President and Chief Financial Officer since June 2002, and was our Chief Operating Officer from
September 1996 until May 2002. Mr. Alonso was President of IMPSAT Colombia from September 1993 to August 1996.

Marcelo Girotti
has been our Executive Vice President, Products and Marketing since March 2003. He was Regional Manager, Southern Cone from September 2000 until March 2003 and has served as chairman of the Board of Directors of IMPSAT Argentina since March 2000. He
is also President of IMPSAT Argentina, a position he has held since August 1998. Mr. Girotti joined IMPSAT Argentina in 1992 where he has held several managerial positions, including Manager of Special Accounts from 1996 to 1997 and Business
Manager of the value-added unit from 1997 to 1998.

Mariano Torre Gómez has been our Executive Vice President, Sales
and Services since March 2003. Mr. Torre Gómez is also President of IMPSAT Brazil and Regional Manager, Brazil which positions he has held since September 2000. Mr. Torre Gómez was President of IMPSAT Colombia from July 1999
to June 2000 and of IMPSAT Venezuela from April 1997 to July 1999, and was President of IMPSAT Ecuador for two years prior to his transfer to IMPSAT Venezuela. Before that, Mr. Torre Gómez served four years at IMPSAT Argentina in the
commercial and new licenses departments.

Matias Heinrich has been our Executive Vice President, Networks since March 2003. Before
that, he was our Regional Manager, Network Operations from June 1999 and Vice President of Operations and Director of IMPSAT Venezuela from 1997



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until 1999. Mr. Heinrich joined IMPSAT Argentina in 1990 and has held several managerial positions there, including Teleport Manager from 1995 to 1996
and Terrestrial Network (Teledatos) Manager from 1996 to 1997.

Guillermo V. Pardo has served as our Senior Vice President,
Corporate Finance and Treasury since June 2002, as our Secretary since February 2000 and as our Compliance Officer since April 2003. Mr. Pardo served as our Vice President, Planning from January 1995 to May 2002. Mr. Pardo was previously
Managing Director of the Guido Di Tella companies and has had over 20 years of experience in finance positions in a number of companies in Argentina and Spain. Mr. Pardo is a member of the Board of Directors of FAIC S.A., the Fundacion Torcuato
Di Tella and the Universidad Torcuato Di Tella.

José R. Torres has served as our Senior Vice President, Accounting since
March 2003, and as a Director of IMPSAT Argentina since 1990. Previously, he was our Vice President, Administration and Chief Accounting Officer from January 1995 until March 2003.

Bryan E. Bloom has been a member of our Board of Directors since November 2006, and is in-house counsel and Portfolio Manager for W.R. Huff Asset
Management Co., L.L.C. and its affiliates. Mr. Bloom has been with the Huff group for more than 12 years. Prior to joining the Huff group, Mr. Bloom was a tax partner at Shanley & Fisher, P.C., Morristown, New Jersey. He
is admitted to the New York and New Jersey bars and is a Chartered Financial Analyst.

Edward T. Dartley has been a member of our
Board of Directors since June 2006, and is counsel to WRH Partners Global Securities, L.P., W.R. Huff Asset Management Co., L.L.C., and to their affiliates.

Thomas Doster IV, who has been a member of our Board of Directors since March 2003, is a Managing Director at Morgan Stanley & Co. Incorporated, where he has worked since 1996. Prior to joining Morgan
Stanley, Mr. Doster worked in the bank debt group at Goldman, Sachs & Co.

Ignacio Troncoso has been a member of our
Board of Directors since March 2003. He is the founder and Chief Executive Officer of PlanOK, a company that provides document management services through the world wide web. Mr. Troncoso previously served as country manager for Chile for
Raychem Corporation from July 1988 to November 1999.

Board of Directors, Committees and Attendance at Meetings

During the year ended December 31, 2006, our Board of Directors held 30 meetings, 29 of which were by telephone conference. During 2006, each of our
incumbent Directors was present for at least 75 percent of the meetings of our Board of Directors and the committees of our Board of Directors on which such Director served, with the exception of Mr. Dartley, who joined our Board of Directors
in June 2006, and has attended all meetings of our Board of Directors since that time, and Mr. Bloom, who joined our Board of Directors in November 2006, and has attended all meetings of our Board of Directors since that time.

Our Board of Directors has two standing committees: the Audit Committee and the Compensation Committee.

Audit Committee

The Audit Committee held 7 meetings
during the year ended December 31, 2006. The Audit Committee is composed of non-employee directors. The Audit Committee oversees and monitors all aspects of the Companys accounting and financial reporting processes, systems of internal
accounting and financial controls, internal audit function, annual independent audit of financial statements, and legal compliance and ethics programs as established by management and the Board of Directors. The Audit Committee also has the ultimate
authority and responsibility to select, evaluate and, where appropriate, replace the Companys independent auditors. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is publicly available on our
website at www.impsat.com and also as Exhibit A to our 2004 Schedule 14A and proxy statement filed with the SEC on March 30, 2004. The Audit Committee is currently constituted by Messrs. Edward Dartley, Thomas Doster IV and Ignacio Troncoso.

Compensation Committee

During 2006,
the Compensation Committee held 3 meetings. The Compensation Committee, composed of non-employee directors, establishes salaries, incentives and other forms of compensation for our directors and officers and recommends policies relating to our
benefit plans. The Compensation Committee is currently constituted by Messrs. Bryan Bloom and Thomas Doster IV. During 2006, Thomas Doster IV was a member of the Compensation Committee and William Connors



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was a member until October 25, 2006.

The
Company does not have a standing nominating committee (or committee performing similar functions) to nominate candidates for election to the Board of Directors. The Board of Directors does not consider it appropriate for the Company to have such a
committee because, pursuant to the Plan of Reorganization and the Companys certificate of incorporation and bylaws, until a Category Threshold is no longer satisfied with respect to a Category, the directors of that Category must be nominated
and elected by or on behalf of the related Eligible Securityholders (except for the Category One Director, who is generally required to be the Companys Chief Executive Officer). For a further explanation of the director nomination and election
process, including which Eligible Securityholders may participate in the nomination and election of directors to each Category, see Composition of Our Board of Directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the Companys directors, executive officers and persons who own more than 10% of a registered class of the Companys equity securities file with the SEC
initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of the Company. Directors, executive officers and greater than 10% stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.

To the Companys knowledge, based solely on a review of the copies of the
Section 16(a) reports furnished to the Company and written representations that no other reports were required, during 2006, all Section 16(a) filing requirements applicable to its directors, executive officers and greater than 10%
beneficial owners were complied with, except that Mr. Bloom, a director of the Company, filed a Form 3 one day late to report his appointment as a director of the Company.

Audit Committee Financial Expert

The Company has a separately-designated standing Audit Committee.
The members of the Audit Committee are Messrs. Edward T. Dartley, Thomas Doster IV and Ignacio Troncoso. Although our Board of Directors has not determined whether any of the Audit Committee members is an audit committee financial expert
(as defined in Item 401(h) of the SECs Regulation S-K), each of the current members of the Audit Committee is able to read and understand fundamental financial statements and at least one member of the Audit Committee
possesses financial sophistication, as those phrases and terms are currently used in the Nasdaq Marketplace Rules. The Company believes that the ability of the Audit Committee to perform its duties are not impaired by the absence of an
audit committee financial expert given that its members otherwise satisfy these Nasdaq standards.

Code of Ethics

The Company has adopted a Statement of Business Ethics for Directors, Officers and Employees, which we refer to as the Code of Ethics, that
applies to our directors, officers and employees (including our Chief Executive Officer, Chief Financial Officer and principal accounting officer). The Code of Ethics is publicly available on our website at www.impsat.com, or can be mailed to
shareholders upon written request to the Secretary of the Company at IMPSAT Fiber Networks, Inc., Elvira Rawson de Dellepiane 150, 8th Floor, C1107BCA Buenos Aires, Argentina. If we make any amendments to the Code of Ethics or grant any waivers from
a provision of the Code of Ethics to our Chief Executive Officer, Chief Financial Officer and principal accounting officer, we will disclose the nature of such amendment or waiver on that website. The information contained on or connected to our web
site is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the Securities and Exchange Commission (SEC).



|Item 11. | Executive Compensation
|-------- | ----------------------

Compensation Discussion &
Analysis

The Companys Compensation Committee establishes salaries, incentives and other forms of compensation for our directors
and officers and recommends policies relating to our benefit plans. The Compensation Committee charter provides that the committee shall meet at least two times per year and at such other times as it deems appropriate.

According to its charter, the Compensation Committee shall: (1) consider, approve, and, where necessary recommend to the Board of Directors for
approval, compensation and benefit plans or amendments to existing plans, cash and stock-based



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incentive compensation plans, and non-qualified deferred compensation and retirement plans, but not including Internal Revenue Code qualified retirement
plans; (2) review the implementation and administration by management of Committee-approved compensation plans; (3) review and approve performance targets required for executive incentive plans; certify the achievement of performance goals
prior to payment of performance-based compensation to individuals covered under Section 162(m) of the Internal Revenue Code; recommend approval by the Board of Directors of awards to executives to be paid pursuant to such plans; and take
actions delegated to the Committee under compensation plans; (4) review and approve corporate goals and objectives relevant to compensation and benefits for the Chief Executive Officer, evaluate the Chief Executive Officers performance in
light of those goals and objectives, and set the level of compensation of the Chief Executive Officer based on such evaluation; (5) review the total compensation to be paid or provided to certain key executives whom the Committee, in its sole
judgment, determines appropriate for such review. In establishing such compensation, the Committee utilizes where appropriate comparative data regarding executive compensation practices. The Committee utilizes flexible compensation structures to
attract, retain, and motivate and appropriately reward executives, consistent with the Companys executive compensation philosophy; (6) make recommendations to the Board of Directors with respect to incentive-compensation plans and
equity-based plans; (7) review and recommend to the Board of Directors for final approval grants of stock options, stock appreciation rights, performance shares, and other stock-related incentives; (8) periodically review annual
compensation for the Companys Board of Directors; (9) administer the 2003 Stock Incentive Plan, including the grant of options and other awards thereunder, in accordance with the terms thereof; and (10) report periodically to the
Board of Directors regarding the foregoing activities.

Purpose and Goals

The Companys overall compensation philosophy is to link a significant portion of executives total compensation to the short-term and long-term
performance of the Company so as to maximize long-term stockholder value. The policy is designed to provide a competitive compensation program that will enable our Company to attract, motivate, reward and retain executives and other employees who
have the skills, experience and talents required to promote the Companys short and long-term financial performance and growth.

Elements of
Compensation

The Company believes that the compensation of its executive officers, who provide leadership and strategic direction,
should be targeted to provide opportunities that are comparable to other similarly situated telecommunications and technology companies, and should consist of:



| |  |  | fair base salaries;
| | - |  | -------------------



| |  |  | cash bonuses based on achievement of performance objectives established by the Company; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | stock option and restricted stock grants that align management compensation with long-term value gains realized by the stockholders.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

Base Salary. Generally, the Companys salary policy is designed to provide
executive officers and other management personnel with a base salary that is competitive both for similarly situated telecommunications and technology companies and the specific countries where the Company has its operations. The Compensation
Committee believes that it is important to pay reasonable and competitive salaries. Salaries paid to executive officers (other than the Chief Executive Officer) are based on the Chief Executive Officers recommendations to the Compensation
Committee, which is responsible for reviewing and approving or disapproving those recommendations. Under the Employment Agreement with the Chief Executive Officer, the Chief Executive Officers compensation is to be reviewed by the Compensation
Committee annually no later than April 15thof each year and may be increased (but not decreased) by such
amount as the Compensation Committee in its sole discretion shall determine. Generally, an executives base salary reflects his or her level of responsibility and position in the Company.

Cash Bonus. As a further component of the total cash compensation payable to its executive officers, the Company has established the Executive
Incentive Bonus Plan, which provides for the payment of annual bonuses. This plan rewards our executive officers for their contributions to the Company and is designed to motivate them to perform to the full extent of their abilities. Cash bonuses
are generally earned based on the Companys revenue growth, EBITDA evolution and attainment of network development milestones. The amount of annual bonuses earned by executives in 2006, if any, will be determined based on the achievement of
performance targets established by the Compensation Committee on May 17, 2006 (the 2006 Bonus Program). Under the 2006 Bonus Program, the amount, if any, of bonuses are determined based on the Companys achievement of two
performance targets, one based on the Companys EBITDA less capital expenditures for 2006, and another



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based on EBITDA for 2006 less the aggregate amount of the bonus payments to be made pursuant to these bonus awards. The aggregate amount of the bonus
payments to be made will depend on the extent to which the Companys performance meets or exceeds the EBITDA target based on the Companys EBITDA less capital expenditures for 2006, ranging from $4,500,000 if the threshold EBITDA target is
met up to a maximum of $11,040,000 if the target is exceeded by at least 100%. No bonus payments will be made if the Company does not achieve its target EBITDA.

Stock Options and Restricted Stock. The Compensation Committee believes that it is important for its executive officers, who have the ability to make a substantial contribution to the long-term success of the
Company and to enhance stockholder value, to have their interests aligned with the Companys stockholders through stock ownership. Through the Companys 2003 Stock Incentive Plan, awards of options or restricted stock have been made to our
executive officers. We have generally granted stock options and/or restricted stock to our executive officers at levels comparable to competitive business entities, and such grants are intended to focus the performance of these executive officers
towards increasing long-term stockholder value. Equity compensation awards are made at the complete discretion of the Compensation Committee and have not been made since July 15, 2004.

Change of Control Arrangements

Management
Incentive Plan. Pursuant to the IMPSAT Fiber Networks, Inc. Management Incentive Plan, adopted on December 28, 2005, participants may receive a cash incentive payment, the amount of which will be determined on the earlier of
December 31, 2008 or the closing date of a change in control transaction of the Company (the Vesting Date). Such incentive payment, if any, shall be paid within 30 days of the applicable Vesting Date (the Payment Date).

The completion of the Merger will be a change in control transaction under the Management Incentive Plan. The aggregate amount of the
incentive payments under the Management Incentive Plan will be determined as of the closing date of the Merger, and each participant will receive a bonus equal to the participants allocated percentage of a bonus pool, the value of which will
be equal to $1,650,000, multiplied by an amount equal to each dollar (or fraction thereof) by which the price per share paid for our common stock in the merger exceeds $7.00. Based on the applicable allocated percentages of the bonus pool and the
per share merger consideration of $9.32 (the Merger Consideration), as agreed upon in the Merger Agreement, the amounts to be paid in connection with the Merger to certain executive officers are set forth in the Change in Control
Payments Table on page 68. However, in the event that no change in control occurs and the amount of the bonus is determined on December 31, 2008, the Compensation Committee will have the sole and absolute discretion to determine the amount, if
any, of any bonus made under the plan, but the total value of all bonuses awarded under the plan may not exceed $1,650,000 multiplied by an amount equal to each dollar (or fraction thereof) by which the per-share price of the Companys common
stock exceeds $7.00, based on the average closing prices during the thirty-day period ending on such date.

If a participant terminates his
or her employment with us, or if his or her employment is terminated by us for cause (as defined in the Management Incentive Plan), prior to the Vesting Date, he or she will not be entitled to an incentive payment. If a
participants employment with us is terminated prior to the Vesting Date by reason of death, disability, or a termination without cause, the incentive payment will be made to the participant, or his or her estate, as applicable, on the Payment
Date.

In the event of a change in control that occurs prior to the payment under the 2006 Bonus Program, participants who are also
eligible for payments under the 2006 Bonus Program will receive either a payment pursuant to the Management Incentive Plan or a payment pursuant to the 2006 Bonus Program, whichever is greater.

Section 162(m) of the Internal Revenue Code.

Section 162(m) of the Internal Revenue Code generally denies a U.S. federal income tax deduction to any publicly held corporation for compensation paid to its chief executive officer and its four other highest-paid executive officers
to the extent that any such individuals compensation exceeds $1 million, subject to certain exceptions. Certain forms of compensation meeting a tax law definition of performance-based are generally exempt from this deduction limit.
The Company does not currently intend to qualify cash compensation paid to executive officers for deductibility under Section 162(m). Further, in general, the Company does not currently have a policy that requires or encourages the Compensation
Committee to qualify other types of compensation awarded to executive officers for deductibility under Section 162(m). The potential loss of the deduction will not have a material impact on the Company.



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Compensation Tables

The following table sets forth information regarding compensation earned during 2006 by our Chief Executive Officer, Chief Financial Officer, our three other most highly compensated executive officers serving on
December 31, 2006 (the Named Executives):

Summary Compensation Table

for Fiscal Year End December 31, 2006



|                                                      |  |      |  |           |  |                                            |  |              
|----------------------------------------------------- |  | ---- |  | --------- |  | ------------------------------------------ |  | -------------
|Name and Principal Position                           |  | Year |  | Salary($) |  | Non-EquityIncentive PlanCompensation($)(1) |  | Total ($) (2)
|Ricardo Verdaguer, President and CEO                  |  | 2006 |  | 510,000   |  |                                           |  | 510,000      
|Héctor Alonso, CFO                                    |  | 2006 |  | 310,000   |  |                                           |  | 310,000      
|Marcelo Girotti, Executive VP, Product and Marketing  |  | 2006 |  | 310,000   |  |                                           |  | 310,000      
|Mariano Torre Gómez, Executive VP, Sales and Services |  | 2006 |  | 310,000   |  |                                           |  | 310,000      
|Matias Heinrich, Executive VP, Network                |  | 2006 |  | 250,000   |  |                                           |  | 250,000      

| | (1) | Non-equity incentive plan compensation amounts earned by each Named Executive pursuant to the 2006 Bonus Program will be determined based on targets established by the Compensation
Committee as described in the Compensation Discussion and Analysis on page 61. The target bonus for each of the Named Executives is set forth in the Grants of Plan-Based Awards Table. Whether 2006 performance goals have been met is expected to be
determined in late March or early April of 2007. It should be noted that if a Change in Control (as defined in the Management Incentive Plan) occurs prior to the date of the payment to the Named Executives under the 2006 Bonus Program, which payment
is required to be made within 60 days following delivery of the Companys 2006 audited financial statements (the Payment Date), the Named Executives will receive, either, amounts payable to them under the Management Incentive Plan
(as set forth in the Change in Control Payments Table) or amounts payable to them pursuant to the 2006 Bonus Program, whichever is greater.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Each Named Executives total annual compensation is enumerated in U.S. dollars. Each month, the Named Executives receive compensation payments in their local
currency. Then, the Company converts those payments into U.S. dollars and determines whether each Named Executive has received the appropriate portion of his total compensation during that period and, if necessary, pays the difference in
U.S. dollars. Messrs. Verdaguer, Alonso, Girotti and Heinrich are residents of Argentina and, therefore, their monthly payments are in Argentine pesos. Mr. Torre-Gomez is a resident of Brazil and his monthly payments are
in Brazilian reais.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table provides information regarding estimated future payouts under non-equity
incentive plan awards, which consist of potential payouts under the 2006 Bonus Program to the Companys Named Executives.

Grants of
Plan-Based Awards for Fiscal Year End

December 31, 2006



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|                    |                |                                                                 |            |         |                |  
|------------------- | -------------- | --------------------------------------------------------------- | ---------- | ------- | -------------- | -
|Name                |                | Estimated Future Payouts Under Non-Equity Incentive Plan
Awards
|                    | Minimum ($)(1) |                                                                 | Target ($) |         | Maximum ($)(2)
|Ricardo Verdaguer   |                |                                                                |            | 510,000 |                | 
|Héctor Alonso       |                |                                                                |            | 155,000 |                | 
|Marcelo Girotti     |                |                                                                |            | 155,000 |                | 
|Mariano Torre Gómez |                |                                                                |            | 155,000 |                | 
|Matias Heinrich     |                |                                                                |            | 125,000 |                | 

---

|(1) | Named Executives are to receive bonus payments only if the Company achieves its target EBITDA less capital expenditures target.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | If the Company exceeds its EBITDA less capital expenditures target for 2006 the bonus pool will be increased; provided, however, that the bonus pool shall not exceed the aggregate
of $4.5 million plus 20% of the Companys target improvement. Cash bonus payments to the Named Executives are not subject to a maximum payout restriction.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements With Messrs. Verdaguer and Alonso.

On March 25, 2003, pursuant to the
terms of the Plan of Reorganization, Messrs. Ricardo Verdaguer and Héctor Alonso entered into employment contracts with the Company. The terms of the employment agreements were negotiated between management and the creditors committee during
our Chapter 11 proceedings. Copies of these employment agreements were filed as Exhibits 10.5 and 10.6 to the Companys Quarterly Report on Form 10-Q for the first quarter of 2003. Each of these employment agreements is for a three-year term,
subject to recurrent automatic one-year renewals (unless the agreement is terminated as provided therein). Following below is a summary of the key provisions of the employment agreements.



| |  |  | Base Salary. During the initial three-year term, which ended in March 2006, Mr. Verdaguers annual base salary was $510,000 and
Mr. Alonsos annual base salary was $310,000. Both employment agreements have been automatically renewed such that their respective terms will expire on March 25, 2008 (unless the agreements are again renewed).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bonus. During their respective terms, Messrs. Verdaguer and Alonso are eligible to participate in the Companys Executive Incentive Bonus Plan. Under
this plan, if the Company and the respective executives meet certain targets for the year, as set by our Compensation Committee, the executives will receive an annual bonus equal to 100% of the executives annual base salary, subject to the
right of the Compensation Committee, in its sole discretion, to pay a lesser such percentage (or to pay no annual bonus whatsoever). The targets for each year are to be determined by our Compensation Committee by no later than March 31 of such
year and paid no later than thirty days following receipt by our Board of Directors of our audited financial statements for such year. Instead of earning cash bonuses under the Executive Incentive Bonus Plan in 2006, the Executive Officers will
receive cash bonuses for 2006 based on the achievement of performance targets established by the Compensation Committee on May 17, 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Offer Letters With Messrs. Girotti, Torre Gómez, and Heinrich. On March 25, 2003, Messrs. Marcelo Girotti, Mariano Torre Gómez and Matias Heinrich received offer letters for at will employment with the
Company. Following below is a summary of the key provisions of the employment letters.



| |  |  | Base Salary. During their respective at will employment terms, the annual base salary will be $310,000 for each of Messrs. Girotti and Torre
Gómez, and $250,000 for Heinrich.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bonus. During their respective terms, Messrs. Girotti, Torre Gómez and Heinrich will be entitled to participate in any bonus plan established by the
Company for its senior executives. Therefore, generally, they are entitled to participate in the Executive Incentive Bonus Plan. Instead of earning cash bonuses
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | under the Executive Incentive Bonus Plan in 2006, the Executive Officers will receive cash bonuses for 2006 based on the achievement of performance targets
established by the Compensation Committee on May 17, 2006.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table provides the number of shares
covered by exercisable and unexercisable stock options and unvested shares of restricted stock held by the Companys Named Executives as of the end of the last fiscal year.

Outstanding Equity Awards at Fiscal Year-End

December 31, 2006 (1)



|                    |                                                                     |                     |                                                                   |   |                         |                 |                       |                      
|------------------- | ------------------------------------------------------------------- | ------------------- | ----------------------------------------------------------------- | - | ----------------------- | --------------- | --------------------- | ---------------------
|Name                |                                                                     | Option Awards      
|                    | Number
ofSecuritiesUnderlyingUnexercisedOptions (#) Exercisable (1) |                     | Number
ofSecuritiesUnderlyingUnexercisedOptions (#) Unexercisable |   | OptionExercisePrice ($) |                 | OptionExpiration Date
|Ricardo Verdaguer   |                                                                     | 617,40019,61540,385 |                                                                   |  |                         | 15.0012.0012.00 |                       | 5/15/117/15/147/15/14
|Héctor Alonso       |                                                                     | 154,35012,14718,000 |                                                                   |  |                         | 15.0012.0012.00 |                       | 5/15/117/15/147/15/14
|Marcelo Girotti     |                                                                     | 154,35012,14718,000 |                                                                   |  |                         | 15.0012.0012.00 |                       | 5/15/117/15/147/15/14
|Mariano Torre Gómez |                                                                     | 154,35012,14718,000 |                                                                   |  |                         | 15.0012.0012.00 |                       | 5/15/117/15/147/15/14
|Matias Heinrich     |                                                                     | 154,35012,14718,000 |                                                                   |  |                         | 15.0012.0012.00 |                       | 5/15/117/15/147/15/14

---

|(1) | All option awards held by the Named Executives as of the end of the last fiscal year were fully vested and exercisable as of December 31, 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------



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The following table reflects the number of shares and value realized in connection with the exercise of
options and the vesting of restricted stock during the year ending December 31, 2006.

Option Exercises and Stock Vested

During Fiscal Year 2006



|                    |  |                                      |  |                               |  |                                        |  |                                
|------------------- |  | ------------------------------------ |  | ----------------------------- |  | -------------------------------------- |  | -------------------------------
|                    |  | Option Awards                        |  | Stock Awards                 
|Name                |  | Numberof SharesAcquiredonExercise(#) |  | Value RealizedOn Exercise ($) |  | Number ofShares Acquiredon
Vesting (#) |  | Value Realized onVesting ($)(1)
|Ricardo Verdaguer   |  |                                     |  |                              |  | 25,000                                 |  | 175,500                        
|Héctor Alonso       |  |                                     |  |                              |  | 6,250                                  |  | 43,875                         
|Marcelo Girotti     |  |                                     |  |                              |  | 6,250                                  |  | 43,875                         
|Mariano Torre Gómez |  |                                     |  |                              |  | 6,250                                  |  | 43,875                         
|Matias Heinrich     |  |                                     |  |                              |  | 6,250                                  |  | 43,875                         

---

|(1) | The value realized upon vesting of restricted stock awards is equal to the market value of shares on the vesting date multiplied by the number of shares that became vested on that
date. Because March 25, 2006 was a non-trading day, we have used the adjusted closing price of the Companys shares on March 24, 2006, which was $7.02, to compute the value realized. Awards of restricted stock were granted to the
Named Executives on March 25, 2003 pursuant to the 2003 Stock Option Plan. These shares vested in quarterly increments beginning on the date of grant and on subsequent anniversaries of the date of grant, and were fully vested as of
March 25, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table estimates payments to be made to the Named Executives in the event of certain
terminations of employment, assuming that the termination of employment occurred on December 31, 2006. The amounts payable are set forth in employment agreements for Messrs. Verdaguer and Alonso and in employment letters for Messrs. Girotti,
Torre Gómez and Heinrich. The terms of these employment agreements and letters are more fully described in the narrative following the Grants of Plan-Based Awards Table.

Severance Payments (1)



|                                |  |                     |  |                 |  |                   |  |                       |  |                  
|------------------------------- |  | ------------------- |  | --------------- |  | ----------------- |  | --------------------- |  | -----------------
|                                |  | RicardoVerdaguer($) |  | HéctorAlonso($) |  | MarceloGirotti($) |  | MarianoTorre Gómez($) |  | MatiasHeinrich($)
|Severance Payment (2)           |  | 510,000             |  | 310,000         |  | 310,000           |  | 310,000               |  | 250,000          
|Health and Welfare Benefits (3) |  | 3,307               |  | 11,046          |  |                  |  |                      |  |                 
|Total                           |  | 513,307             |  | 321,046         |  | 310,000           |  | 310,000               |  | 310,000          



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Executive Employment Agreements



| | (1) | For all Named Executives, the severance payment and benefits reflected in this table would be payable in the event of termination by the Company without cause (as defined in the
employment agreements and letters) or by the Named Executives with good reason (as defined in the employment agreements and letters). In addition, the severance payment would also be available to Messrs. Verdaguer and Alonso in the event of
termination by reason of the Named Executives death or disability, or by the Companys non-renewal of their employment agreements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In the event of the certain terminations described in footnote (1) of this table, each Named Executive would be entitled to a lump sum payment equal to 100% of his base salary.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | In the event of certain terminations described in footnote (1), Mr. Verdaguer and Mr. Alonso would be entitled to the continuation of medical, dental, life and disability
insurance coverage for 1 year following the date of termination.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the Company undergoes a change in control prior to
December 31, 2008, each of the Named Executives will be entitled to payments pursuant to Management Incentive Plan. The amounts set forth in the following chart assume a change in control occurred on December 31, 2006. The Management
Incentive Plan is more fully described in the Change of Control Arrangements section of the Compensation Discussion and Analysis.

Change in Control Payments (1)



|                          |  |                  |           |              |   |                |  |                    |         |                |   |         |  |   |        
|------------------------- |  | ---------------- | --------- | ------------ | - | -------------- |  | ------------------ | ------- | -------------- | - | ------- |  | - | -------
|                          |  | RicardoVerdaguer |           | HéctorAlonso |   | MarceloGirotti |  | MarianoTorre Gómez |         | MatiasHeinrich
|Management Incentive Plan |  | $                | 1,822,319 |              | $ | 590,584        |  | $                  | 372,043 |                | $ | 372,043 |  | $ | 372,043

---

|(1) | These potential payments are based on the per share Merger Consideration of $9.32 and the following applicable allocated percentages of the bonus pool: 47.61% for
Mr. Verdaguer, 15.43% for Mr. Alonso and 9.72% for Messrs. Girotti, Torre Gómez and Heinrich. In the event that a Change in Control occurs prior to the Payment Date, the Named Executives will receive, either, amounts payable to them
under the Management Incentive Plan (set forth in this table) or amounts payable to them pursuant to the 2006 Bonus Program, whichever is greater.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

It should also be noted that the Named Executives will not receive any consideration for their equity awards in connection with the Merger. The Merger Agreement provides that upon completion of the Merger, each stock
option, including those held by our executive officers and directors, will be cancelled and converted into the right to receive, at the effective time of the Merger, a cash amount equal to the number of shares of our common stock subject to such
stock option immediately prior to the Merger, multiplied by the excess, if any, of the $9.32 per share Merger Consideration over the per share exercise price of such stock option; however, based on our stock options held by Executive Officers, no
amount will be paid to our Executive Officers in connection with the Merger.



67



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The following table summarizes the compensation earned by directors of the Company during the last fiscal year:

Director Compensation for Fiscal Year-End

December 31, 2006 (1)



|                      |  |                                   |  |          
|--------------------- |  | --------------------------------- |  | ---------
|Name                  |  | Fees Earned or Paid inCash ($)(1) |  | Total ($)
|Bryan E. Bloom (2)    |  | 5,000                             |  | 5,000    
|James Bolin (3)       |  | 30,000                            |  | 30,000   
|William Connors (4)   |  | 31,140                            |  | 31,140   
|Edward T. Dartley (5) |  | 87,167                            |  | 87,167   
|Thomas Doster IV (6)  |  | 58,000                            |  | 58,000   
|Eric Koza (7)         |  | 22,744                            |  | 22,744   
|Ignacio Troncoso (8)  |  | 128,898                           |  | 128,898  

---

|(1) | Generally, director compensation consists of cash fees in addition to reimbursing directors for reasonable expenses incurred in connection with attending board and committee
meetings. Each director is entitled to receive a $30,000 annual retainer. In addition, each director who serves on the Audit Committee is entitled to receive an additional $20,000 annual retainer and each director who serves on the Compensation
Committee is entitled to receive an additional $10,000 annual retainer.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Bryan E. Bloom is a member of the Compensation Committee. Mr. Bloom joined the Board of Directors on November 8, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(3) | James E. Bolin is no longer a member of the Board of Directors. Pursuant to an arrangement with Morgan Stanley, Morgan Stanley is entitled to all compensation received by
Mr. Bolin for services performed as a director. Mr. Bolin disclaims any beneficial interest in these cash payments and options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | William Connors is no longer a member of the Board of Directors.
|--- | ----------------------------------------------------------------

|(5) | Edward Dartley is a member of the Audit Committee. By a resolution of the Board of Directors on October 25, 2006, Mr. Dartley was awarded a one time cash payment of
$60,000 in lieu of receiving an option award as compensation for services rendered as a director.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Thomas Doster IV is a member of the Audit Committee and the Compensation Committee. Pursuant to an arrangement with Morgan Stanley, Morgan Stanley is entitled to all compensation
received by Mr. Doster for services performed as a director. Mr. Doster disclaims any beneficial interest in these cash payments and options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Eric Koza is no longer a member of the Board of Directors.
|--- | ----------------------------------------------------------

|(8) | Ignacio Troncoso is a member of the Audit Committee. Mr. Troncosos compensation includes amounts paid in connection with his service on a special committee appointed by
the Board of Directors to explore refinancing alternatives that was terminated on October 25, 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table reflects the
number of securities underlying outstanding option awards held by directors or in connection with service of directors as of December 31, 2006. All of the option awards below were fully vested and exercisable as of December 31, 2006.



|                    |  |                                       
|------------------- |  | --------------------------------------
|Name                |  | Number of SecuritiesUnderlying Options
|James Bolin (1)     |  | 42,456                                
|Thomas Doster IV(1) |  | 40,000                                
|Ignacio Troncoso    |  | 40,000                                



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---

|(1) | Morgan Stanley is the holder of the securities underlying options granted to James Bolin and Thomas Doster as compensation for their service as directors.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

Compensation Committee Report

The Compensation
Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in the Companys Form 10-K and has recommended its inclusion.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

Security Ownership of Management and Certain Beneficial Owners

The following table sets forth
information regarding the beneficial ownership of our common stock as of March 15, 2007 by (i) each person known by Impsat to be the beneficial owner of five percent or more of the common stock, (ii) each current director of Impsat,
(iii) each Named Executive, and (iv) all current directors and executive officers of Impsat as a group. Except as otherwise indicated below, the beneficial owners of the common stock listed below have sole investment and voting power with
respect to the shares. The business address of the executive officers and directors is c/o IMPSAT Fiber Networks, Inc., Elvira Rawson de Dellepiane 150, Piso 8, C1107BCA, Buenos Aires, Argentina.



|                                                   |                       |                           |            |      |  
|-------------------------------------------------- | --------------------- | ------------------------- | ---------- | ---- | -
|Name and Address of Beneficial Owner               |                       | Shares Beneficially Owned |           
|                                                   | Number ofTotal Shares |                           | Percent(1) |     
|Common Stock                                       |                       |                           |            |      |  
|                                                   |                       |                          
|Beneficial Owners of more than 5%                  |                       |                           |            |      |  
|Morgan Stanley & Co. Incorporated(2)               |                       | 3,165,645                 |            | 29.8 | %
|William R. Huff(3)                                 |                       | 2,915,469                 |            | 22.3 | %
|Nortel Networks Limited(4)                         |                       | 2,755,108                 |            | 21.5 | %
|UBS Securities LLC(5)                              |                       | 1,918,380                 |            | 18.9 | %
|James G. Dinan(6)                                  |                       | 1,522,758                 |            | 14.6 | %
|SDS Capital Group SPC, Ltd.(7)                     |                       | 534,659                   |            | 5.3  | %
|                                                   |                       |                          
|Directors and Executive Officers                   |                       |                           |            |      |  
|Ricardo A. Verdaguer                               |                       | 1,630,721                 |            | 15.1 | %
|Edward Dartley(3)                                  |                       | 2,000                     |            | 0.0  | %
|Bryan E. Bloom(3)                                  |                       |                          |            |     |  
|Thomas Doster IV(2)                                |                       |                          |            |     |  
|Ignacio Troncoso                                   |                       | 40,000                    |            | 0.4  | %
|Héctor Alonso                                      |                       | 209,497                   |            | 2.0  | %
|Marcello Girotti                                   |                       | 195,392                   |            | 1.9  | %
|Mariano Torre Gómez                                |                       | 205,352                   |            | 2.0  | %
|Matias Heinrich                                    |                       | 202,118                   |            | 2.0  | %
|Guillermo V. Pardo                                 |                       | 132,913                   |            | 1.3  | %
|José R. Torres                                     |                       | 132,913                   |            | 1.3  | %
|All Directors and Officers as a Group (11 persons) |                       | 1,906,265                 |            | 16.1 | %

---

|(1) | For purposes of this table, beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to which a person or
group of persons is deemed to have beneficial ownership of any shares of common stock that such person has the right to acquire within 60 days. The percentage of total outstanding for each stockholder is calculated by dividing
(i) the number of shares of common stock deemed to be beneficially owned by such stockholder as of March 15, 2007 by (ii) the sum of (A) the number of shares of common stock outstanding as of March 15, 2007 plus (B) the
number of shares of our common stock issuable upon the exercise of options or warrants or conversion of convertible securities held by such stockholder that were exercisable or convertible as of March 15, 2007 or will become exercisable or
convertible within 60 days thereafter. This calculation is required irrespective of the price at which the shares of common stock may be acquired.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Represents 2,701,511 shares of our common stock, Series B 6% Senior Guaranteed Convertible Notes due 2011 (Series B Notes) convertible into 424,134 shares of our common
stock at a conversion price of $20.78, and stock options for 40,000 shares of our common stock, 30,000 of which are exercisable at $6.17 per share and 20,000 of which are exercisable at $15.00 per share, and 32,546 of which are exercisable at $7.05
per share. Mr. Doster is employed in various capacities by Morgan Stanley. He disclaims any beneficial interest in these shares owned by Morgan Stanley. The address for Morgan Stanley is 1585 Broadway, New York, NY 10036.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents Series A Notes convertible into 2,046,448 shares of our common stock at a conversion price of $13.56, Series B Notes convertible into 548,700 shares of our common stock
at a conversion price of $20.78, and currently exercisable Warrants to purchase 320,321 shares of our common stock which are exercisable at a price of $15.00 per warrant, all of which are controlled by Mr. William R. Huff through
controlled entities: WRH Partners Global Securities, L.P., W.R. Huff Asset Management Co., L.L.C. and certain other affiliated limited partnerships for their clients and/or on behalf of certain separately managed accounts. As of March 15, 2007,
Messrs. Dartley and Bloom were employees of W.R. Huff Asset Management Co., L.L.C. Messrs. Dartley and Bloom disclaim any beneficial interest in these shares. The address for Mr. William R. Huff is c/o W.R. Huff Asset Management
Co., L.L.C., 1776 On the Green, 67 Park Place, Morristown, New Jersey 07960.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Represents 5,199 shares of our common stock and currently exercisable Warrants to purchase 2,769,909 shares of our common stock which are exercisable at a price of $15.00 per
warrant. The address of Nortel is 8200 Dixie Road, Suite 100, Brampton, Ontario, L6T 5P6 Canada.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | UBS Securities LLC, a Delaware limited liability company, is 100%-owned, directly or indirectly, by UBS AG, a Switzerland entity. By reason of its ownership of UBS Securities LLC,
UBS AG shares investment and voting power with respect to the shares of our common stock held by UBS Securities LLC. UBS AG disclaims beneficial ownership of any of the shares of our common stock owned by UBS Securities LLC. UBS Securities
LLCs address is 677 Washington Boulevard, Stamford, Connecticut 06901 and UBS AGs address is Bahnhofstrasse 45, PO Box CH-8021, Zurich, Switzerland.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 1,276,100 shares of common stock and Series A Notes convertible into 246,658 shares of our common stock, which are exercisable at a price of $15.00 per warrant all held by
Mr. James G. Dinan, senior managing member of Dinan Management, L.L.C., through (i) six controlled entities: York Investment Limited, York Capital Management, L.P., York Select, L.P., York Select Unit Trust, York Distressed
Opportunities Fund, L.P., and York Offshore Investors Unit Trust; and (ii) certain other funds and accounts (Managed Accounts) over which Mr. Dinan has discretionary investment authority. Mr. Dinan is the President and
sole shareholder of JGD Management Corp., a Delaware corporation, which manages the Managed Accounts. The address for Mr. James G. Dinan is 350 Park Avenue, 4th Floor, New York, NY 10022.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | SDS Management, LLC, a Delaware limited liability company, is the investment manager of SDS Capital Group SPC, Ltd., a Cayman Islands corporation. Mr. Steven Derby, a United
States citizen, is the sole managing member of SDS Management, LLC. SDS Management, LLC and Mr. Steven Derby disclaim beneficial ownership of any of the shares of our common stock owned by SDS Capital Group SPC, Ltd. The address of SDS Capital
Group SPC, Ltd. is c/o SDS Management, LLC, 53 Forest Avenue, 2nd Floor, Old Greenwich, Connecticut 06870.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On
October 25, 2006, the Company entered into the Merger Agreement with Global Crossing and MergerCo. to be acquired in a merger transaction. Under the terms of the Merger Agreement, our shareholders will receive $9.32 in cash, without interest,
for each share of our common stock they hold. The Merger was approved by our shareholders on January 17, 2007 and is subject to other conditions. We expect the Merger to be completed before May 25, 2007 after the satisfaction or waiver of
the conditions precedent set forth in the Merger Agreement, including the receipt of the remaining regulatory approval in Venezuela. Upon closing of the Merger, we will be wholly owned by Global Crossing and shares of our common stock will no longer
be traded on the Nasdaq OTC Bulletin Board. See Recent Developments and Forward Looking Statements for additional information.

Equity Compensation Plans

2003 Stock Incentive Plan. We adopted the 2003 Stock Incentive Plan on the Effective Date
in accordance with the Plan of Reorganization. The 2003 Stock Incentive Plan provides for the grant to our officers, key employees, consultants, advisors, directors or affiliates of (i) incentive stock options within the meaning of
Section 422 of the U.S. Internal Revenue Code of 1986, as amended, (ii) stock options that are non-qualified for U.S. federal income tax purposes, (iii) restricted stock grants and (iv) stock appreciation rights (collectively the
Awards). The total number of shares of common stock for which Awards may be granted pursuant to the 2003 Stock Incentive Plan is 3,087,044, subject to certain adjustments reflecting changes in our capitalization (provided that no more
than 200,000 shares of common stock may be issued pursuant to Awards that are not stock options or stock appreciation rights). The 2003 Stock Incentive Plan is administered by our Compensation Committee. The Compensation Committee determines, among
other things, which of our officers, employees, consultants, advisors, affiliates



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and directors will receive Awards under the plan, the time when Awards will be granted, and the type of Awards to be granted. Awards granted under the 2003
Stock Incentive Plan are on such terms, including the number of shares subject to each Award, the time or times when the Awards will become exercisable, and the price and duration of the Award, as determined by the Compensation Committee.

The exercise price of incentive and non-qualified stock options is determined by the Compensation Committee. In the case of incentive
stock options and other options intended to qualify as performance-based compensation under Section 162(m) of the U.S. Internal Revenue Code, the exercise price may not be less than the fair market value of the common stock on the
date of grant. The term of any option may not exceed ten years from the date of grant (or five years in the case of an incentive stock option granted to an employee owning 10% or more of our voting stock).

Payment of the exercise price of a stock option or stock appreciation right must be made by cash or, in the sole discretion of the Compensation
Committee, by promissory note, tender of shares of common stock then owned by the optionee or, subject to certain conditions, the surrender to us of an exercisable option to purchase shares of common stock under the 2003 Stock Incentive Plan. Stock
options and stock appreciation rights granted pursuant to the 2003 Stock Incentive Plan are generally not transferable, other than by will or the laws of descent and distribution in the event of death.

Our Board of Directors has the right at any time and from time to time to amend or modify the 2003 Stock Incentive Plan, without the consent of our
stockholders (unless otherwise required by law) or grantees of Awards; provided that no such action may adversely affect Awards previously granted without the grantees consent.

Equity Compensation Plan Information. The following table summarizes information, as of December 31, 2006, relating to equity compensation
plans of the Company pursuant to which grants of options, restricted stock, or certain other rights to acquire shares may be granted from time to time.



|                                                              |  |                                                                                  |  |                                                                    |       |                                                                                                                                                 |          
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ------------------------------------------------------------------ | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                              |  | (a) Number ofsecurities to beissued uponexercise ofoutstanding optionsand rights |  | (b) Weighted-averageexercise price ofoutstandingoptions and rights |       | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities
reflected in column (a))
|Plan category                                                 |  |                                                                                  | 
|Equity compensation plans approved by security holders(1)     |  | 1,834,138                                                                        |  | $                                                                  | 14.28 |                                                                                                                                                 | 1,052,906
|Equity compensation plans not approved by security holders(2) |  | 40,000                                                                           |  | $                                                                  | 8.38  |                                                                                                                                                 | 0        
|Total                                                         |  | 1,874,138                                                                        |  | $                                                                  | 14.16 |                                                                                                                                                 | 1,052,906

---

|(1) | Our 2003 Stock Incentive Plan is our only equity compensation plan. Pursuant to Section 303 of the Delaware General Corporation Law, our implementation of the 2003 Stock
Incentive Plan pursuant to the Plan of Reorganization is deemed to have been made with like effect as if taken by unanimous action of the directors and stockholders.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents grants of options to purchase common stock of the Company granted to Morgan Stanley & Co. Incorporated in recognition of the service of Mr. Doster as a
director of the Company. See Note 10 to the financial statements for a description of the material terms of these grants.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 13. | Certain Relationships and Related Transactions and Director Independence
|-------- | ------------------------------------------------------------------------

Impsat has adopted standards for director independence pursuant to Nasdaq Marketplace Rules and SEC rules. An independent director means a person other than an officer or employee of Impsat or its
subsidiaries, or any other individual having a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To be considered independent, the Board must
affirmatively determine that neither the director nor an immediate family member of the director has had any direct or indirect material relationship with Impsat



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within the last three years.

The Board
considered relationships, transactions and/or arrangements with each of the directors and concluded that none of the directors has any relationships with Impsat that would impair his independence. The Board has determined that each member of the
Board is an independent director under applicable Nasdaq Marketplace Rules and SEC Rules. In addition, the Board has also determined that: (i) all directors who serve on the Audit and Compensation Committees are independent under applicable
Nasdaq Marketplace Rules and SEC rules, and (ii) all members of the Audit Committee meet the additional independence requirement that they not directly or indirectly receive compensation from Impsat other than their compensation as directors.

Overview

In the normal course of
business, we may engage in transactions with companies in which direct or indirect material interests are held by our directors, executive officers, five-percent stockholders, or immediate family members of any of the preceding persons. The
following is a description of the most significant of these transactions during 2006. Although we believe that these transactions are generally conducted on an arms length basis, conflicts of interest are inherent in these transactions.

Transactions with Related Persons

It
is our policy that all employees and Directors, as well as their family members, must avoid any activity that is or has the appearance of conflicting with Impsats business interest. This policy is included in our Statement of Business Ethics
for Directors, Officers and Employees, which was approved by the Companys Board of Directors on August 7, 2003. Each Directors and executive officer is instructed to inform the Audit Committee when confronted with any situation that may
be perceived as a conflict of interest. In addition, at least annually, each Director and Executive Officer completes a detailed questionnaire specifying any business relationship that may give rise to a conflict of interest.

Affiliates of Directors

On July 29, 2005, we
entered into the Argentina Financing Agreement and the Brazil Financing Agreement to restructure $125.6 million of the Senior Secured Notes, which are held by affiliates of certain members of our Board of Directors. The restructured Senior Secured
Notes were, and continue to be, held by MSSF and, through participation, accounts of WR Huff. In addition, affiliates of MSSF hold a significant portion of the Companys common stock and Series B Notes, and have been granted stock options. WR
Huff holds a significant portion of the Series A Notes and Series B Notes. The terms and conditions of the Financing Agreements were negotiated by a special committee of the Companys Board of Directors that (i) was formed to explore
recapitalization alternatives, (ii) retained Lehman Brothers Inc. as its exclusive financial advisor and (iii) received an opinion from Lehman Brothers Inc. that the restructuring transaction was fair to the Company, IMPSAT Argentina and
IMPSAT Brazil.

The amended indebtedness bears interest at a rate of 12% per annum, payable semi-annually in arrears, as compared to
10% per annum for the period prior to the effectiveness of the amendments. The parties also agreed to amendments to the financial covenants in the agreements to reflect current financial and operating conditions. The amended indebtedness is
subject to optional prepayment at par. Each of IMPSAT Argentina and IMPSAT Brazil (with respect to the Financing Agreement to which it is a party), on the one hand, and the lenders of the amended indebtedness, on the other hand, have an option to
further amend the agreements governing such indebtedness to provide that the Company will be the primary borrower, and IMPSAT Argentina and IMPSAT Brazil the respective guarantors of the portions of the indebtedness currently owed by them, subject
to certain terms and conditions.

On March 15, 2007, the Company and its subsidiaries in Argentina and Brazil entered into amendments
to the Argentina Financing Agreement and the Brazil Financing Agreement, which provided for the extension of the interest payment date under the Argentina Financing Agreement and the interest and principal payment dates under the Brazil Financing
Agreement from March 25, 2007 to May 25, 2007, and the waiver through the first quarter of 2008 of the Debt Service Coverage Ratio, as defined in the Brazil Financing Agreement.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



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The following table presents aggregate fees billed to the Company for the years ended December 31,
2006 and 2005 by the Companys independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, the Deloitte Entities):



|                      |  |      |           |      |   |        
|--------------------- |  | ---- | --------- | ---- | - | -------
|                      |  | 2006 |           | 2005
|Audit Fees(1)         |  | $    | 1,213,037 |      | $ | 698,675
|Audit-Related Fees(2) |  |      | 134,605   |      |   | 33,893 
|Tax Fees(3)           |  |      | 153,566   |      |   | 151,732
|All Other Fees(4)     |  |      |          |      |   |       
|Total Fees            |  | $    | 1,501,244 |      | $ | 884,300

---

|(1) | Audit services of the Deloitte Entities for 2006 consisted of the examination of the consolidated financial statements of the Company, quarterly reviews of the consolidated
financial statements and review of SEC filings and local statutory audits.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Audit-Related Fees during 2006 related to an offering circular and comfort letter and 2005 related to an SEC comment letter.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(3) | Tax Fees include charges primarily related to tax return preparation and tax consulting services.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | There were no other fees in 2006 and 2005.
|--- | ------------------------------------------

All services
rendered by the Deloitte Entities were permissible under applicable laws and regulations, and those rendered during 2006 were pre-approved by the Audit Committee. The Audit Committee has not adopted a formal policy regarding the pre-approval of all
audit and permissible non-audit services provided by the Companys independent auditors. It is that Committees procedure to approve of any engagement or accounting project involving the independent auditors, and the related fees, prior to
commencement of the engagement or project. Projects are approved at the regular meetings of the Audit Committee. If a project requiring pre-approval surfaces between meetings, one or more designated members of the Audit Committee may review the
project and provide the required pre-approval, provided that such pre-approval is subsequently presented to the entire Audit Committee at its next meeting.

PART IV



|Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
|-------- | ----------------------------------------------------

(a)(1)
List of Financial Statements

Consolidated Financial Statements of IMPSAT Fiber Networks, Inc. and Subsidiaries



| |  |  | Consolidated Balance Sheets as of December 31, 2005 and 2006
| | - |  | ------------------------------------------------------------



| |  |  | Consolidated Statements of Operations for the Years Ended December 31, 2004, 2005 and 2006
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2004, 2005 and 2006
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2004, 2005 and 2006
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2005 and 2006
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Notes to the consolidated financial statements
| | - |  | ----------------------------------------------

(a)(2) List of Schedules.

All schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are omitted because they are not applicable, or the information is included in the financial statements included herein.

(a)(3) Exhibits

The exhibits listed in the accompanying Exhibit Index listed below under Item 15(b) and required by
Item 601 of Regulation S-K (numbered in accordance with Item 601 of Regulation S-K) are filed or incorporated by reference as part of this Report.



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Item 15(b)

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2.1         |  | Agreement and Plan of Merger dated as of October 25, 2006 among Global Crossing Limited, GC Crystal Acquisition, Inc. and IMPSAT Fiber Networks, Inc. (filed on October 30, 2006 as Exhibit No.
2.1 to the Companys Current Report on Form 8-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                               
|            | 
|2.2         |  | Amendment to Agreement and Plan of Merger among Global Crossing Limited, GC Crystal Acquisition, Inc. and IMPSAT Fiber Networks, Inc., dated as of February 22, 2007 (filed on February 26, 2007
as Exhibit No. 2.1 to the Companys Current Report on Form 8-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                               
|            | 
|2.3         |  | Second Amendment to Agreement and Plan of Merger among Global Crossing Limited, GC Crystal Acquisition, Inc. and IMPSAT Fiber Networks, Inc., dated as of March 15, 2007 (filed on March 19, 2007
as Exhibit No. 2.1 to the Companys Current Report on Form 8-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                              
|            | 
|3.1         |  | Restated Certificate of Incorporation of the Company (filed on March 26, 2003 as Exhibit No. 2.1 to the Companys Amendment No. 1 to Registration Statement on Form 8-A and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | 
|3.2         |  | Amended and Restated Bylaws of the Company (filed on March 31, 2006 as Exhibit 3.2 to the Companys 2005 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|4.1         |  | Indenture for the Companys 6% Senior Guaranteed Convertible Notes due 2011Series A, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT
Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.1 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                    
|            | 
|4.2         |  | Indenture for the Companys 6% Senior Guaranteed Convertible Notes due 2011Series B, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT
Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.2 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                    
|            | 
|4.3         |  | Disclosure Statement Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.2 to the Companys Current Report on Form 8-K, and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|4.4         |  | Plan of Reorganization of the Company Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.3 to the Companys Current Report on Form 8-K, and
incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|4.5         |  | Order Confirming the Companys Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated December 16, 2002 (filed on December 19, 2002 as Exhibit 99.1 to the
Companys Current Report on Form 8-K, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|4.6         |  | Registration Rights Agreement among the Company, IMPSAT Argentina and the security holders party thereto, dated as of March 25, 2003 (filed on April 15, 2003 as Exhibit 4.6 to the
Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|4.7         |  | Specimen Common Stock Certificate (filed on March 26, 2003 as Exhibit No. 2.6 to the Companys Amendment No. 1 to Registration Statement on Form 8-A and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|4.8         |  | Warrant Agreement between the Company and The Bank of New York, as warrant agent, dated as of March 25, 2003 (including form of Warrant) (filed on April 15, 2003 as Exhibit 4.8 to the
Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|4.9         |  | Form of Support Agreements by and among Global Crossing Limited and Morgan Stanley & Co., Incorporated, Global Crossing Limited and W.R. Huff Asset Management Co., LLC and Global Crossing
Limited and several officers and a director of the Company, each dated as of October 25, 2006, the forms of which are included as Exhibits A-1, A-2 and A-3 of the Agreement and Plan of Merger dated as of October 25, 2006 among Global Crossing
Limited, GC Crystal Acquisition, Inc. and IMPSAT Fiber Networks, Inc. (filed on October 30, 2006 as Exhibit No. 2.1 to the Companys Current Report on Form 8-K and incorporated herein by reference).
|            | 
|9.1         |  | 2003 Stock Incentive Plan (filed on April 15, 2003 as Exhibit 9.1 to the Companys 2002 Annual Report on Form 10-K and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Employment Agreement between Ricardo A. Verdaguer and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.5 to the Companys second quarter 2003
Quarterly Report on Form 10Q and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | 
|10.2 |  | Employment Agreement between Hector R. Alonso and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.6 to the Companys second quarter 2003 Quarterly
Report on Form 10Q and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     | 
|10.3 |  | Letter Agreement between Marcelo Girotti and the Company dated March 25, 2003 (filed on August 14, 2003 as Exhibit 10.7 to the Companys second quarter 2003 Quarterly Report on
Form 10Q and incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the following agreements were not filed as exhibits because they are substantially identical in all material respects to Exhibit
10.4: Letter Agreement between Mariano Torre Gomez and the Company dated March 25, 2003; Letter Agreement between Matias Heinrich and the Company dated March 25, 2003; Letter Agreement between Alexander Rivelis and the Company dated
March 25, 2003.
|     | 
|10.4 |  | Second Amended and Restated Financing Agreement among IMPSAT Argentina, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral
Agent, dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Companys third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).                                                                                                                                                                                                                                                                                                       
|     | 
|10.5 |  | Second Amended and Restated Financing Agreement among IMPSAT Brazil, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral Agent,
dated as of July 29, 2005 (filed on November 14, 2005 as Exhibit 10.4 to the Companys third quarter 2005 Quarterly Report on Form 10-Q and incorporated by reference herein).                                                                                                                                                                                                                                                                                                          
|     | 
|10.6 |  | IMPSAT Fiber Networks, Inc. Management Incentive Plan (filed on December 29, 2005 as Exhibit 10.1 to the Companys Current Report on Form 8-K, and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | 
|10.7 |  | Form of IMPSAT Fiber Networks, Inc. Management Incentive Plan Retention Agreement (filed on December 29, 2005 as Exhibit 10.2 to the Companys Current Report on Form 8-K, and
incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | 
|10.8 |  | First Amendment to Second Amended and Restated Financing Agreement among IMPSAT Argentina, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent
and Collateral Agent, dated as of March 15, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     | 
|10.9 |  | First Amendment to Second Amended and Restated Financing Agreement among IMPSAT Brazil, Morgan Stanley Senior Funding, Inc., and Deutsche Bank Trust Company Americas, as Administrative Agent and
Collateral Agent, dated as of March 15, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | 
|14   |  | Code of Ethics (publicly available on our website at www.impsat.com or can be mailed to shareholders upon written request to the Secretary of the Company at IMPSAT Fiber Networks, Inc., Elvira
Rawson de Dellepiane 150, 8th Floor, C1107BCA Buenos Aires, Argentina)                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | 
|21.1 |  | Subsidiaries of the Registrant (as of March 31, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     | 
|31.1 |  | Certification by the Companys Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | 
|31.2 |  | Certification by the Companys Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     | 
|32.1 |  | Certification by the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     | 
|32.2 |  | Certification by the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Buenos Aires in the Republic of Argentina, on April 9, 2007.



IMPSAT FIBER NETWORKS, INC.By:

/S/ RICARDO A. VERDAGUERRicardo A. VerdaguerPresident and Chief Executive OfficerDate: April 9, 2007




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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below (each, a Signatory) constitutes and appoints Héctor Alonso and José R. Torres (each, an Agent,
and collectively, Agents) or either of them, his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to sign this Report of
Form 10-K (this Report) and any and all amendments thereto and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the SEC. Each Signatory further grants to the Agents, and each of
them, full power and authority to do and perform each and every act and thing requisite and necessary, in the judgment of such Agent, to be done in connection with any such signing and filing, as full to all intents and purposes as he might or could
do in person, and hereby ratifies and confirms all that said Agents, or any of them, or their or his other substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed by the following persons in the capacities
and on the dates indicated.



|                         |  |                                                                                                                             |  |              
|------------------------ |  | --------------------------------------------------------------------------------------------------------------------------- |  | -------------
|Signature                |  | Title                                                                                                                       |  | Date         
|                         |  |                                                                                                                            
|/S/ RICARDO A. VERDAGUER |  | President and Chief Executive Officer of IMPSAT Fiber Networks, Inc. (principal executive officer)                          |  | April 9, 2007
|                         |  |                                                                                                                            
|                         |  |                                                                                                                            
|/S/ BRYAN BLOOM          |  | Director of IMPSAT Fiber Networks, Inc.                                                                                     |  | April 9, 2007
|                         |  |                                                                                                                            
|                         |  |                                                                                                                            
|/S/ THOMAS DOSTER IV     |  | Director of IMPSAT Fiber Networks, Inc.                                                                                     |  | April 9, 2007
|                         |  |                                                                                                                            
|                         |  |                                                                                                                            
|/S/ ED DARTLEY           |  | Director of IMPSAT Fiber Networks, Inc.                                                                                     |  | April 9, 2007
|                         |  |                                                                                                                            
|                         |  |                                                                                                                            
|/S/ IGNACIO TRONCOSO     |  | Director of IMPSAT Fiber Networks, Inc.                                                                                     |  | April 9, 2007
|                         |  |                                                                                                                            
|                         |  |                                                                                                                            
|/S/ HÉCTOR ALONSO        |  | Executive Vice President and Chief Financial Officer of IMPSAT Fiber Networks, Inc. (principal financial officer)           |  | April 9, 2007
|                         |  |                                                                                                                            
|                         |  |                                                                                                                            
|/S/ JOSE R. TORRES       |  | Senior Vice PresidentAccounting and Chief Accounting Officer of IMPSAT Fiber Networks, Inc. (principal accounting
officer) |  | April 9, 2007
|                         |  |                                                                                                                            



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

IMPSAT Fiber Networks, Inc.:

We have audited the accompanying consolidated balance sheets of IMPSAT Fiber Networks, Inc. and its subsidiaries (the Company) as of
December 31, 2005 and 2006, and the related consolidated statements of operations, comprehensive loss, stockholders equity and cash flows for each of the three years in the period ended December 31, 2006. These financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2005 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Companys current liquidity position, the amount of debt obligations and
its operating results raise substantial doubt about its ability to continue as a going concern. Managements plans concerning these matters are also described in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

As discussed in Note 1 to the consolidated financial statements, the Company entered into a definitive
merger agreement to be acquired which is expected to be completed before May 25, 2007.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

March 31, 2007



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##### Table of Contents

PART I - FINANCIAL STATEMENTS

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2005 AND 2006

(In thousands of U.S. Dollars, except share amounts)



|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                                                                       |  | 2005 |         |   | 2006 |  
|ASSETS                                                                                                                                                                                                                                                                 |  |      |         |   |      |   |         |  
|CURRENT ASSETS:                                                                                                                                                                                                                                                        |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                              |  | $    | 24,070  |   |      | $ | 21,315  |  
|Trade accounts receivable, net                                                                                                                                                                                                                                         |  |      | 35,812  |   |      |   | 41,708  |  
|Other receivables                                                                                                                                                                                                                                                      |  |      | 10,784  |   |      |   | 11,535  |  
|Prepaid expenses                                                                                                                                                                                                                                                       |  |      | 2,824   |   |      |   | 3,399   |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                                                                                                                                                   |  |      | 73,490  |   |      |   | 77,957  |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|PROPERTY, PLANT AND EQUIPMENT, Net                                                                                                                                                                                                                                     |  |      | 309,892 |   |      |   | 294,748 |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|OTHER NON-CURRENT ASSETS                                                                                                                                                                                                                                               |  |      | 16,161  |   |      |   | 14,836  |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|TOTAL ASSETS                                                                                                                                                                                                                                                           |  | $    | 399,543 |   |      | $ | 387,541 |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                   |  |      |         |   |      |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                                   |  |      |         |   |      |   |         |  
|Accounts payable- trade                                                                                                                                                                                                                                                |  | $    | 46,080  |   |      | $ | 53,902  |  
|Short- term debt                                                                                                                                                                                                                                                       |  |      | 2,168   |   |      |   | 839     |  
|Current portion of long-term debt                                                                                                                                                                                                                                      |  |      | 17,604  |   |      |   | 35,516  |  
|Current portion of deferred revenue                                                                                                                                                                                                                                    |  |      |        |   |      |   | 1,889   |  
|Interest payable                                                                                                                                                                                                                                                       |  |      | 10,453  |   |      |   | 8,416   |  
|Accrued and other liabilities                                                                                                                                                                                                                                          |  |      | 34,867  |   |      |   | 52,488  |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                                                                              |  |      | 111,172 |   |      |   | 153,050 |  
|LONG-TERM DEBT, Net                                                                                                                                                                                                                                                    |  |      | 228,331 |   |      |   | 204,714 |  
|DEFERRED REVENUE, Net                                                                                                                                                                                                                                                  |  |      |        |   |      |   | 7,169   |  
|OTHER LONG-TERM LIABILITIES                                                                                                                                                                                                                                            |  |      | 16,295  |   |      |   | 12,203  |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                                                                                      |  |      | 355,798 |   |      |   | 377,136 |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|COMMITMENTS AND CONTINGENCIES (NOTE 13)                                                                                                                                                                                                                                |  |      |         |   |      |   |         |  
|                                                                                                                                                                                                                                                                       |  |     
|STOCKHOLDERS EQUITY:                                                                                                                                                                                                                                                  |  |      |         |   |      |   |         |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares outstanding as of December 31, 2005 and 2006                                                                                                                                                  |  |      |        |   |      |   |        |  
|Common stock, $0.01 par value; 50,000,000 shares authorized 10,116,100; and 10,120,685 shares issued and outstanding as of December 31,
2006 and 2005, respectively (including 50,000 restricted shares held in the 2003 Stock Incentive Plan as of December 31, 2005) |  |      | 101     |   |      |   | 101     |  
|Additional paid in capital                                                                                                                                                                                                                                             |  |      | 90,653  |   |      |   | 90,985  |  
|Accumulated deficit                                                                                                                                                                                                                                                    |  |      | (40,990 | ) |      |   | (76,633 | )
|Deferred stock-based compensation                                                                                                                                                                                                                                      |  |      | (440    | ) |      |   |        |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                                   |  |      | (5,579  | ) |      |   | (4,048  | )
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                                                                                             |  |      | 43,745  |   |      |   | 10,405  |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|TOTAL                                                                                                                                                                                                                                                                  |  | $    | 399,543 |   |      | $ | 387,541 |  
|                                                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  

See notes to consolidated financial statements.



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##### Table of Contents

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In thousands of U.S. Dollars, except per share amounts)



|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                          |  | 2004 |         |   | 2005 |   |         | 2006 | 
|NET REVENUES:                             |  |      |         |   |      |   |         |      |  |   |         |  
|Broadband and satellite                   |  | $    | 161,964 |   |      | $ | 172,852 |      |  | $ | 184,668 |  
|Internet                                  |  |      | 26,125  |   |      |   | 30,591  |      |  |   | 36,063  |  
|Value added services                      |  |      | 16,674  |   |      |   | 24,874  |      |  |   | 35,755  |  
|Telephony                                 |  |      | 21,673  |   |      |   | 24,967  |      |  |   | 27,293  |  
|Sales of equipment                        |  |      | 1,279   |   |      |   | 690     |      |  |   | 1,190   |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Total net revenues                        |  |      | 227,715 |   |      |   | 253,974 |      |  |   | 284,969 |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|COSTS AND EXPENSES:                       |  |      |         |   |      |   |         |      |  |   |         |  
|Direct costs:                             |  |      |         |   |      |   |         |      |  |   |         |  
|Contracted services                       |  |      | 21,285  |   |      |   | 24,379  |      |  |   | 25,935  |  
|Other direct costs                        |  |      | 20,647  |   |      |   | 28,909  |      |  |   | 35,573  |  
|Leased capacity                           |  |      | 67,632  |   |      |   | 74,990  |      |  |   | 75,724  |  
|Cost of equipment sold                    |  |      | 963     |   |      |   | 631     |      |  |   | 371     |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Total direct costs                        |  |      | 110,527 |   |      |   | 128,909 |      |  |   | 137,603 |  
|Salaries and wages                        |  |      | 46,339  |   |      |   | 50,597  |      |  |   | 60,828  |  
|Selling, general and administrative       |  |      | 23,581  |   |      |   | 22,335  |      |  |   | 25,394  |  
|Gain on extinguishment                    |  |      | (115    | ) |      |   |         |      |  |   |         |  
|Depreciation and amortization             |  |      | 44,797  |   |      |   | 55,324  |      |  |   | 60,309  |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Total costs and expenses                  |  |      | 225,129 |   |      |   | 257,165 |      |  |   | 284,134 |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Operating income (loss)                   |  |      | 2,586   |   |      |   | (3,191  | )    |  |   | 835     |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|OTHER INCOME (EXPENSE):                   |  |      |         |   |      |   |         |      |  |   |         |  
|Interest income                           |  |      | 1,136   |   |      |   | 1,433   |      |  |   | 943     |  
|Interest expense                          |  |      | (21,106 | ) |      |   | (32,394 | )    |  |   | (31,975 | )
|Net gain on foreign exchange              |  |      | 5,804   |   |      |   | 10,131  |      |  |   | 7,049   |  
|Other income (expense), net               |  |      | 840     |   |      |   | (7,735  | )    |  |   | (8,238  | )
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Total other expense                       |  |      | (13,326 | ) |      |   | (28,565 | )    |  |   | (32,221 | )
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Loss before income taxes                  |  |      | (10,740 | ) |      |   | (31,756 | )    |  |   | (31,386 | )
|Provision for foreign income taxes        |  |      | (3,479  | ) |      |   | (4,492  | )    |  |   | (4,257  | )
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|NET LOSS                                  |  | $    | (14,219 | ) |      | $ | (36,248 | )    |  | $ | (35,643 | )
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|NET LOSS PER COMMON SHARE:                |  |      |         |   |      |   |         |      |  |   |         |  
|BASIC                                     |  | $    | (1.42   | ) |      | $ | (3.61   | )    |  | $ | (3.52   | )
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|DILUTED                                   |  | $    | (1.42   | ) |      | $ | (3.61   | )    |  | $ | (3.52   | )
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES: |  |      |         |   |      |   |         |      |  |   |         |  
|BASIC                                     |  |      | 9,994   |   |      |   | 10,054  |      |  |   | 10,121  |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  
|DILUTED                                   |  |      | 9,994   |   |      |   | 10,054  |      |  |   | 10,121  |  
|                                          |  |      |         |   |      |   |         |      |  |   |         |  

See notes to consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In thousands of U.S. Dollars)



|                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                             |  | 2004 |         |   | 2005 |   |         | 2006 | 
|NET LOSS                                                                                     |  | $    | (14,219 | ) |      | $ | (36,248 | )    |  | $ | (35,643 | )
|                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|OTHER COMPREHENSIVE (LOSS) INCOME:                                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Foreign currency translation adjustment                                                      |  |      | (2,969  | ) |      |   | 429     |      |  |   | 1,531   |  
|Unrealized gain on investments available for sale                                            |  |      | 122     |   |      |   |         |      |  |   |         |  
|Reclassification adjustment for gains on investments available for sale included in net loss |  |      | (1,854  | ) |      |   |         |      |  |   |         |  
|                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|TOTAL                                                                                        |  |      | (4,701  | ) |      |   | 429     |      |  |   | 1,531   |  
|                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  
|COMPREHENSIVE LOSS                                                                           |  | $    | (18,920 | ) |      | $ | (35,819 | )    |  | $ | (34,112 | )
|                                                                                             |  |      |         |   |      |   |         |      |  |   |         |  

See notes to consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In thousands of U.S. Dollars, except for share
amounts)



|                                                        |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   |         |  
|------------------------------------------------------- | ------ | ------------ | ------ | ------------------------ | --- | ------------------------------------ | - | ------ | -------------------------------- | - | ------- | --------------------------------- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                        |        | Common Stock |        | AdditionalPaid InCapital |     | (AccumulatedDeficit)RetainedEarnings |   |        | DeferredStock- BasedCompensation |   |         | AccumulatedOtherComprehensiveLoss |  |   | Total  |  
|                                                        | Shares |              | Amount |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   | 
|BALANCE AT DECEMBER 31, 2003                            |        | 10,100,000   |        | $                        | 101 |                                      | $ | 90,294 |                                  | $ | 9,477   |                                   |  | $ | (1,320 | ) |  | $ | (1,307 | ) |  | $ | 97,245  |  
|Issuance of common stock                                |        | 16,100       |        |                          |     |                                      |   | 99     |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   | 99      |  
|Issuance of stock options to stockholder                |        |              |        |                          |     |                                      |   | 149    |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   | 149     |  
|Recognition of deferred compensation                    |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   | 440    |   |  |   |        |   |  |   | 440     |  
|Unrealized loss on investment available for sale        |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   | (1,732 | ) |  |   | (1,732  | )
|Foreign currency translation adjustment                 |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   | (2,969 | ) |  |   | (2,969  | )
|Net loss for the year                                   |        |              |        |                          |     |                                      |   |        |                                  |   | (14,219 | )                                 |  |   |        |   |  |   |        |   |  |   | (14,219 | )
|                                                        |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   |         |  
|BALANCE AT DECEMBER 31, 2004                            |        | 10,116,100   |        |                          | 101 |                                      |   | 90,542 |                                  |   | (4,742  | )                                 |  |   | (880   | ) |  |   | (6,008 | ) |  |   | 79,013  |  
|Issuance of stock options to stockholder                |        |              |        |                          |     |                                      |   | 111    |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   | 111     |  
|Recognition of deferred compensation                    |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   | 440    |   |  |   |        |   |  |   | 440     |  
|Foreign currency translation adjustment                 |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   | 429    |   |  |   | 429     |  
|Net loss for the year                                   |        |              |        |                          |     |                                      |   |        |                                  |   | (36,248 | )                                 |  |   |        |   |  |   |        |   |  |   | (36,248 | )
|                                                        |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   |         |  
|BALANCE AT DECEMBER 31, 2005                            |        | 10,116,100   |        |                          | 101 |                                      |   | 90,653 |                                  |   | (40,990 | )                                 |  |   | (440   | ) |  |   | (5,579 | ) |  |   | 43,745  |  
|Stock-based compensation                                |        |              |        |                          |     |                                      |   | 332    |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   | 332     |  
|Issuance of common stock upon exercise of stock options |        | 4,585        |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   |        |  
|Recognition of deferred compensation                    |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   | 440    |   |  |   |        |   |  |   | 440     |  
|Foreign currency translation adjustment                 |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   | 1,531  |   |  |   | 1,531   |  
|Net loss for the year                                   |        |              |        |                          |     |                                      |   |        |                                  |   | (35,643 | )                                 |  |   |        |   |  |   |        |   |  |   | (35,643 | )
|                                                        |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   |         |  
|BALANCE AT DECEMBER 31, 2006                            |        | 10,120,685   |        | $                        | 101 |                                      | $ | 90,985 |                                  | $ | (76,633 | )                                 |  | $ |       |   |  | $ | (4,048 | ) |  | $ | 10,405  |  
|                                                        |        |              |        |                          |     |                                      |   |        |                                  |   |         |                                   |  |   |        |   |  |   |        |   |  |   |         |  

See notes to consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006

(In thousands of U.S. Dollars)



|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                |  | 2004 |         |   | 2005 |   |         | 2006 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                        |  | $    | (14,219 | ) |      | $ | (36,248 | )    |  | $ | (35,643 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |      |         |   |      |   |         |      |  |   |         |  
|Amortization and depreciation                                                   |  |      | 44,797  |   |      |   | 55,324  |      |  |   | 60,309  |  
|Effect of adoption of new accounting principle                                  |  |      |         |   |      |   |         |      |  |   | 332     |  
|Gain on extinguishment                                                          |  |      | (115    | ) |      |   |         |      |  |   |         |  
|Stock-based compensation                                                        |  |      | 440     |   |      |   | 440     |      |  |   | 440     |  
|Issuance of stock options to stockholder                                        |  |      | 149     |   |      |   | 111     |      |  |   |         |  
|Deferred income tax provision (benefit)                                         |  |      | 1,612   |   |      |   | 2,107   |      |  |   | (3,719  | )
|(Reversal of ) provision for doubtful accounts                                  |  |      | (3,916  | ) |      |   | (1,062  | )    |  |   | 1,289   |  
|Paid-in-kind interest on Senior Notes                                           |  |      | 13,669  |   |      |   | 3,369   |      |  |   |         |  
|Net gain on foreign exchange                                                    |  |      | (5,804  | ) |      |   | (10,131 | )    |  |   | (7,049  | )
|Net gain on sale of investments                                                 |  |      | (1,854  | ) |      |   |         |      |  |   |         |  
|Net loss on disposals of property, plant and equipment                          |  |      | 801     |   |      |   |         |      |  |   | 1,045   |  
|Changes in assets and liabilities:                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Decrease (increase) in trade accounts receivable                                |  |      | 6,148   |   |      |   | (4,616  | )    |  |   | (6,329  | )
|(Increase) decrease in prepaid expenses                                         |  |      | (747    | ) |      |   | 211     |      |  |   | (558    | )
|(Increase) decrease in other non-current assets                                 |  |      | (886    | ) |      |   | 7,567   |      |  |   | 3,153   |  
|(Decrease) increase in accounts payable  trade                                 |  |      | (1,522  | ) |      |   | 8,060   |      |  |   | 6,348   |  
|(Decrease) increase in accrued and other liabilities                            |  |      | (6,618  | ) |      |   | 8,137   |      |  |   | 17,010  |  
|Increase in deferred revenues                                                   |  |      |         |   |      |   |         |      |  |   | 9,058   |  
|(Decrease) increase in deferred revenues and other long-term liabilities        |  |      | 3,583   |   |      |   | (820    | )    |  |   | (4,819  | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                       |  |      | 35,518  |   |      |   | 32,449  |      |  |   | 40,867  |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Net decrease in short-term investments                                          |  |      | 2,474   |   |      |   |         |      |  |   |         |  
|Purchases of property, plant and equipment                                      |  |      | (39,379 | ) |      |   | (34,305 | )    |  |   | (35,613 | )
|Proceeds from sale of property, plant and equipment                             |  |      | 583     |   |      |   |         |      |  |   | 283     |  
|Proceeds from the sale of investment                                            |  |      | 1,995   |   |      |   |         |      |  |   |         |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) investing activities                                         |  |      | (34,327 | ) |      |   | (34,305 | )    |  |   | (35,330 | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Net borrowings from (repayments of) short-term debt                             |  |      | 2,656   |   |      |   | (653    | )    |  |   | (1,603  | )
|Proceeds from long-term debt                                                    |  |      | 4,426   |   |      |   | 2,362   |      |  |   | 6,975   |  
|Repayments of long-term debt                                                    |  |      | (4,345  | ) |      |   | (39,320 | )    |  |   | (13,061 | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                             |  |      | 2,737   |   |      |   | (37,611 | )    |  |   | (7,689  | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS                     |  |      | (1,771  | ) |      |   | (118    | )    |  |   | (603    | )
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            |  |      | 2,157   |   |      |   | (39,585 | )    |  |   | (2,755  | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR                              |  |      | 61,498  |   |      |   | 63,655  |      |  |   | 24,070  |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF THE YEAR                                    |  | $    | 63,655  |   |      | $ | 24,070  |      |  | $ | 21,315  |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Interest paid                                                                   |  | $    | 3,530   |   |      | $ | 13,552  |      |  | $ | 22,014  |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Foreign income taxes paid                                                       |  | $    | 3,865   |   |      | $ | 3,678   |      |  | $ | 1,697   |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:            |  |      |         |   |      |   |         |      |  |   |         |  
|Change in unrealized gain in investment available for sale.                     |  | $    | 122     |   |      |   |         |      |  |   |         |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Issuance of common stock upon conversion of Series A Notes                      |  | $    | 99      |   |      |   |         |      |  |   |         |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Common stock of customer received in settlement of trade receivable             |  |      |         |   |      | $ | 104     |      |  |   |         |  
|                                                                                |  |      |         |   |      |   |         |      |  |   |         |  

See notes to consolidated financial statements.



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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(TABLES IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AND SHARE AMOUNTS)

1. GENERAL

IMPSAT Fiber Networks, Inc., a Delaware holding company (the Holding Company), and its subsidiaries (collectively the Company) is
a provider of integrated broadband, data, Internet, voice and data center services in Latin America. The Company offers integrated telecommunications solutions, with an emphasis on end-to-end broadband data transmission, for national and
multinational companies, financial institutions, governmental agencies and other business customers.

The Company currently provides
telecommunications services to its customers using its local access and long haul fiber optic and satellite networks. The deployed facilities include 15 metropolitan area networks in the largest cities of the region, long haul networks across
Argentina, Brazil, Chile and Colombia, and leased submarine capacity to link South America to the United States. In addition, the Company has 500,000 gross square feet of premises housing advanced hosting capabilities.

The Holding Companys operating subsidiaries are wholly owned (except for a small number of shares issued to other persons to comply with local
corporate law requirements). A listing of the Holding Companys operating subsidiaries is as follows:



|                                                           |  |                                                                                                                                                          
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Argentina Brazil Chile Colombia Ecuador Peru USA Venezuela |  | Impsat S.A. Impsat Comunicacoes Ltda. Impsat Chile S.A. Impsat S.A. Impsatel del Ecuador S.A. Impsat
S.A. Impsat USA, Inc. Telecomunicaciones Impsat
S.A.

In addition, the Company owns other subsidiaries, which serve intermediary functions to the
Holding Company and its operating subsidiaries.

On October 26, 2006, the Company entered into a definitive agreement with Global
Crossing Limited, a Bermuda corporation (Global Crossing) and GC Crystal Acquisition, Inc., a Delaware corporation (MergerCo.), a wholly owned subsidiary of Global Crossing (the Merger Agreement) to be acquired in
a merger transaction (the Merger). Under the terms of the Merger Agreement, the Companys stockholders will receive $9.32 in cash, without interest, for each share of the Companys common stock they hold (the Merger
Consideration). Each outstanding option or warrant to purchase our common stock of a per share exercise price lower than the Merger Consideration will be converted into the right to receive a cash amount equal to the Merger Consideration less
the exercise price for such option or warrant, as the case may be, net of any applicable taxes. In addition, Global Crossing will refinance, purchase, defease, repay or assume the Companys outstanding indebtedness as of the effective time of
the Merger. As a result of the Merger, the Company will become a wholly-owned subsidiary of Global Crossing and will cease to be a public company.

On January 17, 2007, the Companys stockholders approved the Merger. The consummation of the Merger is subject to the prior satisfaction or waiver (to the extent permitted by applicable law) by the Company, Global Crossing or
MergerCo, as the case may be, of the following conditions, in addition to other customary conditions:



| |  |  | approval of, or consent to, the transaction shall have been granted by each of (i) the Federal Communications Commission of the United States
(FCC), (ii) the Agência Nacional de Telecomunicações of Brazil, (iii) the Comisión Nacional de Telecomunicaciones of Venezuela and (iv) the Committee on Foreign Investment in the United States;
and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | there shall not have occurred any change, event, circumstance or development that, individually or in the aggregate, has had, or is reasonably likely to have or
result in, a material adverse effect on the Company, which is defined in the Merger Agreement as any material adverse change or effect (with or without the passage of time or otherwise) in: (i) the business, financial condition, results of
operations or assets of the Company and its subsidiaries taken as a whole or (ii) the economic or political conditions in any of Argentina, Brazil, Colombia, Ecuador or Venezuela which could be reasonably expected to result in a material
adverse change or effect of the types described in clause (i) above, excluding (in each of
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | clauses (i) and (ii)) any material adverse change or effect that results or arises from or relates to (a) changes in financial, securities or other
market conditions or prevailing interest rates or (b) actions taken with respect to any of the indebtedness in the aggregate outstanding principal amount of $7.6 million under those certain promissory notes dated August 30, 2001 and
originally payable to Compania Ericsson S.A.C.I.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to the terms of the Merger Agreement, the Company commenced an
offer to purchase all of the outstanding Series A Notes and the Series B Notes at 101% of the outstanding principal amount thereof, plus accrued interest thereon (if any) to the payment date. The closing of the offer to purchase is contingent upon
the occurrence of the closing of the Merger.

In addition, as required by the Merger Agreement, on November 2, 2006, the Company
commenced a consent solicitation with respect to each of the indentures for the Series A and Series B Notes, which sought certain amendments to the indentures that only become effective upon consummation of the Merger. Because the Company received
the requisite consents from the holders of the Series A Notes and the holders of the Series B Notes, the Company executed and delivered supplemental indentures, which set forth the amendments to the indentures governing the notes. The results of the
consent solicitation along with the supplemental indentures were filed on a Current Report on Form 8-K filed by the Company with the SEC on November 17, 2006.

The consummation of the Merger is subject to a number of conditions, including, among others, (i) approval of the Agreement by the Companys stockholders in accordance with the Delaware General Corporation
Law and its Restated Certificate of Incorporation, which was received on January 17, 2007, (ii) absence of any injunction or other order issued by a governmental entity of competent jurisdiction restraining or prohibiting the consummation
of the transactions contemplated by the Agreement, (iii) receipt of certain required regulatory approvals and (iv) the absence of any event or circumstance which has had or will reasonably be expected to have a material adverse effect on
the Company. Each partys obligation to close is also subject to the accuracy of representations and warranties of and compliance with covenants by the other party to the Agreement, in each case, as set forth in the Agreement.

The Company expects the Merger to be completed before May 25, 2007 after the satisfaction or waiver of the conditions precedent set forth in the
Merger Agreement, including the receipt of the remaining regulatory approval in Venezuela. On February 22, 2007, the parties amended the Merger Agreement to extend (i) the date by which Impsat may terminate the Merger Agreement, subject to
the Companys right to override that notice by responding with a waiver of the condition of receipt of Venezuelan regulatory approval, from February 22, 2007 to March 15, 2007 (the Initial Termination Date), and
(ii) if the Initial Termination Date shall pass, the date by which either party may terminate the Merger Agreement, from March 26, 2007 to April 16, 2007, to allow for more time to satisfy the conditions precedent (the Final
Termination Date). On March 15, 2007, the parties further amended the Merger Agreement to additionally extend the Final Termination Date to May 25, 2007, coincident with the date on which an affiliate of Global Crossing is required
to redeem certain notes if the Merger Agreement has not theretofore closed. The Initial Termination Date expired on March 15, 2007.

Upon the closing of the Merger, shares of the Companys common stock will no longer be traded on the Nasdaq OTC Bulletin Board. The Merger Agreement contains certain termination rights for both the Company and Global Crossing. The
Merger Agreement provides that in certain circumstances, upon termination, the Company would be required to pay Global Crossing a termination fee of $5,000,000. A more detailed description of the Merger Agreement is available in the Current Report
on Form 8-K that the Company filed with the SEC on October 30, 2006.

In connection with the Merger Agreement, Morgan
Stanley & Co., Incorporated (Morgan Stanley), W.R. Huff Asset Management Co., LLC (WR Huff) as well as several of the Companys officers and a director (in their capacities as either a stockholder and/or
beneficial owner of the Companys common stock and/or a noteholder), entered into support agreements with Global Crossing. Pursuant to the support agreements, the parties agree to support and vote in favor of the Merger Agreement, the Merger
and the other transactions contemplated by the Merger Agreement and WR Huff and Morgan Stanley agreed to tender all of their Series A 6% Senior Guaranteed Senior Notes due 2011 (the Series A Notes) and Series B 6% Senior Guaranteed
Senior Notes due 2011 (the Series B Notes) pursuant to and in accordance with the terms of the offers to purchase (as contemplated in the Merger Agreement). The support agreements will terminate upon the earlier of the consummation of
the Merger or the termination of the Merger Agreement. The Merger Agreement and the forms of the support agreements are attached as an exhibit to a Current Report on Form 8-K filed by the Company with the SEC on October 30, 2006.



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2. LIQUIDITY AND GOING CONCERN CONSIDERATIONS

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has incurred substantial net losses and has a working capital deficiency of $75.1 million at December 31, 2006. The Company has generated cash flows from operations of
$35.5 million, $32.4 million and $40.9 million, respectively, for the years ended December 31, 2004, 2005 and 2006 and has incurred net losses of $14.2 million, $36.2 million and $35.6 million respectively. As of December 31, 2006, the
Company had cash and cash equivalents of $21.3 million, which included approximately $8.3 million in Venezuela (see Note 3).

A significant
portion of the Companys debt is held by affiliates of certain members of the Holding Companys board of directors. Accordingly, a special committee of the Holding Companys board of directors was formed at the end of 2004 to explore
recapitalization alternatives. On July 29, 2005, the Holding Company, IMPSAT Argentina and IMPSAT Brazil entered into amendments to certain of its senior secured indebtedness, pursuant to which a principal payment of $18.3 million was made and
the amortization schedule for such indebtedness was modified, along with other terms. In addition, as discussed in Note 7, IMPSAT Argentina continues to be in default on approximately $7.6 million principal amount of vendor financing indebtedness.
Based on its current business plan, the Company will not generate sufficient internally-generated funds to meet its maturing obligations in the near future. If the Company cannot generate sufficient cash flows to meet the Companys cash flow
and working capital needs, and to achieve its longer term growth and operational goals, the Company will require additional financing, absence the Merger described in Note 1. There is no assurance that such financing will be available on acceptable
terms or at all. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Companys continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing or
refinancing as may be required, and ultimately to obtain profitable operations.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation  The financial statements are presented on a consolidated basis and include the accounts of the Holding Company and its subsidiaries.
All significant intercompany transactions and balances have been eliminated.

Use of Estimates The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America (generally accepted accounting principles) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Market Risk The Company currently operates in countries throughout Latin America. The Companys financial performance may be affected by inflation,
exchange rates and currency controls, price controls, interest rates, changes in governmental economic policies, taxation and political, economic or other developments in or affecting the Latin America countries in which the Company operates. The
Company has not entered into derivative transactions to hedge against potential foreign exchange or interest rate risks.

Currency Risks
During February 2004 and March 2005, the Venezuelan government fixed the bolivars value to the U.S. dollar at 1,920 and 2,150, respectively. These exchange controls limit the Companys ability to convert local currency into
U.S. dollars and transfer funds out of Venezuela. As of December 31, 2006, approximately $8.3 million of the Companys cash and cash equivalents were held in Venezuela (of which $7.4 million is in local currency, translated into U.S.
dollars at the fixed exchange rate imposed by the Venezuelan government).

Cash and Cash Equivalents  Cash and cash equivalents include time
deposits or money market funds with original maturities of three months or less at the time of purchase. Cash equivalents and short-term investments are stated at cost, which approximates fair value.

Revenue Recognition  Revenues from data, value-added telephony, IT solutions and Internet services are recognized monthly as the services are provided.
Equipment sales are recorded upon delivery to and acceptance by, the customer. In connection with certain of the Companys services, the Company may charge installation fees. Installation fees are generally less than the direct expenses for
installation. Therefore, installation fees are recognized upon (i) the completion of the installation of customer premise equipment and (ii) the invoicing of such fees to the customer. If the installation charges are greater than the
direct expenses, the amounts are deferred and recognized over the estimated life of the customer. For the



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years ended December 31, 2004, 2005 and 2006, installation fees amounted to $4.7 million, $5.8 million and $7.0 million, respectively and related direct
installation costs amounted to $7.4 million, $10.2 million and $11.5 million, respectively. As a result, no amounts of installation fees were deferred during these years, other than at IMPSAT USA in 2006. IMPSAT USA has deferred revenues of $7.9
million as of December 31, 2006 relating to a 2006 transaction with one customer in which the installation fees exceeded the related direct installation costs.

In addition, the Company has entered into, and may enter into in the future, agreements with carriers granting indefeasible rights of use (IRUs) and access to portions of the Companys broadband
network capacity and infrastructure. Pursuant to some of these agreements, the Company may receive fixed advance payments for the IRUs, which would be recognized as revenue ratably over the life of the IRU. Likewise, amounts received in advance
would be recorded as deferred revenue.

The Company records its revenues net of deductions for sales taxes. These taxes are assessed by the
governmental taxing authorities in a number of countries in which the Company operates based on a percentage of gross revenues and totaled approximately $10.8 million, $14.1 million and $18.2 million for the years ended December 31, 2004, 2005
and 2006, respectively.

No single customer accounted for greater than 10% of total net revenues for the years ended December 31,
2004, 2005 and 2006.

Non-Monetary Transactions  The Company may exchange capacity on its broadband network for capacity from other carriers
through the exchange of IRUs. These transactions are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 153 (SFAS No. 153), Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The amendment also eliminates the narrow
exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The Company did not have any material non-monetary transactions
during the year ended December 31, 2006.

Property, Plant and Equipment Property, plant and equipment are recorded at cost and
depreciated using the straight-line method over the following estimated useful lives:



|                                                 |  |            
|------------------------------------------------ |  | -----------
|Buildings and improvements                       |  | 10-25 years
|Operating communications equipment               |  | 5-10 years 
|Network infrastructure (including rights of way) |  | 10-20 years
|IRU investments                                  |  | 15 years   
|Furniture, fixtures and other equipment          |  | 2-10 years 

Rights of way agreements represent the fees paid and the net present value of fees to be paid per
signed agreements entered into for obtaining rights of way and other permits for the broadband network. These capitalized agreements are being amortized over the terms of the rights of way, which range from 10 to 20 years. In addition, the Company
has acquired IRUs from other entities for its own purposes. Such IRU investments are capitalized and amortized over their estimated useful lives, not to exceed 15 years. The acquired IRUs have a 25-year term. In those cases where the right of use
has been acquired for a period of time greater than 15 years, management believes that, due to anticipated advances in technology, the Companys IRUs are not likely to be productive assets beyond 15 years.

The operating communications equipment owned by the Company is subject to rapid technological obsolescence; therefore, it is reasonably possible that the
equipments estimated useful lives could change in the near future.

Long-Lived Assets Long-lived assets are reviewed on an ongoing
basis for impairment based on a comparison of carrying values to the related undiscounted future cash flows. If the carrying amounts exceed such cash flows, identifying a possible impairment, the asset carrying amounts are adjusted to fair value as
determined by appraisals by independent consultants or internal discounted cash flow models.

Income Taxes  Deferred income taxes result from
temporary differences in the recognition of income and expenses for tax and financial reporting purposes and are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes,which requires the asset and liability method of
computing deferred income taxes. Under the asset and liability method, deferred taxes are adjusted for tax rate changes as they occur.

Foreign Currency
Translation  The Holding Companys subsidiaries, except for IMPSAT Brazil, use the U.S. dollar as the functional currency. The effects of foreign currency transactions are included as net gain or loss on foreign exchange.



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IMPSAT Brazil uses the local currency as the functional currency, therefore the effects of translation are included in accumulated other comprehensive loss
within stockholders equity.

Other Expenses - Included in other income (expenses), net in the accompanying consolidated
statements of operations are approximately $7.7 million in 2005, and $8.2 million in 2006 in investment banking and other professional fees related to the debt modification discussed in Note 7 and the Merger discussed in Note 1,
respectively.

Stock-Based Compensation Prior to January 1, 2006, the Company accounted for stock option awards granted
under the Companys share-based payment plans in accordance with the recognition and measurement provision of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) and related
Interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Share-based employee compensation expense was not recognized in the Companys consolidated statement of operations prior to January 1,
2006, as all stock option awards granted under the plans had an exercise price equal to or greater than the market value of the common stock on the date of the grant. Effective January 1, 2006, the Company adopted the provisions of SFAS
No. 123 (revised 2004), Share-Based Payment, (SFAS 123R) using the modified-prospective-transition method. Under this transition method, compensation expense recognized during the year ended December 31, 2006 included
compensation expense for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. In accordance with the
modified-prospective-transition method, results for prior periods have not been restated. As a result of adopting SFAS 123R, the charge to operations for the year ended December 31, 2006 was $332. The impact of adopting SFAS 123R on both basic
and diluted earnings per share for the year ended December 31, 2006 was $0.03, per share.

In March 2003, the Holding Company adopted
the 2003 Stock Incentive Plan (the 2003 Plan), which provides for the grant to the Companys officers, key employees, consultants, advisors, directors or affiliates of (i) incentive stock options within the meaning
of Section 422 of the U.S. Internal Revenue Code of 1986, as amended, (ii) stock options that are non-qualified for U.S. federal income tax purposes, (iii) restricted stock grants and (iv) stock appreciation rights
(collectively the Awards). The total number of shares of common stock for which Awards may be granted pursuant to the 2003 Plan is 3,087,044, subject to certain adjustments reflecting changes in the Holding Companys capitalization
(provided that no more than 200,000 shares of common stock may be issued pursuant to Awards that are not stock options or stock appreciation rights). The 2003 Plan is administered by the Holding Companys compensation committee. The
compensation committee determines, among other things, which of the Companys officers, employees, consultants, advisors, affiliates and directors will receive Awards under the Plan, the time when Awards will be granted, and the type of Awards
to be granted. Awards granted under the 2003 Plan are on such terms, including the number of shares subject to each Award, the time or times when the Awards will become exercisable, and the price and duration of the Award, as determined by the
compensation committee. The expiration date of the 2003 Plan is March 25, 2013 and no Awards may be granted after said date. The termination of the Plan will not affect any Award outstanding on the date of termination.

The exercise price of incentive and non-qualified stock options is determined by the compensation committee. In the case of incentive stock options and
other options intended to qualify as performance-based compensation under Section 162(m) of the U.S. Internal Revenue Code (Section 162(m)), the exercise price may not be less than the fair market value of the common stock on
the date of grant. The term of any option may not exceed ten years from the date of grant (or five years in the case of an incentive stock option granted to an employee owning 10% or more of the companys voting stock).

Payment of the exercise price of a stock option or stock appreciation right must be made by cash or, in the sole discretion of the compensation
committee, tender of shares of the Holding Companys common stock then owned by the option or, subject to certain conditions, the surrender to the Holding Company of an exercisable option to purchase shares of the Holding Companys common
stock under the 2003 Plan. Stock options and stock appreciation rights granted pursuant to the 2003 Plan are generally not transferable, other than by will or the laws of descent and distribution in the event of death.

The Holding Companys compensation committee has the right at any time and from time to time to amend or modify the 2003 Plan, without the consent
of the Holding Companys stockholders (unless otherwise required by law or regulations, including to prevent awards from failing to qualify as performance-based compensation under Section 162(m)) or grantees of Awards. However, no such
action may adversely affect Awards previously granted without the grantees consent.

The following table illustrates the effect on
net earnings and earnings per share for the years ended December 31, 2004 and 2005 if the Company had applied the fair market value recognition provisions of SFAS 123, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, to options granted under the Companys share-based payment plans. For purposes of this pro forma disclosure, the value of the stock options is estimated using a Black-Scholes option-pricing model and
amortized to expense over the options vesting periods.



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|                                                                                           |  |                        |         |   |                        |   |         |  
|------------------------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ---------------------- | - | ------- | -
|                                                                                           |  | Year EndedDecember 31, |         |   | Year EndedDecember 31, |  
|                                                                                           |  | 2004                   |         |   | 2005                   |  
|Net loss as reported                                                                       |  | $                      | (14,219 | ) |                        | $ | (36,248 | )
|Add: Stock-based compensation expense, as reported                                         |  |                        |        |   |                        |   |        |  
|Deduct: Stock-based employee compensation expense determined under fair-value-based method |  |                        | (1,479  | ) |                        |   | (875    | )
|                                                                                           |  |                        |         |   |                        |   |         |  
|Pro forma                                                                                  |  | $                      | (15,698 | ) |                        | $ | (37,123 | )
|                                                                                           |  |                        |         |   |                        |   |         |  
|Net loss per common share: Basic: As reported                                              |  | $                      | (1.42   | ) |                        | $ | (3.61   | )
|Pro forma                                                                                  |  | $                      | (1.57   | ) |                        | $ | (3.69   | )
|Diluted: As reported                                                                       |  | $                      | (1.42   | ) |                        | $ | (3.61   | )
|Pro forma                                                                                  |  | $                      | (1.57   | ) |                        | $ | (3.69   | )

The fair value of the options granted in 2003 was estimated using the minimum value method
prescribed by SFAS No. 123, as the Companys new common stock had not traded between the date of emergence from bankruptcy and the date of the granting of the options. The assumptions used by the Company were as follows: no dividend yield;
no volatility; risk-free interest rate of 3%; and an expected term of seven years.

Fair Value of Financial Instruments  As of
December 31, 2005 and 2006, the Companys financial instruments include cash and cash equivalents, receivables, payables and short and long-term debt.

The fair value of cash and cash equivalents, receivables, payables and short-term debt and long-term debt other than those described below is equal to their carrying value due to their short term nature and/or market
rates. The Companys Series A Notes, the Series B Notes and Senior Secured Notes were valued using available interest rates for the Company.

At
December 31, 2005 and 2006, the fair value of the Companys other financial instruments was as follows:



|                                             |  |            |         |           |       |   |            |   |        
|-------------------------------------------- |  | ---------- | ------- | --------- | ----- | - | ---------- | - | -------
|2005                                         |  | Book Value |         | % of Face |       |   | Fair Value
|Series A 6% Senior Guaranteed Notes due 2011 |  | $          | 67,308  |           | 76.3  | % |            | $ | 51,383 
|Series B 6% Senior Guaranteed Notes due 2011 |  |            | 25,595  |           | 76.3  |   |            |   | 19,539 
|Senior Secured Notes 10% maturing due 2009   |  |            | 5,918   |           | 96.6  |   |            |   | 5,717  
|Senior Secured Notes 12% maturing due 2009   |  |            | 107,300 |           | 100.0 |   |            |   | 107,300
|                                             |  |            |        
|2006                                         |  | Book Value |         | % of Face |       |   | Fair Value
|Series A 6% Senior Guaranteed Notes due 2011 |  | $          | 67,308  |           | 80.8  | % |            | $ | 54,360 
|Series B 6% Senior Guaranteed Notes due 2011 |  |            | 25,595  |           | 80.8  |   |            |   | 20,671 
|Senior Secured Notes 10% maturing due 2009   |  |            | 4,226   |           | 99.7  |   |            |   | 4,214  
|Senior Secured Notes 12% maturing due 2009   |  |            | 102,300 |           | 100.0 |   |            |   | 102,300

Net Loss Per Common Share Basic loss per share is computed based on the average number of common
shares outstanding and diluted loss per share is computed based on the average number of common and potential common shares outstanding using the treasury stock method. The calculation of diluted loss per share was the same as the calculation of
basic loss per share for the years ended December 31, 2004, 2005 and 2006, since the inclusion of potential common stock in the computation would be antidilutive.

Antidilutive securities not included in diluted earnings per common share computation are as follows:



|               |  |              |                 |      |   |                 |  |   |                
|-------------- |  | ------------ | --------------- | ---- | - | --------------- |  | - | ---------------
|               |  | December 31,
|               |  | 2004         |                 | 2005 |   | 2006           
|Stock Options  |  |              | 2,068           |      |   | 2,114           |  |   | 1,917          
|               |  |              |                 |      |   |                 |  |   |                
|Exercise Price |  | $            | 6.17 to $ 15.00 |      | $ | 6.17 to $ 15.00 |  | $ | 6.17 to $ 15.00
|               |  |              |                 |      |   |                 |  |   |                



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##### Table of Contents

|                           |  |   |                  |  |   |                  |  |   |                 
|-------------------------- |  | - | ---------------- |  | - | ---------------- |  | - | ----------------
|Warrants                   |  |   | 3,257            |  |   | 3,257            |  |   | 3,257           
|                           |  |   |                  |  |   |                  |  |   |                 
|Exercise Price             |  | $ | 15.00            |  | $ | 15.00            |  | $ | 15.00           
|                           |  |   |                  |  |   |                  |  |   |                 
|Series A and B Notes       |  |   | 6,028            |  |   | 6,071            |  |   | 6,071           
|                           |  |   |                  |  |   |                  |  |   |                 
|Conversion Price           |  | $ | 13.66 to $ 20.93 |  | $ | 13.56 to $ 20.78 |  | $ | 13.56 to $ 20.78
|                           |  |   |                  |  |   |                  |  |   |                 
|Shares of restricted stock |  |   | 100              |  |   | 50               |  |   |                
|                           |  |   |                  |  |   |                  |  |   |                 

Accumulated Other Comprehensive LossAccumulated other comprehensive loss is as
follows:



|                             |  |                              |        |   |                                                |   |        |       |  |   |        |  
|---------------------------- |  | ---------------------------- | ------ | - | ---------------------------------------------- | - | ------ | ----- |  | - | ------ | -
|                             |  | FOREIGN CURRENCY TRANSLATION |        |   | UNREALIZED GAINON INVESTMENTSAVAILABLE FORSALE |   |        | TOTAL | 
|Balance at December 31, 2003 |  | $                            | (3,039 | ) |                                                | $ | 1,732  |       |  | $ | (1,307 | )
|Changes during the year      |  |                              | (2,969 | ) |                                                |   | (1,732 | )     |  |   | (4,701 | )
|                             |  |                              |        |   |                                                |   |        |       |  |   |        |  
|Balance at December 31, 2004 |  |                              | (6,008 | ) |                                                |   |       |       |  |   | (6,008 | )
|Change during the year       |  |                              | 429    |   |                                                |   |       |       |  |   | 429    |  
|                             |  |                              |        |   |                                                |   |        |       |  |   |        |  
|Balance at December 31, 2005 |  |                              | (5,579 | ) |                                                |   |       |       |  |   | (5,579 | )
|Change during the year       |  |                              | 1,531  |   |                                                |   |       |       |  |   | 1,531  |  
|                             |  |                              |        |   |                                                |   |        |       |  |   |        |  
|Balance at December 31, 2006 |  | $                            | (4,048 | ) |                                                | $ |       |       |  | $ | (4,048 | )
|                             |  |                              |        |   |                                                |   |        |       |  |   |        |  

New Accounting PronouncementsIn June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation (FIN) 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The accounting provision of FIN 48 will be effective for the Company
beginning January 1, 2007. The Company has not yet completed its evaluation of the impact of adoption on the Companys financial position or results of operations.

In December 2006, the FASB issued SFAS No. 157,Fair Value Measures (SFAS No. 157). SFAS No. 157 defines fair
value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair
value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently reviewing the provisions of SFAS No. 157 to determine the impact of adoption on the Companys financial position
or results of operations.

In June 2006, the Emerging Issues Task Force (EITF) issued EITF Issue 06-03,How Taxes Collected
from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation). A consensus was reached that entities may adopt a policy of presenting sales taxes in the
statement of operations on either a gross or net basis. If taxes are significant, an entity should disclose its policy of presenting taxes and the amounts of taxes. The guidance is effective for periods beginning after December 15, 2006.
Since the Company presents its revenues sales net of sales taxes, the adoption of EITF Issue 06-03 will have no impact on the presentation of sales tax in its consolidated statements of operations.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 requires that public companies utilize a dual-approach to assessing the quantitative effects of financial misstatements.
This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company adopted SAB 108 on December 31, 2006, and there
was no impact on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value (the fair value option).
Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is required to adopt SFAS No. 159 in the first quarter of 2008. The
Company is currently assessing the impact of SFAS No. 159 on its consolidated financial statements.

4. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, by operating subsidiaries, at December 31, 2005 and 2006, are summarized as follows:



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|                                      |  |      |         |   |      |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                      |  | 2005 |         |   | 2006 |  
|IMPSAT Argentina                      |  | $    | 17,577  |   |      | $ | 16,022  |  
|IMPSAT Brazil                         |  |      | 8,539   |   |      |   | 12,616  |  
|IMPSAT Colombia                       |  |      | 4,342   |   |      |   | 5,090   |  
|IMPSAT Venezuela                      |  |      | 7,366   |   |      |   | 7,707   |  
|All other countries                   |  |      | 8,242   |   |      |   | 10,763  |  
|                                      |  |      |         |   |      |   |         |  
|Total                                 |  |      | 46,066  |   |      |   | 52,198  |  
|Less: allowance for doubtful accounts |  |      | (10,254 | ) |      |   | (10,490 | )
|                                      |  |      |         |   |      |   |         |  
|Trade accounts receivable, net        |  | $    | 35,812  |   |      | $ | 41,708  |  
|                                      |  |      |         |   |      |   |         |  

The Companys subsidiaries provide trade credit to their customers in the normal course of
business. The collection of a substantial portion of the trade receivables is susceptible to changes in the Latin American economies and political climates. Prior to extending credit, the customer financial history is analyzed.

The activity for the allowance for doubtful accounts for the years ended December 31, 2004, 2005 and 2006 are as follows:



|                                                            |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                            |  | 2004 |        |   | 2005 |   |        | 2006 | 
|Beginning balance                                           |  | $    | 20,642 |   |      | $ | 12,013 |      |  | $ | 10,254 |  
|(Reversal of) provision for allowance for doubtful accounts |  |      | (3,916 | ) |      |   | (1,062 | )    |  |   | 1,289  |  
|Net write-offs                                              |  |      | (4,704 | ) |      |   | (253   | )    |  |   | (1,047 | )
|Effect of exchange rate change                              |  |      | (9     | ) |      |   | (444   | )    |  |   | (6     | )
|                                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Ending balance                                              |  | $    | 12,013 |   |      | $ | 10,254 |      |  | $ | 10,490 |  
|                                                            |  |      |        |   |      |   |        |      |  |   |        |  

5. OTHER RECEIVABLES

Other receivables consist primarily of refunds or credits pending from local governments for taxes other than income, advances to suppliers and other miscellaneous amounts due to the Company and its operating
subsidiaries and are as follows at December 31, 2005 and 2006:



|                    |  |      |        |      |   |       
|------------------- |  | ---- | ------ | ---- | - | ------
|                    |  | 2005 |        | 2006
|IMPSAT Argentina    |  | $    | 419    |      | $ | 485   
|IMPSAT Brazil       |  |      | 2,304  |      |   | 1,240 
|IMPSAT Colombia     |  |      | 3,103  |      |   | 2,787 
|IMPSAT Venezuela    |  |      | 3,076  |      |   | 3,630 
|All other countries |  |      | 1,882  |      |   | 3,393 
|                    |  |      |        |      |   |       
|Total               |  | $    | 10,784 |      | $ | 11,535
|                    |  |      |        |      |   |       

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2005 and 2006 consist of:



|                                                 |  |      |          |   |      |   |          |  
|------------------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | -
|                                                 |  | 2005 |          |   | 2006 |  
|Land                                             |  | $    | 10,109   |   |      | $ | 10,109   |  
|Building and improvements                        |  |      | 38,100   |   |      |   | 38,655   |  
|Operating communications equipment               |  |      | 229,032  |   |      |   | 264,557  |  
|Network infrastructure (including rights of way) |  |      | 121,378  |   |      |   | 130,074  |  
|IRU investments                                  |  |      | 22,118   |   |      |   | 23,502   |  
|Furniture, fixtures and other equipment          |  |      | 17,617   |   |      |   | 19,033   |  
|                                                 |  |      |          |   |      |   |          |  
|Total                                            |  |      | 438,354  |   |      |   | 485,930  |  
|Less: accumulated depreciation                   |  |      | (130,795 | ) |      |   | (194,639 | )
|                                                 |  |      |          |   |      |   |          |  



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|                                   |  |   |         |  |   |        
|---------------------------------- |  | - | ------- |  | - | -------
|Total                              |  |   | 307,559 |  |   | 291,291
|Equipment in transit               |  |   | 1,507   |  |   | 1,750  
|Construction in process            |  |   | 826     |  |   | 1,707  
|                                   |  |   |         |  |   |        
|Property, plant and equipment, net |  | $ | 309,892 |  | $ | 294,748
|                                   |  |   |         |  |   |        

The activity in accumulated depreciation for the year ended December 31, 2004, 2005 and 2006
are as follows:



|                          |  |      |        |   |      |   |         |      |  |   |         |  
|------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                          |  | 2004 |        |   | 2005 |   |         | 2006 | 
|Beginning balance         |  | $    | 29,389 |   |      | $ | 75,102  |      |  | $ | 130,795 |  
|Depreciation expense      |  |      | 44,797 |   |      |   | 55,324  |      |  |   | 60,309  |  
|Exchange rate effects     |  |      | 1,706  |   |      |   | 2,971   |      |  |   | 3,664   |  
|Disposals and retirements |  |      | (790   | ) |      |   | (2,602  | )    |  |   | (129    | )
|                          |  |      |        |   |      |   |         |      |  |   |         |  
|Ending balance            |  | $    | 75,102 |   |      | $ | 130,795 |      |  | $ | 194,639 |  
|                          |  |      |        |   |      |   |         |      |  |   |         |  

7. DEBT

Short-Term Debt-IMPSAT Brazil maintains short-term credit facilities denominated in local currency with local banks. The facilities bear interest at 1.53% per month. As of December 31, 2005 and 2006,
the outstanding balance amounted to $2.2 million and $0.8 million, respectively. The credit facilities mature during October 2007.

Long-Term Debt-The Companys long-term debt at December 31, 2005 and 2006 is detailed as follows:



|                                                                                                                                        |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                        |  | 2005 |         |   | 2006 |  
|Series A 6% Senior Guaranteed Notes due 2011                                                                                            |  | $    | 67,308  |   |      | $ | 67,308  |  
|Series B 6% Senior Guaranteed Notes due 2011                                                                                            |  |      | 25,595  |   |      |   | 25,595  |  
|Senior Secured Notes 12%, maturing 2009                                                                                                 |  |      | 107,300 |   |      |   | 102,300 |  
|Senior Secured Notes 10%, maturing 2009                                                                                                 |  |      | 5,918   |   |      |   | 4,226   |  
|Senior Notes issued by IMPSAT Colombia due 2008 and 2010 (interest rate 12.10%), collateralized by the assignment of customer
contracts |  |      | 19,700  |   |      |   | 20,100  |  
|Term notes maturing through 2007; collateralized by buildings and equipment and the assignment of customer contracts; denominated
in:   |  |      |         |   |      |   |         |  
|U.S. dollars (interest rates 4.40% to 11.38%)                                                                                           |  |      | 2,161   |   |      |   | 1,582   |  
|Local currency (interest rates 9.68% to 10.41%)                                                                                         |  |      | 8,035   |   |      |   | 5,151   |  
|Eximbank notes (interest rate 6.75%), maturing semiannually through 2007                                                                |  |      | 1,853   |   |      |   | 6,300   |  
|Vendor financing (interest rates 7.65% to 8.9%)                                                                                         |  |      | 8,065   |   |      |   | 7,668   |  
|                                                                                                                                        |  |      |         |   |      |   |         |  
|Total long-term debt                                                                                                                    |  |      | 245,935 |   |      |   | 240,230 |  
|Less: current portion including defaulted indebtedness                                                                                  |  |      | (17,604 | ) |      |   | (35,516 | )
|                                                                                                                                        |  |      |         |   |      |   |         |  
|Long-term debt, net                                                                                                                     |  | $    | 228,331 |   |      | $ | 204,714 |  
|                                                                                                                                        |  |      |         |   |      |   |         |  

The scheduled maturities of long-term debt at December 31, 2006 are as follows:



|            |  |        |       
|----------- |  | ------ | ------
|Year Ending |  | Amount
|2007        |  | $      | 35,516
|2008        |  |        | 43,366
|2009        |  |        | 58,320
|2010        |  |        | 10,125
|2011        |  |        | 92,903



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##### Table of Contents

|      |  |   |        
|----- |  | - | -------
|      |  |   |        
|Total |  | $ | 240,230
|      |  |   |        

Series A Notes, Series B Notes and Senior Secured Notes and some of the other term notes contain
certain covenants requiring the Holding Company and/or certain of its subsidiaries to maintain certain financial ratios, limiting the incurrence of additional indebtedness and capital expenditures, and restricting the ability to pay dividends. As of
December 31, 2006, the Company was in compliance with all of its debt covenants, except for IMPSAT Brazil, which was not in compliance with one financial ratio on its approximately $63.4 million of Senior Secured Notes. IMPSAT Brazil and the
Company have obtained a waiver of such covenant through the first quarter 2008 as discussed below.

IMPSAT Argentina remains in default
under indebtedness owed to a creditor who voted against the Company ́s Plans of Reorganization (the Plan). Under the Plan, the claim of this creditor was a contingent obligation arising under a guarantee by the Holding Company of
certain primary indebtedness of IMPSAT Argentina. Notwithstanding the Holding Companys emergence from bankruptcy in 2003 and the extinguishment of Holding Companys guarantee as a result, an event of default has occurred and is continuing
with respect to the related underlying indebtedness of IMPSAT Argentina. As a result of this default, which relates to vendor financing totaling approximately $7.6 million in outstanding principal amount as of December 31, 2005 and 2006, such
indebtedness and accrued interest thereon is due and payable. IMPSAT Argentina had been in discussions with the entity holding the indebtedness with a view to rescheduling or otherwise restructuring the defaulted debt obligation. The Company
understands, however, that this holder transferred the defaulted debt obligation to a new holder. The Company is not in discussions with the new holder. If IMPSAT Argentina is unable to reschedule or restructure this indebtedness, IMPSAT Argentina
could be forced to seek protection or liquidate under the bankruptcy laws of Argentina. There is no assurance that IMPSAT Argentina will reach a definitive agreement with this holder to reschedule or restructure such obligations.

The Series A and Series B Notes are convertible into approximately 4,964,000 and 1,107,000 shares of the Companys common stock at a conversion
price of $13.56 and $20.78, respectively, as of December 31, 2006.

On July 29, 2005, the Company entered into amended and
restated financing agreements to restructure $125.6 million of its vendor indebtedness (the Amendments), which the Company refers to as Senior Secured Notes, which was issued by IMPSAT Argentina pursuant to the Second Amended and
Restated Financing Agreement, dated as of July 29, 2005 (the Argentina Financing Agreement), and IMPSAT Brazil pursuant to the Second Amended and Restated Financing Agreement, dated as of July 29, 2005 (the Brazil
Financing Agreement and together with the Argentina Financing Agreement, the Financing Agreements), each of which are guaranteed by the Company, and which are held by affiliates of certain members of the Companys Board of
Directors. Pursuant to the Amendments, the Company made an initial principal repayment of $18.3 million and modified the terms of the Financing Agreements such that the remaining outstanding principal amounts ($38.9 million owed by IMPSAT Argentina
and $68.4 million owed by IMPSAT Brazil) would be repaid in the aggregate amounts of $5 million in 2006, $20 million in 2007, $25 million in 2008 and $57.3 million in March 2009. The amended indebtedness bears interest at a rate of 12% per
annum, payable semi-annually in arrears, as compared to 10% per annum for the period prior to the effectiveness of the amendments. The parties also agreed to amendments to the financial covenants in the agreements to reflect current financial
and operating conditions. The amended indebtedness was subject to optional prepayment at par. Each of IMPSAT Argentina and IMPSAT Brazil (with respect to the Amendment to which it is a party), and the lenders of the amended indebtedness, have an
option to further amend the agreements governing such indebtedness to provide that the Company will be the primary borrower, and IMPSAT Argentina and IMPSAT Brazil the respective guarantors of the portions of the indebtedness currently owed by them,
subject to certain terms and conditions. The terms and conditions of the amendments were negotiated by a special committee of the Companys Board of Directors that was formed to explore recapitalization alternatives.

On March 15, 2007, the Company and its subsidiaries in Argentina and Brazil entered into amendments to the Argentina Financing Agreement and the
Brazil Financing Agreement, which provided for the extension of the interest payment date under the Argentina Financing Agreement and the interest and principal payment dates under the Brazil Financing Agreement from March 25, 2007 to
May 25, 2007, and the waiver through the first quarter of 2008 of the Debt Service Coverage Ratio, as defined in the Brazil Financing Agreement.

8. INCOME TAXES

The composition of the provision for income taxes, all of which is for foreign taxes, for the years ended
December 31, 2004, 2005 and 2006 is as follows:



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|         |  |      |        |   |      |   |        |      |  |   |        |  
|-------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|         |  | 2004 |        |   | 2005 |   |        | 2006 | 
|Current  |  | $    | (1,867 | ) |      | $ | (2,385 | )    |  | $ | (7,976 | )
|Deferred |  |      | (1,612 | ) |      |   | (2,107 | )    |  |   | 3,719  |  
|         |  |      |        |   |      |   |        |      |  |   |        |  
|Total    |  | $    | (3,479 | ) |      | $ | (4,492 | )    |  | $ | (4,257 | )
|         |  |      |        |   |      |   |        |      |  |   |        |  

The foreign statutory tax rates range from 15% to 35% depending on the particular country.
Deferred taxes result from temporary differences in revenue recognition, depreciation methods and net operating loss carry-forwards, and are as follows at December 31, 2005 and 2006:



|                                              |  |      |          |   |      |   |          |  
|--------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                              |  | 2005 |          |   | 2006 |  
|Deferred tax assets:                          |  |      |          |   |      |   |          |  
|Net operating loss carryforwards:             |  |      |          |   |      |   |          |  
|Domestic                                      |  | $    | 11,395   |   |      | $ | 7,449    |  
|Foreign                                       |  |      | 129,285  |   |      |   | 131,498  |  
|Property, plant and equipment                 |  |      | 31,208   |   |      |   | 38,460   |  
|Allowances                                    |  |      | 3,056    |   |      |   | 13,520   |  
|                                              |  |      |          |   |      |   |          |  
|Gross deferred tax assets                     |  |      | 174,944  |   |      |   | 190,927  |  
|Less: valuation allowance                     |  |      | (171,543 | ) |      |   | (183,072 | )
|                                              |  |      |          |   |      |   |          |  
|Net deferred tax asset                        |  |      | 3,401    |   |      |   | 7,855    |  
|Deferred tax liabilities:                     |  |      |          |   |      |   |          |  
|Property, plant and equipment                 |  |      | (3,719   | ) |      |   | (1,814   | )
|Non-interest bearing advances to subsidiaries |  |      | (3,401   | ) |      |   | (6,041   | )
|                                              |  |      |          |   |      |   |          |  
|Net deferred tax                              |  | $    | (3,719   | ) |      | $ |         |  
|                                              |  |      |          |   |      |   |          |  

The Company recorded a valuation allowance to offset certain of its deferred income tax assets as
of December 31, 2006 because management cannot conclude that utilization of the tax benefits resulting from operating losses and the other temporary differences are more likely than not to be realized, as required by SFAS 109.

The Company has reserved for tax contingencies totaling approximately $2.8 million and $13.9 million as of December 31, 2005 and
2006, respectively, attributable primarily to its foreign subsidiaries tax return filings. These contingencies are for tax liabilities and related interest, as well as certain tax positions taken on foreign tax returns for which the statutes
remain open.

The Companys tax filings and reserves for the contingencies described in the preceding paragraphs are subject to audit,
and the respective taxing authorities may contest the information on which these tax filings are based and may make additional assessments beyond that which has already been provided for.

The Company considers earnings relating to its foreign subsidiaries to be indefinitely reinvested outside of the United States and, accordingly, no U.S.
deferred income taxes have been recorded with respect to such earnings. Should the earnings be remitted as dividends, the Company may be subject to additional U.S. taxes, net of allowable foreign tax credits.

9. OPERATING SEGMENT INFORMATION

The Companys
operating segment information, by subsidiary, is as follows for the years ended December 31, 2004, 2005 and 2006:



|                        |  |           |        |        |   |          |  |           |        |                    |   |              |  |   |        |  |   |         |   |  |   |        
|----------------------- |  | --------- | ------ | ------ | - | -------- |  | --------- | ------ | ------------------ | - | ------------ |  | - | ------ |  | - | ------- | - |  | - | -------
|2004                    |  | Argentina |        | Brazil |   | Colombia |  | Venezuela |        | All othercountries |   | Eliminations |  |   | Total 
|Net Revenues            |  |           |        |        |   |          |  |           |        |                    |   |              |  |   |        |  |   |         |   |  |   |        
|Broadband and Satellite |  | $         | 31,967 |        | $ | 23,948   |  | $         | 47,984 |                    | $ | 28,929       |  | $ | 50,136 |  | $ | (21,000 | ) |  | $ | 161,964
|Internet                |  |           | 7,011  |        |   | 3,900    |  |           | 6,027  |                    |   | 2,467        |  |   | 12,435 |  |   | (5,715  | ) |  |   | 26,125 
|Value added services    |  |           | 18,080 |        |   | 4,901    |  |           | 2,318  |                    |   | 1,674        |  |   | 2,984  |  |   | (13,283 | ) |  |   | 16,674 
|Telephony               |  |           | 14,233 |        |   | 671      |  |           | 203    |                    |   |              |  |   | 13,129 |  |   | (6,563  | ) |  |   | 21,673 
|Sales of equipment      |  |           | 703    |        |   | 51       |  |           | 141    |                    |   | 70           |  |   | 314    |  |   |         |   |  |   | 1,279  
|                        |  |           |        |        |   |          |  |           |        |                    |   |              |  |   |        |  |   |         |   |  |   |        
|Total net revenues      |  | $         | 71,994 |        | $ | 33,471   |  | $         | 56,673 |                    | $ | 33,140       |  | $ | 78,998 |  | $ | (46,561 | ) |  | $ | 227,715
|                        |  |           |        |        |   |          |  |           |        |                    |   |              |  |   |        |  |   |         |   |  |   |        



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|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |   |  |  |  |   |        
|----------------------- |  | --------- | ------- | ------ | - | ------- | -------- |  | --------- | ------ | ------------------ | - | ------ | ------------ | - | ------- | - |  |  |  | - | -------
|2004                    |  | Argentina |         | Brazil |   |         | Colombia |  | Venezuela |        | All othercountries |   |        | Eliminations |   | Total  
|Operating income (loss) |  | $         | 9,127   |        | $ | (6,569  | )        |  | $         | 4,163  |                    | $ | 9,245  |              | $ | (13,380 | ) |  |  |  | $ | 2,586  
|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |   |  |  |  |   |        
|Total assets            |  | $         | 118,961 |        | $ | 113,938 |          |  | $         | 75,053 |                    | $ | 53,969 |              | $ | 81,986  |   |  |  |  | $ | 443,907
|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |   |  |  |  |   |        



|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|----------------------- |  | --------- | ------- | ------ | - | ------- | -------- |  | --------- | ------ | ------------------ | - | ------ | ------------ | - | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|2005                    |  | Argentina |         | Brazil |   |         | Colombia |  | Venezuela |        | All othercountries |   |        | Eliminations |   |         | Total | 
|Net Revenues            |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Broadband and Satellite |  | $         | 34,045  |        | $ | 31,197  |          |  | $         | 50,498 |                    | $ | 26,171 |              | $ | 49,192  |       |  | $ | (18,251 | ) |  | $ | 172,852 |  
|Internet                |  |           | 8,111   |        |   | 5,707   |          |  |           | 5,864  |                    |   | 2,453  |              |   | 13,916  |       |  |   | (5,460  | ) |  |   | 30,591  |  
|Value added services    |  |           | 17,757  |        |   | 9,572   |          |  |           | 5,268  |                    |   | 2,362  |              |   | 4,104   |       |  |   | (14,189 | ) |  |   | 24,874  |  
|Telephony               |  |           | 18,209  |        |   | 1,582   |          |  |           | 222    |                    |   |       |              |   | 13,490  |       |  |   | (8,536  | ) |  |   | 24,967  |  
|Sales of equipment      |  |           | 42      |        |   |        |          |  |           | 128    |                    |   | 90     |              |   | 430     |       |  |   |        |   |  |   | 690     |  
|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Total net revenues      |  | $         | 78,164  |        | $ | 48,058  |          |  | $         | 61,980 |                    | $ | 31,076 |              | $ | 81,132  |       |  | $ | (46,436 | ) |  | $ | 253,974 |  
|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Operating income (loss) |  | $         | 4,376   |        | $ | (4,675  | )        |  | $         | 1,944  |                    | $ | 7,485  |              | $ | (12,321 | )     |  |   |         |   |  | $ | (3,191  | )
|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  
|Total assets            |  | $         | 123,910 |        | $ | 125,191 |          |  | $         | 71,710 |                    | $ | 57,991 |              | $ | 20,741  |       |  |   |         |   |  | $ | 399,543 |  
|                        |  |           |         |        |   |         |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |         |  



|                        |  |           |         |        |   |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|----------------------- |  | --------- | ------- | ------ | - | -------- |  | --------- | ------ | ------------------ | - | ------ | ------------ | - | ------- | ----- |  | - | ------- | - |  | - | -------
|2006                    |  | Argentina |         | Brazil |   | Colombia |  | Venezuela |        | All othercountries |   |        | Eliminations |   |         | Total
|Net Revenues            |  |           |         |        |   |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Broadband and Satellite |  | $         | 32,065  |        | $ | 40,122   |  | $         | 51,355 |                    | $ | 26,858 |              | $ | 53,024  |       |  | $ | (18,756 | ) |  | $ | 184,668
|Internet                |  |           | 8,928   |        |   | 7,776    |  |           | 7,274  |                    |   | 3,265  |              |   | 14,951  |       |  |   | (6,131  | ) |  |   | 36,063 
|Value added services    |  |           | 16,428  |        |   | 16,256   |  |           | 7,472  |                    |   | 2,848  |              |   | 6,431   |       |  |   | (13,680 | ) |  |   | 35,755 
|Telephony               |  |           | 18,173  |        |   | 2,448    |  |           | 75     |                    |   |       |              |   | 12,579  |       |  |   | (5,982  | ) |  |   | 27,293 
|Sales of equipment      |  |           | 78      |        |   | 638      |  |           | 378    |                    |   | 28     |              |   | 68      |       |  |   |        |   |  |   | 1,190  
|                        |  |           |         |        |   |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Total net revenues      |  | $         | 75,672  |        | $ | 67,240   |  | $         | 66,554 |                    | $ | 32,999 |              | $ | 87,053  |       |  | $ | (44,549 | ) |  | $ | 284,969
|                        |  |           |         |        |   |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Operating income (loss) |  | $         | 2,628   |        | $ | 830      |  | $         | 4,636  |                    | $ | 8,803  |              | $ | (16,062 | )     |  |   |         |   |  | $ | 835    
|                        |  |           |         |        |   |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        
|Total assets            |  | $         | 116,106 |        | $ | 135,951  |  | $         | 64,231 |                    | $ | 53,002 |              | $ | 18,251  |       |  |   |         |   |  | $ | 387,541
|                        |  |           |         |        |   |          |  |           |        |                    |   |        |              |   |         |       |  |   |         |   |  |   |        

10. STOCKHOLDERS EQUITY

Restricted Stock  During March 2003, the Holding Company granted certain officers 200,000 shares of the Companys new common stock. These shares vested in one-quarter increments on the date of
grant and on each of the successive first three anniversaries of the date of grant (but, in each case, only if the executive was still employed with the Company on such respective date).

In connection with the restricted stock grant above, the Holding Company recorded approximately $1.3 million in stockholders equity as deferred
compensation. The deferred compensation was amortized to expense over the vesting period. Amortization for the years ended December 2004, 2005 and 2006 was $440, respectively.

Stock OptionsOn May 19, 2003, the Holding Company granted stock options for 1,646,332 shares of the Holding
Companys new common stock, at an exercise price of $15.00 per share to certain key employees. These options vested in one-quarter increments on the date of grant and on each of the successive three anniversaries of the date of grant. In
addition, on the same date, the Holding Company also granted stock options for 30,000 shares of the Holding Companys common stock to certain directors of the Holding Company at an exercise price of $15.00 per share. These stock options vested
immediately. Any unexercised stock options under these grants will expire on May 19, 2011. Based on the resignation or removal from the Board of Directors of two directors, 70,000 of these options were cancelled during 2006.

On July 15, 2004, the Holding Company granted stock options for 262,156 shares of the Holding Companys common stock at an exercise price of
$12.00 per share to certain key employees, 174,771 of which were fully vested on the date of grant and the remaining 87,385 vested based on the achievement of certain fiscal 2004 performance goals.

Additionally, on September 30, 2004, the Holding Company granted stock options for 90,000 shares of the Holding Companys common stock at an
exercise price of $6.17 per share to certain directors of the Holding Company in recognition of such directors service as directors of the Holding Company, which options were fully vested on the date of grant. Based



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##### Table of Contents

on the resignation or removal from the Board of Directors of two directors, 70,000 of these options were cancelled during 2006.

On September 30, 2004 and November 19, 2004, the Holding Company granted stock options for 60,000 and 20,000 shares, respectively, of the
Holding Companys common stock at exercise prices of $6.17 and $15.00, respectively, per share to an affiliate of certain directors of the Holding Company pursuant to an agreement of the parties (and not under the 2003 Plan or any other
stockholder-approved plan) in recognition of such directors service as directors of the Holding Company, which options were fully vested on the date of grant. The Holding Company recorded an expense of approximately $149 as a result of this
issuance, which is included within selling, general and administrative in the accompanying statement of operations for the year ended December 31, 2004. Based on the resignation from the Board of Directors of one director, 20,000 of these
options granted were cancelled during 2005.

On November 17, 2005, the Holding Company granted stock options for 10,000 and 32,546
shares with exercise prices of $15.00 and $7.05, respectively, to an affiliate of a director of the Holding Company pursuant to an agreement of the parties (and not under the 2003 Plan or any other stockholder-approved plan) in recognition of such
directors service as a director of the Holding Company. In addition, on such date, the Holding Company granted stock options for 10,000 and 32,546 shares with exercise prices of $15.00 and $7.05, respectively, to a director of the Holding
Company under the 2003 Plan in recognition of such directors service as a director of the Holding Company. Both of these stock option grants vested immediately. The Company recorded an expense of approximately $111 as a result of this
issuance, which is included within selling, general and administrative in the accompanying statement of operations for the year ended December 31, 2005.

A summary of stock option transactions during the years ended December 31, 2004, 2005 and 2006 is as follow:



|                                 |  |                 |   |  |                                 |      
|-------------------------------- |  | --------------- | - |  | ------------------------------- | -----
|                                 |  | Number ofOption |   |  | Weighted Average Exercise Price
|Outstanding at December 31, 2003 |  | 1,676,332       |   |  | $                               | 15.00
|Granted                          |  | 432,156         |   |  |                                 | 10.12
|Exercised                        |  |                |   |  |                                 |     
|Cancelled                        |  |                |   |  |                                 |     
|                                 |  |                 |   |  |                                 |      
|Outstanding at December 31, 2004 |  | 2,108,488       |   |  |                                 | 14.00
|Granted                          |  | 85,092          |   |  |                                 | 8.92 
|Exercised                        |  |                |   |  |                                 |     
|Cancelled                        |  | (80,000         | ) |  |                                 | 8.38 
|                                 |  |                 |   |  |                                 |      
|Outstanding at December 31, 2005 |  | 2,113,580       |   |  |                                 | 14.01
|Granted                          |  |                |   |  |                                 |     
|Exercised                        |  | (32,546         | ) |  |                                 | 7.05 
|Cancelled                        |  | (164,350        | ) |  |                                 | 15.00
|                                 |  |                 |   |  |                                 |      
|Outstanding at December 31, 2006 |  | 1,916,684       |   |  | $                               | 14.04
|                                 |  |                 |   |  |                                 |      

The following table summarizes information concerning outstanding stock options at
December 31, 2006:



|                        |       |                                            |           |                                 |   |                             |   |                                 |  |                           |  |   |       |  |   |        
|----------------------- | ----- | ------------------------------------------ | --------- | ------------------------------- | - | --------------------------- | - | ------------------------------- |  | ------------------------- |  | - | ----- |  | - | -------
|Range of Exercise Price |       | Number ofOptionsOutstanding                |           | Options Outstanding             |   | Options Exercisable        
|                        |       | Weighted Average RemainingContractual Life |           | Weighted Average Exercise Price |   | Number ofOptionsOutstanding |   | Weighted Average Exercise Price |  | Aggregate Intrinsic Value
|$                       | 6.17  |                                            | 90,000    |                                 | 6 |                             | $ | 6.17                            |  | 90,000                    |  | $ | 6.17  |  | $ | 275,400
|$                       | 7.05  |                                            | 32,546    |                                 | 6 |                             |   | 7.05                            |  | 32,546                    |  |   | 7.05  |  |   | 70,950 
|$                       | 12.00 |                                            | 262,156   |                                 | 8 |                             |   | 12.00                           |  | 262,156                   |  |   | 12.00 |  |   |        
|$                       | 15.00 |                                            | 1,531,982 |                                 | 5 |                             |   | 15.00                           |  | 1,531,982                 |  |   | 15.00 |  |   |        
|                        |       |                                            |           |                                 |   |                             |   |                                 |  |                           |  |   |       |  |   |        
|                        |       |                                            | 1,916,684 |                                 | 6 |                             | $ | 14.04                           |  | 1,916,684                 |  | $ | 14.04 |  | $ | 346,350
|                        |       |                                            |           |                                 |   |                             |   |                                 |  |                           |  |   |       |  |   |        

There were no options granted during the year ended December 31, 2006 and 85,092 and 432,156
shares were granted during the year ended December 31, 2004 and 2005, respectively. The stock options that were exercised during 2006 were net settled in shares in accordance with the provisions of the 2003 and 2004 Plan.



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At December 31, 2006, there was no unrecognized compensation expense related to unvested share-based
awards granted under the Companys share-based payment plans, of which all relates to stock options, as all stock options outstanding have vested. As of December 31, 2005 there were 411,574 of nonvested stock options with a weighted
average grant date fair value of $7.14. These stock options vested during the year ended December 31, 2006.

The grant date fair
values of stock options granted during 2004 and 2005 ranged from $0.49 to $2.51 and $3.27 to $4.44, respectively. In addition, the aggregate intrinsic value of stock options exercised during 2006 was approximately $43.

Warrants  During 2003, the Holding Company issued 3,257,178 eight-year warrants to acquire the Holding Companys stock at $15.00
per share. As of December 31, 2006, all the warrants remain outstanding.

11. MANAGEMENT INCENTIVE PLAN

On December 28, 2005, the compensation committee of the Board of Directors of the Holding Company approved the adoption of the IMPSAT Fiber Networks,
Inc. Management Incentive Plan (the MIP), and the granting of awards thereunder to executive officers of the Company pursuant to retention agreements. The MIP was adopted as part of the Companys ongoing, periodic review of its
compensation and benefits programs and in recognition of the importance to the Company and its stockholders of avoiding the loss of key management personnel. The MIP is administered by the compensation committee, which may designate any employee of
the Company as a participant. There are presently seven participants in the plan, all of whom are executive officers of the Company.

The
MIP provides that participants may receive a cash incentive payment (the CIP), the amount of which will be determined on the earlier of December 31, 2008, or the closing date of a change in control transaction of the Holding
Company, and which will be paid within 30 days of December 31, 2008, or, if earlier, on the closing date of a change in control transaction of the Holding Company.

If the amount of the CIP is determined on December 31, 2008, the compensation committee will have the sole and absolute discretion to determine the amount, if any, of any payment made under the MIP, but the total
value of all CIP under the MIP may not exceed the product of $1,650,000 and the amount by which the per-share price of the Holding Companys common stock exceeds $7.00, based on the average closing prices during the thirty-day period ending on
such date.

If the amount of the CIP is determined on the closing date of a change in control transaction, each participant will receive a
CIP equal to the participants allocated percentage of a bonus pool, the value of which will be equal to $1,650,000 multiplied by the amount by which the per-share price of the Holding Companys common stock exceeds $7.00, based on the
price per share paid for the Holding Companys common stock in the transaction. A change in control for purposes of the plan generally consists of either an acquisition of more than 30% of the Holding Companys voting
securities (other than by a holder of 5% or more of the Holding Companys fully-diluted common stock on the effective date of the MIP), which represents a greater percentage than is held in the aggregate by the Holding Companys existing
stockholders, or the current Board members (and their approved successors) ceasing to constitute a majority of the Board or, if applicable, the board of directors of a successor to the Company.

If a participant terminates his or her employment or is terminated by the Company for cause prior to the date the CIP vests, the participant will not be
entitled to an incentive payment. If a participants employment with the Company is terminated prior to the date the CIP vests by reason of death, disability, or a termination without cause by the Company, the incentive payment will be made to
the participant or his or her estate on the applicable payment date.

The MIP will expire on the earlier of the date of payment of the CIP
or January 31, 2009, at which time all benefits under the MIP will have been paid.

As of December 31, 2005, no amounts had been
accrued under the MIP. As a result of the transaction disclosed in Note 1, the Company accrued approximately $3.8 million under the MIP as of December 31, 2006.



|12. | RELATED PARTIES TRANSACTIONS
|--- | ----------------------------

As discussed in Note
7, on July 29, 2005, the Holding Company entered into amended and restated financing agreements to restructure $125.6 million of the Senior Secured Notes, which were issued by IMPSAT Argentina and IMPSAT Brazil pursuant to separate credit
agreements that are each guaranteed by the Holding Company. The restructured Senior Secured Notes were, and continue to be, held by Morgan Stanley Senior Funding, Inc. (MSSF) and, through participation, accounts of WRH Partners Global
Securities, L.P. and/or certain of its affiliates (collectively, WR Huff). Each of MSSF and Huff are affiliates of certain members of our board of directors. In addition, affiliates of MSSF hold a significant portion of the Holding
Companys common stock and Series B Notes, and have been granted stock options. WR Huff holds a significant portion of the Series A Notes and Series B Notes. The terms and conditions of the amendments were negotiated by a special committee of
the Holding Companys board of directors that (i) was formed to explore recapitalization alternatives, (ii) retained Lehman Brothers Inc. as its exclusive financial advisor and (iii) received an opinion



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from Lehman Brothers Inc. that the restructuring transaction was fair to the Holding Company, IMPSAT Argentina and IMPSAT Brazil.

On March 15, 2007, the Company and its subsidiaries in Argentina and Brazil entered into amendments to the Argentina Financing Agreement and the
Brazil Financing Agreement, which provided for the extension of the interest payment date under the Argentina Financing Agreement and the interest and principal payment dates under the Brazil Financing Agreement from March 25, 2007 to
May 25, 2007, and the waiver through the first quarter of 2008 of the Debt Service Coverage Ratio, as defined in the Brazil Financing Agreement.

As discussed in Note 10, on November 17, 2005, the Holding Company granted stock options for 10,000 shares and 32,546 shares of common stock to Morgan Stanley & Co., an affiliate of certain directors of
the Holding Company, in recognition of the service of an affiliated director on the board of directors of the Holding Company.

During the
years ended December 31, 2004, 2005 and 2006, the Company purchased telecommunications equipment and services from Nortel Networks Limited, an affiliate, the holder of the Companys outstanding warrants, totaling $2.2 million, $1.2 million
and $1.1 million, respectively.

13. COMMITMENTS AND CONTINGENCIES

Commitments  The Company leases satellite capacity with average annual rental commitments of approximately $13.7 million through 2009 under non-cancelable agreements. In addition, the Company
maintains other operating leases with average rental commitments of approximately $4.2 million through 2009. The Company also has committed to long-term contracts for the purchase of satellite and terrestrial links from third parties for
approximately $14.4 million and $12.5 million through 2015 and 2009, respectively. The Company has commitments to purchase communications and data center equipment amounting to approximately $5.2 million at December 31, 2006.

The Holding Company is a guarantor of the Senior Secured Notes issued by its subsidiaries and other financing agreements entered by certain of its
subsidiaries. At December 31, 2006, the aggregate balance outstanding that has been guaranteed by the Holding Company was approximately $106.5 million (see Note 7).

The Company maintains commercial insurance policies which serve to guarantee certain of the Companys performance obligations for services under some public and private contract bids which total approximately
$61.5 million as of December 31, 2006.

Employment Agreements  The Company entered into employment agreements with
two of its senior executives which provide for a three year term (subject to recurrent automatic one year renewals). Under such agreements, the base salary of these executives amounts to approximately $0.8 million per year. These agreements were to
expire on March 25, 2006, but have each been automatically extended pursuant to the terms of the agreements and are currently scheduled to expire on March 25, 2008 unless renewed.

IPO Allocations Class Action  On November 1, 2001, a lawsuit (the IPO Class Action) was filed in the United States
District Court for the Southern District of New York against the Holding Company, certain individuals who were then officers and directors of the Company, and the underwriters to the Holding Companys initial public offering (IPO).
This lawsuit alleges on behalf of a proposed class of all shareholders that the Holding Company and its underwriters violated various provisions of the securities laws in connection with the IPO in February 2000. Pursuant to the Plan, the plaintiffs
in the IPO Class Action received in connection with their claims the assignment of any insurance proceeds that the Holding Company receives in connection with the litigation, but otherwise the claims of the plaintiffs against the Holding Company or
any of its other assets, have been discharged as part of the Chapter 11 proceedings.

Pursuant to a court order in August 2001, the IPO
Class Action was consolidated for all pre-trial purposes in In re Initial Public Offering Securities Litigation, 21 MC 92, an intra-district proceeding involving approximately 900 lawsuits relating to the initial public offerings of
approximately 310 companies. In July 2002, the Holding Company and the other defendants filed a motion to dismiss, which was denied as to the Holding Company and one individual officer in February 2003. In April 2003, the Holding Company was advised
that global settlement discussions between the plaintiffs and the Holding Companys insurer (on behalf of the Holding Company and the individual defendants) to resolve plaintiffs claims against all 310 companies had reached an advanced
stage. Among other things, the proposed settlement would result in a broad release of claims against the Holding Company, its officers and directors, and other issuers, and their officers and directors without a direct financial contribution by the
Holding Company. Settlement papers seeking preliminary approval of the settlement and certification of the investor class were submitted to the court in June 2004. In February 2005, the court granted preliminary approval for a proposal settlement.
The settlement is subject to certain final determinations by the Court, which has been considering the settlement since preliminary approval.



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Employee Severance Litigation  On December 26, 2003, a lawsuit was filed in an
Argentine court against IMPSAT Argentina by the former chairman of the Companys board of directors, Mr. Enrique Pescarmona. This lawsuit alleged that IMPSAT Argentina failed to pay Mr. Pescarmona severance compensation in the amount
of $2.9 million which the plaintiff believes is required by Argentine labor law in connection with his termination from the Company upon the effectiveness of the Plan. Discovery is currently ongoing. The Company believes that it has meritorious
defenses to the allegations in the complaints and is defending the litigation vigorously.

Other Litigation  The
Company is involved in or subject to various litigation and legal proceedings incidental to the normal conduct of its business, including with respect to regulatory and foreign tax assessment matters. Whenever justified, the Company expects to
vigorously prosecute or defend such claims, although there can be no assurance that the Company will ultimately prevail with respect to any such matters.

Buenos Aires and Quilmes Antenna Tax Liabilities  On December 4, 2006, the tax authorities of the city of Buenos Aires, Argentina, sent IMPSAT Argentina a tax assessment for the fourth
quarterly installment of 2006 relating to a purported tax for the use of the air space in and around the City in respect of the IMPSAT Argentinas antennas and supporting structures in the amount of $1.7 million. Included in the notice was a
statement of additional assessments covering earlier years (2003 through 2005) and the first three quarters of 2006. The total amount for these earlier periods was $33.1 million. This estimate is based on invoices received from the City of Buenos
Aires through December 31, 2006 and the Citys recently enacted 2007 Fiscal Code. IMPSAT Argentina had previously received notices from the city for these types of taxes, both in 2005, related to the second and third quarters of fiscal
2005 and other related to the fiscal year 2003, which followed a request from the city in 2003 for information regarding the ownership by the Company of antennas in the city for purposes of imposition of the tax. IMPSAT Argentina has formally
objected to the legality of the tax and certain factual assumptions used in calculating the tax and has rejected each of the notice in an administrative proceeding filed before the City of Buenos Aires. IMPSAT Argentina learned in July 2005 that the
city had rejected the Companys objection to the legality of the tax through a Providencia which also has been rejected by IMPSAT Argentina and is also the subject of the administrative proceeding. In December 2006, IMPSAT Argentina
filed an objection of the notice and antenna tax assessment for the third quarter of 2006. In the objection, IMPSAT Argentina reaffirmed the Companys objection to the legality of the tax. IMPSAT Argentina objection is pending resolution before
the Citys tax authorities. IMPSAT Argentina believes, based on its analysis of the issue and the advice of its legal counsel, that no tax is owed and the Company intends to vigorously defend against any requirement that the Company pay the
tax.

In late December 2006, the tax authorities of the Municipality of Quilmes in Argentina sent the Company a notice of provisional tax
assessment with respect to the installation and inspection of antennas for the years 2001 through 2006 in the amount of approximately $12.5 million, plus defaulted interest. IMPSAT Argentina believes, based on managements analysis and the
advice of IMPSAT Argentina ́s legal counsel, that either no tax is owed or the amount of such tax is significantly less than the amount asserted in the notice. The Company intends to vigorously defend against this provisional tax assessment.

Brazilian Tax Claims  In October 2004, the Brazilian tax authorities issued two tax infraction notices against IMPSAT
Brazil for the collection of the Import Duty and the Tax on Manufactured Products, plus fines and interests. The notice informed IMPSAT Brazil that the taxes were levied because a specific document (Declaração de Necessidade -
Statement of Necessity) was not provided by IMPSAT Brazil at the time of importation, in breach of MERCOSUR rules. The total amount of the tax assessment was approximately $4.3 million at December 31, 2006. Oppositions were filed on
behalf of IMPSAT Brazil arguing that the Argentine exporter (Corning Cable Systems Argentina S.A.) complied with the MERCOSUR rules and a favorable first instance decision was granted. However, due to the amount involved, the case was remitted to
the official compulsory review by the Federal Taxpayers Council. The administrative final decision is still pending.

In addition, in
December 2004, the tax authorities of the State of São Paulo, in Brazil, issued an infraction notice for collection of Tax on Distribution of Goods and Services (ICMS) supposedly due on the lease of movable properties by comparing
such activity to communications services, on which the ICMS state tax is actually levied. The total amount of this tax assessment was approximately $5.2 million at December 31, 2006, including interest and penalties. A defense was filed on
behalf of IMPSAT Brazil, arguing that the lease of assets could not be treated as a communication service subject to ICMS. The defense was rejected in the first administrative level, and an appeal to State Administrative Court was then filed, which
is pending judgment. The Company believes there are good grounds to have the tax assessment cancelled. However, if the tax assessment is not cancelled in the administrative level for any reason, judicial measures may be adopted to remove such tax
assessment.



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14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected financial information for the quarterly periods in 2005 and 2006 is presented below:



|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|-------------------------- |  | ------------- | ------ | - | ------ | - | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|                           |  | 2005 Quarters |       
|                           |  | First         |        |   | Second |   |        | Third |  |   | Fourth  |  
|Total net revenue          |  | $             | 59,872 |   |        | $ | 61,458 |       |  | $ | 65,408  |   |  | $ | 67,236  |  
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Operating (loss) income    |  |               | (1,392 | ) |        |   | (2,664 | )     |  |   | 826     |   |  |   | 39      |  
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Net loss                   |  |               | (8,224 | ) |        |   | (6,967 | )     |  |   | (5,163  | ) |  |   | (15,894 | )
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Net loss per common share: |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Basic                      |  |               | (0.82  | ) |        |   | (0.69  | )     |  |   | (0.51   | ) |  |   | (1.59   | )
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Diluted                    |  |               | (0.82  | ) |        |   | (0.69  | )     |  |   | (0.51   | ) |  |   | (1.59   | )
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|                           | 
|                           |  | 2006 Quarters |       
|                           |  | First         |        |   | Second |   |        | Third |  |   | Fourth  |  
|Total net revenue          |  | $             | 68,558 |   |        | $ | 69,438 |       |  | $ | 71,078  |   |  | $ | 75,895  |  
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Operating income (loss)    |  |               | 1,683  |   |        |   | 2,578  |       |  |   | (3,017  | ) |  |   | (409    | )
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Net loss                   |  |               | (2,286 | ) |        |   | (3,485 | )     |  |   | (17,467 | ) |  |   | (12,405 | )
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Net loss per common share: |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Basic                      |  |               | (0.23  | ) |        |   | (0.34  | )     |  |   | (1.73   | ) |  |   | (1.23   | )
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  
|Diluted                    |  |               | (0.23  | ) |        |   | (0.34  | )     |  |   | (1.73   | ) |  |   | (1.23   | )
|                           |  |               |        |   |        |   |        |       |  |   |         |   |  |   |         |  

15. GUARANTOR FINANCIAL INFORMATION

The financial information of IMPSAT Argentina, a guarantor subsidiary of the Holding Companys Series A 6% Senior Guaranteed Notes due 2011 and
Series B 6% Senior Guaranteed Notes due 2011, as of December 31, 2005 and 2006 and for the years ended December 31, 2004, 2005 and 2006 is shown in a separate column in the accompanying consolidating financial information, as follows:



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CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2005

(In thousands of U.S. Dollars)



|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|------------------------------------ |  | -------------- | ------- | -------------------------- | - | ------------------------- |  | ------------------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | HoldingCompany |         | IMPSATArgentina(Guarantor) |   | Non-GuarantorSubsidiaries |  | IntercompanyEliminations |         |  | Consolidated
|ASSETS                               |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|CURRENT ASSETS:                      |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Cash and cash equivalents            |  | $              | 1,026   |                            | $ | 3,300                     |  | $                        | 19,744  |  |              |          |   |  | $ | 24,070 
|Trade accounts receivable, net       |  |                |         |                            |   | 12,169                    |  |                          | 23,643  |  |              |          |   |  |   | 35,812 
|Other receivables                    |  |                |         |                            |   | 32,722                    |  |                          | 50,896  |  | $            | (72,834  | ) |  |   | 10,784 
|Prepaid expenses                     |  |                | 203     |                            |   | 526                       |  |                          | 2,333   |  |              | (238     | ) |  |   | 2,824  
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current assets                 |  |                | 1,229   |                            |   | 48,717                    |  |                          | 96,616  |  |              | (73,072  | ) |  |   | 73,490 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|PROPERTY, PLANT AND EQUIPMENT, Net   |  |                |         |                            |   | 68,242                    |  |                          | 241,650 |  |              |          |   |  |   | 309,892
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|NON-CURRENT ASSETS:                  |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Investments                          |  |                | 50,108  |                            |   |                           |  |                          |         |  |              | (50,108  | ) |  |   |        
|Other non-current assets             |  |                | 109,883 |                            |   | 6,951                     |  |                          | 9,206   |  |              | (109,879 | ) |  |   | 16,161 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total non-current assets             |  |                | 159,991 |                            |   | 6,951                     |  |                          | 9,206   |  |              | (159,987 | ) |  |   | 16,161 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 161,220 |                            | $ | 123,910                   |  | $                        | 347,472 |  | $            | (233,059 | ) |  | $ | 399,543
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|CURRENT LIABILITIES:                 |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Accounts payable  trade             |  | $              | 22,913  |                            | $ | 23,995                    |  | $                        | 64,088  |  | $            | (64,916  | ) |  | $ | 46,080 
|Short-term debt                      |  |                |         |                            |   |                           |  |                          | 2,168   |  |              |          |   |  |   | 2,168  
|Current portion of long-term debt    |  |                |         |                            |   | 9,308                     |  |                          | 8,296   |  |              |          |   |  |   | 17,604 
|Interest payable                     |  |                | 1,626   |                            |   | 5,989                     |  |                          | 10,304  |  |              | (7,466   | ) |  |   | 10,453 
|Accrued and other liabilities        |  |                | 33      |                            |   | 9,739                     |  |                          | 34,045  |  |              | (8,950   | ) |  |   | 34,867 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total current liabilities            |  |                | 24,572  |                            |   | 49,031                    |  |                          | 118,901 |  |              | (81,332  | ) |  |   | 111,172
|LONG-TERM DEBT, Net                  |  |                | 92,903  |                            |   | 42,876                    |  |                          | 92,552  |  |              |          |   |  |   | 228,331
|OTHER LONG-TERM LIABILITIES          |  |                |         |                            |   | 18,589                    |  |                          | 99,321  |  |              | (101,615 | ) |  |   | 16,295 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|Total liabilities                    |  |                | 117,475 |                            |   | 110,496                   |  |                          | 310,774 |  |              | (182,947 | ) |  |   | 355,798
|STOCKHOLDERS EQUITY                 |  |                | 43,745  |                            |   | 13,414                    |  |                          | 36,698  |  |              | (50,112  | ) |  |   | 43,745 
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 161,220 |                            | $ | 123,910                   |  | $                        | 347,472 |  | $            | (233,059 | ) |  | $ | 399,543
|                                     |  |                |         |                            |   |                           |  |                          |         |  |              |          |   |  |   |        



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CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2006

(In thousands of U.S. Dollars)



|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|------------------------------------ |  | -------------- | ------- | -------------------------- | - | -------------------------- |  | ------------------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                     |  | HoldingCompany |         | IMPSATArgentina(Guarantor) |   | Non- GuarantorSubsidiaries |  | IntercompanyEliminations |         |  | Consolidated
|ASSETS                               |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|CURRENT ASSETS:                      |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|Cash and cash equivalents            |  | $              | 1,960   |                            | $ | 1,308                      |  | $                        | 18,047  |  |              |          |   |  | $ | 21,315 
|Trade accounts receivable, net       |  |                |         |                            |   | 10,842                     |  |                          | 30,866  |  |              |          |   |  |   | 41,708 
|Other receivables                    |  |                | 8,521   |                            |   | 38,053                     |  |                          | 47,798  |  | $            | (82,837  | ) |  |   | 11,535 
|Prepaid expenses                     |  |                | 197     |                            |   | 637                        |  |                          | 4,102   |  |              | (1,537   | ) |  |   | 3,399  
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|Total current assets                 |  |                | 10,678  |                            |   | 50,840                     |  |                          | 100,813 |  |              | (84,374  | ) |  |   | 77,957 
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|PROPERTY, PLANT AND EQUIPMENT, Net   |  |                |         |                            |   | 61,378                     |  |                          | 233,492 |  |              | (122     | ) |  |   | 294,748
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|NON-CURRENT ASSETS:                  |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|Investments                          |  |                | 40,277  |                            |   |                            |  |                          | 538     |  |              | (40,815  | ) |  |   |        
|Other non-current assets             |  |                | 102,389 |                            |   | 3,888                      |  |                          | 21,668  |  |              | (113,109 | ) |  |   | 14,836 
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|Total non-current assets             |  |                | 142,666 |                            |   | 3,888                      |  |                          | 22,206  |  |              | (153,924 | ) |  |   | 14,836 
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 153,344 |                            | $ | 116,106                    |  | $                        | 356,511 |  | $            | (238,420 | ) |  | $ | 387,541
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|CURRENT LIABILITIES:                 |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|Accounts payable  trade             |  | $              | 30,643  |                            | $ | 17,221                     |  | $                        | 74,317  |  | $            | (68,279  | ) |  | $ | 53,902 
|Short-term debt                      |  |                |         |                            |   |                            |  |                          | 839     |  |              |          |   |  |   | 839    
|Current portion of long-term debt    |  |                |         |                            |   | 9,281                      |  |                          | 26,235  |  |              |          |   |  |   | 35,516 
|Current portion of deferred revenue  |  |                |         |                            |   |                            |  |                          | 1,889   |  |              |          |   |  |   | 1,889  
|Interest payable                     |  |                | 2,169   |                            |   | 4,575                      |  |                          | 9,388   |  |              | (7,716   | ) |  |   | 8,416  
|Accrued and other liabilities        |  |                | 6,762   |                            |   | 17,510                     |  |                          | 37,433  |  |              | (9,217   | ) |  |   | 52,488 
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|Total current liabilities            |  |                | 39,574  |                            |   | 48,587                     |  |                          | 150,101 |  |              | (85,212  | ) |  |   | 153,050
|LONG-TERM DEBT, Net                  |  |                | 92,903  |                            |   | 41,154                     |  |                          | 70,657  |  |              |          |   |  |   | 204,714
|DEFERRED REVENUES, Net               |  |                |         |                            |   |                            |  |                          | 7,169   |  |              |          |   |  |   | 7,169  
|OTHER LONG-TERM LIABILITIES          |  |                | 10,462  |                            |   | 25,331                     |  |                          | 88,676  |  |              | (112,266 | ) |  |   | 12,203 
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|Total liabilities                    |  |                | 142,939 |                            |   | 115,072                    |  |                          | 316,603 |  |              | (197,478 | ) |  |   | 377,136
|STOCKHOLDERS EQUITY                 |  |                | 10,405  |                            |   | 1,034                      |  |                          | 39,908  |  |              | (40,942  | ) |  |   | 10,405 
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        
|TOTAL                                |  | $              | 153,344 |                            | $ | 116,106                    |  | $                        | 356,511 |  | $            | (238,420 | ) |  | $ | 387,541
|                                     |  |                |         |                            |   |                            |  |                          |         |  |              |          |   |  |   |        



F-25



---

##### Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands of U.S. Dollars)



|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|----------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | --------------------- | ------- | - |  | - | ------- | -
|                                    |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | CondensedConsolidated |        
|NET REVENUES:                       |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Broadband and satellite             |  |                |         |   |                            | $ | 31,967 |                           |  | $ | 150.997                  |   |  | $                     | (21,000 | ) |  | $ | 161,964 |  
|Internet                            |  |                |         |   |                            |   | 7,011  |                           |  |   | 24,829                   |   |  |                       | (5,715  | ) |  |   | 26,125  |  
|Value added services                |  |                |         |   |                            |   | 18,080 |                           |  |   | 11,877                   |   |  |                       | (13,283 | ) |  |   | 16,674  |  
|Telephony                           |  |                |         |   |                            |   | 14,233 |                           |  |   | 14,003                   |   |  |                       | (6,563  | ) |  |   | 21,673  |  
|Sales of equipment                  |  |                |         |   |                            |   | 703    |                           |  |   | 576                      |   |  |                       |         |   |  |   | 1,279   |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Total net revenues                  |  |                |         |   |                            |   | 71,994 |                           |  |   | 202,282                  |   |  |                       | (46,561 | ) |  |   | 227,715 |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|COSTS AND EXPENSES:                 |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Direct costs:                       |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Contracted services                 |  |                |         |   |                            |   | 8,491  |                           |  |   | 22,383                   |   |  |                       | (9,589  | ) |  |   | 21,285  |  
|Other direct costs                  |  |                |         |   |                            |   | 5,522  |                           |  |   | 15,125                   |   |  |                       |         |   |  |   | 20,647  |  
|Leased capacity                     |  |                |         |   |                            |   | 20,499 |                           |  |   | 71,069                   |   |  |                       | (23,936 | ) |  |   | 67,632  |  
|Cost of equipment sold              |  |                |         |   |                            |   | 495    |                           |  |   | 515                      |   |  |                       | (47     | ) |  |   | 963     |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Total direct costs                  |  |                |         |   |                            |   | 35,007 |                           |  |   | 109,092                  |   |  |                       | (33,572 | ) |  |   | 110,527 |  
|Salaries and wages                  |  | $              | 440     |   |                            |   | 11,675 |                           |  |   | 34,224                   |   |  |                       |         |   |  |   | 46,339  |  
|Selling, general and administrative |  |                | 14,790  |   |                            |   | 7,358  |                           |  |   | 14,422                   |   |  |                       | (12,989 | ) |  |   | 23,581  |  
|Gain on extinguishment              |  |                | (115    | ) |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   | (115    | )
|Depreciation and amortization       |  |                |         |   |                            |   | 8,827  |                           |  |   | 35,970                   |   |  |                       |         |   |  |   | 44,797  |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Total costs and expenses            |  |                | 15,115  |   |                            |   | 62,867 |                           |  |   | 193,708                  |   |  |                       | (46,561 | ) |  |   | 225,129 |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Operating (loss) income             |  |                | (15,115 | ) |                            |   | 9,127  |                           |  |   | 8,574                    |   |  |                       |         |   |  |   | 2,586   |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|OTHER INCOME (EXPENSE):             |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Interest income                     |  |                | 5,373   |   |                            |   | 84     |                           |  |   | (9,298                   | ) |  |                       | 4,977   |   |  |   | 1,136   |  
|Interest expense                    |  |                | (5,396  | ) |                            |   | (5,564 | )                         |  |   | (5,169                   | ) |  |                       | (4,977  | ) |  |   | (21,106 | )
|Net (loss) gain on foreign exchange |  |                |         |   |                            |   | (1,002 | )                         |  |   | 6,806                    |   |  |                       |         |   |  |   | 5,804   |  
|Equity in income of affiliates      |  |                | (1,297  | ) |                            |   |        |                           |  |   | 2,351                    |   |  |                       | (1,054  | ) |  |   |         |  
|Other income (expense), net         |  |                | 2,216   |   |                            |   | (150   | )                         |  |   | (1,226                   | ) |  |                       |         |   |  |   | 840     |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|Total other income (expense)        |  |                | 896     |   |                            |   | (6,632 | )                         |  |   | (6,536                   | ) |  |                       | (1,054  | ) |  |   | (13,326 | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|LOSS INCOME BEFORE INCOME TAXES     |  |                | (14,219 | ) |                            |   | 2,495  |                           |  |   | 2,038                    |   |  |                       | (1,054  | ) |  |   | (10,740 | )
|PROVISION FOR FOREIGN INCOME TAXES  |  |                |         |   |                            |   | (413   | )                         |  |   | (3,066                   | ) |  |                       |         |   |  |   | (3,479  | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  
|NET (LOSS) INCOME                   |  | $              | (14,219 | ) |                            | $ | 2,082  |                           |  | $ | (1,028                   | ) |  | $                     | (1,054  | ) |  | $ | (14,219 | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |         |   |  |   |         |  



F-26



---

##### Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2005

(In thousands of U.S. Dollars)



|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|----------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                    |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | Consolidated |        
|NET REVENUES:                       |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Broadband and satellite             |  |                |         |   |                            | $ | 34,045 |                           |  | $ | 157,058                  |   |  | $            | (18,251 | ) |  | $ | 172,852 |  
|Internet                            |  |                |         |   |                            |   | 8,111  |                           |  |   | 27,940                   |   |  |              | (5,460  | ) |  |   | 30,591  |  
|Value added services                |  |                |         |   |                            |   | 17,757 |                           |  |   | 21,306                   |   |  |              | (14,189 | ) |  |   | 24,874  |  
|Telephony                           |  |                |         |   |                            |   | 18,209 |                           |  |   | 15,294                   |   |  |              | (8,536  | ) |  |   | 24,967  |  
|Sales of equipment                  |  |                |         |   |                            |   | 42     |                           |  |   | 648                      |   |  |              |        |   |  |   | 690     |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total net revenues                  |  |                |         |   |                            |   | 78,164 |                           |  |   | 222,246                  |   |  |              | (46,436 | ) |  |   | 253,974 |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|COSTS AND EXPENSES:                 |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Direct costs:                       |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Contracted services                 |  |                |         |   |                            |   | 9,003  |                           |  |   | 23,911                   |   |  |              | (8,535  | ) |  |   | 24,379  |  
|Other direct costs                  |  |                |         |   |                            |   | 8,648  |                           |  |   | 20,656                   |   |  |              | (395    | ) |  |   | 28,909  |  
|Leased capacity                     |  |                |         |   |                            |   | 24,060 |                           |  |   | 75,023                   |   |  |              | (24,093 | ) |  |   | 74,990  |  
|Cost of equipment sold              |  |                |         |   |                            |   | 46     |                           |  |   | 591                      |   |  |              | (6      | ) |  |   | 631     |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total direct costs                  |  |                |         |   |                            |   | 41,757 |                           |  |   | 120,181                  |   |  |              | (33,029 | ) |  |   | 128,909 |  
|                                    |  |                |         |   |                           
|Salaries and wages                  |  | $              | 440     |   |                            |   | 12,547 |                           |  |   | 37,610                   |   |  |              |         |   |  |   | 50,597  |  
|Selling, general and administrative |  |                | 14,221  |   |                            |   | 6,452  |                           |  |   | 15,069                   |   |  |              | (13,407 | ) |  |   | 22,335  |  
|Depreciation and amortization       |  |                |         |   |                            |   | 13,032 |                           |  |   | 42,292                   |   |  |              |         |   |  |   | 55,324  |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total costs and expenses            |  |                | 14,661  |   |                            |   | 73,788 |                           |  |   | 215,152                  |   |  |              | (46,436 | ) |  |   | 257,165 |  
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Operating (loss) income             |  |                | (14,661 | ) |                            |   | 4,376  |                           |  |   | 7,094                    |   |  |              |         |   |  |   | (3,191  | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|OTHER INCOME (EXPENSES):            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Interest income                     |  |                | 5,722   |   |                            |   | 437    |                           |  |   | 824                      |   |  |              | (5,550  | ) |  |   | 1,433   |  
|Interest expense                    |  |                | (6,551  | ) |                            |   | (9,199 | )                         |  |   | (22,194                  | ) |  |              | 5,550   |   |  |   | (32,394 | )
|Net (loss) gain on foreign exchange |  |                | (13     | ) |                            |   | (692   | )                         |  |   | 10,836                   |   |  |              |         |   |  |   | 10,131  |  
|Equity in loss of affiliates        |  |                | (16,266 | ) |                            |   |        |                           |  |   | (10,364                  | ) |  |              | 26,630  |   |  |   |         |  
|Other (expense) income net          |  |                | (4,479  | ) |                            |   | 304    |                           |  |   | (3,560                   | ) |  |              |         |   |  |   | (7,735  | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Total other (expenses) income       |  |                | (21,587 | ) |                            |   | (9,150 | )                         |  |   | (24,458                  | ) |  |              | 26,630  |   |  |   | (28,565 | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|(LOSS) INCOME BEFORE INCOME TAXES   |  |                | (36,248 | ) |                            |   | (4,774 | )                         |  |   | (17,364                  | ) |  |              | 26,630  |   |  |   | (31,756 | )
|PROVISION FOR FOREIGN INCOME TAXES  |  |                |        |   |                            |   | (794   | )                         |  |   | (3,698                   | ) |  |              |         |   |  |   | (4,492  | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|NET LOSS                            |  | $              | (36,248 | ) |                            | $ | (5,568 | )                         |  | $ | (21,062                  | ) |  | $            | 26,630  |   |  | $ | (36,248 | )
|                                    |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |              |         |   |  |   |         |  



F-27



---

##### Table of Contents

CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2006

(In thousands of U.S. Dollars)



|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|----------------------------------- |  | --------------- | ------- | - | ---------------------------- | - | ------- | -------------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - |  | - | ------- | -
|                                    |  | Holding Company |         |   | IMPSAT Argentina (Guarantor) |   |         | Non-Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |        
|NET REVENUES:                       |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Broadband and satellite             |  |                 |         |   |                              | $ | 32,065  |                            |  | $ | 171,359                   |   |  | $            | (18,756 | ) |  | $ | 184,668 |  
|Internet                            |  |                 |         |   |                              |   | 8,928   |                            |  |   | 33,266                    |   |  |              | (6,131  | ) |  |   | 36,063  |  
|Value added services                |  |                 |         |   |                              |   | 16,428  |                            |  |   | 33,007                    |   |  |              | (13,680 | ) |  |   | 35,755  |  
|Telephony                           |  |                 |         |   |                              |   | 18,173  |                            |  |   | 15,102                    |   |  |              | (5,982  | ) |  |   | 27,293  |  
|Sales of equipment                  |  |                 |         |   |                              |   | 78      |                            |  |   | 1,112                     |   |  |              |         |   |  |   | 1,190   |  
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total net revenues                  |  |                 |         |   |                              |   | 75,672  |                            |  |   | 253,846                   |   |  |              | (44,549 | ) |  |   | 284,969 |  
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|COSTS AND EXPENSES:                 |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Direct costs:                       |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Contracted services                 |  |                 |         |   |                              |   | 8,977   |                            |  |   | 27,120                    |   |  |              | (10,162 | ) |  |   | 25,935  |  
|Other direct costs                  |  |                 |         |   |                              |   | 9,522   |                            |  |   | 27,197                    |   |  |              | (1,146  | ) |  |   | 35,573  |  
|Leased capacity                     |  |                 |         |   |                              |   | 22,086  |                            |  |   | 74,753                    |   |  |              | (21,115 | ) |  |   | 75,724  |  
|Cost of equipment sold              |  |                 |         |   |                              |   | 84      |                            |  |   | 288                       |   |  |              | (1      | ) |  |   | 371     |  
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total direct costs                  |  |                 |         |   |                              |   | 40,669  |                            |  |   | 129,358                   |   |  |              | (32,424 | ) |  |   | 137,603 |  
|Salaries and wages                  |  | $               | 4,600   |   |                              |   | 13,754  |                            |  |   | 42,474                    |   |  |              |         |   |  |   | 60,828  |  
|Selling, general and administrative |  |                 | 13,489  |   |                              |   | 6,907   |                            |  |   | 17,123                    |   |  |              | (12,125 | ) |  |   | 25,394  |  
|Depreciation and amortization       |  |                 |         |   |                              |   | 11,714  |                            |  |   | 48,595                    |   |  |              |         |   |  |   | 60,309  |  
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total costs and expenses            |  |                 | 18,089  |   |                              |   | 73,044  |                            |  |   | 237,550                   |   |  |              | (44,549 | ) |  |   | 284,134 |  
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Operating (loss) income             |  |                 | (18,089 | ) |                              |   | 2,628   |                            |  |   | 16,296                    |   |  |              |         |   |  |   | 835     |  
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|OTHER INCOME (EXPENSES):            |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Interest income                     |  |                 | 4,319   |   |                              |   | 124     |                            |  |   | 1,670                     |   |  |              | (5,170  | ) |  |   | 943     |  
|Interest expense                    |  |                 | (6,666  | ) |                              |   | (10,622 | )                          |  |   | (19,857                   | ) |  |              | 5,170   |   |  |   | (31,975 | )
|Net (loss) gain on foreign exchange |  |                 |         |   |                              |   | (212    | )                          |  |   | 7,261                     |   |  |              |         |   |  |   | 7,049   |  
|Equity in loss of affiliates        |  |                 | (6,984  | ) |                              |   |         |                            |  |   | (4,278                    | ) |  |              | 11,262  |   |  |   |         |  
|Other (expense) income net          |  |                 | (7,967  | ) |                              |   | 72      |                            |  |   | (222                      | ) |  |              | (121    | ) |  |   | (8,238  | )
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|Total other (expenses) income       |  |                 | (17,298 | ) |                              |   | (10,638 | )                          |  |   | (15,426                   | ) |  |              | 11,141  |   |  |   | (32,221 | )
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|LOSS BEFORE INCOME TAXES            |  |                 | (35,387 | ) |                              |   | (8,010  | )                          |  |   | 870                       |   |  |              | 11,141  |   |  |   | (31,386 | )
|PROVISION FOR FOREIGN INCOME TAXES  |  |                 | (256    | ) |                              |   | (4,370  | )                          |  |   | 369                       |   |  |              |         |   |  |   | (4,257  | )
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  
|NET LOSS                            |  | $               | (35,643 | ) |                              | $ | (12,380 | )                          |  | $ | 1,239                     |   |  | $            | 11,141  |   |  | $ | (35,643 | )
|                                    |  |                 |         |   |                              |   |         |                            |  |   |                           |   |  |              |         |   |  |   |         |  



F-28



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##### Table of Contents

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2004

(In thousands of U.S. Dollars)



|                                                            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |        |   |  |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------ | ------------------------- |  | - | ------------------------ | - |  | --------------------- | ------ | - |  | - | ------- | -
|                                                            |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |        | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | Condensedconsolidated |       
|Cash flows provided by (used in) operating activities       |  | $              | (12,174 | ) |                            | $ | 8,892  |                           |  | $ | 32,558                   |   |  | $                     | 6,242  |   |  | $ | 35,518  |  
|Cash flows provided by (used in) investing activities       |  |                | 11,035  |   |                            |   | (7,794 | )                         |  |   | (31,326                  | ) |  |                       | (6,242 | ) |  |   | (34,327 | )
|Cash flows provided by (used in) financing activities       |  |                |         |   |                            |   | 1,305  |                           |  |   | 1,432                    |   |  |                       |        |   |  |   | 2,737   |  
|Effect of exchange rate change on cash and cash equivalents |  |                | (2,969  | ) |                            |   |        |                           |  |   | 1,198                    |   |  |                       |        |   |  |   | (1,771  | )
|                                                            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |        |   |  |   |         |  
|Net (decrease) increase in cash and cash equivalents        |  |                | (4,108  | ) |                            |   | 2,403  |                           |  |   | 3,862                    |   |  |                       |        |   |  |   | 2,157   |  
|Cash and cash equivalents at beginning of the year          |  |                | 43,883  |   |                            |   | 1,432  |                           |  |   | 16,183                   |   |  |                       |        |   |  |   | 61,498  |  
|                                                            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |        |   |  |   |         |  
|Cash and cash equivalents at end of the year                |  | $              | 39,775  |   |                            | $ | 3,835  |                           |  | $ | 20,045                   |   |  | $                     |       |   |  | $ | 63,655  |  
|                                                            |  |                |         |   |                            |   |        |                           |  |   |                          |   |  |                       |        |   |  |   |         |  



F-29



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##### Table of Contents

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005

(In thousands of U.S. Dollars)



|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | - | -------------------------- | - | ------- | ------------------------- |  | - | ------------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                            |  | HoldingCompany |         |   | IMPSATArgentina(Guarantor) |   |         | Non-GuarantorSubsidiaries |  |   | IntercompanyEliminations |   |  | Consolidated |        
|Cash flows provided by (used in) operating activities       |  | $              | (16,102 | ) |                            | $ | 19,746  |                           |  | $ | 72,883                   |   |  | $            | (44,078 | ) |  | $ | 32,449  |  
|Cash flows provided by (used in) investing activities       |  |                |         |   |                            |   | (7,294  | )                         |  |   | (71,089                  | ) |  |              | 44,078  |   |  |   | (34,305 | )
|Cash flows provided by (used in) financing activities       |  |                | (23,076 | ) |                            |   | (12,987 | )                         |  |   | (1,548                   | ) |  |              |         |   |  |   | (37,611 | )
|Effect of exchange rate change on cash and cash equivalents |  |                | 429     |   |                            |   |         |                           |  |   | (547                     | ) |  |              |         |   |  |   | (118    | )
|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Net (decrease) increase in cash and cash equivalents        |  |                | (38,749 | ) |                            |   | (535    | )                         |  |   | (301                     | ) |  |              |         |   |  |   | (39,585 | )
|Cash and cash equivalents at beginning of the year          |  |                | 39,775  |   |                            |   | 3,835   |                           |  |   | 20,045                   |   |  |              |         |   |  |   | 63,655  |  
|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  
|Cash and cash equivalents at end of the year                |  | $              | 1,026   |   |                            | $ | 3,300   |                           |  | $ | 19,744                   |   |  | $            |        |   |  | $ | 24,070  |  
|                                                            |  |                |         |   |                            |   |         |                           |  |   |                          |   |  |              |         |   |  |   |         |  



F-30



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##### Table of Contents

CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006



|                                                            |  |                 |         |   |                              |   |        |                             |  |   |                           |   |  |              |        |   |  |   |         |  
|----------------------------------------------------------- |  | --------------- | ------- | - | ---------------------------- | - | ------ | --------------------------- |  | - | ------------------------- | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                            |  | Holding Company |         |   | IMPSAT Argentina (Guarantor) |   |        | Non- Guarantor Subsidiaries |  |   | Intercompany Eliminations |   |  | Consolidated |       
|Cash flows provided by (used in) operating activities       |  | $               | (10,057 | ) |                              | $ | (3,283 | )                           |  | $ | 62,464                    |   |  | $            | (8,257 | ) |  | $ | 40,867  |  
|Cash flows provided by (used in) investing activities       |  |                 |         |   |                              |   | (3,655 | )                           |  |   | (31,553                   | ) |  |              | (122   | ) |  |   | (35,330 | )
|Cash flows provided by (used in) financing activities       |  |                 | 9,460   |   |                              |   | 4,946  |                             |  |   | (30,474                   | ) |  |              | 8,379  |   |  |   | (7,689  | )
|Effect of exchange rate change on cash and cash equivalents |  |                 | 1,531   |   |                              |   |        |                             |  |   | (2,134                    | ) |  |              |        |   |  |   | (603    | )
|                                                            |  |                 |         |   |                              |   |        |                             |  |   |                           |   |  |              |        |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents        |  |                 | 934     |   |                              |   | (1,992 | )                           |  |   | (1,697                    | ) |  |              |        |   |  |   | (2,755  | )
|Cash and cash equivalents at beginning of the year          |  |                 | 1,026   |   |                              |   | 3,300  |                             |  |   | 19,744                    |   |  |              |        |   |  |   | 24,070  |  
|                                                            |  |                 |         |   |                              |   |        |                             |  |   |                           |   |  |              |        |   |  |   |         |  
|Cash and cash equivalents at end of the year                |  | $               | 1,960   |   |                              | $ | 1,308  |                             |  | $ | 18,047                    |   |  | $            |       |   |  | $ | 21,315  |  
|                                                            |  |                 |         |   |                              |   |        |                             |  |   |                           |   |  |              |        |   |  |   |         |  



F-31