<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1999
REGISTRATION NO. 333-85503
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELECOMUNICACIONES DE PUERTO RICO, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COMMONWEALTH OF PUERTO RICO 4813 66-0566178
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
PUERTO RICO TELEPHONE COMPANY, INC., AS GUARANTOR
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COMMONWEALTH OF PUERTO RICO 4813 66-0564397
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
AND
CELULARES TELEFONICA, INC., AS GUARANTOR
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COMMONWEALTH OF PUERTO RICO 4812 66-0551848
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
COPIES TO:
<TABLE>
<S> <C> <C>
1515 F.D. ROOSEVELT AVENUE LAWRENCE GOODMAN, ESQ. JOSE ARROYO, ESQ.
GUAYNABO, PUERTO RICO 00968 CURTIS, MALLET-PREVOST, 1515 F.D. ROOSEVELT AVENUE,
(787) 793-1818 COLT & MOSLE LLP 12TH FLOOR
(Address, including Zip Code, 101 PARK AVENUE GUAYNABO, PUERTO RICO 00968
and telephone number NEW YORK, NEW YORK 10178 (787) 793-8441
including area code, of (212) 696-6000 (Name, address, including Zip
registrants' Code,
principal executive offices) and telephone number,
including area code, of agent for
service)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
[PRTC LOGO] [CT LOGO]
$1,000,000,000
TELECOMUNICACIONES DE PUERTO RICO, INC.
We are offering to exchange all of the notes we previously sold in a
private offering for new registered exchange notes.
The exchange notes will be guaranteed by our subsidiaries to the extent
they guarantee any of our credit facilities.
OFFER TO EXCHANGE OUR OUTSTANDING
$300,000,000 6.15% SENIOR NOTES DUE 2002
$400,000,000 6.65% SENIOR NOTES DUE 2006
$300,000,000 6.80% SENIOR NOTES DUE 2009
FOR
$300,000,000 6.15% SENIOR NOTES DUE 2002
$400,000,000 6.65% SENIOR NOTES DUE 2006
$300,000,000 6.80% SENIOR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
MATERIAL TERMS OF THIS EXCHANGE OFFER:
- - This exchange offer expires at 12:00 midnight New York City time on
, 1999, unless extended;
- - The terms of the exchange notes are substantially identical to the old notes,
except that they will not be subject to transfer restrictions and registration
rights; and
- - We will not list the exchange notes on any exchange.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. YOU SHOULD CAREFULLY
CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 11
The Exchange Offer.......................................... 17
Use of Proceeds............................................. 25
The Acquisition and Related Corporate Restructuring......... 25
Capitalization.............................................. 28
Selected Historical Financial and Operational Data.......... 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ 49
Business.................................................... 54
Management.................................................. 71
Shareholders and Shareholder Relationships.................. 77
Certain Relationships and Related Transactions.............. 82
Description of Some of Our Debt............................. 84
Description of Exchange Notes............................... 88
Plan of Distribution........................................ 104
Tax Considerations.......................................... 105
Legal Matters............................................... 109
Experts..................................................... 109
Index to Financial Statements............................... F-1
Annex A -- Commonwealth of Puerto Rico...................... A-1
Annex B -- Glossary of Certain Telecommunications Terms..... B-1
</TABLE>
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should carefully consider all of the information contained in this
prospectus before investing in the exchange notes, including the factors set
forth under "Risk Factors."
TELECOMUNICACIONES DE PUERTO RICO, INC.
Our company is the leading telecommunications company in Puerto Rico and
one of the ten largest local exchange carriers in the United States. On March 2,
1999, the GTE Group acquired control of our company. We operate through our
principal wholly-owned subsidiaries, Puerto Rico Telephone Company, Inc. and
Celulares Telefonica, Inc. which currently offer the following services:
PUERTO RICO TELEPHONE COMPANY
- LOCAL SERVICES -- include basic and enhanced local voice services, and
Internet and data services, offered to residential and business customers
throughout Puerto Rico, as well as private branch exchange rentals and
revenues from public phones. Puerto Rico Telephone Company provides local
exchange services to approximately 1.2 million regular access lines in
service and as of June 1999 had a 95% share of the local wireline market;
- NETWORK ACCESS SERVICES -- include services provided to inter-exchange
carriers, cellular operators, other local exchange carriers and paging
companies for the origination and termination of calls from and to Puerto
Rico Telephone Company's customers;
- ON-ISLAND LONG DISTANCE SERVICES -- consist primarily of direct dialing,
operator-assisted and calling card long distance services within Puerto
Rico. Puerto Rico Telephone Company also provides wide area
telecommunications services, toll-free services and toll private line
services. For the month of June 1999, Puerto Rico Telephone Company had
an estimated 63% share of the on-island long distance market; and
- DIRECTORY AND OTHER SERVICES -- include Puerto Rico Telephone Company's
share of directory revenues from the publication of white and yellow page
directories and from customer listings, as well as fees paid by
inter-exchange carriers for billing and collection services provided by
Puerto Rico Telephone Company and sales of private branch exchange,
cellular and paging equipment.
CELULARES TELEFONICA
- WIRELESS TELEPHONY SERVICES -- include analog and digital cellular
services. As of June 30, 1999, Celulares Telefonica had approximately
254,000 cellular subscribers, estimated to be 35% of Puerto Rico's
wireless telephony market;
- WIRELESS PAGING SERVICES -- consist of numeric and alphanumeric paging
services. As of June 30, 1999, Celulares Telefonica had approximately
204,000 paging subscribers, making it the leading provider of these
services in Puerto Rico; and
- OFF-ISLAND LONG DISTANCE SERVICE -- consists of long distance service
outside Puerto Rico for both wireline and wireless customers. Off-island
long distance services began on February 1, 1999. As of June 30, 1999, it
had a 5% share of the off-island long distance market.
THE ACQUISITION AND RELATED CORPORATE RESTRUCTURING
- On April 7, 1997, the government of Puerto Rico announced a plan which
resulted in the privatization of Puerto Rico Telephone Company and
Celulares Telefonica, as predecessors of our company, through a bidding
process.
1
<PAGE> 5
- On July 21, 1998, after the conclusion of the bidding process, the GTE
Group was awarded the right to acquire a controlling equity interest in
our company. The GTE Group consists of GTE Holdings (Puerto Rico) LLC and
Popular, Inc. GTE Holdings (Puerto Rico) LLC is an indirect wholly-owned
subsidiary of GTE Corporation, one of the largest telecommunications
companies in the world. Popular, Inc. is the largest publicly traded
company in Puerto Rico and is the parent company of Banco Popular de
Puerto Rico, the largest bank in Puerto Rico.
- On March 2, 1999, the acquisition was consummated and the Puerto Rico
Telephone Authority sold 40.01% plus one share of the shares of our
company to GTE Holdings, 9.99% to Popular and an additional 3% to our
employee stock ownership plan. The Puerto Rico Telephone Authority
received gross proceeds of $2,040.0 million in cash and retained 43%,
less one of our shares. The Puerto Rico Telephone Authority is a public
corporation and governmental instrumentality of Puerto Rico.
STRATEGY
We seek to enhance our leadership position in the Puerto Rico
telecommunications market by stimulating demand for our core telephony services
and continuing to extend our franchise in the growth areas of wireless and data
services. The principal elements of our strategy are to:
- improve our systems and processes;
- strengthen our marketing focus;
- leverage our relationship with GTE Corporation; and
- make service quality and customer responsiveness priorities for our
workforce.
RISK FACTORS
Investing in the exchange notes involves some risks, including, among
others, risks relating to:
- THE TELECOMMUNICATIONS INDUSTRY IN GENERAL, such as increased
competition, rapidly changing technology and risks associated with year
2000 issues;
- INVESTING IN OUR COMPANY, such as our lack of experience in managing our
operations as a private company, our outmoded operational processes, and
our failure to fill new orders expeditiously;
- THE CHARACTERISTICS OF THE EXCHANGE NOTES, such as the absence of a
public market for the exchange notes; and
- OPERATIONS IN PUERTO RICO, such as natural disasters and adverse
economic, social, political, regulatory or governmental developments in
Puerto Rico.
For more information regarding these and other risks involved in an
investment in the exchange notes, see "Risk Factors" beginning on page 11.
2
<PAGE> 6
CORPORATE STRUCTURE
After giving effect to the acquisition and related corporate restructuring,
the ownership structure of Telecomunicaciones de Puerto Rico, Inc. is as
follows:
[Ownership Structure of Telpri Flow Chart]
3
<PAGE> 7
THE OLD NOTE OFFERING
Old Notes..................... We sold the old notes to a syndicate of
investment banks on May 13, 1999. This
syndicate subsequently resold the old notes to
several qualified institutional buyers and to
non-U.S. persons pursuant to Regulation S under
the U.S. Securities Act of 1933, as amended.
Exchange and Registration
Rights Agreement.............. As required in the purchase agreement, we and
the syndicate that purchased the old notes
entered into a registration rights agreement on
May 13, 1999. This agreement grants the holders
of the notes both exchange and registration
rights. This exchange offer is intended to
satisfy these exchange rights which terminate
once the exchange offer is completed.
THE EXCHANGE OFFER
Securities Offered............ We are offering:
$300,000,000 principal amount of 6.15% Senior
Notes due 2002;
$400,000,000 principal amount of 6.65% Senior
Notes due 2006; and
$300,000,000 principal amount of 6.80% Senior
Notes due 2009,
together with related guarantees.
The terms of the old notes and the exchange
notes are substantially identical, except for
specified transfer restrictions and
registration rights relating to the old notes.
Each series of exchange notes is also
guaranteed by our two principal subsidiaries to
the same extent that they guaranteed the old
notes.
The Exchange Offer............ We are offering to exchange the old notes for
exchange notes that are equal in principal
amount.
Expiration Date; Withdrawal of
Tender........................ Our exchange offer will expire at 12:00
midnight New York City time, on ,
1999, unless this date and time are extended.
You may withdraw your tender of old notes at
any time prior to the expiration date. Any old
notes that we do not accept for exchange will
be returned to you without expense as promptly
as possible after the expiration or termination
of our exchange offer.
Conditions to the Exchange
Offer......................... We believe that the exchange notes we issue in
exchange for the old notes may be offered for
resale, resold and otherwise transferred
without compliance with the registration and
prospectus delivery requirements of the
Securities Act. We have based this belief on
letters issued in connection with past
offerings of this kind in which the staff of
the Securities and Exchange Commission, which
we refer to as the Commission, has interpreted
the laws and regulations relating to resale of
notes to the public without the requirement of
further registration under the Securities Act.
However, any noteholder which is our
"affiliate" within the meaning of Rule 405
under the U.S. Securities Exchange Act of 1934,
as
4
<PAGE> 8
amended may not offer for resale, resell or
otherwise transfer the exchange notes without
meeting these registration and prospectus
delivery requirements.
In order for the exchange notes to be offered
for resale, resold, or otherwise transferred:
- they must be acquired in the ordinary
course of your business; and
- you must not intend to participate in
the distribution of those exchange
notes.
Our obligation to accept for exchange, or to
issue the exchange notes in exchange for, any
old notes is subject to conditions relating to
compliance with applicable law, or any
applicable interpretation by the staff of the
Commission, or any order of any governmental
agency or court of law. We currently expect
that each of the conditions will be satisfied.
Procedures for Tendering
Notes......................... Each holder of old notes wishing to accept the
exchange offer must complete, sign and date the
accompanying letter of transmittal, or a
facsimile thereof, in accordance with its
instructions and mail or fax it, together with
any other documentation required by the letter
of transmittal, prior to the expiration or
termination of the exchange offer to the
exchange agent at the following address:
The Bank of New York
101 Barclay Street
Floor 7E
ATTENTION: Enrique Lopez
Reorganization Department
New York, NY 10286
Telephone: (212) 815-2742
Facsimile: (212) 815-4699
Consequences of Failure To
Exchange the Old Notes........ If you do not exchange your old notes for
exchange notes, you will no longer be able to
require us to register your old notes under the
Securities Act. In addition you will not be
able to offer or sell your old notes unless:
- they are registered under the Securities
Act; or
- you offer or sell them in accordance
with an applicable exemption from the
registration requirements of the
Securities Act.
Use of Proceeds............... We will not receive any cash proceeds from the
exchange of old notes pursuant to this exchange
offer.
Exchange Agent................ The Bank of New York is serving as the exchange
agent in connection with our exchange offer.
Broker-Dealers................ Each broker-dealer that receives exchange notes
for its own account in exchange for old notes,
where those old notes were acquired by that
broker-dealer as a result of market-making or
other trading activities, must acknowledge that
it will deliver a
5
<PAGE> 9
prospectus in connection with any resales of
those exchange notes. See "Plan of
Distribution."
U.S. Federal Income Tax
Consequences................ The exchange of old notes pursuant to the
exchange offer should not be a taxable event to
you for federal income tax purposes.
Consequently, a U.S. holder should not
recognize taxable income or loss as a result of
exchanging old notes for exchange notes
pursuant to this exchange offer. The holding
period of the exchange notes will include the
holding period of the old notes and the basis
of the exchange notes will be the same as the
basis of the old notes immediately before the
exchange.
Puerto Rico Tax
Consequences.................. Provided the exchange occurs outside Puerto
Rico, as contemplated, non-Puerto Rico holders
will not be subject to Puerto Rico income tax
on the exchange of the old notes pursuant to
the exchange offer.
An exchange of the old notes for exchange notes
will be considered to have occurred outside
Puerto Rico if the exchange of the old notes
occurs physically at the office of the exchange
agent in New York, pursuant to instructions
given by the holder and notice of acceptance
given by us, in each case outside Puerto Rico.
6
<PAGE> 10
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The terms of the exchange notes are substantially identical to the terms of
the old notes, except that the old notes differed with respect to transfer
restrictions and registration rights.
Issuer........................ Telecomunicaciones de Puerto Rico.
The Exchange Notes............ $300,000,000 principal amount of 6.15% Senior
Notes due 2002.
$400,000,000 principal amount of 6.65% Senior
Notes due 2006.
$300,000,000 principal amount of 6.80% Senior
Notes due 2009.
Interest Payment Dates........ May 15 and November 15 of each year, commencing
November 15, 1999.
Subsidiary Guarantees......... Puerto Rico Telephone Company, Celulares
Telefonica and Telecomunicaciones de Puerto
Rico's other subsidiaries will guarantee the
exchange notes to the extent they guarantee any
of our credit facilities. Each of our
outstanding credit facilities are fully and
unconditionally guaranteed by Puerto Rico
Telephone Company and Celulares Telefonica. For
additional information about the guarantees,
see "Description of Exchange Notes -- Certain
Covenants."
Sinking Fund.................. None.
Optional Redemption........... The 2006 exchange notes and the 2009 exchange
notes will be redeemable from time to time, in
whole or in part, at our option, at the prices
described under "Description of Exchange
Notes -- Optional Redemption."
Optional Tax Redemption....... In the event of specified changes affecting
Puerto Rico withholding taxes, each series of
exchange notes will be redeemable in whole, but
not in part, at Telecomunicaciones de Puerto
Rico's option at the prices described under
"Description of Exchange Notes -- Optional Tax
Redemption."
Additional Amounts............ If payments made by us or by any subsidiary
guarantor with respect to the exchange notes
become subject to withholding tax or deduction
under Puerto Rico tax laws, Telecomunicaciones
de Puerto Rico and the subsidiary guarantors
will pay additional amounts so that the net
amount received by holders of the exchange
notes, other than specified excluded holders,
after the withholding or deduction will not be
less than the amount that they would have
received in the absence of the withholding or
deduction. For additional information about
these payments, see "Description of Exchange
Notes -- Additional Amounts."
Ranking....................... Like the old notes, the exchange notes will be
unsecured senior obligations of
Telecomunicaciones de Puerto Rico and the
subsidiary guarantors and will rank equally
with their other unsecured senior obligations.
Specific Covenants............ The indenture governing the exchange notes will
limit our ability to, among other things:
- create specified liens;
7
<PAGE> 11
- enter into some types of sale and
leaseback transactions; and
- merge, consolidate or sell assets.
The indenture will also limit the ability of
Telecomunicaciones de Puerto Rico's
non-guarantor subsidiaries to incur debt during
any period that Telecomunicaciones de Puerto
Rico's credit facilities restrict their ability
to incur debt. All the covenants are subject to
a number of important qualifications and
limitations. For additional information about
these covenants, see "Description of Exchange
Notes -- Certain Covenants."
Absence of a Public Market for
the Exchange Notes............ The exchange notes are new securities, there is
no public trading market for them and we do not
intend to apply for listing of the exchange
notes on any national securities exchange or
for quotation of the exchange notes on any
automated dealer quotation system. For
additional information about the risks
resulting from the absence of a public market
for the exchange notes, see "Risk
Factors -- Absence of a Public Market for the
Exchange Notes."
8
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The summary financial data presented below have been derived from, and
should be read in conjunction with, the historical consolidated financial
statements of Telecomunicaciones de Puerto Rico as of the six-month period ended
June 30, 1999 and for the period from March 2, 1999 through June 30, 1999 and
the notes thereto. This data has also been derived from the combined financial
statements and notes thereto of our predecessors (a) as of and for the
three-year period ended on December 31, 1998 and the notes thereto, (b) for the
six-month period ended June 30, 1998 and (c) for the period from January 1, 1999
through March 1, 1999. The financial results for the year ended December 31,
1998 and the six months ended June 30, 1999 have also been presented below on a
pro forma basis to give effect to the acquisition and related transactions as
though they had occurred on January 1, 1998. The pro forma adjustments do not
give effect to all of the changes in our business. For a more detailed
discussion of the changes in our business see "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Condensed Consolidated Financial Statements," and "Selected Historical Financial
and Operating Data," including the introductory paragraph and notes. The
unaudited pro forma consolidated financial data has been included for
comparative purposes only and does not purport to be indicative of the results
that would have occurred if these transactions had actually occurred on the
dates or for the periods indicated or which may occur in the future.
<TABLE>
<CAPTION>
COMPANY PREDECESSORS COMPANY PREDECESSORS
---------------------- ----------------------- --------- ------------------------------
PRO FORMA
SIX PERIOD PERIOD SIX
MONTHS FROM FROM MONTHS
ENDED MARCH 2 JANUARY 1 ENDED
JUNE 30, THROUGH THROUGH JUNE 30, YEAR ENDED DECEMBER 31,
1999 JUNE 30, MARCH 1, 1998 PRO FORMA ------------------------------
(UNAUDITED) 1999 1999 (UNAUDITED) 1998 1998 1997 1996
----------- -------- --------- ----------- --------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues and Sales......... $670.3 $447.0 $223.3 $639.0 $1,270.7 $1,270.7 $1,234.1 $1,201.4
Operating Costs and
Expenses................. 622.6 386.8 222.4 504.7 1,139.0 1,043.4 989.6 1,060.5
------ ------ ------ ------ -------- -------- -------- --------
Operating Income........... 47.7 60.2 .9 134.3 131.7 227.3 244.5 140.9
Interest Income (Expense),
Net...................... (46.7) (29.3) .4 1.7 (100.4) 2.5 3.0 1.6
Other Income (Expense)..... 1.8 1.2 .6 (.1) (5.4) (5.4) (1.7) (0.8)
Income Tax Provision....... (1.1) (11.7) -- -- (10.1) -- -- --
------ ------ ------ ------ -------- -------- -------- --------
Net Income, Before
Extraordinary Charge..... 1.7 20.4 1.9 135.9 15.8 224.4 245.8 141.7
Extraordinary Charge....... -- (60.5) -- -- -- -- -- --
------ ------ ------ ------ -------- -------- -------- --------
Net Income (Loss).......... $ 1.7 $(40.1) $ 1.9 $135.9 $ 15.8 $ 224.4 $ 245.8 $ 141.7
====== ====== ====== ====== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY --------------------------------
-------------- AS OF DECEMBER 31,
AS OF JUNE 30, --------------------------------
1999 1998 1997 1996
-------------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets................................. $ 469.0 $ 435.4 $ 379.7 $ 410.1
Property, Plant & Equipment, Net............... 1,730.7 1,987.9 2,019.1 1,947.0
Total Assets................................... 2,713.7 2,456.6 2,434.8 2,388.0
Current Liabilities............................ 370.6 347.2 243.6 278.7
Total Debt and Lease Obligations............... 1,526.5 0.8 1.2 1.4
Shareholders' Equity........................... 452.7 1,812.7 1,925.0 1,851.3
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
COMPANY PREDECESSORS COMPANY PREDECESSORS
-------------------- ----------------------- --------- ------------------------------
PRO FORMA PERIOD PERIOD SIX
SIX FROM FROM MONTHS
MONTHS MARCH 2 JANUARY 1 ENDED
ENDED THROUGH THROUGH JUNE 30, YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, MARCH 1, 1998 PRO FORMA ------------------------------
1999 1999 1999 (UNAUDITED) 1998 1998 1997 1996
--------- -------- --------- ----------- --------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Depreciation and
Amortization.............. $ 151.4 $ 99.5 $ 50.4 $ 145.7 $ 305.8 $ 296.5 $ 279.2 $ 254.6
Cash Flow from Operations... 149.8 123.8 55.9 272.8 409.1 613.8 508.2 504.1
Capital Expenditures........ 104.3 71.1 33.2 110.6 288.0 288.0 362.2 391.4
Cash used in Investing
Activities................ 100.2 67.1 33.1 106.1 279.6 279.6 351.3 380.7
Cash Flow from Financing
Activities................ (51.4) (65.6) 14.2 (166.9) (319.8) (319.8) (178.7) (103.5)
EBITDA(1)................... 199.1 159.7 51.3 280.0 437.5 523.8 523.7 395.5
EBITDA Margin(2)............ 30% 36% 23% 44% 34% 41% 42% 33%
Total Debt to EBITDA
Ratio(3).................. 3.8x 3.2x 3.5x
EBITDA to Interest Expense
Ratio..................... 4.3x 5.5x 4.4x
Ratio of Earnings to Fixed
Charges(4)................ 1.1 2.1 1.3
</TABLE>
- ---------------
(1) EBITDA represents operating income plus depreciation and amortization
expense. EBITDA is used by some investors and analysts to analyze and
compare companies on the basis of liquidity. EBITDA is not recognized under
generally accepted accounting principles and should therefore not be
construed as an alternative for net income, which is an indicator of a
company's performance, or cash flow from operations, which is a liquidity
measure. It is included in this prospectus because management believes that
it provides additional information with respect to our anticipated ability
to meet future debt service, capital expenditures, and working capital
requirements. Our calculation of EBITDA may be different from the
calculation used by other companies and therefore comparability may be
affected.
(2) Determined by dividing EBITDA by Revenues and Sales.
(3) Calculated by dividing EBITDA into long-term debt including current
maturities. For the pro forma period June 30, 1999, pro forma EBITDA for the
six months ended June 30, 1999 has been annualized.
(4) The ratio of earnings to fixed charges of the predecessors has not been
presented as the fixed charges were nominal prior to the acquisition since
there was no significant indebtedness.
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
---------------- --------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Access Lines in Service (000).................. 1,252 1,236 1,231 1,221 1,156
Wireless Subscribers:
Cellular (000)............................... 254 164 204 135 153
Paging (000)................................. 204 230 219 235 200
Total Access Lines (per 100 households)........ 75 76 75 76 74
Number of Full-Time Employees.................. 7,445 7,784 7,703 7,863 7,971
Access Lines/Wireline Employee................. 178 167 169 164 153
Cellular Average Monthly Service Revenue Per
User......................................... $ 48 $ 54 $ 49 $ 59 $ 71
</TABLE>
See the introductory paragraphs and notes to "Selected Historical Financial and
Operating Data."
10
<PAGE> 14
RISK FACTORS
An investment in the exchange notes is subject to a number of risks. You
should carefully consider all of the information in this prospectus and, in
particular, the following risk factors in connection with an investment in the
exchange notes. You should consult your own financial and legal advisors as to
the risks entailed by an investment in the exchange notes and the suitability of
investing in the exchange notes in light of your particular circumstances.
COMPETITION FROM OTHER TELECOMMUNICATIONS PROVIDERS IN PUERTO RICO MAY REDUCE
OUR MARKET SHARE AND ADVERSELY AFFECT PRICES
The Puerto Rico telecommunications market is highly competitive.
Competition from other telecommunications providers may reduce our market share
and have an adverse effect on our prices and profitability. Primarily as a
result of recent laws, many new competitors have entered the Puerto Rico
telecommunications market and as a result, we expect our market share to
decline, particularly in our local exchange and on-island long distance service
lines of business. Our competitors include:
- AT&T Corp.;
- Telefonica Larga Distancia;
- Cellular Communications of Puerto Rico, Inc., which markets its services
as CellularOne;
- Centennial Cellular Corp., which for wireline services is marketed as
Lambda;
- MCI Worldcom, Inc.;
- Sprint Corporation; and
- SBC Communications Inc. and Telefonos de Mexico who have recently
announced an agreement to acquire Cellular Communications of Puerto Rico,
subject to obtaining regulatory approval.
Prior to February 1, 1999, the selection of an alternate on-island long
distance carrier required dialing 5 additional digits when making a call.
Competition has increased since February 1, 1999, when the requirement to dial
additional numbers was eliminated. We had a 98% on-island long distance market
share as of December 31, 1998. As a result of increased competition, our market
share decreased. For the month of June 1999, we had an estimated 63% market
share in the on-island long distance market. In response to increased
competition, we reduced our long distance rates in February 1999.
We also expect increased competition in the wireless market, including from
some of the competitors listed above. Our competitors may be able to use their
substantial financial, personnel and other resources, including their brand
names, to compete effectively with us.
WE COULD BE REQUIRED TO PROVIDE OTHER COMPETITORS WITH ACCESS TO OUR SERVICES
AND FACILITIES ON TERMS THAT WE CONSIDER UNFAVORABLE
The Federal Telecommunications Act of 1996 and the Puerto Rico
Telecommunications Act require us, among other things, to provide access to some
of our infrastructure and services to other industry participants. While the law
requires our competitors to pay us for access to and the use of our network,
these payments may be inadequate. These provisions include requirements that we:
- interconnect any other telecommunications company to our facilities at
any point in our network where it is technically feasible;
- charge for interconnection based on the "real costs and a profit" as
provided in the Federal Telecommunications Act of 1996;
- provide for the reselling of all services offered on a retail basis; and
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- provide other telecommunications companies with access to poles, ducts,
conduits and rights of way, directory assistance, telephone directories,
911 service and operation support systems, for which we will be
compensated.
WE HAVE EXPERIENCED SERVICE DELIVERY AND CUSTOMER SERVICE PROBLEMS AND FACE
WORKFORCE CHALLENGES, ALL OF WHICH MAY INHIBIT OUR ABILITY TO COMPETE
EFFECTIVELY WITH OTHER INDUSTRY PARTICIPANTS
Our ability to compete effectively will depend upon our ability to offer
high quality, market-driven services at prices generally equal to or below those
charged by our competitors. Our ability to respond to these challenges could be
affected by:
- our lack of experience in managing our operations as a private company;
- the increasingly competitive environment in the telecommunications
industry;
- outmoded operational processes, many of which are currently manually
intensive; and
- our failure to fill new orders for basic wireline service expeditiously
due to delays in processing and execution and because equipment and
components are unavailable.
In addition, our predominantly unionized work-force needs to become more
service-oriented. To change our work rules, we will need to engage in collective
bargaining with our unions and modify existing agreements which expire in 1999
and 2000. In 1998, our unions organized a 41-day work stoppage to protest the
privatization of our company. In 1997, there were sporadic protests after the
privatization was originally announced. We cannot predict the outcome of the
upcoming collective bargaining negotiations.
WE OPERATE ONLY IN PUERTO RICO AND ARE EXPOSED TO NATURAL DISASTERS AND OTHER
LOCAL RISKS WHICH MAY SIGNIFICANTLY AFFECT OUR OPERATIONS
Puerto Rico has been, and in the future may be, affected by natural
disasters, including hurricanes, earthquakes and tropical storms, as evidenced
by Hurricane Georges. On September 21, 1998, Hurricane Georges struck Puerto
Rico and caused considerable property damage to our service area in general,
including our telecommunications systems. Future hurricanes, tropical storms,
earthquakes and other natural disasters could have a material adverse effect on
our business due to resulting damage to our network facilities or from curtailed
telephone traffic resulting from the effects of these events, such as the
destruction of homes and businesses. For a discussion of the effects of
Hurricane Georges on our operations, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations --
Hurricane Georges."
In addition, in 1996 Section 936 of the United States Internal Revenue Code
was amended to phase out and eliminate significant federal tax benefits for
specified companies with operations in Puerto Rico. It is not possible at this
time to determine what long-term effects these amendments will have on the
Puerto Rico economy or our business. These amendments may, however, adversely
affect future growth in Puerto Rico's economy and consequently, our business.
WE FACE RISKS ASSOCIATED WITH RAPIDLY CHANGING TECHNOLOGY -- OUR FAILURE TO
OBTAIN EFFECTIVE TECHNOLOGY AND EQUIPMENT MAY ADVERSELY AFFECT OUR ABILITY TO
PROVIDE COMPETITIVE PRODUCTS AND SERVICE
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new products and services, increased
availability of transmission capacity, and the increasing utilization of the
Internet for voice and data transmission. Our success will depend substantially
on the ability of our management and controlling shareholders to predict which
of the many possible current and future networks, products and services will be
important to finance, establish and maintain. The cost of implementing emerging
and future technologies could be significant, and we may not select appropriate
technology and equipment or obtain appropriate new technology on a timely basis
and/or on satisfactory terms.
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In addition, the introduction of new products or technologies may reduce
the cost or increase the supply of certain services similar to those that we
provide. As a result, our most significant competitors in the future may be new
entrants to the telecommunications industry.
THE LOCAL TELEPHONY AND LONG DISTANCE INDUSTRIES ARE SUBJECT TO SIGNIFICANT
GOVERNMENT REGULATION WHICH MAY INCREASE OUR COST OF PROVIDING SERVICES, LIMIT
OUR EXPANSION INTO NEW MARKETS AND SUBJECT US TO PENALTIES FOR NON-COMPLIANCE
We are required to obtain and maintain licenses, permits and other
regulatory approvals from the FCC and the Telecommunications Regulatory Board of
Puerto Rico in connection with some of our services. Any of the following could
have an adverse effect on our business:
- failure to establish tariffs in accordance with federal and local
regulations;
- failure to comply with federal or local laws and regulations;
- failure to obtain and maintain required licenses and permits; and
- burdensome or adverse regulatory requirements or developments.
We are also required to file tariffs for many of our services and to comply
with local license or permit requirements relating to installation and operation
of our network. For more information regarding the regulatory environment in
Puerto Rico, see "Business -- Regulatory Environment in Puerto Rico."
IF OUR COMPUTER SYSTEMS AND SOFTWARE FAIL TO COMPLY WITH YEAR 2000 REQUIREMENTS,
WE COULD FACE SERVICE DISRUPTIONS, BILLING DIFFICULTIES AND OTHER PROBLEMS
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures,
miscalculations or errors causing disruptions of operations or other business
problems including, among others, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The billing
system for Celulares Telefonica is currently being customized, installed and
tested by its third party developer and is scheduled to be installed by the end
of October 1999. The billing system is Year 2000 compliant; however, if it is
not ready on time, we may experience significant Year 2000 problems. We may also
face significant Year 2000 problems if the business processes or systems of our
key suppliers or customers fail. Although we have been addressing our Year 2000
exposure since the second quarter of 1997, we cannot know the actual effects of
the Year 2000 issue on our business and operations until the year 2000. We
cannot be certain that full compliance will be achieved.
FRAUDULENT CONVEYANCE -- U.S. FEDERAL, STATE AND PUERTO RICO STATUTES ALLOW
COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID SOME CLAIMS IN RESPECT OF THE
EXCHANGE NOTES AND THE SUBSIDIARY GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED
Under applicable provisions of the federal bankruptcy law or comparable
provisions of state or the Commonwealth of Puerto Rico fraudulent conveyance
law, claims in respect of the exchange notes could be avoided or subordinated,
in whole or in part, to some or all of our other debts or those of our
subsidiary guarantors, if at the time we incurred the indebtedness evidenced by
the exchange notes, we or our subsidiary guarantors, among other things:
- incurred the debt with the intent to hinder, delay or defraud a present
or future creditor; or
- received less than reasonably equivalent fair value or fair consideration
for the incurrence of the debt; and
(1) we were or are insolvent or rendered insolvent by reason of such
incurrence; or
(2) we were or are engaged in a business or transaction for which the
assets remaining with our company constituted unreasonably small
capital; or
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(3) we intended or intend to incur, or believed or believe that we or
our subsidiaries would incur, debts beyond an ability to pay such
debts as they mature; or
(4) we are subject to an outstanding unsatisfied money judgment or
attachment writ not subsequently satisfied or vacated, upon which
the aggrieved creditor cannot recover.
In addition, any payment we make, or any payment by one of our subsidiary
guarantors, pursuant to the exchange notes or the guarantees could be voided and
required to be returned to us or a guarantor or to a fund for the benefit of our
creditors or those of our guarantors.
The measures of insolvency for the considerations listed above will vary
depending upon the law of the jurisdiction being applied. Generally, however, we
would be considered insolvent if:
- the sum of our debts or those of our subsidiary guarantors, including
probable contingent or unliquidated liabilities, was greater than the
fair saleable value of all of our assets or those of our subsidiary
guarantors; or
- the fair saleable value of our assets or those of our subsidiary
guarantors was less than the amount that would be required to pay the
probable liabilities on our existing debts or those of our subsidiary
guarantors, including contingent or unliquidated liabilities, as they
become absolute and mature; or
- we or our subsidiary guarantors could not pay our debts as they come due.
Among other things, a legal challenge of a subsidiary's guarantee of the
exchange notes on fraudulent conveyance grounds may focus on the benefits, if
any, realized by that subsidiary guarantor as a result of our issuance of the
exchange notes. To the extent a subsidiary's guarantee of the exchange notes is
avoided as a result of fraudulent conveyance or held unenforceable for any
reason, you would cease to have any claim in respect of that guarantee and would
be creditors solely of us and of any subsidiary whose guarantee was not avoided.
Based upon our analysis of internal cash flow projections, recent operating
history, other financial information and the estimated value of assets and
probable liabilities, net of the estimated value of probable contribution rights
of our company and the subsidiary guarantors, we believe that we and our
subsidiary guarantors were not, are not, nor will we be, rendered insolvent by
the issuance of the old notes or the exchange notes. However, we cannot predict
the precise standard a court might apply, including whether or not a court would
take into account equitable considerations, or whether a court's conclusion
would be the same as our views with respect to these issues.
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES -- YOU CANNOT BE SURE THAT AN
ACTIVE TRADING MARKET WILL DEVELOP FOR THESE EXCHANGE NOTES
The exchange notes are a new issue of securities for which there is no
active trading market. The members of the initial syndicate have advised us that
they currently intend to make a market in the old notes and, when issued, the
exchange notes, although they are under no obligation to do so and they may stop
any market-making activities without notice. Therefore, there can be no
assurance as to the future development of a market for the exchange notes, the
ability of the holders of the exchange notes to sell their exchange notes, or
the price for which those holders would be able to sell their exchange notes. In
addition, the liquidity of, the trading market and the market price quoted for,
these exchange notes may be disproportionately affected by:
- changes in the overall market for debt securities;
- adverse economic, social, political, regulatory or governmental
developments in Puerto Rico;
- changes in our financial performance or prospects; and
- changes in the prospects for companies in our industry in general.
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We do not intend to apply for listing or quotation of the exchange notes on
any national securities exchange or through the National Association of
Securities Dealers Automated Quotation System. As a result, you cannot be sure
that an active market for these exchange notes will develop.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES FOR EXCHANGE NOTES, YOUR OUTSTANDING NOTES
MAY TRADE AT A DISCOUNT AND YOU MAY NOT BE ABLE TO SELL YOUR OLD NOTES
In the event the exchange offer is consummated, we will not be required to
register the outstanding old notes under the Securities Act. In this event, the
exchange notes would rank equally with the outstanding old notes. However,
holders of outstanding old notes seeking liquidity in their investment would
have to rely on exemptions from registration requirements under the securities
laws, including the Securities Act. A reduction of the aggregate principal
amount of the currently outstanding old notes as a result of the exchange offer
may have an adverse effect on the ability of holders of outstanding old notes to
sell the notes or on the price at which a holder could sell the notes.
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THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE INHERENTLY
UNCERTAIN
This prospectus contains forward-looking statements, including the
statements about our plans, strategies and prospects under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." These forward-looking statements reflect our views with respect to
our financial performance and future events. All forward-looking statements
contained in this prospectus are inherently uncertain. Although we believe that
these statements accurately reflect our plans and expectations, economic and
social conditions in the U.S. and Puerto Rico, the effects of increased
competition and significant government regulation, as well as other risks
described in this section and elsewhere in this prospectus, could cause actual
results to differ materially and adversely from these forward-looking
statements. Words such as "believe," "expect," "intend," "estimate," "strategy,"
"plans," "may," "should" and "anticipate" and similar expressions identify
forward-looking statements. We caution you not to place reliance on these
forward-looking statements.
You should not regard the inclusion of forward-looking statements in this
prospectus as a representation by us or any other person that the projected
results will be achieved or that we will inform you about changes in our
projections.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We originally sold the old notes on May 13, 1999 to a syndicate of
investment banks in accordance with the terms of the purchase agreement. The
syndicate subsequently resold the old notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and to non-U.S. persons in
accordance with the terms of Regulation S under the Securities Act.
As a condition to the purchase agreement, we entered into the registration
rights agreement with the syndicate pursuant to which we agreed to:
(1) file a registration statement within 90 days after the date on
which the old notes were issued with respect to an offer to exchange the
old notes for the exchange notes. The exchange notes will have terms
substantially identical to the old notes, except that the exchange notes
will not be subject to transfer restrictions and registration rights;
(2) cause the exchange offer registration statement to be declared
effective under the Securities Act within 150 days after the date on which
the old notes were originally issued; and
(3) consummate the exchange offer on or prior to the 180th day
following the date of the original issuance of the old notes.
Upon the exchange offer registration statement being declared effective, we
will offer the exchange notes in exchange for surrender of the old notes. We
will keep the exchange offer open for not less than 20 business days and not
more than 40 business days after the date that notice of the exchange offer is
mailed to the holders of the old notes. For each of the old notes surrendered to
us pursuant to the exchange offer, the surrendering holder will receive exchange
notes having a principal amount equal to that of the surrendered old notes.
Interest on each exchange note will accrue from the later of
(1) the last interest payment date on which interest was paid on the
old note surrendered; or
(2) from the date of the original issue of the old note, if no
interest has been paid on the old note.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the exchange notes will be freely
transferable by holders that are not our affiliates after the exchange offer
without further registration under the Securities Act. These letters include
Exxon Capital Holdings Corporation (available as of May 13, 1988) and Morgan
Stanley and Co. Inc. (available as of June 5, 1991). However, in order for the
exchange notes to be freely transferable in accordance with the Commission's no-
action letters, each holder that wishes to exchange its old notes for exchange
notes will be required to represent the following at the time of the
consummation of the exchange offer:
(1) that any exchange note it is to receive will be acquired in the
ordinary course of its business;
(2) will have no arrangement or understanding with any person to
participate in the distribution of the old notes or the exchange notes in
violation of the Securities Act;
(3) that it is not our "affiliate" as that term is defined in Rule 405
promulgated under the Securities Act;
(4) that if it is not a broker-dealer, it is not engaged in, and does
not intend to engage in, the distribution of exchange notes; and
(5) that if that holder is a broker-dealer, it will receive exchange
notes for its own account in exchange for old notes that were acquired as a
result of market-making or other trading activities and that it will
deliver a prospectus in connection with any resale of the exchange notes.
Upon receipt of written notice following the completion of the exchange
offer stating that a broker-dealer has received exchange notes in the exchange
offer, we will agree to make available, during the period required
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by the Securities Act, a prospectus meeting the requirements of the Securities
Act for use by broker-dealers and other persons, if any, with similar prospectus
delivery requirements.
SHELF REGISTRATION
In the event that:
- changes in the law or in currently applicable interpretations of the
staff of the Commission do not permit us to effect this exchange offer;
- for any other reason the exchange offer registration statement is not
declared effective within 150 days after the date of the original
issuance of the old notes or the exchange offer is not consummated within
180 days after the original issuance of the old notes;
- the initial syndicate requests that we file a shelf registration
statement with respect to old notes not eligible to be exchanged for
exchange notes in the registered exchange offer and in certain other
circumstances; or
- any holder of old notes, other than a member of the initial syndicate, is
not eligible to participate in the registered exchange offer or does not
receive freely tradable exchange notes in the registered exchange offer
other than by reason of such holder being an affiliate of
Telecomunicaciones de Puerto Rico,
then we will, at our expense,
(a) not later than 45 days after so required or requested pursuant to
the registration rights agreement, file a shelf registration statement
covering resales of the old notes or the exchange notes, as the case may
be;
(b) cause the shelf registration statement to be declared effective
under the Securities Act; and
(c) use our best efforts to keep the shelf registration statement
effective until two years after its effective date or such shorter period
that will terminate when all notes covered by the shelf registration
statement have been sold.
We will, in the event a shelf registration statement is filed, provide to
each holder for whom it was filed copies of the prospectus which is a part of
the shelf registration statement, notify each such holder when the shelf
registration statement has become effective and take several other actions as
are required to permit unrestricted resales of the old notes or the exchange
notes, as the case may be. Holders of old notes will be required to deliver
information to be used in connection with the shelf registration statement in
order to have their notes included in the shelf registration statement. A holder
selling some old notes or exchange notes pursuant to the shelf registration
statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers. In
addition, these selling holders will be subject to some of the civil liability
provisions under the Securities Act in connection with their sales and will be
bound by the applicable provisions of the registration rights agreement.
In addition, we shall:
- make available a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any
exchange notes;
- pay all expenses incident to the exchange offer, including the expense of
one counsel to the holders covered thereby; and
- indemnify holders of the notes, including any broker-dealer, against
specific liabilities, including liabilities under the Securities Act.
A broker-dealer which delivers a prospectus to purchasers in connection
with resales of exchange notes will be subject to the certain civil liability
provisions under the Securities Act and will be bound by the provisions of the
registration rights agreement, including indemnification rights and obligations.
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The Commission has taken the position that broker-dealers may fulfill their
prospectus delivery requirements with respect to the exchange notes, other than
a resale of an unsold allotment from the original sale of the notes, with the
prospectus contained in the exchange offer registration statement. Under the
registration rights agreement, we are required to allow broker-dealers and other
persons, if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the exchange offer registration statement in connection
with the resale of the exchange notes.
If the holder is not a broker-dealer, it will be required to include a
representation in its letter of transmittal with respect to the exchange offer
that it has not entered into any arrangement or understanding with us or any of
our affiliates to distribute the exchange notes.
The foregoing description of the material provisions of the registration
rights agreement does not purport to be complete and is qualified in its
entirety by reference to all provisions of the registration rights agreement.
INCREASE IN INTEREST RATE
If any of the following events occur:
- neither an exchange offer registration statement nor a shelf registration
statement is filed with the Commission on or prior to 90 days after the
date on which the old notes were originally issued;
- on or prior to the 150th day following the date of the original issuance
of the old notes, neither the exchange offer registration statement nor
the shelf registration statement has been declared effective;
- on or prior to the 180th day following the date of the original issuance
of the old notes, neither the registered exchange offer has been
consummated nor the shelf registration statement has been declared
effective; or
- after either the exchange offer registration statement or the shelf
registration statement has been declared effective, the exchange offer
registration statement or the shelf registration statement thereafter
ceases to be effective or usable, subject to some exceptions, in
connection with resales of old notes or exchange notes in accordance with
and during the periods specified in the registration rights agreement;
then additional interest pursuant to provisions of the old notes shall become
payable in respect of the notes. Additional interest will accrue on the
principal amount of the old notes from and including the date on which any
registration default event described in the clauses above shall occur up to, but
excluding, the date on which any registration default has been cured. Additional
interest will accrue at a rate of 0.25% per annum during the 90-day period
immediately following the occurrence of such registration default and shall
increase by 0.25% per annum at the end of each subsequent 90-day period, but in
no event shall such rate exceed 1.0% per annum.
Any amounts of additional interest due will be payable in cash, on the same
original interest payment dates as the notes. The amount of additional interest
will be determined by multiplying the applicable rate of additional interest by
the principal amount of the notes, multiplied by a fraction. The numerator of
the fraction is the number of days that rate of additional interest was
applicable during that period, which is determined on the basis of a 360-day
year comprised of twelve 30-day months. The denominator of the fraction is 360.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 12:00 midnight New York City time on the
expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders may tender some or all of their old notes pursuant to
the exchange offer. However, old notes may be tendered only in integral
multiples of $1,000.
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The form and terms of the exchange notes are the same as the form and terms
of the old notes except that:
- the exchange notes have been registered under the Securities Act and
therefore will not bear legends restricting their transfer; and
- the holders of the exchange notes will not be entitled to some of their
rights under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the notes in
circumstances relating to the timing of this exchange offer, all of which
will terminate when the exchange offer is consummated.
The exchange notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture.
As of the date of this prospectus, $1,000,000,000 aggregate principal
amount of old notes were outstanding. We have fixed the close of business on
, 1999 as the record date for the exchange offer for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
We shall be deemed to have accepted validly tendered notes when, as and if
we have given oral or written notice to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the
exchange notes from us.
If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of several other events set forth herein or otherwise,
the certificates for these unaccepted notes will be returned, without expense,
to the tendering holder thereof as promptly as practicable after the expiration
date.
Telecommunicaciones de Puerto Rico, Puerto Rico Telephone Company and
Celulares Telefonica have agreed to pay all expenses incurred in connection with
the performance of their obligations arising from the exchange offer, including
reimbursing the initial purchasers for the reasonable fees and disbursements of
counsel therewith. For additional information regarding these fees and expenses
see "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 12:00 midnight New York City time, on
, 1999, unless we, in our reasonable discretion, extend the exchange
offer, in which case the term "expiration date" shall mean the latest date and
time to which the exchange offer is extended. Notwithstanding the foregoing, we
will not extend the expiration date beyond , 1999.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will mail to the registered holders
an announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date. We reserve the
right, in our reasonable discretion, to:
- delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "-- Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the exchange
agent; or
- amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
INTEREST ON THE EXCHANGE NOTES
Interest on each exchange note will accrue from the later of (a) the date
of original issue of the old notes, if no interest has been paid on such old
notes or (b) the last interest payment on which interest was paid on
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the old notes surrendered. Holders of old notes that are accepted for exchange
will receive, in cash, accrued interest thereon to, but not including, the date
of issuance of the exchange notes. This interest will be paid with the first
interest payment on the exchange notes on November 15, 1999. Interest on the old
notes accepted for exchange will cease to accrue upon issuance of the exchange
notes. Interest on the exchange notes is payable semiannually on each May 15 and
November 15, commencing on November 15, 1999.
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of old notes may tender its old notes in the exchange offer.
To tender in the exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile thereof, have the signatures guaranteed if
required by the letter of transmittal, and mail or otherwise deliver the letter
of transmittal or the facsimile, together with the old notes and any other
required documents, to the exchange agent prior to 12:00 midnight New York City
time, on the expiration date. To be tendered effectively, the old notes, letter
of transmittal and other required documents must be completed and received by
the exchange agent at the address set forth below under "Exchange Agent" prior
to 12:00 midnight New York City time, on the expiration date. Delivery of the
old notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of delivery by book-entry transfer must be
received by the exchange agent prior to the expiration date.
By executing the letter of transmittal, each holder will make to us the
representations set forth above in the fourth paragraph under the heading
"-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance of the tender by us will
constitute agreement between that holder and us in accordance with the terms,
and subject to the conditions, set forth in this prospectus and in the letter of
transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO US. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender old notes should contact the registered holder promptly and instruct
that registered holder to tender on the beneficial owner's behalf. For
additional information about notification to a registered holder, see
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an institution that is a member firm of the
Medallion system unless the notes are tendered as follows: (1) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the letter of transmittal;
or (2) for the account of a member firm of the Medallion system.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed therein, those old notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as the registered holder's name appears on the notes with the
signature guaranteed by an institution that is a member firm of the Medallion
system.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, the
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the notes at
the book-entry transfer facility, The Depository Trust Company,
21
<PAGE> 25
for the purpose of facilitating the exchange offer. Subject to the establishment
thereof, any financial institution that is a participant in The Depository Trust
Company's system may make book-entry delivery of old notes by causing the
book-entry transfer facility to transfer the old notes into the exchange agent's
account with respect to the old notes in accordance with the book-entry transfer
facility's procedures for the transfer. Although delivery of the old notes may
be effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee, or an agent's
message, which is described below, in connection with a book-entry transfer, and
all other required documents must in each case be transmitted to and received or
confirmed by the exchange agent at its address set forth below on or prior to
the expiration date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under those procedures.
Delivery of documents to the book-entry transfer facility does not constitute
delivery to the exchange agent. The term "agent's message" means a message
transmitted by the book-entry transfer facility to, and received by, the
exchange agent and forming part of a book-entry confirmation, which states that
such book-entry transfer facility has received an express acknowledgment from
the participant in such book-entry transfer facility tendering the old notes
that such participant has received and agrees to be bound by the terms of the
letter of transmittal and that we may enforce such agreement against such
participant.
All questions as to the validity, form, eligibility, acceptance of tendered
old notes and withdrawal of tendered old notes will be determined by us in our
reasonable discretion, which determination will be final and binding. We reserve
the absolute right to reject any and all old notes not properly tendered or any
old notes which, if accepted, would, in the opinion of our counsel, be unlawful.
We also reserve the right in our reasonable discretion to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer and the
instructions in the letter of transmittal will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within the amount of time we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of old notes, neither us, the exchange agent nor any other person
shall incur any liability for failure to give such notification. Tenders of old
notes will not be deemed to have been made until any defects or irregularities
have been cured or waived. Any old notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES OF OLD NOTES
Holders who wish to tender their old notes and:
- whose old notes are not immediately available;
- who cannot deliver their old notes, the letter of transmittal or any
other required documents to the exchange agent; or
- who cannot complete the procedures for book-entry transfer prior to the
expiration date;
may effect a tender if:
- the tender is made through an institution that is a member firm of the
Medallion system;
- prior to the expiration date, the exchange agent receives by fax, mail or
hand delivery from a Medallion system member firm a properly completed
and duly executed notice of guaranteed delivery setting forth the name
and address of the holder, the certificate number(s) of old notes and the
principal amount of old notes tendered, stating that the tender is being
made and guaranteeing that, within five New York Stock Exchange trading
days after the expiration date, the letter of transmittal together with
the certificate(s) representing the notes, and any other documents
required by the letter of transmittal will be deposited by the firm with
the exchange agent; and
- the properly completed and executed letter of transmittal, as well as the
certificate(s) representing all tendered old notes in proper form for
transfer, and all other documents required by the letter of
22
<PAGE> 26
transmittal are received by the exchange agent upon five New York Stock
Exchange trading days after the expiration date.
Under this procedure, the certificate(s) representing the old notes may be
substituted by a confirmation of book-entry transfer of those old notes into the
exchange agent's account at the book-entry transfer facility. Upon request to
the exchange agent, a notice of guaranteed delivery will be sent to holders who
wish to tender their old notes according to the guaranteed delivery procedures
set forth above.
WITHDRAWAL OF TENDERS OF OLD NOTES
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 12:00 midnight New York City time, on the expiration date.
To withdraw a tender of old notes in the exchange offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
exchange agent at its address set forth herein prior to 12:00 midnight New York
City time on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn;
- identify the old notes to be withdrawn, which must include the
certificate number(s) and principal amount of those old notes, or, in the
case of old notes transferred by book-entry transfer, the name and number
of the account at the book-entry transfer facility to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered or be
accompanied by documents of transfer sufficient to have the trustee with
respect to the old notes register the transfer of the old notes into the
name of the person withdrawing the tender, and be accompanied by any
required signature guarantees; and
- specify the name in which any of the old notes are to be registered, if
different from that of the person who deposited the old notes.
We will determine all questions as to the validity, form and eligibility
and the time of receipt of withdrawal notices and our determination shall be
final and binding on all parties. Any old notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer and no exchange
notes will be issued with respect thereto unless the old notes so withdrawn are
validly retendered. Any old notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange any old notes for exchange notes,
and may terminate or amend the exchange offer as provided herein before the
acceptance of such old notes, if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer or any material adverse development has
occurred in any existing action or proceeding with respect to us or any
of our subsidiaries; or
- any law, statute, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in our reasonable
judgment, might materially impair our ability to proceed with the
exchange offer or materially impair the contemplated benefits of the
exchange offer to us; or
- any governmental approval has not been obtained, which approval we shall,
in our reasonable discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
23
<PAGE> 27
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
- extend the exchange offer and retain all notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw those notes; or
- waive any unsatisfied conditions with respect to the exchange offer and
accept all properly tendered notes which have not been withdrawn.
EXCHANGE AGENT
Bank of New York has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
Bank of New York
101 Barclay Street
Floor 7E
ATTENTION: Enrique Lopez
Reorganization Department
New York, NY 10286
Telephone: (212) 815-2742
Facsimile: (212) 815-4699
Delivery to an address other than as set forth above will not constitute a valid
delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by our officers and regular
employees and employees of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We have agreed to pay all expenses incurred in connection with the exchange
offer, including reimbursing the initial purchasers for the reasonable fees and
disbursements of counsel. In the event that a shelf registration statement is
filed, (a) we have agreed to reimburse the holders for the reasonable fees and
disbursements of one firm or counsel designated by the majority holders
participating in the shelf registration and (b) each holder shall pay all
underwriting discounts, commissions and transfer taxes, if any, relating to the
sale or disposition of the holder's securities pursuant to the shelf
registration statement.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the old
notes on the exchange as reflected in our accounting records on the date of the
exchange. Accordingly, we will recognize no gain or loss for accounting
purposes.
CONSEQUENCES OF THE FAILURE TO TENDER
The old notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, old notes that
are not exchanged may be resold only:
- to us upon redemption thereof or otherwise;
- so long as the old notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes
is a qualified institutional buyer within the meaning of Rule 144A under
the Securities Act in a transaction meeting the requirements of Rule
144A, in
24
<PAGE> 28
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act. Any
transaction of this type is to be based upon an opinion of counsel
reasonably acceptable to us;
- outside the United States to a foreign person in a transaction meeting
the requirements of Rules 901-905 under the Securities Act; or
- pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any
state of the United States.
RESALES OF THE EXCHANGE NOTES
With respect to resales of exchange notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
we believe that a holder or other person who receives exchange notes, whether or
not that person is the holder who receives exchange notes in exchange for notes
in the ordinary course of business and who is not participating, does not intend
to participate, and has no arrangement or understanding with any person to
participate, in the distribution of the exchange notes, will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act and without delivering a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires exchange notes in the exchange offer for the purpose of distributing or
participating in a distribution of the exchange notes, that holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each broker-dealer that receives exchange notes
for its own account in exchange for old notes, where those old notes were
acquired by that broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of those exchange notes.
USE OF PROCEEDS
This exchange offer is intended to satisfy some of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the issuance of the exchange notes in this exchange offer.
The net proceeds from the sale of the old notes were $993,965,000. The net
proceeds were used, together with available cash on hand, to prepay a $1
billion, 364-day revolving credit facility with Citibank N.A., Bank of America
National Trust and Savings Association, The Chase Manhattan Bank and Morgan
Guaranty Trust Company of New York and other lenders, some of whose affiliates
were also the syndicate for the initial sale of the old notes. The borrowings
under this credit facility were used to pay a portion of a special dividend to
the Puerto Rico Telephone Authority in connection with the GTE Group's
acquisition of our company.
THE ACQUISITION AND RELATED CORPORATE RESTRUCTURING
On April 7, 1997, the Government of the Commonwealth of Puerto Rico
announced a plan which resulted in the privatization of our company through a
bidding process. The Puerto Rico Telephone Company was the incumbent provider of
local and on-island long distance telephone service and one of the principal
providers of wireless telephony, paging services and other telephone-related
products and services in Puerto Rico. In anticipation of the privatization,
Telecomunicaciones de Puerto Rico was formed to hold the capital stock of Puerto
Rico Telephone Company and Celulares Telefonica.
On July 21, 1998, the GTE Group agreed to purchase from the Puerto Rico
Telephone Authority a controlling equity interest in Telecomunicaciones de
Puerto Rico. The acquisition was completed on March 2, 1999, with the
acquisition by GTE Holdings of 40.01% plus one share, by Popular, Inc. of 9.99%
and by the employee stock ownership plan of 7% of the outstanding common stock
of Telecomunicaciones de Puerto Rico. The government received gross proceeds of
$2,040.0 million composed of the payment of $469.8 million paid by GTE Holdings,
Popular, Inc. and the employee stock ownership plan for the shares of
Telecomunica-
25
<PAGE> 29
ciones de Puerto Rico and the payment of a special dividend to the Puerto Rico
Telephone Authority by Telecomunicaciones de Puerto Rico of $1,570.2 million. In
addition, in exchange for its interest in Telecomunicaciones de Puerto Rico, the
Puerto Rico Telephone Authority agreed to make capital contributions to
Telecomunicaciones de Puerto Rico in an aggregate amount of $200 million over
five years to reduce our unfunded pension and other post-retirement benefit
liabilities which were under-funded as of December 31, 1998.
RELATED FINANCINGS. On the date of the closing of the acquisition, we
borrowed a total of $1,591.1 million through:
- a full drawing under a $1 billion, 364-day syndicated revolving credit
facility and a $500 million, five-year syndicated revolving credit
facility; and
- a partial drawing of $91.1 million under a $200 million credit facility.
Of the $91.1 million that we borrowed under the $200 million credit
facility, $65 million was used for the special dividend and $26.1 million was
used to make a loan to the employee stock ownership plan to purchase 3% of
Telecomunicaciones de Puerto Rico's shares from the Puerto Rico Telephone
Authority. For more information regarding the financing of the acquisition see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Some of Our
Debt."
EMPLOYEE OWNERSHIP.
As part of the acquisition, the Puerto Rico Telephone Authority contributed
3% of Telecomunicaciones de Puerto Rico's shares and the GTE Group purchased and
contributed an additional 1% of Telecomunicaciones de Puerto Rico's shares to
the employee stock ownership plan. As a result of these contributions and the
purchase of 3% of Telecomunicaciones de Puerto Rico's shares using funds
borrowed from Telecomunicaciones de Puerto Rico, the employee stock ownership
plan received a total of 7% of Telecomunicaciones de Puerto Rico's shares. For
more information regarding the employee stock ownership plan, see "Shareholders
and Shareholder Relationships."
CORPORATE GOVERNANCE.
Under the terms of the acquisition agreements, GTE Holdings is currently
entitled to nominate 5 of the 9 members of our Board of Directors. GTE Holdings
and Popular, Inc. have agreed that they will vote to elect one additional
director nominated by Popular, Inc. The Puerto Rico Telephone Authority and
other government entities are currently entitled to nominate 3 directors. Some
corporate actions require approval by the Puerto Rico Telephone Authority or by
the directors nominated by the Puerto Rico Telephone Authority. Specific other
corporate actions require approval by Popular, Inc. For more information
regarding the corporate governance of our company, see "Management,"
"Shareholders and Shareholder Relationships" and "Certain Relationships and
Related Transactions."
MANAGEMENT ASSISTANCE AND TECHNOLOGY LICENSE.
We will pay to subsidiaries of GTE, for five years after the acquisition, a
combination of fixed management fees for services to be rendered by them in
Puerto Rico and the mainland U.S. and a variable technology license royalty
primarily for advice and direction regarding the administration and operation of
our business. The aggregate amount of these fees and royalty will not exceed 8%,
and will gradually decrease to 6%, of our earnings before deducting interest
payments, taxes and depreciation allowance. The cash payment of the fees and
royalty will be deferred, with interest, until at least March 2, 2000. For more
information regarding our relationship with GTE Corporation, see "Certain
Relationships and Related Transactions."
26
<PAGE> 30
TRANSFER RESTRICTIONS; ADDITIONAL SHARES.
The following transfer restrictions are in effect as of the date of this
prospectus:
- GTE Holdings is able to sell shares representing up to 5% of our capital
stock only after March 2, 2002 and its remaining interest after March 2,
2004;
- Popular, Inc. is restricted from selling its equity interest in
Telecomunicaciones de Puerto Rico until March 2, 2002;
- However, transfers by GTE Holdings to a wholly-owned affiliate of GTE
Corporation or by Popular, Inc. to a wholly-owned affiliate of Popular,
Inc., or to other members of the GTE Group, are permitted at any time.
The government may sell any or all of its Telecomunicaciones de Puerto Rico
shares, excluding shares under an option agreement with the GTE Group and GTE
International Telecommunications Incorporated, which we refer to as GTE
International, at any time but subject to the GTE Group's right of first
refusal. The GTE Group holds a three-year option to acquire an additional 15% of
our shares from the Puerto Rico Telephone Authority at 132% of the initial per
share purchase price paid in the acquisition. For more information regarding
share transfer restrictions, see "Shareholders and Shareholder Relationships."
27
<PAGE> 31
CAPITALIZATION
The following table sets forth our cash and cash equivalents, short-term
debt, long-term debt and shareholders' equity as of June 30, 1999. For more
detailed information about our capitalization, see "The Acquisition and Related
Corporate Restructuring," "Selected Historical Financial and Operational Data,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Our Future Financial Results."
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
-------------
<S> <C>
CASH AND CASH EQUIVALENTS................................... $ 63.7
========
SHORT-TERM DEBT:
Current Portion of Capital Leases......................... $ .2
Banco Popular Revolving Credit Facility................... 26.1
--------
Total Short Term Debt..................................... 26.3
--------
LONG-TERM DEBT EXCLUDING CURRENT PORTION:
Long-Term Portion of Capital Leases....................... .5
Offered Notes............................................. 999.7
5-year Revolving Credit Facility.......................... 500.0
--------
Total Long-Term Debt.............................. 1,500.2
--------
Total Debt and Lease Obligations.................. 1,526.5
--------
SHAREHOLDERS' EQUITY:
Common Stock and Additional Paid-in Capital............... 699.3
Deferred Employee Stock Ownership Plan Obligation(1)...... (34.8)
Subscription Receivable(2)................................ (161.8)
Retained Deficit.......................................... (40.1)
Accumulated Other Comprehensive Loss...................... (9.9)
--------
Total Shareholders' Equity................................ 452.7
--------
Total Capitalization...................................... $1,979.2
========
</TABLE>
- ---------------
(1) Represents (a) an amount equal to $8.7 million representing the value of 1%
of Telecomunicaciones de Puerto Rico's shares contributed by the GTE Group
to the employee stock ownership plan and (b) an amount equal to $26.1
million representing the value of 3% of Telecomunicaciones de Puerto Rico's
shares purchased by the employee stock ownership plan with the proceeds of a
$26.1 million loan from Telecomunicaciones de Puerto Rico.
(2) Represents the commitment by the Puerto Rico Telephone Authority to make
future contributions to Telecomunicaciones de Puerto Rico to help fund our
pension and other post-retirement benefit liabilities. In accordance with
generally accepted accounting principles, the future contributions from the
Puerto Rico Telephone Authority are included in "Common Stock and Additional
Paid-in-Capital" and deducted as "Subscription Receivable" until the amounts
are actually contributed to Telecomunicaciones de Puerto Rico.
28
<PAGE> 32
SELECTED HISTORICAL FINANCIAL AND OPERATIONAL DATA
The following selected historical financial and operational data have been
derived from the historical consolidated financial statements of
Telecomunicaciones de Puerto Rico as of June 30, 1999 and for the period from
March 2, 1999 through June 30, 1999 and the notes thereto. This data has also
been derived from the historical combined financial statements of our
predecessors (a) as of and for the five-year period ended December 31, 1998, and
the notes thereto, (b) for the six-month period ended June 30, 1998 and (c) for
the period from January 1, 1999 through March 1, 1999. Following the
acquisition, our reported results of operations and financial condition differ
materially from those previously reported. You should read the following data
together with (a) the historical combined financial statements and notes thereto
of our predecessors as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, which have been audited by Deloitte
& Touche LLP, independent auditors, (b) our historical consolidated financial
statements and the notes thereto as of and for the six-month period ended June
30, 1999 and (c) our predecessor's historical combined financial statements and
the notes thereto as of and for the six-month period ended June 30, 1998
appearing elsewhere in this prospectus. The financial statements for the four
years ended December 31, 1995 to 1998 were prepared in conformity with GAAP
applicable to commercial entities. The 1994 financial statements were prepared
in conformity with GAAP applicable to government-owned entities and restated to
conform with GAAP applicable to commercial entities. The restatement involved
the recording of pension obligations and related expenses based on Statements of
Financial Accounting Standards (SFAS) Nos. 87 and 88 and liabilities for other
postretirement benefits under SFAS No. 106.
Prior to their acquisition by the GTE Group, Puerto Rico Telephone Company
and Celulares Telefonica, as wholly-owned subsidiaries of the Puerto Rico
Telephone Authority, were exempt from income, property, and certain other taxes
in Puerto Rico.
<TABLE>
<CAPTION>
COMPANY PREDECESSORS PREDECESSORS
-------- ----------------------- --------------------------------------------------------
PERIOD PERIOD SIX
FROM FROM MONTHS
MARCH 2 JANUARY 1 ENDED
THROUGH THROUGH JUNE 30, YEAR ENDED DECEMBER 31,
JUNE 30, MARCH 1, 1998 --------------------------------------------------------
1999 1999 (UNAUDITED) 1998 1997 1996 1995 1994
-------- --------- ----------- -------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues and Sales.............. $447.0 $223.3 $ 639.0 $1,270.7 $ 1,234.1 $ 1,201.4 $ 1,110.3 $ 983.4
Operating Costs and Expenses.... 386.8 222.4 504.7 1,043.4 989.6 1,060.5 836.7 769.4
------ ------ -------- -------- --------- --------- --------- ---------
Operating Income................ 60.2 .9 134.3 227.3 244.5 140.9 273.6 214.0
Interest Income (Expense),
Net........................... (29.3) .4 1.7 2.5 3.0 1.6 2.2 2.7
Other Income (Expense).......... 1.2 .6 (.1) (5.4) (1.7) (0.8) .5 4.8
Income Tax Provision............ (11.7) -- -- -- -- -- -- --
------ ------ -------- -------- --------- --------- --------- ---------
Net Income, Before Extraordinary
Charge........................ 20.4 1.9 135.9 224.4 245.8 141.7 276.3 221.5
Extraordinary Charge.......... (60.5) -- -- -- -- -- -- --
------ ------ -------- -------- --------- --------- --------- ---------
Net Income (Loss)............... $(40.1) $ 1.9 $ 135.9 $ 224.4 $ 245.8 $ 141.7 $ 276.3 $ 221.5
====== ====== ======== ======== ========= ========= ========= =========
OTHER FINANCIAL DATA:
Depreciation and Amortization... $ 99.5 $ 50.4 $ 145.7 $ 296.5 $ 279.2 $ 254.6 $ 213.4 $ 202.6
Cash Flow from Operations....... 123.8 55.9 272.8 613.8 508.2 504.1 518.1 424.4
Capital Expenditures............ 71.1 33.2 110.6 288.0 362.2 391.4 383.9 282.6
Cash Flow used in Investing
Activities.................... 67.1 33.1 106.1 279.6 351.3 380.7 373.4 369.1
Cash Flow from Financing
Activities.................... (65.6) 14.2 (166.9) (319.8) (178.7) (103.5) (134.6) (148.1)
EBITDA(1)....................... 159.7 51.3 280.0 523.8 523.7 395.5 487.0 416.6
EBITDA Margin(2)................ 36% 23% 44% 41% 42% 33% 44% 42%
Ratio of Earnings to Fixed
Charges(3).................... 2.1
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
COMPANY PREDECESSORS
-------- ----------------------------------------------------
AS OF AS OF DECEMBER 31,
JUNE 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994(1)
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets........................................... $ 469.0 $ 435.4 $ 379.7 $ 410.1 $ 370.4 $ 333.5
Property, Plant and Equipment, Net....................... 1,730.7 1,987.9 2,019.1 1,947.0 1,820.3 1,659.7
Total Assets............................................. 2,713.7 2,456.6 2,434.8 2,388.0 2,219.6 2,029.0
Current Liabilities...................................... 370.6 347.2 243.6 278.7 225.1 202.1
Total Debt............................................... 1,526.5 0.8 1.2 1.4 1.5 1.8
Shareholders' Equity..................................... 452.7 1,812.7 1,925.0 1,851.3 1,811.7 1,665.8
</TABLE>
<TABLE>
<CAPTION>
COMPANY PREDECESSORS
--------------- -------------------------------------------
AS OF AS OF DECEMBER 31,
JUNE 30, -------------------------------------------
1999 1998 1998 1997 1996 1995 1994(1)
------ ------ ------ ------ ------ ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Access Lines in Service (000)........................ 1,252 1,236 1,231 1,221 1,156 1,101 1,057
Wireless subscribers:
Cellular (000)..................................... 254 164 204 135 153 165 109
Paging (000)....................................... 204 230 219 235 200 135 59
Total Access Lines (per 100 households).............. 75 76 75 76 74 72 72
Number of Full-Time Employees........................ 7,445 7,784 7,703 7,863 7,971 8,102 7,977
Access Lines/Wireline Employee....................... 178 167 169 164 153 139 139
Cellular Average Monthly Service Revenue Per User ... $ 48 $ 54 $ 49 $ 59 $ 71 $ 69 $ 74
</TABLE>
- ---------------
(1) EBITDA represents operating income plus depreciation and amortization
expense. EBITDA is used by some investors and analysts to analyze and
compare companies on the basis of liquidity. EBITDA is not recognized under
generally accepted accounting principles and should therefore not be
construed as an alternative for net income, which is an indicator of a
company's performance, or cash flow from operations, which is a liquidity
measure. It is included in this prospectus because management believes that
it provides additional information with respect to our anticipated ability
to meet future debt service, capital expenditures, and working capital
requirements. Our calculation of EBITDA may be different from the
calculation used by other companies and therefore comparability may be
affected.
(2) Determined by dividing EBITDA by Revenues and Sales.
(3) The ratio of earnings to fixed charges of the predecessors has not been
presented as the fixed charges were nominal prior to the acquisition since
there was no significant indebtedness.
30
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is based on and should be read in
conjunction with our consolidated financial statements and the combined
financial statements of our predecessors and the notes thereto starting on page
F-1, the unaudited pro forma condensed consolidated financial statements and the
notes thereto and other financial information appearing elsewhere in this
prospectus.
RESULTS OF OPERATIONS
THE ACQUISITION AND CHANGE IN ACCOUNTING BASIS
Our results of operations and financial position as of and for the
six-month period ended June 30, 1999 reflect the adoption of a new accounting
basis for our assets and liabilities and reflect the effects of becoming a tax
paying enterprise as a result of the acquisition of control of
Telecomunicaciones de Puerto Rico by the GTE Group. The new asset and liability
valuation basis adopted reflects the fair market value paid by the GTE Group to
acquire their 50% plus one share interest in Telecomunicaciones de Puerto Rico
in excess of the historical net book value of the assets and liabilities
acquired. As a result of this acquisition, our reported results of operations
and financial position for periods ending after March 2, 1999 differ materially
from those previously reported by Puerto Rico Telephone Company and Celulares
Telefonica prior to the privatization, which we refer to as our predecessors.
The results of operations and financial position for periods subsequent to March
2, 1999 also reflect the discontinuation of the application of accounting
principles applicable to rate regulated companies. The opening up of our markets
to competitors, the change in the regulation of our rates so that they are no
longer based upon our costs of providing service and the privatization of our
company have resulted in the need to adopt accounting principles which are
followed by commercial companies in general and not the specialized accounting
principles applicable to rate regulated companies.
For a description of these changes and the pro forma effects that these
changes would have had on certain income statement items for the year ended
December 31, 1998, see "Factors Affecting Our Future Financial Results" and
"Unaudited Pro Forma Condensed Consolidated Financial Statements."
We had originally prepared our financial statements as of and for the three
months ended March 31, 1999 without applying the applicable provisions of EITF
88-16 "Basis in Leveraged Buyout Transactions," which requires a partial step-up
in accounting basis to reflect the acquisition of Telecomunicaciones de Puerto
Rico by the GTE Group and without discontinuing the application of SFAS No. 71
regulatory accounting principles. We have restated these financial statements to
incorporate this partial step-up in accounting basis and to discontinue the
application of SFAS No. 71 in accordance with U.S. generally accepted accounting
principles. The financial statements as of and for the six months ended June 30,
1999 and the unaudited pro forma condensed consolidated financial statements
which are included in this prospectus reflect these adjustments. For a more
detailed discussion of the effects of applying partial step-up accounting and
discontinuing the application of SFAS No. 71, see note 1 to the condensed
consolidated financial statements for the six-month periods ended June 30, 1999
and 1998.
SEGMENT RESULTS OF OPERATIONS
Results of operations for the years ended December 31, 1998, 1997 and 1996
and for the six months ended June 30, 1998 included in the discussion below are
based on the operating results of our predecessors. The discussion for the six
months ended June 30, 1999 is based upon our operating results for the period
from March 2, 1999 to June 30, 1999 and those of our predecessors from January
1, 1999 to March 1, 1999. The following discussion is intended to facilitate an
understanding and assessment of significant changes and trends related to our
financial condition and our results of operations. As a result, we have not made
a distinction between Telecomunicaciones de Puerto Rico and our predecessors
where it would not be helpful in comparing trends in operating results and where
results are not affected by the changes in the basis of accounting. We discuss
the effect of the change in the basis of accounting for those balance sheet and
income statement items that are materially affected.
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<PAGE> 35
We have two reportable segments, Wireline and Wireless operations, which we
operate and manage as strategic business units. You can find additional
information about our segments in Note 14 to the combined financial statements
as of and for the year ended December 31, 1998 and Note 10 to the consolidated
financial statements as of and for the six months ended June 30, 1999, beginning
on page F-1 of this prospectus.
The Wireline segment provides:
- Local service, including basic voice, telephone and private branch
exchange rental, value-added services, high-speed private line services,
public phone services, Internet access and installations.
- Network access services provided to inter-exchange carriers, cellular
companies and paging operators and other local exchange companies to
originate and terminate calls to and from our local customers.
- Long distance service both on and off the island of Puerto Rico.
Off-island services began on February 1, 1999.
- Directory and other services, including publishing right revenues and
listing fees, billing and collection services to competing long distance
operators and private branch exchange equipment sales.
The Wireless segment includes cellular and paging services.
The comparability of revenues recorded before and after the acquisition was
not affected by the changes in the accounting basis of the assets and the
liabilities that was recorded on March 2, 1999. Accordingly, in the discussion
of revenue trends we have not distinguished between the operations of the
predecessors before March 2, 1999 and our operations on and after this date.
REVENUES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------
1999 1998 1998 1997 1996
---------- ---------- ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WIRELINE:
Local(1)........................ $241 36% $238 37% $ 468 37% $ 447 36% $ 419 35%
Network Access.................. 169 25 150 24 300 23 278 23 258 21
Long Distance................... 123 18 126 20 252 20 252 20 263 22
Directory and Other(1).......... 48 7 46 7 91 7 100 9 92 8
---- --- ---- --- ------ --- ------ --- ------ ---
Total Wireline......... 581 86 560 88 1,111 87 1,077 88 1,032 86
---- --- ---- --- ------ --- ------ --- ------ ---
WIRELESS:
Cellular........................ 65 10 48 7 100 8 102 8 135 11
Paging.......................... 24 4 31 5 60 5 55 4 34 3
---- --- ---- --- ------ --- ------ --- ------ ---
Total Wireless......... 89 14 79 12 160 13 157 12 169 14
---- --- ---- --- ------ --- ------ --- ------ ---
Total Revenues and Sales........ $670 100% $639 100% $1,271 100% $1,234 100% $1,201 100%
==== === ==== === ====== === ====== === ====== ===
</TABLE>
- ---------------
(1) Reclassifications of prior year data have been made, where appropriate, to
conform to the 1999 presentation.
32
<PAGE> 36
OPERATING COSTS AND EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------- ------------------------
1999 1998 1998 1997 1996
---- ---- ------ ---- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
WIRELINE:
Cost of services and sales................................. $250 $221 $ 460 $431 $ 445
Selling, general and administrative........................ 116 87 172 159 243
Employee stock ownership plan compensation expense......... 25 -- -- -- --
Effect of early retirement................................. 4 -- -- -- --
Depreciation and amortization.............................. 127 136 275 262 241
---- ---- ------ ---- ------
Total Wireline.................................... $522 $444 $ 907 $852 $ 929
---- ---- ------ ---- ------
WIRELESS:
Cost of services and sales................................. $ 21 $ 16 $ 23 $ 19 $ 24
Selling, general and administrative........................ 42 35 92 101 94
Employee stock ownership plan compensation expense......... 1 -- -- -- --
Depreciation and amortization.............................. 23 10 22 18 14
---- ---- ------ ---- ------
Total Wireless.................................... $ 87 $ 61 $ 137 $138 $ 132
---- ---- ------ ---- ------
Total Operating Costs and Expenses......................... $609 $505 $1,044 $990 $1,061
==== ==== ====== ==== ======
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Access Lines in Service (000)(1)........................... 1,252 1,236 1,231 1,221 1,156
On-island LD Minutes (millions)............................ 725 844 1,670 1,649 1,464
Off-island LD Minutes (millions)(2)........................ 13 -- -- -- --
Cellular Subscribers (000)................................. 254 164 204 135 153
Cellular Average Revenue Per Unit.......................... $ 48 $ 54 $ 49 $ 59 $ 71
Paging Subscribers (000)................................... 204 230 219 235 200
</TABLE>
- ---------------
(1) Access lines excludes Celulares Telefonica's wireless subscribers.
(2) Sales of off-island long distance service commenced February 1, 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
REVENUES AND SALES. Total Wireline and Wireless revenues for the six
months ended June 30, 1999 increased $31 million, or 4%, to $670 million from
the $639 million reported for the same period of 1998.
Wireline:
Local service revenues for the six months ended June 30, 1999 increased $3
million, or 1%, to $241 million from $238 million for the same period in 1998,
resulting primarily from increases in measured service, value-added service, and
private lines of $4 million, $2 million and $2 million, respectively. These
increases were offset in part by decreases in telephone rentals of $3 million.
Access line growth in the six-month period ended June 30, 1999 was 2%,
compared to 1% growth for the same period in 1998. While the rate of growth has
increased slightly over 1998 levels, it is below historical levels of growth due
primarily to the existence of a high waiting list for new service. The waiting
list of orders for new installations decreased to 24,600 at June 30, 1999 from
31,600 in March 31, 1999, and 36,600 in December 31, 1998. The Company was
inhibited from deploying service during the first quarter of 1999
33
<PAGE> 37
because efforts were devoted to restoring service in the areas adversely
affected by Hurricane Georges. During the second quarter of 1999, we refocused
our efforts on installations.
Network access revenues for the six months ended June 30, 1999 increased
$19 million, or 13%, to $169 million from $150 million reported for the
comparable 1998 period. We received $9 million of additional access revenues
from long distance carriers to originate intra-island calls which was the direct
result of our intra-island long distance market share loss. An additional $5
million was realized from cellular operators as a result of an increase in
cellular traffic volumes and $4 million of the increase was attributable to
higher long-term support subsidies.
Long distance revenues decreased $3 million, or 2%, to $123 million in the
six months ended June 30, 1999 from $126 million for the comparable period in
1998. The decrease was attributed to 12% lower intra-island minutes of use,
which was partially offset by an increase in off-island minutes-of-use and
higher operator assisted set-up fees. Competition in the intra-island market
started in earnest in February 1999 with the introduction of dialing parity and
the reduction in per-minute prices by our competitors. We have experienced
erosion in market share from 98% in February 1999 to an estimated 63% in June
1999. The increase in traffic volumes for the total market has mitigated some of
our market share loss. Additionally, we realized $2 million in new revenues from
our entrance into the off-island long distance market in February 1999.
Wireless:
Revenues from cellular and paging service increased $10 million, or 13%, to
$89 million in the six-month period ended June 30, 1999 from $79 million in the
same period of 1998. Cellular service revenues increased by $17 million as a
result of the net addition of approximately 50,000 new subscribers in the
six-month period ended June 30, 1999 and 90,000 new subscribers since June 1998.
Cellular average revenue per unit decreased $6 million, or 12%, to $48 million
for the six-month period ended June 30, 1999 as compared to $54 million for the
same period in 1998. This reduction in average revenue per unit is a result of
the promotion of new lower tariffs in order to meet competition and gain new
customers, and an increase in the number of pre-paid plans which have a lower
average revenue per unit. Revenues from paging declined $7 million, or 23%, to
$24 million in the six-month period ended June 30, 1999 from $31 million for the
comparable period in 1998, due primarily to a reduction of 14,600 subscribers
during the six-month period of 1999 and a reduction of 25,500 since June 1998.
This paging subscriber decrease is partly a result of customer migration to
cellular plans.
OPERATING COSTS AND EXPENSES. Total Wireline and Wireless costs and
expenses for the six months ended June 30, 1999 increased approximately $104
million, or 21%, to $609 million from $505 million reported for the comparable
period in 1998.
Wireline:
Total Wireline costs and expenses for the six-month period ended June 30,
1999 increased $78 million, or 18%, to $522 million from $444 million incurred
in the same period of 1998. Cost of sales and services increased $29 million, or
13%, to $250 million mainly due to an additional $28 million of maintenance and
labor expenses primarily associated with Hurricane Georges damage repairs.
Selling, general and administrative expenses of $116 million increased $29
million, or 33%, compared to the same period in 1998. The principal component of
the increase related to a management and technology license fee of $14 million
for the period.
Wireless:
Total Wireless costs and expenses for the six-month period ended June 30,
1999 increased $26 million, or 43%, to $87 million from $61 million reported for
the comparable period of 1998. Cost of services and sales increased $5 million,
or 31%, to $21 million from $16 million in 1998, primarily due to equipment
costs associated with gross subscriber additions. Selling, general and
administrative expenses increased $7 million, or 20%, to $42 million primarily
due to a management and technology license fee of $4.0 million and higher
property and municipal taxes.
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<PAGE> 38
Employee Stock Ownership Plan Compensation Expenses. A $26.1 million
non-recurring, non-cash provision was recorded in March 1999 representing the
Puerto Rico Telephone Authority's grant of shares to the employee stock
ownership plan in connection with the acquisition of control of
Telecomunicaciones de Puerto Rico. The grant from the Puerto Rico Telephone
Authority was recorded as compensation expense, with an offsetting credit to
paid-in-capital as these shares fully vested in 1999. The grant was made to
share with our employees the future results of our operations.
Effect of Early Retirement. Some of our predecessors' employees
participated in the Commonwealth of Puerto Rico Employees' Retirement System, a
cost-sharing multiple-employer retirement system. Effective March 1, 1999, some
employees that participated in this System were eligible for an early retirement
program. The statements of operations of the predecessors for the period ended
March 1, 1999 include expenses amounting to approximately $4.2 million resulting
from this program. Also, effective March 2, 1999, the employees which
participated in this System discontinued participating in the plan and became
participants in our defined benefit pension plans.
Depreciation and Amortization Expense. For the six-month period ended June
30, 1999, the amount of depreciation and amortization expense was also impacted
by the effects of proportional purchase accounting and the discontinuation of
regulatory accounting commencing from the date of the acquisition of control of
Telecomunicaciones de Puerto Rico on March 2, 1999.
Wireline depreciation and amortization expense was reduced for the six
months ended June 30, 1999 by $9 million. This reduction is attributable to a
reduction in the values assigned to the property, plant and equipment due to the
revaluation made in partial step-up purchase accounting and the discontinuation
of regulatory accounting principles. These decreases were offset by increases in
amortization related to the goodwill allocated to the Wireline operations in the
partial step-up in basis recorded in accordance with the purchase accounting
provisions of EITF 88-16 and depreciation on additional investments in property,
plant and equipment incurred as we continue to invest in new technology to
expand the services offered to our customers in order to remain competitive.
Wireless depreciation and amortization expense increased due to increased
investments in property, plant and equipment as we continue to invest in our
wireless network and due to the amortization of our customer base recorded in
the partial step-up in basis recorded in accordance with the purchase accounting
provisions of EITF 88-16. Amortization expense was also increased by a
non-recurring charge for the cost of a portion of a personal communications
service license that will not be developed and therefore a $6.5 million charge
was recorded in March 1999.
INTEREST EXPENSE, NET. On a consolidated basis, we incurred interest
expense of $28.9 million in the six-month period ended June 30, 1999,
substantially all of which was attributable to interest on debt of $1,591
million incurred on March 2, 1999 in connection with the acquisition of control
of Telecomunicaciones de Puerto Rico. We had no material debt or interest
expense during the six-month period ended June 30, 1998.
EXTRAORDINARY CHARGE. During 1996, the Government of the Commonwealth of
Puerto Rico enacted the Federal Telecommunications Act of 1996 and began the
process of deregulating the formerly restricted markets for telecommunications
services in Puerto Rico to open them to competition. This action was taken to
bring the benefits of competition to consumers of telecommunications services
and to stimulate investment in advanced technology and new telecommunications
services. Additionally, competition in the intra-island long distance market
increased on February 1, 1999, when the requirement to dial additional numbers
was eliminated in order to give equal access dialing to all of our competitors,
as mandated by the FCC. This deregulation process concluded with the
privatization of Telecomunicaciones de Puerto Rico through the acquisition of
control of Telecomunicaciones de Puerto Rico by the GTE Group.
Prior to the acquisition, Puerto Rico Telephone Company rates were based
upon the cost of providing services including a return on capital deployed.
Further competition in its markets was restricted and Puerto Rico Telephone
Company maintained a monopoly position in providing telecommunications services.
These factors provided sufficient assurance that the costs of investments in
property, plant and equipment would be recovered through the ratemaking process.
Accordingly, the technological changes in the provision of
35
<PAGE> 39
telecommunications services that resulted in a reduction in the economic life of
Puerto Rico Telephone Company telecommunications plant and equipment were not
reflected in the depreciation expense used in the ratemaking process on a timely
basis. Deferral of cost recovery did not require an increase in depreciation
expense for financial reporting purposes as future cost recovery was assured
through the ratemaking process as permitted by the application of the provisions
of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation."
With the deregulation of the operations of Telecomunicaciones de Puerto Rico and
the opening of Puerto Rico's telecommunications markets to competition this
assurance no longer exists. Puerto Rico Telephone Company has therefore
discontinued SFAS No. 71 and recorded a reduction in the value of its property,
plant and equipment that is not expected to be recoverable through future
operations over its remaining service life. Fifty percent of this asset
impairment, reflecting the portion of Telecomunicaciones de Puerto Rico acquired
by the GTE Group, was reflected as part of the proportional purchase price
adjustment reflecting the estimated fair market value of these assets. The
remaining portion was recorded as a non-cash, nonrecurring, extraordinary charge
to expense of $60.5 million, net of tax benefits of $38.8 million, in March
1999.
INCOME TAXES. In the six-month period ended June 30, 1999, we recorded
$11.7 million in income tax expenses applicable to taxable transactions recorded
in the measurement of income. Prior to our privatization on March 2, 1999 we
were not subject to income taxes.
NET INCOME. For the reasons discussed above, the Company had a net loss of
$38.2 million for the six months ended June 30, 1999 compared to net income of
$135.9 million for the same period in 1998. The net loss for the period March 2
through June 30, 1999 was 40.1 million. As noted above, the 1999 period included
an after-tax extraordinary charge of $60.5 million due to the discontinuance of
SFAS No. 71.
We believe that the results for the second quarter are not necessarily
indicative of our results for the remainder of the year because of the special
nature of certain of the charges incurred during the first and second quarters
of 1999 and because of the change in our basis of accounting.
Hurricane Georges
On September 21, 1998, Hurricane Georges struck Puerto Rico and caused
considerable property damage to our service area in general, including our
telecommunications systems. Our expenses in the six-month period ended June 30,
1999 were higher than in the same period in 1998 in part because of
approximately $28 million of higher maintenance and labor expenses attributable
to repairing damage caused by Hurricane Georges.
In addition to the expenses incurred in the first and second quarters of
1999, we lost revenues and incurred expenses in 1998 due to Hurricane Georges.
As a result of the hurricane, we:
- believe that we lost approximately $18.6 million in revenues in 1998
because of lines out of service from September to December;
- incurred hurricane-related expenses of $31.7 million in 1998, of which
$18.1 million was due to repairs included in operating expenses, and
$13.6 million charged to depreciation expense;
- incurred capital expenditures of $30.5 million for the replacement of
destroyed property;
- were unable to dedicate resources to install new access lines,
particularly after the 41-day work stoppage in the second quarter of 1998
to protest the privatization; and
- recorded as other income, amounts received from insurance claims of
approximately $6.4 million.
We believe that substantially all of the repair work caused by Hurricane
Georges has now been completed.
36
<PAGE> 40
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
REVENUE AND SALES. We reported a revenue increase in 1998. Our Wireline
and Wireless revenues increased $37 million, or 3%, to $1,271 million for 1998
from $1,234 million for 1997. The increase resulted primarily from growth in
local service and access revenues.
Wireline:
In 1998, local service revenues increased $21 million, or 5%, to $468
million for 1998 from $447 million for 1997. The increase was primarily due to
growth in value added services, such as caller I.D. and call waiting, which
produced $8.0 million of higher basic voice service revenue; growth in the
number of access lines, which produced a $9.6 million increase in rental
revenues from business and residential lines; additional usage revenues of $6.0
million and an increase in Internet revenues of $2.5 million, in each case as
compared with 1997 revenues. Revenues from lines and installation charges
declined in 1998.
Access line growth in 1998 was only 0.8%, a substantial decrease in the
growth rate when compared to the growth rate for the preceding three years,
which ranged from 4% to 6%. The lower growth rate was primarily attributable to
Hurricane Georges and a 41-day work stoppage organized to protest the
privatization of our company. The waiting list of orders for new installations
increased to 36,600 at December 31, 1998 because we were inhibited from
deploying service after the work stoppage during the summer and because our
efforts in the fourth quarter were devoted primarily to restoring service in the
areas adversely affected by Hurricane Georges.
Network access revenues increased by $22 million, or 8%, to $300 million
for 1998 from $278 million for 1997. The increase resulted primarily from $21
million of higher universal support subsidies administered by the National
Exchange Carrier Association. These subsidies are derived from pooling
arrangements with other U.S. exchange carriers that generate end-user interstate
revenues. The pooled amounts are subsequently divided among the various
telephone companies based upon their respective estimated allocations of costs
and investments in providing interstate services. The amount received in 1998
was higher than in prior years because we incurred certain non-recurring costs,
which are included when calculating the amount of this support. In addition,
higher revenues of $4 million in access charges paid to us by on-island long
distance competitors contributed to the increase in access revenues.
Long distance revenues remained constant for 1998 at $252 million, with an
increase in on-island long distance revenues of $6 million over 1997 levels
offset by a reduction in toll private lines, toll-free services and wide area
telecommunications services revenues. On-island long distance minutes increased
by 1% in 1998, from 1,649 million minutes in 1997 to 1,670 million minutes in
1998. This increase was limited as a result of lines being out of service during
the 41-day work stoppage, Hurricane Georges and increased competition. We
adopted a new rate structure in April 1998, which produced slightly higher
average revenue per minute from $0.13 in 1997 to $0.14 in 1998.
Directory services and other revenues decreased by $9 million, or 9%, to
$91 million for 1998 from $100 million for 1997. The decrease resulted from a
decline in the revenues generated in connection with the directory service
revenue sharing agreement, which expires with the production of directories for
1999. See "Business -- Directory." In addition, the decrease in other revenues
resulted primarily from a decrease in equipment sales because of a larger than
normal equipment sales contract with the Puerto Rico Police Department in 1997.
Wireless:
Cellular revenues decreased $2 million, or 2%, to $100 million for 1998
from $102 million for 1997, despite an increase of 69,000 customers to 204,000
at year-end 1998 from 135,000 at year-end 1997. Approximately 48,000 of the
69,000 new customers were prepaid customers who generate substantially lower
average revenue per unit than regular customers due to lower average minutes of
use per customer. Monthly average revenue per unit averaged $49 in 1998, a
decrease of $10 from 1997. The decline in average revenues
37
<PAGE> 41
for regular accounts was caused by the addition of the prepaid customers and
lower-end regular subscribers in a more competitive market environment.
Paging revenues continued to grow in 1998, increasing by $5 million, or 9%,
to $60 million for 1998 from $55 million for 1997, as a result of an increase of
20% in average prices offset in part by a decrease in the number of customers
which was caused by our stricter collection policies.
OPERATING COSTS AND EXPENSES. Total Wireline and Wireless costs and
expenses for 1998 increased by $54 million, or 5.4%, to $1,044 million from the
$990 million reported for 1997.
Wireline:
Total Wireline costs and expenses for 1998 increased $55 million, or 6.5%,
to $907 million from the $852 million reported for 1997. Cost of services and
sales were $460 million, or $29 million higher, than the $431 million reported
in 1997, primarily due to non-recurring restoration costs related to damage
caused by Hurricane Georges. Interconnection charges paid for the first time to
wireless providers in 1998 also contributed $13 million to the increase.
Selling, general and administrative expenses were $172 million, or 8.1%, higher
than the $159 million reported for 1997. Consulting and commission fees also
contributed to the increase.
Wireless:
Total Wireless costs and expenses for 1998 of $137 million reflected a
slight reduction of $1 million as compared to the $138 million recorded in 1997.
Cost of services and sales increased $4 million, or 21% to $23 million
primarily due to the increase in cost of goods sold resulting from the growth of
69,000 new subscribers activated during 1998. Selling, general and
administrative expenses decreased $9 million, or 9% in 1998 to $92 million from
the $101 million reported in 1998, primarily due to reductions of $4 million in
access charges.
Depreciation and Amortization Expense. Consolidated depreciation and
amortization expense increased by $18 million, or 6%, to $297 million for 1998
from $279 million for 1997 due to higher levels of gross plant in service.
Net Income. For the reasons set forth above, consolidated net income
decreased $22 million, or 9%, to $224 million for 1998 from $246 million for
1997. As noted above, the 1998 period included $18 million of Hurricane Georges
restoration costs and an estimated $5 million of incremental costs associated
with the 41-day work stoppage.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
REVENUES AND SALES. Total Wireline and Wireless revenue increased $33
million, or 3%, to $1,234 million for 1997 from $1,201 million for 1996. The
increase resulted primarily from the growth in local, paging and access
revenues.
Wireline:
Local revenues increased $28 million, or 7%, to $447 million for 1997 from
$419 million for 1996. The increase was due to the expansion of the number of
access lines, which produced higher revenues for basic voice services of $17
million. In addition, private branch exchange rental revenues increased $2
million and revenue from value-added services was $8 million, or 38%, higher
than the prior year because of strong demand for such services. Access lines
increased by 5.6% in 1997.
Long distance revenues decreased $11 million, or 4%, to $252 million for
1997 from $263 million for 1996. The decrease was driven by the full year effect
of the August 1996 price reductions associated with dial-around competition.
Prices decreased from a $0.16 average in 1996 to a $0.13 average in 1997.
Traffic volume increased, however, with a 13% increase in minutes, from 1,464
million minutes in 1996 to 1,649 million minutes in 1997.
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<PAGE> 42
Network access revenues increased $20 million, or 8%, to $278 million for
1997 from $258 million for 1996. The increase was driven by an increase in
switched access revenues and higher long-term support subsidies principally
because we were required to provide higher cost services than other pool
participants.
Directory services and other revenues increased by $8 million, or 9%, to
$100 million for 1997 from $92 million in 1996. Main increases were in the other
revenue category as a result of a large equipment sales contract with the Puerto
Rico Police Department.
Wireless:
Cellular revenues decreased $33 million, or 24%, to $102 million for 1997
from $135 million for 1996, due to a net reduction of 18,000 customers, from
153,000 to 135,000, and reductions in monthly average revenue per unit, to $59
in 1997 from $71 in 1996. The customer loss was due to customer terminations
resulting from network fraud and the associated inability to roam in the
continental U.S. Mainland carriers would not permit roaming because of concerns
regarding our problems with fraudulent phone usage. In addition, our stricter
credit and collection procedures contributed to the net loss of customers. We
addressed our fraud problems in late 1997 through the implementation of
authentication-fingerprinting software.
Paging revenues increased significantly to $55 million in 1997 from $34
million in 1996, a 62% increase, resulting from an 18% increase in customers and
an increase in monthly average revenue per unit from $17 in 1996 to $21 in 1997.
Paging customers grew from 200,000 in December 1996 to 235,000 in December 1997.
OPERATING COSTS AND EXPENSES. Total Wireline and Wireless costs and
expenses for 1997 decreased $71 million, or 7%, to $990 million from the $1.1
billion reported in 1996.
Wireline:
Total costs and expenses for the Wireline segment decreased $77 million, or
8%, to $852 million from the $929 million reported in 1997. Cost of services and
sales decreased $14 million, or 3%, million to $431 million. Selling, general
and administrative expenses decreased $84 million, or 35%, to $159 million.
Reductions in cost of services and sales as well as selling, general and
administrative were mainly due to the one-time charge of $99 million associated
to an early retirement program offered in 1996. This resulted in an improvement
in access lines per Wireline employee to 135 in 1997 from 153 in 1996.
Wireless:
Total Wireless costs and expenses for the year 1997 increased $6 million,
or 4.5%, to $138 million from the $132 million reported in 1996. Costs of
services and sales decreased $5 million, or 21%, to $19 million primarily due to
the reduction in cost of good sold associated to the decrease of lines in
service from 153,000 in 1996 to 135,000 in 1997. Selling, general and
administrative costs increased $7 million, or 7%, to $101 million from the $94
million reported in 1996, primarily due to an increase in operator services for
paging.
Depreciation and Amortization Expense. Consolidated depreciation and
amortization expense increased $25 million, or 10%, to $279 million for 1997
from $255 million for 1996 due to higher levels of gross plant in service and
the amortization of $4 million related to the acquisition cost of the personal
communications system licenses.
Net Income. As a result of all of the above, net income increased $104
million, or 73%, to $246 million for 1997 from $142 million for 1996. As noted
above, the 1996 period included $99 million of charges for an early retirement
program.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we had working capital of $88 million, compared to
$136 million and $131 million for 1997 and 1996, respectively. Accounts payable
and accrued expenses increased substantially at December 31, 1998 due to planned
capital additions and replacement and restoration activities totaling
approximately $49 million accrued late in the fourth quarter of 1998. We delayed
our capital expenditures
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<PAGE> 43
program, first because of the 41-day work stoppage which ended by early August
1998 and then because of Hurricane Georges on September 21, 1998. This increase
in accounts payables was partially offset by an increase in accounts receivables
primarily attributable to delays in billing and collections caused by Hurricane
Georges.
As of June 30, 1999, we had working capital of $98.3 million compared to
working capital of $88.1 million at December 31, 1998.
As part of the closing of the acquisition of Telecomunicaciones de Puerto
Rico by the GTE Group, we distributed $1,570.2 million in cash to a Puerto Rico
Telephone Authority as a special dividend on March 2, 1999. We borrowed $1,591.1
million under our bank credit facilities at the closing of the acquisition, of
which $1,565 million was used to pay the special dividend and $26.1 million was
used to make a loan to the employee stock ownership plan to purchase 3% of our
shares. We used $5.2 million of cash on hand to pay a portion of the special
dividend. Cash and cash equivalents were $36 million at December 31, 1998,
compared with $21 million and $43 million for 1997 and 1996, respectively. Prior
to the acquisition, our predecessors distributed to the Puerto Rico Telephone
Authority cash dividends in an amount equal to net income plus depreciation and
amortization on the tenth day of each month. Cash balances at any balance sheet
date therefore represented net cash receipts for an approximate 20-day period.
As of June 30, 1999, cash and cash equivalents increased to $63.7 million
because no cash dividend distributions were made to the Puerto Rico Telephone
Authority after the acquisition.
At June 30, 1999, we had $174 million available under a $200 million
revolving credit facility with Banco Popular entered into in connection with the
acquisition.
Cash from operations for the six-month period ended June 30, 1999 was
$179.6 million compared to cash from operations for the six months ended June
30, 1998 of $272.8 million. The decrease in cash from operations of $93.2
million is primarily attributed to higher operating expenses, which included $28
million for repair expenses associated with Hurricane Georges. Cash expended for
investment activity for the six months ended June 30, 1999 was $100.3 million
compared to cash expended for investment activity of $106 million for the six
months ended June 30, 1998. We have continued our capital spending programs to
enhance the technological capability of our network to provide new products and
services to our customers to stay competitive.
Net cash from operations of $614 million in 1998 was $106 million and $110
million higher than 1997 and 1996, respectively. Internally generated funds have
been sufficient to fund capital expenditures of $288 million, $362.2 million and
$391 million for the years 1998, 1997 and 1996, respectively. We expect to spend
$1.2 billion under our five-year capital expenditure plan for the years 1999
through 2003 financed through internal and externally generated funds and we
have publicly committed to spend at least $1.0 billion on capital expenditures
during the same five-year period. Our capital expenditure budget for 1999 totals
approximately $224 million.
We had unfunded pension and other postretirement liabilities aggregating
$433 million as of December 31, 1998. We will reduce this liability with
internally generated funds, $200 million in capital contributions from the
Puerto Rico Telephone Authority and estimated tax savings of $128 million
associated with using the $200 million to pay such liabilities. The Puerto Rico
Telephone Authority is contractually obligated to contribute $40 million in cash
in 2000 and 2001 and in either cash or shares of Telecomunicaciones de Puerto
Rico stock for the next three years to reduce these unfunded pension and
postretirement liabilities. We are contractually obligated to apply these
proceeds plus the grossed-up effect of the tax deduction totaling $66 million
per year, regardless of whether the Puerto Rico Telephone Authority exercises
its share payment option. We believe the Puerto Rico Telephone Authority will
make those contributions in cash because a total of $175 million of certificates
of deposit issued by the Government Development Bank for Puerto Rico and agency
debentures issued by the Federal Home Loan Bank were placed in escrow to secure
this obligation.
We expect to fund our interest payment obligations and capital expenditure
plan with internally generated funds and to fund principal payment obligations
through a combination of internally generated funds and refinancings.
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<PAGE> 44
In connection with the acquisition, our shareholders agreed that the common
shares of Telecomunicaciones de Puerto Rico will bear a dividend, payable on a
quarterly basis, to the extent funds are legally available, and subject to any
restrictions imposed by any financing, that is at least equal to 50% of our
consolidated net income. The indenture for the old notes and the exchange notes
and our credit facilities do not contain dividend restrictions.
REGULATORY AND COMPETITIVE TRENDS
During the second quarter of 1999, regulatory and legislative activity at
both the state and federal levels continued to be a direct result of the Federal
Telecommunications Act of 1996. Along with promoting competition in all segments
of the telecommunications industry, the Telecommunications Act was intended to
preserve and advance universal service.
We continued in the second quarter of 1999, to meet the wholesale
requirements of new competitors. To date, we have signed over 20 interconnection
agreements with other carriers, providing them the capability to purchase
individual unbundled network elements, resell retail services and interconnect
facilities-based networks. Several of these interconnection agreements were the
result of the arbitration process established by the Telecommunications Act, and
incorporated prices or terms and conditions based upon the Federal
Communications Commission rules that were subsequently overturned by the Eighth
Circuit Court in July 1997.
Concurrent with our competitors entry in the markets, as a result of a
change in the regulatory environment, we have continued our expansion into
local, long-distance, Internet-access, wireless and video services both within
and outside our traditional operating areas.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments and
hedging instruments. SFAS No. 133, as amended by SFAS No. 137, is effective
January 1, 2001. The statement requires entities that use derivative instruments
to measure and record these instruments at fair value as assets or liabilities
on the balance sheet. It also requires entities to reflect the gains or losses
associated with changes in the fair value of these derivatives, either in
earnings or as a separate component of comprehensive income, depending on the
nature of the underlying contract or transaction. We do not currently utilize
derivative instruments. Therefore, the adoption of SFAS No. 133 is not expected
to have a significant effect on our results of operations or our financial
condition.
In March 1998, the American Institute of Certified Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Under the provisions of this Statement
of Position, effective January 1, 1999, we capitalize and amortize the cost of
all internal-use software, including network-related software.
RECENT INTERNET REGULATORY ACTION
The FCC has been considering issues relating to whether Internet traffic is
subject to carrier-to-carrier reciprocal compensation arrangements. These
arrangements provide for the payment of compensation to a local telephone
company for transporting and terminating a local call that is placed by one of
its competitor's customers. There is an ongoing dispute in the telephone
industry over whether calls from wireline phones of one local exchange carrier
to Internet service providers served by a different local exchange carrier are
subject to reciprocal compensation.
Many incumbent local telephone companies, like us, argue that calls to
Internet service providers are interstate in nature because the call originates
in one state and may terminate in another state, in a foreign country or has
mixed termination. In other words, with just one call to the Internet service
provider the caller may access different local, interstate and foreign points.
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<PAGE> 45
On February 26, 1999, the FCC released a Declaratory Ruling regarding this
issue. In that ruling the FCC concluded that carriers are bound by their
existing interconnection agreements, as interpreted by state commissions, and
thus are subject to reciprocal compensation obligations to the extent provided
by such agreements or as determined by state commissions. The FCC also declared
that Internet traffic is jurisdictionally mixed but appears to be largely
interstate in nature, and thus subject to federal jurisdiction. The FCC
concluded that the calls at issue do not terminate at the Internet service
provider's local servers, but continue to their ultimate destinations, at
websites that are often located in other states or countries. The decision also
preserves the rule that exempts the Internet and other information services from
the payment of interstate access charges.
The FCC tentatively concluded that inter-carrier compensation for said
interstate traffic should be governed prospectively by interconnection
agreements negotiated pursuant to the provisions of the Federal
Telecommunications Act of 1996. It has also launched a proceeding to determine
an appropriate compensation scheme for such calls in the future.
The Telecommunications Regulatory Board of Puerto Rico has not made any
ruling regarding Internet traffic, and had not approved, prior to the FCC
ruling, any agreement regarding how Internet traffic was to be compensated. With
respect to our operations, the Regulatory Board has approved new interconnection
agreements with Lambda and Centennial. Those agreements state that traffic
originated in Puerto Rico to an Internet service provider shall not be subject
to reciprocal compensation, but the parties also agreed that the execution of
the interconnection agreements did not constitute a waiver of any rights the
parties may have to seek compensation for such traffic in any appropriate forum.
Lambda/Centennial filed a motion for the reconsideration of the Board Resolution
and Order approving the interconnection agreements. The Regulatory Board has
issued an order upholding its previous resolution and order.
We at present do not pay reciprocal compensation for calls to Internet
service providers. We, however, have exercised our rights under the previous
Lambda/Centennial interconnection agreements to conduct an audit to determine
the volume of local and interexchange (intrastate and interstate) traffic routed
between the parties' networks to determine the validity of the payments made by
the parties during the term of those agreements.
We are also in the process of negotiating an interconnection agreement with
Sprint for which both parties have filed an arbitration petition before the
Regulatory Board. Among the issues subject to arbitration is the compensation
for internet traffic. We are taking the position that internet traffic is not
subject to reciprocal compensation because it is interstate in nature.
FACTORS AFFECTING OUR FUTURE FINANCIAL RESULTS
As a result of the acquisition, our reported results of operations and
financial condition for periods ended since the acquisition differ materially
from reported periods ended prior to the acquisition.
These changes derive principally from:
- a change from being a government-owned entity which did not pay taxes,
other than excise and in lieu of taxes, to a privately owned company
which will pay taxes;
- the incurrence of $1,591.1 million of debt in connection with the
acquisition;
- the creation of an employee stock ownership plan owning 7% of our shares;
- our obligation to pay management fees and a technology license royalty to
subsidiaries of GTE, the cash payment of which will be deferred, with
interest, until at least March 2, 2000;
- the reduction of under-funded pension plan liabilities and other
post-retirement liabilities through the capital contributions that will
be made by the Puerto Rico Telephone Authority over the next five years;
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- our voluntary separation plan which became effective in June 1999 for the
early retirement of employees;
- the loss of National Exchange Carrier Association-administered long-term
support and the adoption of price cap interstate access formulae during
the first half of 2000 and a possible change in the amounts of universal
service fund subsidies;
- increasing competition and changes in the regulatory environment in
Puerto Rico, such as the implementation of dialing parity for on-island
long distance calls on February 1, 1999; which will make it easier for
our customers to use the facilities of competitors;
- our offering of off-island long distance service as a result of the
termination of certain mutual non-competition covenants with Telefonica
Larga Distancia;
- the changes in regulation affecting our operations and the introduction
of competition which has resulted in our discontinuation of regulatory
accounting principles; and
- the adoption of a new basis of accounting to reflect the acquisition
which results in an increase in the assets and shareholders' equity
components of our financial position. These assets will be amortized to
expense in the measurement of future results of operations as they are
realized.
Prior to the acquisition, Puerto Rico Telephone Company distributed to the
Puerto Rico Telephone Authority as a cash dividend an amount equal to its net
income plus amortization and depreciation. The Puerto Rico Telephone Authority
used the proceeds to service its debt and make payments in lieu of taxes to
governmental authorities in Puerto Rico. After the acquisition, we will report
substantially higher expenses for the direct payment of taxes as a result of
being a private company. We do not expect to have a cash income tax liability
for 1999. Based on a maximum statutory income tax rate of 39%, we would have
paid $67.2 million in income taxes on our 1998 results. Following the
acquisition, we must also pay property, municipal and unemployment taxes. Based
on 1998 results, we would have paid $52 million in such taxes.
We expect that our future income tax liability will be reduced annually by
an amount arising from a step-up of the tax basis of our assets and liabilities
to their fair values established in the acquisition. The estimated $475 million
step-up, representing the excess of the purchase price paid versus the net book
value of the assets, will be amortized as a deduction for income tax purposes
over 15 years. These amortizations when combined with the future tax deductions
of funding prior employee benefit costs and depreciation of property, plant and
equipment will produce future tax cash benefits. These future tax benefits have
been recorded as a deferred tax asset on our balance sheet with an increase in
equity. We have received a favorable ruling from the government of Puerto Rico
regarding the ability to step-up the assets to the values established in the
acquisition and deduct prior employee benefits costs funded.
In connection with the acquisition, we incurred $1,591.1 million of debt.
Assuming we incurred the debt on January 1, 1998 and calculating interest at an
effective interest rate of 6.37%, which was the average rate at the acquisition
date, we would have had approximately $100.4 million in interest expense in
1998.
We created the employee stock ownership plan on the date of the acquisition
and allocated 70,000 shares to the trust for the benefit of employees. The 7% of
our shares acquired by the employee stock ownership plan were valued at $60.9
million. The employee stock ownership plan allocation consists of three
elements, discussed below.
- A grant from the Puerto Rico Telephone Authority of 30,000 shares,
representing 3% of our shares, valued at $26.1 million. The grant vested
immediately and the $26.1 million non-cash amount was recorded as an
operating expense on March 1, 1999 by the predecessors;
- A grant from the GTE Group of 10,000 shares, representing 1% of our
shares, valued at $8.7 million. The GTE Group grant was valued at $8.7
million, and recorded as deferred compensation on March 2, 1999 and was
credited to paid-in-capital with no effect on shareholders' equity. The
deferred compensation amount will be charged to earnings in future
periods when these shares vest; and
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- A purchase by the employee stock ownership plan of 30,000 shares,
representing 3% of our shares, with the proceeds of a loan from us in the
amount of $26.1 million. The shares will be recorded by us as an
operating expense over a period not to exceed 20 years as these shares
are released to the employees.
We are obligated to pay subsidiaries of GTE management fees and a
technology license royalty aggregating 8% of EBITDA, or approximately $38
million based on pro forma 1998 EBITDA of $475.5 million prior to payment of the
management fee. The aggregate fee declines to 7% of EBITDA in 2002 and 2003 and
to 6% of EBITDA in 2004. The GTE subsidiaries have agreed to defer, with
interest, the payment of such fees and royalty until at least March 2, 2000.
We have introduced a voluntary early retirement program to our workforce to
reduce expenses and streamline operations. The program involves providing an
incentive equal to adding five years of age and five years of service in the
calculation of pension benefits for employees that reach a minimum of years of
age and service threshold. Employees accepting retirement will also be entitled
to normal medical and life insurance benefits.
The program was offered to our non-union salaried workforce in June 1999
and 273 employees accepted early retirement in July 1999. A provision of
approximately $83 million will be recorded in the third quarter of 1999
associated with this program. We have recently reached terms on a program with
our unions. The first union involving approximately 600 employees must accept
the offering in September 1999, whereas the second union involving 200 employees
must accept the offering in October 1999. Based on expected acceptance rates,
the cost associated with the union offerings is estimated to range from $30
million to $45 million each. Approximately $25 million associated with the total
cost for the union and non-union offering involves an immediate cash obligation.
Prior to the acquisition, our rates were regulated on a rate-of-return/cost
of services basis entitled to financial support from subsidy pools administered
by National Exchange Carrier Association. As a rate-of-return carrier, we were
permitted to charge prices sufficient to cover our costs and to provide an
annual rate of return of up to 11.5%. We were also entitled to long-term support
subsidies for operating in high cost areas which provided the funds to achieve
this return. After the acquisition, we will be considered a price cap carrier.
As a price cap carrier, our prices, rather than our costs and earnings, will be
regulated. We must exit the long term support pool in the first half of 2000 and
implement a price cap mechanism related to the recovery of common carrier line
and traffic sensitive costs. When we exit the pool, we will be able to charge
interexchange carriers a pre-subscribed interexchange common carrier line charge
which is assessed on an access line basis for interconnection to our local
network. We received $91 million in long-term support in 1998. Based on existing
pre-subscribed interexchange common carrier line charge rates established by the
FCC for all local exchange carriers and our estimates of projected access lines,
we expect to receive annualized pre-subscribed interexchange common carrier line
charge revenues of $33 million in 2000. Therefore, we estimate that the
annualized pre-tax loss in long term support will be $58 million.
We received $48 million in universal service fund subsidies in 1998 and $27
million in 1997. The amount received in 1998 was higher than normal because
Puerto Rico Telephone Company included certain non-recurring costs when
calculating the amount of such support. In October 1998, the FCC issued an order
selecting a cost model for universal service and planned to select cost inputs
in the second quarter of 1999. Due to unforeseen delays, the FCC has moved the
implementation date of the new universal service mechanism for nonrural carriers
to January 2000. Our universal service program will be designed to complement
the FCC program, however until we receive FCC action we cannot predict the
amount of future subsidies.
As a result of changes in the regulatory environment, Puerto Rico's
telecommunications market has become increasingly competitive. As of June 30,
1998, we held over 95% of the local wire-line market and our share of the
on-island long distance market in Puerto Rico decreased from 98% in February to
63% in June 1999. We expect to experience an erosion of market share in the
local market over time resulting from increased competition and regulatory
changes. See "-- Six Months Ended June 30, 1999 Compared with Six Months Ended
June 30, 1998."
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Since February 1, 1999, customers can place long distance calls with any
pre-subscribed carrier by dialing the number as opposed to having to dial a
five-digit access code and the number. In addition, the Puerto Rico Telephone
Authority and Telefonica Larga Distancia terminated their mutual non-competition
covenants effective February 1, 1999. As a result, we are offering off- island
long distance service, and Telefonica Larga Distancia is offering on-island long
distance. In addition, some of our competitors, such as AT&T, Sprint and MCI
Worldcom, have made investments in offering services to residential and business
customers in Puerto Rico. See "Risk Factors -- We Face a Significant Increase in
Competition" and "Business -- Regulation."
The acquisition agreements provide that we will not raise tariffs for basic
residential service for three years.
As a result of the changes in regulation, the competitive environment and
the terms of the acquisition, we have determined that regulatory accounting
principles as set forth in SFAS No. 71 are no longer applicable to our
operations. Accordingly, we have discontinued the application of SFAS No. 71 in
conformity with SFAS No. 101 "Accounting for the Discontinuation of Application
of SFAS No. 71." We have made an assessment of the cost of property, plant and
equipment that will not be realized based on an analysis of the cash flows
expected to be generated by the telephone plant and equipment over their
remaining economic lives established in light of competitive trends and
technology replacement. Consistent with the rest of the local exchange telephone
industry, this assessment has resulted in the write-down of plant and equipment
in the amount of $198.5 million. A proportionate amount of this adjustment,
which is approximately $99.2 million, has been accounted for as a purchase price
adjustment in accordance with the provisions of partial step-up accounting to
reflect the fair market values of the assets acquired on March 2, 1999. The
remaining $99.2 million was recorded as an extraordinary charge in the
consolidated statements of operations. The amount of this extraordinary charge
was $60.5 million, net of a tax benefit of $38.7.
YEAR 2000 COMPLIANCE
GENERAL
The Year 2000 issue concerns the potential inability of information systems
to properly recognize and process date-sensitive information beyond January 1,
2000, and has industry-wide implications. We have been addressing potential Year
2000 issues since the second quarter of 1997. This program is necessary because
the Year 2000 issue could impact our telecommunication networks, systems and
business processes. Because of our system conversion, enhancement activities and
enterprise testing, we presently expect our networks, systems and processes to
be Year 2000 compliant by the end of October 1999. Enterprise testing of our new
wireless billing system is expected to be complete in early November 1999.
Although based on our progress to date, we presently expect that our Wireline
and Wireless telecommunications businesses will be ready in sufficient time for
the millennium rollover, we cannot know the actual effects of the Year 2000
issue on our business and operations until the Year 2000 arrives.
STATE OF READINESS
Our management considers systems preparation for Year 2000 to be a high
priority and has a program in place to address Year 2000 compliance issues.
Monthly reports are prepared in order to monitor our Year 2000 compliance
program and are reviewed by our board of directors. We are communicating with
customers, suppliers, financial institutions and others with whom we do business
to communicate our status and to coordinate Year 2000 compliance. The inventory
of our Year 2000 issues is complete and includes both information technology and
non-information technology systems. As of August 31, 1999, our overall program
is estimated to be 95% complete. Except for the new wireless billing system, all
testing of equipment, products, and mission critical systems is presently
expected to be complete by the end of September 1999. Following standard
industry practice, we have grouped our Year 2000 issues into several categories
by order of priority.
- Network operations and call routing are deemed to be most important and
testing began in October 1998. This testing is presently estimated to be
99% complete and is expected to conclude by the end of September 1999.
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- Information technology and operational support systems such as billing
and customer care follow next in priority. Conversion and testing of
these systems are currently estimated to be 98% complete and we expect to
finish by the end of September 1999 except for the wireless operational
support system, which is expected to be complete by November, 1999.
- System level testing of third-party supplier products and internally
maintained software applications is in progress and is expected to be
completed at the same time as the associated network and information
technology systems.
- Enterprise or total company testing of all major processes began in
November 1998 and is expected to be complete by the end of September
1999, except for the wireless billing system, which is expected to be
complete in early November 1999.
USE OF INDEPENDENT VERIFICATION AND VALIDATION
In order to independently verify the results of our effort to date, we have
hired two independent contractors to perform a specialized scanning program
check on our mainframe applications programs which have already been tested and
converted and tested internally. We expect that this additional verification
process and any necessary conversion and testing will be complete by the end of
September 1999.
COST TO ADDRESS YEAR 2000 ISSUES
We have established a $21 million expense budget for Year 2000 compliance,
excluding costs relating to Celulares Telefonica's new billing system, of which
approximately $19.7 million had been spent as of August 31, 1999. We expense
costs associated with our Year 2000 compliance program in the year they are
actually incurred. We do not anticipate that we will incur significant operating
expenses or be required to make substantial additional investments in our
computer systems to be Year 2000 compliant.
RISKS OF YEAR 2000 ISSUES
We face a potential Year 2000 risk in connection with the billing system
for Celulares Telefonica, which is expected to be customized, installed and
tested by its third party developer by the end of October 1999. The new Year
2000 compliant billing system for Celulares Telefonica was developed by Amdocs
(UK) Limited and is currently in use by other major wireless companies,
including other affiliates of GTE Corporation, and is being customized for
Celulares Telefonica by the developer. If the Celulares Telefonica system is not
ready in time, Celulares Telefonica's billing system may experience significant
Year 2000 problems. Celulares Telefonica is developing contingency plans to
address this situation, including using specific modules of already certified
year 2000 applications.
Other scenarios might include a possible but presently unforeseen failure
of key supplier or customer business processes or systems. This situation could
conceivably persist for some months after the millennium transition and could
lead to possible revenue losses. Our present assessment of our key suppliers and
customers does not indicate that this scenario is likely. As of August 31, 1999,
we have successfully deployed a compliant network infrastructure.
CONTINGENCY PLANS
Contingency plans exist or are being developed for critical and
non-critical systems. A major corporate-wide program is being implemented in
conjunction with the GTE Corporation's Year 2000 Program Office. This program
includes both contingency and business continuity planning.
Under GTE Corporation's umbrella program, we are bolstering our normal
business continuity planning to address potential Year 2000 interruptions. We
are also developing our plans with respect to possible occurrences immediately
before, during, and after the millennium transition. These plans are currently
estimated to be 98% complete. We expect to finish them by the end of September
1999, and test the plans by the end of October 1999. This contingency plan
includes: business continuity planning; disaster recovery/ emergency
preparedness; millennium rollover planning; post millennium degradation
tracking; a network and
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information technology "stabilization" period; employee availability and
logistics backup planning; coordination with other telecommunications providers;
a Year 2000 "war room" operation to provide high-priority recovery support,
plans for key personnel availability, command structures and contingency traffic
routing; and plans for round-the-clock, on-call repair teams.
THIRD PARTY ISSUES
We continue our surveys of significant third-party vendors, suppliers and
customers whose systems, services or products are important to our operations.
We have instituted a verification process to determine the Year 2000 readiness
of these third-parties. This verification process includes reviewing test and
other data of third-parties and engaging in regular conferences with these
third-parties' Year 2000 teams. We believe that the systems, services or
products supplied by third-parties are either Year 2000 compliant or are
expected to be Year 2000 compliant by the end of the third quarter of 1999.
However, we cannot control the activities of third parties and the
non-compliance of third-party products and services could have a material
adverse effect on our operations. Assuming Celulares Telefonica's new billing
system is installed on time and performs properly, we do not presently
anticipate that business operations will be disrupted or that customers will
experience any significant interruption of services as a result of the
millennium change.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The table below provides information about our long-term debt obligations
as of June 30, 1999 which are sensitive to changes in interest rates. The table
presents the estimated interest requirement for each of the next five years and
in the aggregate thereafter as well as the related average interest rates.
<TABLE>
<CAPTION>
INTEREST REQUIREMENT INITIAL
--------------------------------------------------------------------------------- PRINCIPAL MATURITY
1999 2000 2001 2002 2003 2004 THEREAFTER TOTAL AMOUNT DATE
------- ------- ------- ------- ------- ------- ---------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt
Fixed
Senior Notes
2002(1)(2)..... $11,326 $18,450 $18,450 $20,200 $21,450 $21,450 $ 8,282 $119,608 $300,000 2002
Interest
Rate......... 6.15% 6.15% 6.15% 6.73% 7.15% 7.15% 7.15%
Senior Notes
2006(1)........ $16,329 $26,600 $26,600 $26,600 $26,600 $26,600 $ 36,575 $185,904 $400,000 2006
Interest
Rate......... 6.65% 6.65% 6.65% 6.65% 6.65% 6.65% 6.65%
Senior Notes
2009(1)........ $12,523 $20,400 $20,400 $20,400 $20,400 $20,400 $ 89,250 $203,773 $300,000 2009
Interest
Rate......... 6.80% 6.80% 6.80% 6.80% 6.80% 6.80% 6.80%
Floating
Five-year
Revolving
Credit
Facility(3)(4)... $30,938 $40,125 $41,625 $43,125 $43,125 $43,125 $208,294 $450,356 $500,000 2004
Average
interest
rate......... 7.425% 8.025% 8.325% 8.625% 8.625% 8.625% 8.625%
364-day Revolving
Credit
Facility(3)(5)... $ 1,977 $ -- $ -- $ -- $ -- $ -- $ -- $ 1,977 $ 26,100 2000
Average
interest
rate......... 7.625%
</TABLE>
- ---------------
Assumptions:
(1) Interest has been calculated on a 360-day basis from the date of issuance
(May 20, 1999) for 1999.
(2) Interest has been calculated from May 20, 2002 and thereafter on the
assumption that the notes are refinanced for an additional three years at a
7.15% interest rate.
(3) Interest has been calculated using a projected interest rate based on LIBOR
projections plus 100 basis points, plus a margin of .725 for the Five-Year
Revolving Credit Facility and a margin of .925 for the 364-day Revolving
Credit Facility.
(4) Interest has been calculated from May 20, 2004 and thereafter on the
assumption that the $500 million outstanding is rolled over for an
additional five years.
47
<PAGE> 51
(5) Interest for 1999 has been calculated based on the principal amount of $91.1
million outstanding from March 2, 1999 through June 2, 1999 and $26.1
million outstanding as of June 30, 1999. The principal amount became zero as
the $26.1 million was repaid in full on July 6, 1999.
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<PAGE> 52
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The unaudited pro forma condensed financial information presented below
reflects adjustments that give effect to:
(i) the acquisition and related expenses, the payment of the special
dividend and the incurrence of $1.591 billion of debt, the accrual of
management fees and a technology license royalty which are payable to
subsidiaries of GTE Corporation (excluding the accrual of interest on the
initial delayed payment) and the direct payment of income, unemployment,
property and municipal taxes;
(ii) the adoption of the partial step-up in accounting basis recorded
under the purchase accounting provisions under EITF 88-16 which establishes
a new basis of valuation for the assets and liabilities acquired in the
acquisition and the effect of Telecomunicaciones de Puerto Rico becoming a
taxable enterprise; and
(iii) the discontinuation of regulatory accounting.
The unaudited pro forma condensed consolidated statements of income give
effect to the adjustments as if the transactions they relate to had occurred as
of January 1, 1998. An unaudited pro forma balance sheet has not been presented
as the transaction has already been reflected in the June 1999 balance sheet.
The unaudited pro forma condensed financial information has been included
for comparative purposes only. It is based upon our financial statements and
those of our predecessors and should be read in conjunction with such financial
statements and related notes, which are included elsewhere in this prospectus.
The pro forma information does not purport to be indicative of the results which
would have occurred if the acquisition had occurred on the dates or for the
periods indicated or which may occur in the future, nor to consider all effects
of the acquisition and privatization.
The pro forma results for the year ended December 31, 1998 do not include a
$26.1 million non-recurring charge to earnings recorded in March 1999 associated
with the establishment of the employee stock ownership plan, which charge is
included in the pro forma results for the six months ended June 30, 1999. The
pro forma adjustments do not include an anticipated net loss in revenues,
estimated at approximately $58 million on an annualized basis in 2000, from
losing the National Exchange Carrier Association long-term support subsidies
based on the adoption of a price cap mechanism for common line access under
applicable FCC regulations. This adjustment was not included since the change is
not expected to take effect until sometime in the first half of 2000. Management
does not believe that this loss in net revenues will have an impact on operating
costs. The pro forma adjustments also do not include a non-recurring charge
anticipated to be recorded in 1999, related to the implementation of a voluntary
early retirement program. This program is expected to produce a charge in the
range of $143 million to $173 million. The pro forma condensed financial
information does not adjust for other potential favorable and unfavorable
changes in our business, including certain of those described in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting the Company's Future Financial Results" and the
June 30, 1999 financial statements included elsewhere in this prospectus.
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<PAGE> 53
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS TO
REFLECT THE
ACQUISITION AND
HISTORICAL THE OFFERING OF THE PRO FORMA
PREDECESSORS OLD NOTES COMPANY
------------ ------------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues and Sales................................. $ 1,270,684 $ -- $1,270,684
------------ ---------- ----------
Operating Costs and Expenses, Excluding
Depreciation and Amortization.................... 746,890 52,000(1) 833,161
(3,729)(2)
38,000(3)
Depreciation and Amortization...................... 296,493 9,344(4) 305,837
------------ ---------- ----------
Operating Costs and Expenses....................... 1,043,383 95,615 1,138,998
------------ ---------- ----------
Operating Income................................... 227,301 (95,615) 131,686
Interest Income (Expense), net..................... 2,479 (800)(5) (100,371)
(101,350)(6)
(700)(7)
Other Income (Expense), net........................ (5,413) (5,413)
------------ ---------- ----------
Income Before Taxes................................ 224,367 (198,465) 25,902
Income Tax Provision............................... 10,102(8) 10,102
------------ ---------- ----------
Net Income......................................... $ 224,367 $ (208,567) $ 15,800
============ ========== ==========
</TABLE>
See accompanying Footnotes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements.
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<PAGE> 54
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL FOR THE 1999 PERIOD PRO FORMA
------------------------------ ADJUSTMENTS TO
COMPANY PREDECESSOR REFLECT THE
------------ -------------- ACQUISITION AND
MARCH 2, TO JANUARY 1, TO THE OFFERING OF PRO FORMA
JUNE 30, MARCH 1, SUBTOTAL OLD NOTES COMPANY
------------ -------------- -------- --------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues and Sales............... $446,983 $223,300 $670,283 $ -- $670,283
Operating Costs and Expenses,
Excluding Depreciation and
Amortization................... 287,274 172,032 459,306 8,700(1) 471,160
(746)(2) --
3,900(3) --
Depreciation and Amortization.... 99,484 50,393 149,877 1,558(4) 151,435
-------- -------- -------- -------- --------
Operating Costs and Expenses..... 386,758 222,425 609,183 13,412 622,595
-------- -------- -------- -------- --------
Operating Income................. 60,225 875 61,100 (13,412) 47,688
Interest (Income) Expense, net... 29,336 (407) 28,929 200(5) 46,729
16,900(6) --
700(7) --
Other Income, net................ 1,285 569 1,854 -- 1,854
-------- -------- -------- -------- --------
Income Before Taxes.............. 32,174 1,851 34,025 (31,212) 2,813
Income Tax Provision (Benefit)... 11,729 -- 11,729 (10,632)(8) 1,097
-------- -------- -------- -------- --------
Net Income Before Extraordinary
Charge......................... $ 20,445 $ 1,851 $ 22,296 $(20,580) $ 1,716
======== ======== ======== ======== ========
</TABLE>
See accompanying Footnotes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements.
51
<PAGE> 55
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999
The pro forma results of operations reflect the effects of the adoption of
partial step up accounting and the change in status of the Company which has
become a tax paying enterprise with the completion of the acquisition.
The following pro forma adjustments have been made to the unaudited pro
forma condensed consolidated financial statements:
(1) Prior to the acquisition, Puerto Rico Telephone Company paid a
cash dividend to the Puerto Rico Telephone Authority in an amount equal to
its net income plus noncash amortization and depreciation expense. Due to
this payment, Puerto Rico Telephone Company was not required to pay
municipal and property taxes or Puerto Rico income taxes. As a result of
the acquisition, Puerto Rico Telephone Company is now responsible for the
direct payment of municipal and property taxes and income taxes. We
estimated the amount reflected for municipal and property taxes by applying
the statutory tax rate of each municipality by the appraised value for each
property and municipality, determined in accordance with guidelines
established by the Puerto Rico government and the municipalities.
The $52 million pro forma adjustment to Operating Costs and Expenses,
Excluding Depreciation and Amortization for the year ended December 31,
1998 and the $8.7 million pro forma adjustment to Operating Costs and
Expenses, Excluding Depreciation and Amortization for the six months ended
June 30, 1999, reflect estimated municipal and property taxes for the
period prior to the acquisition on March 2, 1999.
(2) Prior to the acquisition, the Company was amortizing unrecognized
prior service costs related to its pension and other past employment
benefit plans to Operating Costs and Expenses, Excluding Depreciation and
Amortization. As a result of partial step-up accounting adjustments
recorded at the time of the acquisition, prior service cost amortization
for 50% of these liabilities will not occur in periods subsequent to March
2, 1999.
The $3.7 million pro forma adjustment to Operating Costs and Expenses,
Excluding Depreciation and Amortization for the year ended December 31,
1998 and the $.7 million pro forma adjustment to Operating Costs and
Expenses, Excluding Depreciation and Amortization for the six months ended
June 30, 1999 reflect the prior service cost amortization accrued in
partial step-up accounting at the time of the acquisition.
(3) Subsequent to the acquisition, a management and technology license
fee is payable by the Company to the GTE Group. The $38 million pro forma
adjustment to Operating Costs and Expenses, Excluding Depreciation and
Amortization for the year ended December 31, 1998 and the $3.9 million pro
forma adjustment to Operating Costs and Expenses, Excluding Depreciation
and Amortization for the six months ended June 30, 1999 reflect the
estimated management fee and technology license fee for periods subsequent
to the acquisition. The estimates are based on a percentage of operating
income plus noncash amortization and depreciation.
(4) The $9.3 million pro forma adjustment for the year ended December
31, 1998 and the $1.6 million pro forma adjustment for the six months ended
June 30, 1999 reflect the net effect of the partial step-up in basis
required under the provisions of EITF 88-16 recorded at the time of the
acquisition on March 2, 1999 (primarily goodwill amortization). As a result
of the acquisition, the Company recorded goodwill and other intangible
assets (primarily cellular customer base) of $258.7 million and $13
million, respectively. Goodwill is being amortized on a straight-line basis
over a period of 40 years. The cellular customer base is being amortized
over a period of approximately three years to reflect the period over which
revenue is expected to be generated by customers acquired as of the
acquisition date. We monitor the loss of cellular subscribers due to
attrition and plan to adjust amortization if changes in attrition rates are
experienced.
(5) Reflects the amortization of underwriting discounts and expenses
related to the offering of the old notes over a ten-year period.
(6) Reflects interest expense, calculated at a rate of 6.37% per year,
on the outstanding debt balance of $1.591 billion. The 6.37% rate reflects
the floating rate in effect on the acquisition date. A change in the
interest rate of 0.25% would result in a change of $4.0 million in annual
interest expense.
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<PAGE> 56
(7) Reflects fees associated with the employee stock ownership plan
that was established at the time of the acquisition.
(8) The $10.1 million pro forma adjustment to the Income Tax Provision
for the year ended December 31, 1998 and the $10.6 million pro forma
adjustment to the Income Tax Provision for the six months ended June 30,
1999 reflect the adjustments required to record Puerto Rico income taxes at
a statutory rate of 39% for each respective period on a pro forma basis
considering the imposition of income taxes and the tax effect of the pro
forma adjustments.
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<PAGE> 57
BUSINESS
OVERVIEW
We are the largest telecommunications service provider in Puerto Rico and
one of the ten largest local exchange carriers in the United States as measured
by access lines in service. We have been providing telecommunications services
in Puerto Rico since 1914. We are a diversified telecommunications company,
providing local, on-island and off-island long distance services, wireless
telephony and paging services and telecommunications equipment to our
residential and business customers. We also provide network access and billing
services to wireline carriers and wireless operators in Puerto Rico. We operate
the island's largest network of public pay telephones and market Puerto Rico's
primary telephone directory.
We invested over $1.7 billion from 1994 to 1998 primarily to expand and
enhance our wireline and wireless communications networks. Our transmission
network is 100% digital, encompasses over 73,000 fiber miles and currently uses
SONET technology in a fiber optic ring configuration with speeds up to OC-48.
This network provides the principal transmission medium for most public and
special facilities circuits and supplies direct fiber optic connections to more
office buildings than any other service provider on the island. Our cellular
network utilizes the IS-136 standard with time division multiple access digital
technology and provides island-wide coverage in Puerto Rico.
We have more than 1.2 million regular access lines in service, including
962,000 residential lines and 290,000 business lines. We have the leading market
share of the local wireline market (approximately 95% in June 1999) and the
on-island long distance market (approximately 63% in June 1999) in Puerto Rico.
In addition, we have an estimated 35% share of the cellular market and a leading
share of the paging market. On February 1, 1999 we began offering off-island
long distance services.
The market share data in this prospectus has been determined based on
access lines in service for local telephony; minutes of use for long distance
services; and subscribers for wireless telephony, paging, and Internet services.
The wireless telephony market includes the total market for personal
communications services as well as traditional cellular services.
STRATEGY
We seek to enhance our leadership position in the Puerto Rico
telecommunications market by stimulating demand for our core telephony services
and continuing to extend our franchise in the growth areas of wireless and data
services. We plan to achieve these goals with innovative marketing strategies
and by providing superior service, value and convenience relative to our
competitors. We intend to capitalize on Puerto Rico's increasing wireline and
wireless penetration to grow our business. We expect to enhance this growth by
spurring demand for value-added services such as custom calling options,
caller-ID, voice messaging and other value-added services. We will leverage our
large customer base to penetrate the significant off-island long distance market
recently opened to us. We will also pursue opportunities with business and
government customers to provide end-to-end communications solutions and to
position Telecomunicaciones de Puerto Rico as the leading provider in the
emerging market for Internet and enhanced data services in Puerto Rico.
We are in the process of implementing key strategic initiatives to achieve
these goals. The principal elements of these initiatives are to:
- STRENGTHEN OUR MARKETING FOCUS
We plan to capitalize on marketplace opportunities in Puerto Rico through
segment-based marketing and by leveraging our brand recognition as Puerto Rico's
leading telecommunications company. We will target high value customers in both
residential and business markets and design products and services targeted
specifically to meet their needs. We are developing retention programs for our
most profitable customers and plan to expand the sale of value-added and
Internet services.
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<PAGE> 58
We believe we can leverage our island-wide capabilities and differentiate
our services from the fragmented service offerings of our competitors. As the
only full service telecommunications provider in Puerto Rico, we plan to offer
customized packages that include local, enhanced network products/services, long
distance, cellular, paging, data and Internet services, and our new off-island
long distance service. We believe that by segmenting our customer base, bundling
our product and service offerings and implementing value-based pricing, we will
be able to retain and improve our market share and operating margins.
- IMPROVE OUR SYSTEMS AND PROCESSES
We are taking steps to improve the delivery of services by implementing
better processes for customer service, product development, technology
implementation and service delivery. We believe that by becoming a more
efficient telecommunications provider, we will increase customer satisfaction
and profitability.
Many of our current processes are manually intensive and can be streamlined
to reduce processing complexity, delivery time and cost. We believe that the
majority of our core business processes can be improved. For example, our sales
and repair operations are decentralized, with 16 commercial sales offices and 24
repair centers that do not share a linked information system. We intend to
rationalize these resources and to operate them using an integrated delivery and
customer care system.
We are redesigning our information systems to facilitate implementation of
our strategy. For example, our current billing systems do not permit the
efficient billing of multiple services. As a first step, we have ordered a new
billing system for our wireless telephony business which we expect to be in
place in the fourth quarter of 1999. This new system will facilitate our
strategy of segmenting customers, offering bundled services and providing
customized billing options. We plan to link this system to new and existing
information systems for our other businesses.
- LEVERAGE OUR RELATIONSHIP WITH GTE CORPORATION
We will utilize GTE Corporation's experience, resources and capabilities to
improve our operating efficiency and profitability. For example, GTE Corporation
has already begun to assist us in the procurement of products and services from
key GTE Corporation vendors at prices more favorable than we could otherwise
obtain. We are also working with GTE Corporation to assess and re-engineer core
business processes such as order-entry, inventory management, service
provisioning and customer care. Discussions are also underway to subcontract
some key elements of these processes to GTE Supply, an established provider of
logistics and supply-line services to the telecommunications industry.
GTE Corporation will provide support for emerging technologies, advanced
systems implementation, and marketing expertise. We plan to obtain network
planning tools from GTE Corporation for both wireline and wireless systems and
are also working with GTE Internetworking to develop and offer integrated data
and Internet-related service to our larger business and municipal government
customers. In addition, our relationship with GTE Corporation, one of the
leading wireless telephony providers in the mainland United States, will enable
us to expand significantly our roaming capabilities in the mainland U.S. market.
- MAKE SERVICE QUALITY AND CUSTOMER RESPONSIVENESS PRIORITIES FOR OUR
WORKFORCE
We are promoting a more collaborative workforce and are working with our
employees to improve our service orientation and operations efficiency. In
support of this strategy we expect to offer increased training, introduce more
incentive-based compensation plans and negotiate changes in work rules. An
example of management's commitment to this goal was the creation of the
Telecomunicaciones de Puerto Rico employee stock ownership plan whereby for the
first time, our employees obtained an ownership position in our company. We also
expect to develop specific improvement programs to measure and reward actual
performance.
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<PAGE> 59
LOCAL SERVICES
OVERVIEW
Local services include basic voice, telephone rental, value-added services,
special services, Internet and data access, and installation services. The
following table shows our breakdown of residential and business access lines in
service, excluding public phones, direct inward dialing business lines, wide
area telecommunications services lines, private branch exchange trunks, and
cellular and paging customers:
ACCESS LINES IN SERVICE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------
1999 1998 1997 1996
------------- ----- ----- -----
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Residential Lines...................................... 962 947 950 901
Business Lines......................................... 290 284 271 255
----- ----- ----- -----
Total Access Lines in Service.......................... 1,252 1,231 1,221 1,156
===== ===== ===== =====
Growth................................................. 1.7% 0.8% 5.6% 5.0%
</TABLE>
Wireline penetration in Puerto Rico was 77% at December 31, 1998 as
compared with penetration of over 90% in the mainland United States.
BASIC VOICE SERVICE
Basic voice service is the most significant component of the local services
category, representing $352 million in revenues in 1998, or 28% of total
revenues and $241 million in revenues, or 36% of total revenues for the period
ended June 30, 1999. Our basic voice service revenues have increased with the
growth in the number of access lines in service. The growth in access lines for
1996 and 1997 resulted from a strong local economy and increasing demand for
telecommunications services by businesses, as well as strong residential demand
for second lines. Line growth slowed in 1998 because of the impact of Hurricane
Georges and the 41-day work stoppage.
To establish basic local rates, communities in Puerto Rico are grouped into
five categories based on the number of lines served within a given geographical
area. For example, the largest cities (those with densities of more than 40,000
lines) carry flat rates for unlimited usage of $18.80 per month, while small,
typically rural communities (less than 1,000 lines) carry flat rates for
unlimited usage of $7.60 per month. Residential rates for unlimited usage
average $13.60 per month. The pricing scale has not changed since 1982 and,
under the terms of the acquisition, basic rates for residential customers cannot
be increased for three years after the acquisition. The business rate scale is
narrower and rates for basic service range from $34.60 to $36.65 per month and
average, including usage, $46.00 per month. These rates exclude the $3.50 and
$6.00 per month subscriber line access charges for residential and multi-line
business customers, respectively, that are set by the FCC and are included in
access revenues.
Our principal competitor in the local service business has been Centennial,
the first facilities-based competitive local exchange carrier in Puerto Rico.
Centennial entered the San Juan market in 1997 with a fiber optic network
targeted at business customers. Centennial also began marketing a fixed wireless
local loop service to high volume on-island long distance residential users
throughout the island in 1997.
TELEPHONE RENTAL
Approximately 90% of small, single line businesses and 63% of residential
customers rent telephones which generated approximately $28 million in revenues
in 1998 and approximately $14 million in revenues for the period ended June 30,
1999. Telephone rental revenues for the entire residential and business customer
base average $2.00 and $2.60 per customer per month, respectively. Rental levels
are high compared to mainland telecommunications companies as we still own the
inside wire on the customer premises and therefore are still responsible for
maintenance of inside wires and rental phones. Mainland telecommunica-
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<PAGE> 60
tions companies saw consumers shift from renting to purchasing phones from
retail outlets during the 1980's as consumers became responsible for instrument
repairs.
We are considering a plan to transfer inside wire and telephone repair
responsibility to consumers and we believe that this would be economically
advantageous despite the fact that rental revenues will likely decrease over
time. Repair fees and repair maintenance contracts could potentially replace the
telephone rental revenue stream. More important, however, would be the reduction
of inventory costs for rental equipment and the expected reduction in operating
expenses as the free repair policy has had the effect of producing multiple
visits per customer repair. We believe that the adoption of this new policy will
not result in a charge to earnings as we began expensing inside wire costs when
the industry changed its commercial practices.
VALUE-ADDED SERVICES
Value-added services include over fifteen voice features, such as caller
ID, call return, call waiting, 3-way calling and voice mail. Value-added service
revenues increased 30% from $27 million in 1997 to $35 million in 1998 and were
$19 million for the period ended June 30, 1999. The most popular services are
caller ID, call return and call waiting. Value-added services are sold
individually or in packages with prices ranging from $1.50 to $7.50 per month.
Residential customer acceptance of these services has been strong. Of the
906,525 customers whose lines are equipped for custom calling features
approximately 39% have subscribed for at least one custom calling feature and of
the 805,000 customers whose lines are equipped for class services, such as
return call and caller ID, over 33% have subscribed for at least one class
service feature.
SPECIAL SERVICES
Special services include private lines marketed to businesses primarily for
data transport. For 1998, these lines contributed $12 million in the local
revenue category with an additional $18 million included in the long distance
category for private line carriage beyond the local central office exchange.
Management believes that strong demand for these lines exists from both large
and medium-sized business customers. We expect to complete an ATM Network in
1999 which will enhance our ability to offer broad bandwidth, tailored, cost
effective services to our business customers.
INTERNET AND DATA SERVICES
We launched our Internet services in late 1996 by offering unlimited dial
access to our customers in the San Juan metropolitan area and have expanded our
service to 43 additional towns outside the metropolitan area. During 1997, we
introduced dedicated Internet access to business customers through the use of
private lines. Internet services contributed approximately $4 million to our
revenues in 1998.
We currently have approximately 2,500 modems which can provide service to
more than 25,000 customers and 120 ports for dedicated access. We are improving
our platform by adding 2,600 additional modems across 6 nodes and doubling the
number of T-1 connections to the main Internet backbone in the United States
from 5 to 10.
NETWORK ACCESS SERVICES
Network access services include services provided to inter-exchange
carriers, other local exchange carriers, cellular and personal communications
service operators and paging companies for the origination and termination of
calls to and from Puerto Rico Telephone Company's local customers. These
operators pay an access fee to Puerto Rico Telephone Company based on tariffs or
specific interconnection agreements which have a duration of one, two or three
years. We also collect network access fees directly from our customers in the
form of FCC-mandated line charges.
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<PAGE> 61
We recorded total network access revenues of $300 million in 1998. The
principal components of network access revenues are:
- $170 million from long distance carriers;
- $48 million from the Universal Service Fund, the federal subsidy provided
to cover revenue requirements for a high-cost regulated
telecommunications company;
- revenues from subscriber lines and end-users of $56 million;
- special access revenues of $12 million;
- cellular and beeper access revenues of $7 million; and
- intra-island access revenues of $7 million.
The long-term support subsidy relates to the common line pool, which is
managed by the National Exchange Carrier Association. The revenues received from
National Exchange Carrier Association are based on our participation in revenue
pools with other telephone companies funded by access charges authorized by the
FCC. These pooled amounts are subsequently divided among the various telephone
companies based upon their respective allocations of costs and investments in
providing interstate service.
GTE Corporation does not participate in the National Exchange Carrier
Association common line pool, but instead generates common line revenues from
several access elements. These elements include explicit pre-subscribed
inter-exchange common carrier line charges assessed on a per line basis and
increased end-user subscriber line charges. GTE Corporation also assesses a per
minute carrier common line charge established under an FCC price-cap formula if
revenues generated from the first two elements are insufficient to cover revenue
requirements. GTE Corporation is subject to price-cap regulation, a regulatory
regime that under FCC rules must apply to all of GTE Corporation's local
exchange subsidiaries. Consequently, Puerto Rico Telephone Company is required
to exit the National Exchange Carrier Association pool and adopt price-cap based
access charges. The FCC provides a 12-month period after the date of the
acquisition for the transition to price-caps. For additional information about
the effect of this change, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Our Future
Financial Results."
PUBLIC PHONES
The decline in public phone revenues from $12 million in 1997 to $9 million
in 1998 resulted from the entrance of new payphone operators in the market. We
have historically taken a universal service approach to the pricing of this
service, as evidenced by a price of 10 cents for a call of unlimited duration.
However, several payphone operators have challenged our historical pricing
practices before the Telecommunications Board, arguing that the wireline
business is subsidizing public phones.
These new competitors have begun charging higher prices, which currently
are 25 cents for each 3 minutes for the duration of a call. We also adopted this
price policy on January 15, 1999 for new, "intelligent" phones. Intelligent
phones have self-diagnostic, credit card and phone card reading capabilities and
the ability to transmit billing and operating information to a central office.
As of June 30, 1999 approximately 3,000 of our 19,400 pay phones have been
replaced with "intelligent" phones. We are currently developing plans to replace
the remaining "non-intelligent" phones.
LONG DISTANCE SERVICES
OVERVIEW
Long distance services consist primarily of direct long distance dialing,
operator-assisted, calling card, and toll private lines services within Puerto
Rico. We also provide wide area telephone services, toll-free services and
enhanced toll-free services.
For regulatory purposes, the FCC has organized the United States into
geographic markets known as local access transport areas. Puerto Rico has the
status of a single local access transport area and, as such there
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<PAGE> 62
is no inter-local-access transport area telecommunications traffic within Puerto
Rico. Therefore, in the Puerto Rico telecommunications market, there are two
types of long distance service: on-island and off-island.
Until February 1, 1999, we were prohibited from offering off-island long
distance service by a non-compete agreement with Telefonica Larga Distancia. An
agreement between the Puerto Rico Telephone Authority and Telefonica Larga
Distancia to terminate their mutual non-competition covenants became effective
on February 1, 1999. Because of competition in the on-island long distance
market and the introduction of dialing parity on February 1, 1999 for competing
long distance companies, we have experienced a decrease in our market share of
the on-island long distance business. However, we have entered the off-island
long distance market and obtained 5% of that market for the month of June. We
expect to experience a further decrease in our on-island long distance market
share and an increase in our off-island market share in the future. We, along
with our competitors, reduced our on-island long distance rates on February 1,
1999. We expect this price reduction to increase total minutes of use. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
ON-ISLAND LONG DISTANCE SERVICES
The Puerto Rico on-island long distance market had approximately 1.7
billion minutes of use in 1998. The following chart shows our minutes of use in
the on-island long distance market for the years ended December 31, 1996 through
1998 and the six-month period ended June 30, 1999:
<TABLE>
<CAPTION>
SIX-MONTH YEAR ENDED DECEMBER 31,
PERIOD ENDED --------------------------
JUNE 30, 1999 1998 1997 1996
------------- ------ ------ ------
<S> <C> <C> <C> <C>
On-island Minutes (millions)(1)..................... 725 1,670 1,649 1,464
Percent Increase (Decrease)......................... (14%) 1.3% 12.6% 13.9%
Average Revenue per Minute.......................... $ .15 $ .13 $ .13 $ .16
</TABLE>
- ---------------
(1) Consists of on-island long distance, direct dialing and operator services.
The on-island long distance market has been open to competition since
September 1996. We held a 98% market share as of December 31, 1998, largely
because the selection of an alternate carrier required dialing 5 additional
digits when making a call. Competition has increased since February 1, 1999,
when dialing parity was introduced to give equal access to all competitors, as
mandated by the FCC and the Telecommunications Board. For the month ended June
30, 1999, our market share was approximately 63%.
The procedure used when dialing parity was introduced involved a customer
mailing. Customers were advised of the right to change along with a list of
carriers and how to contact them. Customers remain by default with Puerto Rico
Telephone Company for on-island long distance service unless they elect to
change to an alternate carrier. Our primary competitors in the on-island long
distance market include AT&T, Centennial, MCI Worldcom, Sprint and Telefonica
Larga Distancia. We offer per-minute charges of $.12 during peak hours and $.10
for off-peak hours. Our on-island long distance rates are competitive with those
offered by other carriers. Our competitors have been actively advertising their
service and rates.
OFF-ISLAND LONG DISTANCE
We entered the off-island market in February 1999, thereby making us the
only telecommunications provider in Puerto Rico that currently offers customers
a complete range of services. The off-island long distance market had
approximately 1.173 billion minutes of use in 1998. We believe that entry into
this service area provides us with a significant competitive advantage, allowing
us to enhance other service offerings and in particular our on-island long
distance service. We are currently reselling AT&T long distance service, which
we purchase at a discount, and will evaluate using our own facilities after
obtaining the appropriate regulatory approvals and licenses and when
commercially viable. We estimate we acquired 145,100 customers that accounted
for a 5% market share of the off-island long distance minutes of use for the
month ended June 30, 1999.
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Our primary competitors in the off-island long distance market include
AT&T, MCI Worldcom, Sprint and Telefonica Larga Distancia. We offer per minute
charges of $.12 during peak hours, plus a monthly charge of $3 if monthly usage
is less than $25.00 and $.10 for off-peak hours. Our off-island long distance
rates are competitive with those offered by other carriers.
WIRELESS SERVICES
We offer analog and digital wireless cellular and numeric and alphanumeric
paging services island-wide through Celulares Telefonica.
CELLULAR SERVICES
Cellular penetration in Puerto Rico was 10% at December 1997 and increased
to 15% at December 1998, as compared to 25.5% in the United States. We believe
this represents an opportunity for faster growth than in the mainland United
States.
The following chart compares penetration in the United States (50 states)
and Puerto Rico:
COMPARISON OF WIRELESS PENETRATION AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
POPS SUBSCRIBERS
COUNTRY (000) GDP/CAPITA (000) PENETRATION
- ------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
United States (50 states)................... 270,933 $32,042 69,209 25.5%
Puerto Rico................................. 3,844 $14,092 567 14.7%
</TABLE>
- ---------------
Sources: CTIA 1998, Bureau of Economic Analysis and Banco Popular
Wireless telephony has experienced significant market acceptance in Puerto
Rico, with compound industry-wide annual customer growth of 44% from 1992 to
1998. Celulares Telefonica offers island-wide coverage. We hold an estimated 35%
of the wireless telephony market. The distribution of Celulares Telefonica's
customer base is approximately two-thirds individual accounts and one-third
corporate and group accounts. Celulares Telefonica's minutes of use per customer
per month averaged 125 to 150 in 1998, and monthly average revenue per unit was
$49 for 1998. This compares to mainland U.S. averages of 100-125 minutes per
customer per month and average revenue per unit of $43. The significant decrease
in average revenue per unit from $71 in 1996 to $49 in 1998 reflects the
entrance of another competitor and the increasing penetration of lower-end
users, in particular prepaid customers in late 1997 and 1998.
The following chart shows wireless telephony in Puerto Rico, as well as
market share and subscribers for Celulares Telefonica and its two principal
competitors:
WIRELESS TELEPHONE SUBSCRIBERS
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
------------- -----------------------
JUNE 30, 1999 1998 1997 1996
------------- ----- ----- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
CELLULAR PENETRATION
Market POPs............................................ 3,888 3,844 3,770 3,755
Market Subscribers..................................... 721 567 371 312
Subscriber Growth...................................... 27% 53% 19% 11%
Market Penetration..................................... 19% 15% 10% 8%
SUBSCRIBERS
Celulares Telefonica(1)................................ 254 204 135 153
CellularOne............................................ 348 286 189 159
Centennial PCS......................................... 119 77 47 --
----- ----- ----- -----
Total........................................ 721 567 371 312
===== ===== ===== =====
</TABLE>
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<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
------------- -----------------------
JUNE 30, 1999 1998 1997 1996
------------- ----- ----- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
MARKET SHARE (ESTIMATED)
Celulares Telefonica................................... 35% 36% 36% 49%
CellularOne............................................ 48% 50% 51% 51%
Centennial PCS......................................... 17% 14% 13% --
----------- ----- ----- -----
Total........................................ 100% 100% 100% 100%
</TABLE>
- ---------------
(1) 1996 amounts were Restated to remove 10 reseller subscribers.
Our cellular service was launched in 1986 under the Celulares Telefonica
brand. The A block service was launched in 1991 by Cellular Communication of
Puerto Rico under the CellularOne brand name. SBC and Telmex recently announced
their agreement to acquire Cellular Communication of Puerto Rico subject to
obtaining regulatory approval. Two of three license holders of the 30-megahertz
island-wide spectrum have launched digital service. Centennial PCS launched a
CDMA service in 1996 whereas AT&T launched a time division multiple access
service under the Sun Com brand in June 1999. ClearComm, the other license
holder, has announced that it will launch its service in a joint venture with
Telefonica Larga Distancia.
Celulares Telefonica and CellularOne have been migrating customers to our
time division multiple access digital networks in recent years. We also hold two
10-megahertz personal communications service licenses which have not been
developed; one for San Juan and the other for the reminder of the island. After
the acquisition, the new management team determined that the license for the
rest of the island would likely not be developed and wrote-off the value of the
carrying cost. Other winners of the 10-megahertz license are Sprint with an
island-wide license, Omnipoint with a license for San Juan, and Pegasus with a
license for the remainder of the island.
We experienced very high turnover in 1996 and through the first half of
1997, due to a high incidence of fraud on the network. Monthly turnover averaged
6.4%, 5.5%, and 3.8% from 1996 through 1998, respectively. This resulted from
terminations relating to network fraud, the inability to roam in the continental
United States and the better performance of CellularOne's and Centennial's
digital networks in reducing fraud.
We have taken various steps to overcome poor customer perception. In 1997,
we began performing more aggressive collection procedures and implemented
authentication-fingerprinting software to reduce fraud substantially.
Approximately 40% of Celulares Telefonica's customer base has now switched to
digital service, which further reduces fraud problems. This transition is being
pursued to distance us from the poor image of our analog service and to provide
service comparable in network quality and features to that of our competitors.
We have been restoring roaming service to the mainland U.S. While lacking
nationwide coverage, Celulares Telefonica's customers can roam in major Puerto
Rico population centers in the Northeast, Florida, Washington, D.C., and
Chicago, as well as other major cities in the United States, Mexico and Canada.
Our GTE affiliation will enable us to obtain additional roaming agreements.
We also have expanded penetration in the low-end user market by offering
prepaid packages. Since introducing prepaid wireless services in late 1997, our
prepaid customer base has grown to 77,000 as of June 30, 1999.
PAGING SERVICES
We are the market leader in Puerto Rico in paging services. Our
facility-based service has been marketed under the Celulares Telefonica brand
since 1994. Major competitors include Celpage, CellularOne and Skytel. The
paging market and Celulares Telefonica realized significant customer growth in
1997. We experienced a contraction in customers in 1998 because of high
disconnections associated with aggressive collection efforts. Our alphanumeric
service is priced at levels approaching low-end cellular prepaid plans,
consequently we are experiencing migration to the cellular prepaid cellular
plans resulting in a contraction in customers in 1999.
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PAGING SUBSCRIBERS
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
------------- --------------------------
JUNE 30, 1999 1998 1997 1996
------------- ------ ------ ------
<S> <C> <C> <C> <C>
Market POPs (in thousands).......................... 3,888 3,844 3,770 3,755
Celulares Telefonica Total Subscribers (in
thousands)........................................ 204 219 235 200
Celulares Telefonica Subscriber Growth.............. (7)% (7)% 18% 48%
Celulares Telefonica Revenues (millions)............ $24 $60 $55 $34
Celulares Telefonica average revenue per unit per
month............................................. $20 $22 $21 $17
</TABLE>
SALES AND DISTRIBUTION
We actively market our wireless services and products through various
distribution channels. Our distribution network consists of:
- a direct sales force composed of 74 retail sales representatives and 19
corporate sales representatives;
- an indirect sales force composed of 108 independent distributors that
operate a total of 207 distribution outlets; and
- other sales through primary distribution channels that are supplemented
by sales through our regional stores.
Our distribution network, with its multiple direct and indirect points of
sale, is intended to make the purchase of cellular telephone service and
equipment simple and convenient for existing and potential customers and to
enhance our flexibility in meeting the needs of subscribers in varying
localities and with diverse schedules. We continually seek to strengthen the
reach and quality of our distribution network in order to acquire additional
high quality customers.
Direct Sales. We distribute our services and products through 74 retail
sales representatives who are based out of our 12 regional stores. In addition,
19 corporate sales representatives and 39 customer care coordinators handle
small, medium and large businesses. These personnel are dedicated to targeting
and developing corporate and government accounts.
Independent Distributors. Our distribution network includes as of June 30,
1999, 108 independent distributors for telephony services that operate 207
distribution outlets. The distributors are managed by a company-employed
distribution sales manager, who serves as the distributors' liaison with
Celulares Telefonica. The manager assists the distributors with training and
sales related functions, including the development of promotional material.
Other Sales and Marketing. We conduct co-marketing campaigns with other
consumer services and products providers, including non-profit associations and
professional trade associations as well as local banks such as Banco Popular.
These providers include sales information about our services and products in
their sales literature and other communications with their customers. We also
distribute our services and products through kiosks located in shopping centers,
exhibitions and professional conventions.
DIRECTORY
Directory revenue of approximately $40 million in 1998 was derived from
three primary sources: publishing, electronic yellow pages, and customer
listings. Directory revenues for the period ended June 30, 1999 were
approximately $20 million. In 1998, we earned $26 million in publishing rights
from the sale of yellow page advertising according to the terms of a revenue
sharing arrangement with VNU World Directories. This agreement expires with the
publishing of the 1999 directory.
In 1999, we entered into a new 95-year agreement with AXESA Puerto Rico
Incorporado, a partnership formed among various entities, including subsidiaries
of Puerto Rico Telephone Company and GTE Corporation. Under the terms of the
agreement which will become operative with the publishing of the 2000 directory,
the percentage of income we will receive for publishing rights from the sale of
yellow page
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advertising will decrease from 53% to an estimated 44%, based on a 35% share of
gross yellow page revenues, additional income from the billing and collection
for directory advertisements, and from the provision of Puerto Rico Telephone
Company's subscriber list. AXESA has entered into an advisory agreement with GTE
Directories Corporation and an affiliate of VNU pursuant to which AXESA will pay
a fee equal to 2% of the gross revenues to GTE Directories Corporation and the
VNU affiliate.
In addition, customers are charged $5 per month to add and $2.50 to remove
a listing from the white pages. We derived $11 million in revenues from these
charges. This category also includes $3 million of revenue from directory
assistance service.
OTHER REVENUES
This category primarily includes revenues from the sale of private branch
exchange and cellular equipment and revenues from billing and collection
services provided to off-island long distance carriers.
BILLING AND COLLECTIONS
We bill and collect on behalf of most off-island long distance carriers,
including AT&T, MCI Worldcom, Sprint and Telefonica Larga Distancia, with AT&T
representing 50% of the revenue volume. These companies may eventually
discontinue using our services and establish their own billing and collection
capability. However, AT&T agreed in 1999 to extend its contract with us through
2001. The remaining billing and collection arrangements are generally
short-term.
NETWORK INFRASTRUCTURE
We invested approximately $1.7 billion from 1994 to 1998 to expand and
enhance our wireline and wireless telecommunications networks. We expect to
spend $1.2 billion under our five-year capital expenditure plan for the years
1999 through 2003 through internally generated funds, and have publicly
committed to spend at least $1 billion on capital expenditures during the same
five-year period.
WIRELINE NETWORK
Our switching and transmission network is 100% digital, consisting of 29
local host offices and two access tandems to ensure redundancy and network
reliability for long distance calling within Puerto Rico. Our network has the
following characteristics:
- Approximately 75% of our transmission circuits in the island use fiber
optic systems; the fiber optic portion of the network consists of 73,000
miles of fiber optic cable in fiber-ring and point-to-point
configurations.
- The entire transmission network for the San Juan Metropolitan Area is
constructed using self-healing SONET rings operating at bandwidths up to
OC-48 and offering high levels of redundancy and reliability to Puerto
Rico Telephone Company business and residential customers. Puerto Rico
Telephone Company has also extended fiber optic cable to over 200 office
buildings in the San Juan Metropolitan Area.
- Approximately 39% of the outside cable network serving the local loop is
underground. The outside plant modernization program has been directed at
burying cable wherever economically feasible to improve network
reliability, reduce maintenance expenses and reduce exposure to tropical
storms.
- Our switching network and transmissions systems are monitored by a
Network Monitoring Center provided by Bellcore, which operates 24 hours
per day.
We offer enhanced services including data networking and specialized
application services. Data networking services include the provision of high
speed broadband services such as Integrated Services Digital Network, Basic and
Primary Rate Interface. We provide high speed circuits with speed from
fractional T-1s to DS-3. We have completed the installation of an Asynchronous
Transfer Mode Network to offer our customers
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high-speed data transmission on a more efficient and reliable network capable of
offering Frame Relay and Asynchronous Transfer Mode.
WIRELESS NETWORK
We believe our island-wide coverage is more extensive than that of our
competitors as a result of having installed a greater number of cell sites in
the interior of the island. Our wireless network:
- consists primarily of Ericsson equipment;
- utilizes the IS-136 standard with time division multiple access digital
technology; and
- is composed of 131 cells with digital capability and 18 microcells.
REGULATORY ENVIRONMENT IN PUERTO RICO
INTRODUCTION
We hold franchises, licenses and permits adequate for the conduct of our
business in the markets which we serve. Advances in technology, together with a
number of regulatory, legislative and judicial actions, continue to accelerate
and increase the competition affecting our operations and the opportunities
available to us. The Federal Telecommunications Act of 1996 is intended to
promote competition in all sectors of the telecommunications marketplace, while
preserving and advancing universal telephone service.
The Federal Telecommunications Act of 1996 presents us with both challenges
and opportunities. We will face additional competition from numerous sources,
such as other incumbent local exchange carriers, new competitive local exchange
carriers, wireless carriers, cable television service providers, and long
distance companies. However, we have been permitted, since February 1, 1999, to
provide a full array of local, long distance, Internet access, wireless and
video services both within and outside of our traditional operating areas, and
are now able to generate new sources of revenue from customers previously beyond
our reach.
The telecommunications regulatory environment in Puerto Rico is undergoing
change. With the passage of the Federal Telecommunications Act of 1996, which
amended the 1934 Federal Act, our legal monopoly was eliminated. The Puerto Rico
legislature amended the Puerto Rico Telephone Authority Organic Act and enacted
the Puerto Rico Telecommunications Act in September 1996, which reorganized the
regulation of the telecommunications sector in Puerto Rico. The Puerto Rico
Telecommunications Act provides for the creation of the Telecommunications
Board, the main purpose of which is to regulate telecommunications and cable
television services on the island. The Puerto Rico Telecommunications Act also
incorporates the pro-competitive and universal service features found in the
Federal Telecommunications Act of 1996. We are also subject to regulation by the
Puerto Rico Planning Board, the Administration of Regulations and Permits of
Puerto Rico and the Environmental Quality Board.
We have been responding and will continue to respond to the challenges
presented by regulatory and legal developments that allow for increased
competition and opportunities in Puerto Rico's telecommunications market. We
expect our financial results to benefit from reduced costs and the introduction
of new products and services that will result in increased usage of our
telephone and wireless networks. However, it is likely that these improvements
will be offset, at least in part, by continued strategic pricing reductions and
the effects of increased competition. For a discussion of a recent regulatory
development which addresses reciprocal compensation arrangements with Internet
service providers, see "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Recent Internet Regulatory Action."
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We are involved in proceedings arising under the Federal Telecommunications
Act of 1996, the FCC Rules and the Puerto Rico Telecommunications Act, including
disputes relating to access charges. The unfavorable resolution of these matters
may have an adverse effect on our financial results.
UNITED STATES TELECOMMUNICATIONS REGULATION
The regulation of telecommunications services is generally divided between
the inter-state and intra-state jurisdictions, as required under Section 2(b) of
the 1934 Federal Act, as amended. The FCC regulates inter-state and wireless
services, and state commissions regulate intra-state services. Recent
legislative efforts and the development of new services, however, have blurred
this distinction.
Local Competition
The Federal Telecommunications Act of 1996 amended the 1934 Federal Act to
advance universal service and open the telecommunications market to local
competition by requiring the incumbent local exchange carriers to enter into
agreements permitting other telecommunications carriers to access and utilize
the incumbent local exchange carriers' network for the provision of competitive
local services. The Federal Telecommunications Act of 1996 also provides for the
resale of incumbent local exchange carrier services by other telecommunications
companies. Although local services have been regulated at the state level,
Sections 251 and 252 of the 1934 Federal Act set forth a blend of state and
federal oversight of competitive entry into the local exchange service market.
The statute provides detailed procedures that state commissions must follow in
the mediation, arbitration, revision and approval of interconnection agreements
between carriers. If a state fails to act in this regard, the FCC is required to
act in its place.
In August 1996, the FCC issued extensive rules implementing the local
competition provisions of the Federal Telecommunications Act of 1996. Included
in the FCC's local competition rules is a detailed pricing methodology to be
employed by states in interconnection proceedings and proxy rates that may be
applied until states complete the cost studies needed to implement the FCC's
pricing methodology. Upon complaint by GTE Corporation, various other incumbent
local exchange carriers and several regulatory entities, enforcement of the
FCC's pricing rules was stayed by the United States Court of Appeals for the
Eighth Circuit in October 1996. In July 1997, the court found that the FCC had
overstepped its authority in a number of areas and upheld the complainants'
position that state regulatory agencies bear the primary responsibility for
determining the prices which competing firms must pay when interconnecting their
networks. The judgment of the Court of Appeals was appealed to the United States
Supreme Court and a decision was rendered in January 1999. The Supreme Court
held that the FCC had authority to implement the pricing provisions of the
Federal Telecommunications Act of 1996 and "jurisdiction to design a pricing
methodology" to be followed by the states in interconnection proceedings. The
Supreme Court remanded to the Eighth Circuit the issue of the substantive
validity of the rules adopted by the FCC. GTE Corporation has stated publicly
that it plans to contest the merits and validity of the FCC's current rules
setting out the pricing methodology. The Supreme Court also ruled that the FCC
failed to properly construe the legal standards of the Federal
Telecommunications Act of 1996 that govern which network elements incumbent
local exchange carriers must make available to competitive local carriers,
overturning the blanket unbundling rule which was adopted by the FCC and
challenged by GTE Corporation and other incumbent local exchange carriers.
Universal Service and Access Charges
With regard to universal service, the U.S. Congress similarly has provided
for a dual effort to ensure that basic telephone service is affordable for all
citizens. The FCC has also adopted rules designed to provide support for high
cost carriers for the inter-state jurisdiction, although this support may only
be used to offset the cost of inter-state services. The FCC rules also provide
support to low income subscribers, public and non-profit health care centers,
schools and libraries. The Federal Telecommunications Act of 1996 further
provides that states may also create these price support funds as long as they
are not inconsistent with the Federal program. All telecommunications carriers
in Puerto Rico are required by Federal and Puerto Rico laws to contribute to the
federal and Puerto Rico universal service programs.
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The Federal Telecommunications Act of 1996 mandates that all universal
service support be specific and predictable. Thus, inter-state access charges
must be adjusted to remove any implicit universal service support. To the extent
that these changes reduce the revenues generated by inter-state access charges
and are not offset by universal service support, any unrecovered revenue
requirement likely will fall to the intra-state jurisdiction for recovery.
Regulation of Commercial Mobile Radio Service Providers
In 1993, Congress preempted state regulation of market entry and rates
charged by commercial mobile radio service providers such as Celulares
Telefonica, including for intra-state wireless calls, and the FCC has since
deregulated commercial mobile radio service rates. Jurisdiction over
consumer-related issues, such as billing disputes and fraud, still resides with
the states. Despite this statutory distinction, however, some parties have
disputed the appropriate forum for deciding issues related to mobile services on
jurisdictional grounds.
PUERTO RICO FEDERAL TELECOMMUNICATIONS ACT OF 1996
General Provisions
The Puerto Rico Telecommunications Act was signed into law on September 12,
1996. The Puerto Rico Telecommunications Act creates the Telecommunications
Regulatory Board, investing it with the duty and authority to regulate the
provision of telecommunications services in Puerto Rico. The Telecommunications
Board regulates us and all other telecommunications and cable service providers
in Puerto Rico.
The Puerto Rico Telecommunications Regulatory Board
The Telecommunications Board is an independent agency of the Commonwealth
of Puerto Rico and is comprised of three members appointed by the Governor with
the advice and consent of the Puerto Rico Senate. On May 16, 1997, the
Telecommunications Board adopted regulations regarding the certification of
telecommunications providers in Puerto Rico and the imposition of regulatory
fees on telecommunications companies. The Telecommunications Board's
"Regulations for the Issuance of Certifications and Franchises" establish the
conditions and procedures for telecommunications companies to secure
certifications and for cable companies to secure franchises under the Puerto
Rico Telecommunications Act. Among other things, the certification regulations
provide that companies seeking certification must submit to the
Telecommunications Board a detailed petition, which will be granted if the
petitioner is found to be legally, technically, financially and morally
qualified. Companies already providing telecommunications services in Puerto
Rico will be certified automatically once they submit the required petition, and
commercial mobile radio service providers and inter-state service providers need
not be certified to offer service.
The Telecommunications Board's "Regulation on the Imposition of Charges on
Telecommunications Companies" governs the assessment of a quarterly charge to
defray the costs of the Telecommunications Board's operations. Pursuant to the
Puerto Rico Telecommunications Act, the regulation establishes that all
telecommunications companies with an annual gross income of $25,000 or more are
to pay a quarterly charge equal to 0.25% of their gross revenues earned from the
provision of intra-state telecommunications services in Puerto Rico. The
regulation also provides that the Telecommunications Board may order a
telecommunications company to reimburse the extraordinary expenses incurred for
professional and advisory services in connection with hearings and
investigations by the Telecommunications Board with respect to the company.
Provisions for Telecomunicaciones de Puerto Rico
The Puerto Rico Telecommunications Act directs the Telecommunications Board
to presume that we control the local service, access service and on-island toll
markets as of the date of enactment of the Puerto Rico Telecommunications Act.
The Telecommunications Board is not to presume that we possess control of the
cellular or paging service markets. The Telecommunications Board may refrain
from enforcing the provisions of the Puerto Rico Telecommunications Act, with
the exception of the universal service contribution requirement, against
carriers which do not possess control of the market. Within three years of the
effective date of the Puerto Rico Telecommunications Act, the Telecommunications
Board is to initiate a
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proceeding to determine if we retain control of the various markets or any parts
thereof. If it is determined that the we do not retain control of the market in
any line of business, the Telecommunications Board may refrain from enforcing
the provisions of the Puerto Rico Telecommunications Act against us to that
extent.
Competitive Provisions
The Puerto Rico Telecommunications Act includes a number of competitive
provisions that mirror the Federal Telecommunications Act of 1996. In some
instances, the Puerto Rico Telecommunications Act extends the Federal
Telecommunications Act of 1996's incumbent local exchange carrier-specific
obligations to non-incumbent local exchange carrier's as well. Under the Puerto
Rico Telecommunications Act, every telecommunications company is required to
provide interconnection to its facilities at any point in its network where it
is technically feasible and each telecommunications company is to be paid for
interconnection to its network based on the "real costs" and the profits as
provided for in the Federal Telecommunications Act of 1996. The Puerto Rico
Telecommunications Act also guarantees the competitive availability of unbundled
network elements, wholesale discounts for resale offerings, physical and virtual
colocation, access to poles, ducts, conduits and rights-of-way, number
portability, and access to directory assistance, telephone directories, 911
service and repair service.
Under the Puerto Rico Telecommunications Act, no telecommunications company
may subsidize competitive services with income generated by noncompetitive
services. All telecommunications companies are to maintain separate accounting
records for their competitive and noncompetitive services for this purpose.
Similarly, no telecommunications company may offer any service at prices below
cost except for promotional offerings of short duration with the previous
consent of the Telecommunications Board. The Telecommunications Board is
directed to take appropriate action to enforce these requirements or to lodge
complaints with the Puerto Rico Department of Justice.
Interconnection Agreements
The Puerto Rico Telecommunications Act duplicates the provisions of the
Federal Telecommunications Act of 1996 regarding negotiation, arbitration, and
approval of interconnection agreements. In particular, the Puerto Rico
Telecommunications Act follows the federal scheme of voluntary interconnection
negotiations supplemented by Telecommunications Board mediation or arbitration
of unresolved issues. All interconnection agreements must be submitted to the
Telecommunications Board for approval.
Universal Service
The Puerto Rico Telecommunications Act contains a provision on universal
service that complements the provisions in the Federal Telecommunications Act of
1996. This law requires all telecommunications companies operating in Puerto
Rico to make an equitable and nondiscriminatory contribution to the Universal
Service Fund program adopted by the Telecommunications Board. The
Telecommunications Board is required to conduct a rule-making proceeding to
establish a mechanism for the collection and distribution of universal service
support. The Telecommunications Board must certify a telecommunications company
in order for it to receive universal service funds from the local as well as the
federal programs. Puerto Rico Telephone Company is already certified to receive
funds.
Filing of Prices and Charges
The Puerto Rico Telecommunications Act requires all telecommunications
companies, except for wireless companies, to submit to the Telecommunications
Board a list of prices and charges and to update that list each time a change is
implemented in the market. Upon complaint by an interested party, the
Telecommunications Board is to determine whether or not the prices and charges
set forth in a company's list are based on cost of providing service to
customers. The Telecommunications Board is given a maximum of thirty days to
adjudicate these complaints. However, the local courts have determined that the
thirty day period is only a directive and not a jurisdictional limit. It may
suspend the prices or charges in question pending resolution of the matter. The
Telecommunications Board may order the permanent suspension of a
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rate if it is determined not to be based on cost and it may impose an
administrative fine of up to $25,000 for each violation of the Puerto Rico
Telecommunications Act.
Interconnection Arbitration Proceedings and Agreements
Pursuant to the local competition provisions of the 1934 Federal Act, as
amended by the Federal Telecommunications Act of 1996, incumbent local exchange
carriers must negotiate the terms of interconnection agreements with new
entrants. When the parties cannot mutually agree on all terms and conditions of
interconnection, either the new entrant or the incumbent carrier may initiate
arbitration before the Telecommunications Board. On September 5, 1997, the
Telecommunications Board approved regulations regarding procedures for the
negotiation, arbitration and approval of interconnection agreements.
We have been a party to six arbitration proceedings before the
Telecommunications Board. Each proceeding was instituted by an entity seeking an
interconnection agreement with us but which did not agree with particular terms
or conditions of interconnection we required. These proceedings are conducted by
the Telecommunications Board pursuant to Section 252 of the Federal
Telecommunications Act of 1996 and the Puerto Rico Telecommunications Act.
As a result of the proceedings, the initiating parties have executed
interconnection agreements with us. At present an arbitration proceeding has
been requested with regard to a new interconnection agreement that is still
being negotiated.
EMPLOYEES
Our workforce totaled 7,703, employees plus 495 temporary employees as of
December 31, 1998 and 7,445 employees plus 442 temporary employees as of June
30, 1999. Approximately 77% of the full-time employees are members of one of two
unions, the Union of Independent Telephone Workers, known as UIET, or the
Brotherhood of Independent Telephone Workers, known as HIETEL. Union membership
is mandatory for certain job categories. Our employees generally fall into three
different groups:
- management;
- employees represented by HIETEL under a collective bargaining agreement
that is in effect until October 22, 1999 that covers more than 1,700
professional, office and technical employees in the bargaining unit.
Preliminary bargaining with HIETEL began on September 15, 1999; and
- employees represented by the UIET under two collective bargaining
agreements which are effective until January 17, 2000. One of the
agreements with UIET covers approximately 3,900 employees, including all
hourly employees with the exception of those employed in personnel,
payroll, and safety matters, as well as professional, office, and
technical employees. The other agreement with UIET covers approximately
160 office and administrative employees. We anticipate early bargaining
with UIET to commence on or about October 1, 1999.
We agreed as a condition to the acquisition not to terminate an employee
other than for cause. The workforce will therefore decrease only though
voluntary retirement and separation programs and attrition. A voluntary early
retirement was recently implemented for the three employee groups:
<TABLE>
<CAPTION>
MANAGEMENT UIET HIETEL
----------- ------------ -------------
<S> <C> <C> <C>
Date Announced............................ May 21 June 25 July 28
Retirement Date........................... July 9 September 3 October 15
Eligible Employees........................ 275 541 200
Estimated Program Cost.................... $83 million $44 $35 million -
million -
$45 million
</TABLE>
The main feature of the early retirement program involved adding five years
to age and five years to service in the pension calculation. Management
employees who are at least 50 years old and have a minimum of 20 years of
service qualified for the program.
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<PAGE> 72
To be eligible for the early retirement program union employees must:
- be 50 years old and have 20 years service, or
- be 62 years old and have 10 years of service (UIET); or
- be 60 years old and have 10 years of service (HIETEL), or
- be 65 years old and have 9 years of service, or
- have 30 years of service.
The range in estimates for the union programs is due to a range in
estimated acceptance rates.
PROPERTIES
Our principal properties consist of telecommunications network
infrastructure and related buildings throughout Puerto Rico. As of December 31,
1998, we owned an aggregate of approximately 148 acres of land upon which our
offices and network equipment are located.
Our principal administrative office and operations center are located in
the metropolitan area of San Juan. We also maintain retail stores,
administrative offices and operations centers throughout Puerto Rico.
INSURANCE
We believe that we maintain the types and amounts of insurance customary in
the telecommunications industry in the type of geographic area in which we
operate, including coverage for employee-related accidents and injuries and
property damage. Our outside plant is currently insured within a 1,000 foot
radius of our property. We consider our insurance coverage to be adequate both
as to risks and amounts for the business we conduct.
ENVIRONMENTAL REGULATIONS
Our operations are subject to federal, state and local laws and regulations
governing the use, storage, disposal of, and exposure to, hazardous materials,
the release of pollutants into the environment and the remediation of
contamination. As an owner or operator of facilities where hazardous materials
are used, we could be subject to environmental laws that impose liability for
the entire cost of cleanup at contaminated sites, regardless of fault or the
lawfulness of the activity that resulted in the contamination. We believe,
however, that our operations are in substantial compliance with applicable
environmental laws and regulations.
Many of our properties formerly and currently contain underground and
aboveground storage tanks used for the storage of fuel. Some of these tanks may
have leaked or otherwise caused contamination. We have investigated and
remediated, and are currently investigating and remediating, known contamination
at a number of properties. We cannot be sure, however, that we have discovered
all contamination or that the regulatory authorities will not request additional
remediation at sites that have previously undergone remediation.
Our cellular operations are also subject to regulations and guidelines that
impose a variety of operational requirements relating to radio frequency
emissions. The potential connection between radio frequency emissions and
certain negative health effects, including some forms of cancer, has been the
subject of substantial study by the scientific community in recent years. To
date, the results of these studies have been inconclusive. Although we have not
been named in any lawsuits alleging damages from radio frequency emissions, it
is possible we could be sued in the future, particularly if scientific studies
conclusively determine that radio frequency emissions are harmful.
LEGAL PROCEEDINGS
We are involved from time to time in various legal and administrative
proceedings and are threatened with legal and administrative proceedings
incidental to our business. In the opinion of management, the
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<PAGE> 73
resolution of any of these matters will not have a material adverse effect on
our consolidated financial position. In connection with the acquisition, the
Puerto Rico Telephone Authority agreed to indemnify, defend and hold us harmless
for specified significant litigation, including one environmental matter.
On March 1, 1999, several Puerto Rico labor unions and a Puerto Rico
elected official filed a Notice of Appeal in the U.S. Court of Appeals for the
D.C. Circuit, challenging the FCC's order granting the applications for the
transfer of control of licenses held by Puerto Rico Telephone Company and
Celulares Telefonica from the Puerto Rico Telephone Authority to GTE Holdings
and the authorization to provide off-island long distance service. The Notice of
Appeal claims that the FCC's denial of public hearings in Puerto Rico resulted
from a clear error of judgment, amounting to a capricious and arbitrary action
that constituted an abuse of discretion of the FCC's adjudicating authority. The
petitioners seek to stay the operation of the FCC Order pending final hearing
and determination of the petition, vacate the FCC Order, or in the alternative,
remand the FCC Order with instructions to hold public hearings in Puerto Rico.
The petitioners recently voluntarily withdrew their appeal before the Court of
Appeals, but have submitted a Petition for Reconsideration before the FCC. We
believe that the claims of the petitioners are without merit.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-4
under the Securities Act, to register the offering of exchange notes
contemplated in this prospectus. This prospectus, which is a part of the
registration statement, does not contain all of the information presented in the
registration statement. For further information about us, the exchange offer and
any documents referred to in this prospectus, you should refer to the
registration statements and its exhibits.
As a result of the filing of this registration statement with the
Commission, we will become subject to the informational requirements of the
Exchange Act and will be required to file with or furnish to the Commission
certain reports and other information.
The registration statement, its exhibits and schedules, reports, and other
information that we have filed with or furnished to the Commission may be
inspected and copied at the Commission's Public Reference Room located at 450
Fifth Street, N. W. Washington, D.C. 20549. You may obtain information by
calling the Commission's Public Reference Room at 1-800-SEC-0330. You may also
obtain information filed by us with the Commission at the Commission's Internet
site at http://www.sec.gov.
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<PAGE> 74
MANAGEMENT
BOARD OF DIRECTORS
The directors of the Company as of September 15, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION NOMINATED BY
- ---- --- -------------------- ------------
<S> <C> <C> <C>
Fares Salloum 50 Senior Vice President -- GTE Holdings (Puerto Rico) LLC
International Operations of
GTE Service Corporation
Alfred C. Giammarino 43 Senior Vice President -- GTE Holdings (Puerto Rico) LLC
International Finance,
Planning and Business
Development of GTE Service
Corporation
Michael T. Masin 53 Vice Chairman and President GTE Holdings (Puerto Rico) LLC
International of GTE
Ignacio Santillana 51 Professor of Economics and GTE Holdings (Puerto Rico) LLC
Consultant to GTE
Jon Slater 53 President and Chief GTE Holdings (Puerto Rico) LLC
Executive Officer of
Telecomunicaciones de Puerto
Rico
Richard Carrion 46 Chairman, President and Popular, Inc.
Chief Executive Officer of
Popular, Inc.
Angel Morey 52 Chief of Staff, Office of Puerto Rico Telephone Authority
the Governor of Puerto Rico
Lourdes M. Rovira 49 President, Government Puerto Rico Telephone Authority
Development Bank
Carlos Vivoni 40 Secretary, Puerto Rico Puerto Rico Telephone Authority
Department of Economic
Development and Commerce
</TABLE>
Fares Salloum is Chairman of the Board of Telecomunicaciones de Puerto
Rico. He was appointed Senior Vice President of International Operations for GTE
Service Corporation in June of 1997 and Executive Vice President of GTE
International Telecommunications Incorporated in July 1998. Prior to June 1997,
Mr. Salloum was Executive Vice President of BC TELECOM Inc., a full service
telecommunications provider in the province of British Columbia, Canada. He is a
director of BCT.Telus Communications, Inc., a telephone company operating in
Canada and Compania Anonima Nacional de Telefonos de Venezuela, known as CANTV,
a telephone company operating in Venezuela.
Alfred C. Giammarino was appointed Senior Vice President of International
Finance, Planning and Business Development for GTE Service Corporation and
Senior Vice President of GTE International Telecommunications Incorporated in
July 1998. Prior to that he held various positions at GTE Service Corporation.
He is a director of VenWorld Telecom C.A., which holds a controlling interest in
CANTV, CTI Holdings, S.A., and The QuebecTel Group, Inc.
Michael T. Masin was appointed Vice Chairman of GTE Corporation in October
1993 and President International in 1995. Prior to that, he was Managing Partner
of the New York office of the law firm of O'Melveny & Myers and co-chair of that
firm's International Practice Group. Mr. Masin joined that firm in 1969 and
became a partner in 1977. He is a director of GTE, Citigroup Inc., BCT.Telus
Communications, Inc., CANTV and VenWorld Telecom C.A. Mr. Masin is a member of
the Board of Trustees and Executive Committee of Carnegie Hall, the Board of
Directors and Executive Committee of the W.M. Keck Foundation, the Board of
Directors of the China America Society, the Dean's Advisory Council of Dartmouth
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<PAGE> 75
College and the Business Committee of the Board of Trustees of the Museum of
Modern Art, the Council of Foreign Relations and a Personal Trustee of the GTE
Foundation.
Ignacio Santillana is a professor of economics at the Autonomous University
of Madrid and a consultant to GTE Corporation. From March 1996 to July 1998, Mr.
Santillana served as Senior Vice President -- International Business Development
of GTE Corporation. Mr. Santillana served as Chief Executive Officer of
Telefonica Internacional from 1990 to 1996. During the same period, he was
Chairman of the Board of Directors of Telefonica Larga Distancia Puerto Rico,
Telefonica de Romania, Cointel (Argentina) and Vice-president of Telefonica del
Peru as well as a member of the Board of Directors of CTC (Chile), CANTV, Cocelo
(Colombia), TASA (Argentina) and Unisource.
Jon Slater was appointed our President and Chief Executive Officer-elect in
October 1998. Prior to that, he was Vice President -- Operating Support for GTE
Wireless since 1997, having previously served in various positions with GTE
since 1971. Other positions that Mr. Slater has held with GTE include Area
President -- Texas for GTE Mobilnet's Texas region, Vice President and General
Manager for GTE Telecom and GTE Government/Telecommunications Services, and Vice
President -- Operations for GTE Airfone. Mr. Slater oversaw the transition
during the period prior to the assumption of his duties as President and Chief
Executive Officer of the Company on March 2, 1999.
Richard L. Carrion has been Chairman of the Board, President and Chief
Executive Officer of Popular, Inc., a bank holding company formerly called
BanPonce Corporation, since 1990 and has been a director of Banco Popular since
1982. Mr. Carrion is a director of the Federal Reserve Bank of New York and Bell
Atlantic Corporation and serves as a member of its Human Resources Committee.
Angel Morey has been the Chief of Staff of the Governor of Puerto Rico and
Secretary of Strategic Development of Puerto Rico since 1995. Prior to that he
was President of Badillo, Nazca, Saatchi & Saatchi since 1994. Prior to that he
was Executive Vice President and General Manager of the Foods and Spirits
Distribution Corporation. Since 1988, and prior to that, Mr. Morey held various
executive positions with the Bacardi Corporation and F. & J.M. Carrera Inc.
Lourdes M. Rovira has been the President of the Government Development Bank
since August 1998. From 1995 until her appointment as President, Ms. Rovira was
Executive Vice President and held other positions at the Government Development
Bank. Prior to that she was Director of Finance at the University of Puerto Rico
from 1993 to 1995. From 1990 through 1993, Ms. Rovira was Senior Vice-President
of Operations and Treasurer at Caribbean Life Assurance Company and Caribbean
American Property Insurance Company, subsidiaries of the American Bankers
Insurance Group. Ms. Rovira is Chairman of the Board of Directors of the
Economic Development Bank and the Governor's Financial Board. She is also a
Director of the Puerto Rico Aqueduct and Sewer Authority, the Teachers
Retirement System and the Retirement System of the Employees of the Government
of Puerto Rico.
Carlos Vivoni has been the Secretary of the Puerto Rico Department of
Economic Development and Commerce since January of 1997. From 1993 to 1996 Mr.
Vivoni headed the Puerto Rico Department of Housing. Prior to that he worked as
Vice President for Citibank N.A. in Puerto Rico, as a Research Engineer for
Exxon Production Research Company in Houston, Texas and Tokyo, Japan, and as an
intern at the Lawrence Livermore Laboratory in California. Mr. Vivoni is a
member of the Governor's Economic Development Council, the Governor's Science
and Technology Council and the Governor's Foreign Trade Board, is President of
the Board of Directors of the Puerto Rico Tourism Company and the Puerto Rico
Industrial Development Company and is a member of the Board of Directors of the
Government Development Bank.
Since March 17, 1999 the Board of Directors has had a standing Audit
Committee. The members of the Audit Committee are Alfred Giammarino, Lourdes
Rovira, Carlos Vivoni and Ignacio Santillana. The Audit Committee oversees the
financial reporting process for which management is responsible, reviews the
services provided by our independent auditors, consults with the independent
auditors in regard to our audits and proposed audits, and reviews the need for
internal auditing procedures and the adequacy of our internal control systems.
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<PAGE> 76
EXECUTIVE OFFICERS
The executive officers of the Company as of September 15, 1999 are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Jon Slater 53 President and Chief Executive Officer
Frank Gatto 45 Vice President of Finance and Chief Financial Officer
Jose E. Arroyo 35 Vice President of Legal and Regulatory Affairs
Cristina Lambert 50 Vice President and General Manager of Wireline
Carla Ussery 36 Vice President and General Manager of Wireless
Carmen Carro 51 Vice President of Customer Care and Sales
Georgia Scaife 49 Vice President of Human Resources
Ileana Molina de Bachman 43 Vice President Corporate Communications
Joaquin Rivera 60 Vice President of Network Services, Engineering and
Technical Planning
Felipe Piazza 48 Treasurer
</TABLE>
Frank Gatto was appointed Vice President of Finance and Chief Financial
Officer on August 27, 1999. He has over 21 years of experience with GTE
Corporation. Prior to joining Puerto Rico Telephone Company, Mr. Gatto was Vice
President -- Finance and Planning at GTE Airfone. From 1988 to 1995, Mr. Gatto
served in various finance and planning positions in GTE Wireless and GTE
Corporation. Prior to 1988, Mr. Gatto held numerous accounting positions within
GTE Electrical Products Group, including Division Controller. Mr. Gatto holds a
bachelor's degree in economics from Villanova University and a master's degree
in business administration in finance from Boston College.
Jose E. Arroyo was appointed Vice President of Legal and Regulatory Affairs
on March 17, 1999. He joined Puerto Rico Telephone Company in 1995 and served as
Legal Counsel to the President and was later appointed as Vice President of
Human Resources, Legal and Regulatory Affairs. Mr. Arroyo has held the positions
of Assistant Secretary of the Governing Board of the Puerto Rico Telephone
Authority, Assistant Secretary of the Board of Directors of Telecomunicaciones
de Puerto Rico, Puerto Rico Telephone Company, and Celulares Telefonica, and
President of the Pension Committee of Puerto Rico Telephone Company. Prior to
joining Puerto Rico Telephone Company, he was Associate Counsel for Civil and
Labor Litigation for two law firms in Puerto Rico. He also served as Special
Assistant to the Attorney General of Puerto Rico. Mr. Arroyo holds a B.S. Magna
Cum Laude and a J.D. Magna Cum Laude from the University of Puerto Rico.
Cristina Lambert was appointed Vice President and General Manager of
Wireline on June 3, 1999. Ms. Lambert is responsible for all of Puerto Rico
Telephone Company's voice and data wireline operations. She has over 25 years of
experience in the telecommunications industry. After serving in various service
management and staff positions in Contel and GTE Corporation, in 1995 she was
named general manager-customer operations in Illinois, where she supervised
wireline telephone services for nearly one million customers. In 1997, Ms.
Lambert became assistant Vice President -- Integrated Process Planning for GTE
Corporation. The following year she assumed her most recent responsibilities
directing and implementing business strategies for GTE Corporation national
customer care organization. Ms. Lambert was born in the Republic of Panama and
holds a bachelor's degree in business management from Indiana University and a
master's degree in business administration from Indiana Wesleyan University.
Carla Ussery was appointed Vice President and General Manager of Wireless
on March 17, 1999. Ms. Ussery began her career as an accountant with the firm of
Arthur Andersen. She remained at Arthur Andersen for five years, after which she
accepted a position with GTE Corporation as compliance coordinator, ensuring
field compliance with company policies. Ms. Ussery was subsequently appointed to
positions in the finance area, including Manager of SEC Reporting and Manager of
Budget Results. Most recently, she has held the position of General Manager,
responsible for field operations, including sales and installations, in-
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<PAGE> 77
store customer service, marketing coordination, public relations and community
event coordination. Ms. Ussery has been with GTE Corporation for eight years.
She holds a bachelors degree in Business Administration from the University of
Virginia and is a licensed Certified Public Accountant in the State of Virginia.
Carmen Carro was appointed Vice President of Customer Care and Sales on
March 2, 1999. Prior to that, she held the position of Vice President of
Residential and Traffic Services. Ms. Carro has worked in the telecommunications
business for 28 years and has held various positions at Puerto Rico Telephone
Company, including Senior Director of Recruitment, and Payroll and Force
Management Supervisor since she was hired in 1971. Ms. Carro holds a bachelors
degree in Economics and Business Administration from the Inter-American
University in Puerto Rico.
Georgia Scaife was appointed Vice President of Human Resources on March 17,
1999. Ms. Scaife started her career with GTE Corporation in July 1981 in Santa
Monica, California. She has held numerous positions during her 17 year tenure
with GTE Corporation, including Director of Human Resources (GTE Supply),
Director of Diversity and Compliance Programs (GTE Telephone Operations),
Director of Workforce Effectiveness (GTE Telephone Operations), and Director of
Employee Relations (GTE Service Corporation). Ms. Scaife holds a bachelors of
arts degree in sociology and has done post-graduate work in public and business
administration.
Ileana Molina De Bachman was appointed Vice President of Corporate
Communication of the Puerto Rico Telephone Company, effective August 30, 1999.
Ms. Bachman has over 22 years of experience in marketing-strategic planning.
Prior to joining Puerto Rico Telephone Company, Ms. Bachman worked for Suiza
Fruit Caribbean and from 1995 to 1998 she worked for Frito Lay. She has also
worked for other multinational companies, including Procter & Gamble, Young and
Rubicam and RJ Reynolds. Ms. Bachman's experience includes markets such as
Puerto Rico, Mexico, Dominican Republic and the Hispanic market in the United
States. Ms. Bachman holds a bachelors degree from the Boston College School of
Management.
Joaquin Rivera was appointed Vice President of Network Services Engineering
and Technical Planning on March 17, 1999. Mr. Rivera has 34 years of experience
in operations and engineering positions in telecommunications companies. Since
joining Puerto Rico Telephone Company in 1993, he has held various management
positions at Puerto Rico Telephone Company, including Vice President of
Engineering and Network Services and Senior Vice President of Network Services.
Mr. Rivera also worked at the Puerto Rico Communications Corporation or PRCC as
Group Director of Telephone Operations between 1971 and 1977, and worked on the
integration of PRCC's operations into Puerto Rico Telephone Company. During his
years of service in the private sector, he held various management positions in
the international division of GTE Telecommunications Systems in Latin America
and the Caribbean. Mr. Rivera is a graduate of the University of Puerto Rico,
Mayaguez campus, and holds a bachelors of science degree in Electrical
Engineering.
Felipe Piazza has been Treasurer of Puerto Rico Telephone Company since
1996 and Treasurer of Telecomunicaciones de Puerto Rico and Celulares Telefonica
since March 17, 1999. Mr. Piazza has 26 years of experience in the
telecommunications industry. Since joining Puerto Rico Telephone Company in
1973, Mr. Piazza has occupied various management and executive positions,
including Director -- Corporate Budget, Comptroller, Vice President -- Finance
and Comptroller, Treasurer of the Puerto Rico Telephone Authority, Assistant
Vice President -- Cellular and Beepers, Assistant Vice President and Group
Director -- Cost Separations and Rates, Treasurer of Telecomunicaciones
Ultramarinas de Puerto Rico and Assistant Treasurer of Telecomunicaciones de
Puerto Rico. Mr. Piazza is a graduate of the University of Puerto Rico, Mayaguez
campus, and holds a bachelors degree in Business Administration.
INDEMNIFICATION FOR SECURITIES ACT LIABILITY
The certificate of incorporation of Telecomunicaciones de Puerto Rico
provides for the indemnification of its directors and officers to the full
extent permitted by the General Corporation Law of the Commonwealth of Puerto
Rico, as it currently exists or as may be hereafter amended. This
indemnification provision covers directors, officers, employees or agents
involved in any litigation or proceeding involving the corporation if he
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<PAGE> 78
or she acted in good faith and in a manner which the person reasonably deemed
consistent with the best interests of the corporation or not opposed thereto,
and with respect to any criminal proceeding, if he or she did not have
reasonable cause to believe that his or her conduct was unlawful. The indemnity
may include expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit. In the case of
actions or suits other than those initiated by the corporation or initiated to
protect the interests of the corporation, the indemnity may also include the
amount of any judgement paid in settlement of such action. However, no
indemnification is permitted without judicial approval if the officer, director,
employee or agent is adjudged to be liable to the corporation. Where an officer,
director, employee or agent is successful on the merits or otherwise in the
defense of any action referred to above, the corporation may indemnify her
against the expenses which such officer or director has actually incurred.
In addition, Telecomunicaciones de Puerto Rico maintains and has in effect
insurance policies covering all of its respective directors and officers against
certain liabilities for actions taken in such capacities. These employees are
also covered for specified liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling
Telecomunicaciones de Puerto Rico pursuant to the foregoing provisions,
Telecomunicaciones de Puerto Rico has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation for the
five most highly compensated employees of Telecomunicaciones de Puerto Rico.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- -------------------------------------
AWARDS PAYOUTS
------------------------ ----------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S)($) SARS(#) PAYOUTS($)
--------------------------- ---- --------- -------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jorge Menendez, CFO.......... 1998 136,004 11,503
Carmen Culpeper, President... 1998 137,000 --
Juan Velazquez, VP Network... 1998 119,090 9,653
Felipe Piazza, Treasurer..... 1998 116,400 10,170
Ivan Lopez Roura............. 1998 113,297 9,071
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION($)
--------------------------- ---------------
<S> <C>
Jorge Menendez, CFO..........
Carmen Culpeper, President...
Juan Velazquez, VP Network...
Felipe Piazza, Treasurer.....
Ivan Lopez Roura.............
</TABLE>
PENSION PLANS
The following table illustrates the estimated annual benefits payable under
our defined benefit pension plan. The table assumes normal retirement age 65 and
is calculated on a single life annuity basis, based upon final average earnings
(integrated with social security as described below) and years of service:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
FINAL AVERAGE SALARY 15 YEARS 20 YEARS 25 YEARS 30 YEARS
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$100,000............................................ $26,851 $38,611 $48,264 $55,417
125,000............................................ 34,351 48,611 60,764 69,792
150,000............................................ 41,851 58,611 73,264 84,167
175,000............................................ 44,851 62,611 78,264 89,917
200,000............................................ 44,851 62,611 78,264 89,917
</TABLE>
All of our executive officers are covered under our retirement plan for
salaried employees. The retirement plan for salaried employees is a
noncontributory pension plan for the benefit of all of our employees who are not
covered by collective bargaining agreements, unless the agreement provides for
coverage under the retirement plan for salaried employees. It provides a benefit
based on a participant's years of service and earnings. Our pension benefits and
contributions to the retirement plan for salaried employees are related to
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<PAGE> 79
basic salary differentials, exclusive of overtime differentials, incentive
compensation and other similar types of payments. Under the retirement plan for
salaried employees, pensions are computed on an offset formula basis of 2% of
average annual salary for the three highest consecutive years for each year of
service up to 25 years plus 1.5% of average annual salary for the three highest
consecutive years for each year of service between 25 and 40 years, offset by a
percentage (based on age and service) of average annual salary up to the social
security wage base for the last three years of service, but not in excess of
social security covered compensation. As of December 31, 1998, the credited
years of service under the retirement plan for Messrs. Menendez, Velazquez,
Piazza and Roura, are 25, 23, 25 and 26 years, respectively. Ms. Culpeper was
not covered by the retirement plan for salaried employees.
Under federal law, an employee's benefits under a qualified pension plan,
such as the retirement plan for salaried employees, are limited to certain
maximum amounts. We maintain a supplemental executive retirement plan, which
supplements the benefits of any participant in the retirement plan for salaried
employees in an amount by which any participant's benefits under the retirement
plan for salaried employees are limited by law.
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SHAREHOLDERS AND SHAREHOLDER RELATIONSHIPS
SHARE OWNERSHIP
Our authorized capital stock consists of 10,000,000 shares of common stock
with a nominal per share par value equal to $.01, of which 1,000,000 shares have
been issued and are outstanding. The following table sets forth selected
information with respect to the beneficial ownership of our common stock, as of
September 15, 1999:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------
NAME OF BENEFICIAL OWNER ADDRESS NUMBER PERCENTAGE
- ------------------------ ------- ------- ----------
<S> <C> <C> <C>
GTE Holdings (Puerto Rico) LLC GTE Holdings (Puerto Rico) LLC
5221 North O'Connor Boulevard
Irving, Texas 75039 400,101 40.01
Puerto Rico Telephone
Authority Puerto Rico Telephone Authority
c/o Government Development Bank for
Puerto Rico
Minillas Government Center
San Juan, Puerto Rico 00940 429,999 43.00
Popular, Inc. 209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918 99,900 9.99
Employee Stock Ownership Plan c/o Dennis M. Kunisaki
U.S. Trust Company, National
Association
515 South Flower Street
Los Angeles, California 90171 70,000 7.0(1)
All Directors and Executive
Officers as a Group (18
persons) 0 0
</TABLE>
- ---------------
(1) Of these shares, 3% are unallocated and pledged to Telecomunicaciones de
Puerto Rico to secure its loan to the employee stock ownership plan.
The GTE Group's percentage ownership of our company would increase further
upon exercise of the option granted by the Puerto Rico Telephone Authority under
a Share Option Agreement dated as of March 2, 1999. Under this option agreement
GTE Holdings and GTE International have the right, until March 2, 2002, to buy
up to 150,000 shares of Telecomunicaciones de Puerto Rico from the Puerto Rico
Telephone Authority at a price equal to $1,148.40 per share, which represents
132% of the original purchase price paid by the GTE Group. The GTE Group's
ownership interest in our company could also increase as a result of the
exercise of specific rights of first refusal. See "-- Shareholders'
Agreements -- Rights of First Refusal."
SHAREHOLDERS' AGREEMENT
On March 2, 1999, we, GTE International and our shareholders entered into
an agreement that sets forth, among other things, specific agreements relating
to the corporate governance of our company. On May 27, 1998, GTE Holdings, GTE
International and Popular, Inc. entered into an agreement that sets forth, among
other things, specific agreements relating to rights and obligations of GTE
Holdings and Popular, Inc. with respect to their ownership interest in
Telecomunicaciones de Puerto Rico, including the corporate governance thereof.
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<PAGE> 81
CORPORATE GOVERNANCE
Our bylaws provide that directors are elected by a plurality vote of our
shareholders. In this respect, our shareholders agreement:
- states that our board of directors will consist of 9 directors, so long
as the Puerto Rico Telephone Authority and other specific entities of the
Government of Puerto Rico (excluding the employee stock ownership plan)
collectively own at least 4% of our issued and outstanding capital stock;
- entitles the Puerto Rico entities to nominate directors in proportion to
their ownership of our capital stock, thus, they are entitled to nominate
3, 2 and/or 1 director(s), for so long as they collectively own at least
25%, 15% or 4% of our issued and outstanding capital stock;
- grants GTE Holdings the right to nominate 5 directors so long as it owns
directly or indirectly more than 20% of our outstanding capital stock.
Under the Popular shareholders agreement, Popular, Inc. is entitled to
nominate 1 of our 9 directors, so long as it owns at least 4% of our outstanding
capital stock. GTE Holdings and Popular, Inc. also agreed to consult with each
other with respect to any matters requiring a vote of the directors or our
shareholders in order to reach a consensus. In the absence of a consensus,
Popular, Inc. would abstain from voting at any shareholder meeting and would
advise the Director nominated by it to abstain from voting on any matters unless
it votes in the same manner as the directors nominated by GTE Holdings except on
certain extraordinary transactions.
Pursuant to our shareholders agreement, for so long as the Puerto Rico
entities collectively own at least 10% of the outstanding capital stock of our
company, we may not take any of the following actions without approval by the
board and without unanimous approval by the government directors:
- any acquisition, strategic alliance or joint venture involving a dollar
amount equal to, or in excess of, 15% of our total assets;
- the issuance of equity securities or securities exercisable or
exchangeable for or convertible into equity securities;
- any amendment to the dividend policy established in our shareholders
agreement;
- transactions between us and any of our subsidiaries, on the one hand, and
any member of the GTE Group or any affiliate thereof on the other hand,
involving an aggregate dollar amount in any fiscal year of more than
$1,000,000 as to each member and its affiliates; and
- any amendment to our Certificate of Incorporation or Bylaws adversely
affecting the rights of the Puerto Rico entities as shareholders or the
rights of the government directors.
In addition, for so long as the Puerto Rico entities collectively own at
least 10% of our issued and outstanding capital stock, the following shareholder
actions require approval by the Puerto Rico Telephone Authority:
- any amendment to our Certificate of Incorporation adversely affecting the
rights of any governmental authority of Puerto Rico as a shareholder of
our company or the rights of the government directors;
- the liquidation, merger, consolidation or split up of Telecomunicaciones
de Puerto Rico (other than a merger in which Telecomunicaciones de Puerto
Rico is the survivor or a merger of Telecomunicaciones de Puerto Rico
into a wholly-owned subsidiary of Telecomunicaciones de Puerto Rico); and
- the sale of assets in any fiscal year representing 25% or more of our
total assets.
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Under the Popular shareholders agreement, decisions of our board or our
shareholders on the following matters, among others, require the consent of GTE
Holdings and Popular, Inc.:
- the liquidation, dissolution, winding up, merger, consolidation, other
combination or split up of our company or a material subsidiary or the
acquisition of an entity involving an amount of more than 5% of our
assets and our subsidiaries on a consolidated basis;
- the execution of agreements between us or our subsidiaries and any of our
shareholders for more than $1,000,000 in any fiscal year, except for
agreements described in "Certain Relationships and Related Transactions;"
- issuing any debt, except for the exchange notes, or preferred stock
financing or assumption of our liabilities or our subsidiaries to the
extent that the transaction is in excess of $25,000,000, if not
contemplated in our business plan;
- offering or selling equity or equity-linked securities of our company or
our subsidiaries;
- filing under any bankruptcy, insolvency, reorganization or similar law;
- any amendment to our Certificate of Incorporation or bylaws or any of our
subsidiaries adversely affecting the rights of Popular, Inc.;
- any sale, transfer or other disposition of our assets or liabilities or
any of our subsidiaries involving an amount of more than 5% of our assets
and our subsidiaries on a consolidated basis; and
- any change in the dividend policy established in our shareholders
agreement.
In connection with the acquisition, our shareholders agreed that our shares
will bear a dividend, payable on a quarterly basis, to the extent funds are
legally available therefor and subject to any restrictions imposed by any
financing, that is at least equal to 50% of our consolidated net income. The
indenture for the exchange notes and our credit facilities will not contain any
restrictions on the payment of dividends.
SHARE TRANSFERS
Our shareholders agreement establishes some restrictions on the transfer of
shares by our shareholders. Under our shareholders agreement, shares can be
transferred by GTE Holdings without any restrictions after March 2, 2004 and by
Popular, Inc. after March 2, 2002. GTE International agreed to maintain record
and beneficial ownership, directly or indirectly, of at least a majority in vote
and value of all equity or equity-linked securities of GTE Holdings unless
otherwise consented to by Popular, Inc. GTE Holdings and Popular, Inc. are
permitted to transfer shares to their wholly-owned subsidiaries at any time.
After March 2, 2002, GTE Holdings may reduce its ownership interest to 35%
through a widely distributed private placement or public offering, or if our
stock is publicly traded, in open market transactions. GTE Holdings and its
affiliates must maintain an ownership interest in our company of at least 35%
until March 2, 2004. Popular, Inc. may sell up to 33.3% of its initial ownership
interest prior to March 2, 2002 pursuant to "piggy-back" rights in the event of
a registration of our shares under the Securities Act in connection with a
public offering of our shares. Under the Popular shareholders agreement,
transfers by GTE Holdings and Popular, Inc. to the Puerto Rico entities or the
employee stock ownership plan are prohibited. The government of Puerto Rico may
sell, subject to a right of first refusal in favor of the GTE Group, any or all
of its shares at any time but excluding shares under an option agreement with
the GTE Group and GTE International.
If any member of the GTE Group proposes to transfer shares as permitted by
our shareholders agreement, other than to any of its affiliates or other than in
a public offering or widely distributed private placement, which is for more
than 7.5% of the total number of our shares or would result in the transferee
owning over 20% of our shares, the Puerto Rico entities shall have the right to
participate in this sale, by selling the applicable pro-rata portion of the
aggregate number of shares then owned by all of the Puerto Rico entities. If the
Puerto Rico entities would own 5% or less of our shares after exercising this
right, GTE Holdings shall have the option of requiring that the Puerto Rico
entities sell all of their remaining shares to the buyer, or requiring that the
Puerto Rico entities sell to the buyer the shares that the buyer is willing to
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purchase and sell any remaining shares owned by the Puerto Rico entities to GTE
Holdings. Under the Popular shareholders agreement, Popular, Inc. has the right
to require GTE Holdings to permit Popular, Inc. to participate on a pro-rata
basis in any transfer of shares by GTE Holdings, other than an underwritten
public offering or widely distributed private placement.
In addition, GTE Holdings and GTE International entered into a tag-along
agreement with the employee stock ownership plan. Pursuant to this tag-along
agreement, through March 2, 2009, the employee stock ownership plan has the
right to participate in any sale by GTE Holdings, GTE International or any of
their affiliates of more than 7.5% of the total number of our outstanding shares
or that would result in the transferee and its affiliates owning over 20% of our
shares. If the employee stock ownership plan has the right to participate in the
sale it can sell a pro rata portion of its shares equal to the lesser of 30,000
shares or the aggregate number of shares then owned by it to the buyer on the
same terms and conditions that are given to GTE Holdings, GTE International or
their affiliates.
RIGHTS OF FIRST REFUSAL
The Puerto Rico entities may transfer any or all of their shares, except
for those shares whose transfer is restricted by the option agreement, at any
time provided that GTE Group and GTE International shall have first refusal
rights with respect to these shares unless they are being sold in a public
offering or widely disseminated private placement. Under the Popular
shareholders agreement, any party that wishes to transfer its shares other than
pursuant to a public offering or a widely distributed private placement, must
obtain a purchase offer from a third party and offer the shares to the other
parties first for the same price and under the same conditions as the purchase
offer by the third party.
REGISTRATION RIGHTS
At any time after August 2000, any of the Puerto Rico entities may request
on three occasions the registration of shares of having an aggregate estimated
disposition price of at least $50 million. We agreed to use all commercially
reasonable efforts to effect promptly the requested registration under the
Securities Act. If at any time we determine to register any shares under the
Securities Act in connection with the public offering of the shares by us solely
for cash, each shareholder, other than the employee stock ownership plan, shall
have the right to request that Telecomunicaciones de Puerto Rico use
commercially reasonable efforts to cause to be registered under the Securities
Act any shares that the shareholder requests to be registered.
NON-COMPETITION AGREEMENT
On March 2, 1999, Telecomunicaciones de Puerto Rico, GTE Corporation, GTE
Holdings, GTE International, Popular, Inc., the Puerto Rico Telephone Authority
and Government Development Bank entered into a non-competition agreement as a
condition to closing the acquisition. This agreement establishes that the
parties, other than Popular, Inc., shall not engage, directly or indirectly, in
any manner, in:
- the development, acquisition, construction, management, ownership or
operation of wireline or wireless telecommunication services; or
- data transmission or Internet-related systems and businesses, and all
service businesses directly related thereto, including the application
for the development and acquisition of licenses, permits and
authorizations as are necessary and appropriate for any of the foregoing,
and which systems and businesses are primarily for services in or from
Puerto Rico for a certain time period and subject to certain exceptions.
The parties, other than Popular, Inc., shall not engage in restricted
activities until the earlier of:
- the date when the Puerto Rico Telephone Authority and any other
governmental authority of Puerto Rico ceases to own or control, in the
aggregate, at least 5% of our shares; and
- the later of (a) seven years or (b) one year after a sale of our
shares by any governmental authority of Puerto Rico in a public
offering of our shares on behalf of any of these entities.
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The parties, other than Popular, Inc., shall not engage in the activities
described above until the earlier of (A) the date when the Puerto Rico Telephone
Authority and any other governmental authority of Puerto Rico ceases to own or
control, in the aggregate, at least 5% of our Shares and (B) the later of (x)
seven years and (y) one year after a sale of shares by any governmental
authority of Puerto Rico in a public offering of shares.
The non-competition agreement does not prohibit:
- the parties, other than Popular, Inc., from acquiring as an investment
not more than 2%, in the aggregate, of the capital stock of a corporation
engaged, directly or indirectly, in the activities restricted under the
non-competition agreement, whose stock is traded on a national securities
exchange or over-the-counter;
- some enumerated activities of GTE Corporation or its subsidiaries and
divisions;
- activities of Governmental Authorities of Puerto Rico of the nature
conducted on March 2, 1999, other than the provision of local telephone
service or on-island or off-island long distance telecommunication
service, which activities are ancillary to the primary function of these
entities;
- ownership of shares of our company;
- the provision of services or technology to us pursuant to specified
management or technology license agreements; or
- each party from exercising any of its rights or complying with any of its
obligations under our shareholders agreement or the option agreement
executed on March 2, 1999.
Under the non-competition agreement, for so long as Popular, Inc. owns more
than 2% of our shares it must comply with the requirements of the Bank Holding
Company Act of 1956 restricting the non-banking activities of bank holding
companies. In any event, Popular, Inc. will not make an investment in the equity
of any other company engaged in providing substantial telecommunications
services in Puerto Rico, except for investments of not more than 2% of the
equity of companies whose stock is traded on a national securities exchange or
over-the-counter, or control the management of any other business with
substantial telecommunications operations in Puerto Rico.
Other than their equity interest in our company, neither GTE Corporation
nor Popular, Inc. have any substantial telecommunications activities in Puerto
Rico.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH AFFILIATES OF GTE CORPORATION
PUERTO RICO MANAGEMENT AGREEMENT, U.S. MANAGEMENT AGREEMENT AND TECHNOLOGY
LICENSE AGREEMENT
Telecomunicaciones de Puerto Rico, Puerto Rico Telephone Company and GTE
International or one of its affiliates are parties to:
- an Amended and Restated Puerto Rico Management Agreement, under which an
affiliate of GTE International Telecommunications Incorporated is
responsible for providing, within Puerto Rico, advice and direction
regarding the administration and operations of our business;
- an Amended and Restated U.S. Management Agreement, pursuant to which the
responsibilities of GTE International are substantially identical to the
ones of its affiliate under the Puerto Rico Management Agreement, except
that all services are to be provided outside of Puerto Rico; and
- a separate, nonexclusive Amended and Restated Technology License
Agreement, dated as of March 2, 1999.
Under the terms of the Technology License Agreement an affiliate of GTE
International granted us an unrestricted right during the term of the agreement
to use any of GTE International's technology that is not covered by patent or
copyright protection or treated as confidential by GTE International. We were
also granted a nonexclusive, irrevocable, nontransferable license to use within
Puerto Rico any other technical or business information, inventions, software
programs, trade secrets, know-how, and other technological or industrial
property of GTE Corporation, supplied to us in the course of providing the
services covered by the Puerto Rico Management Agreement and the U.S. Management
Agreement.
Term
The Puerto Rico Management Agreement, the U.S. Management Agreement and the
Technology License Agreement have an initial duration of five years. The parties
shall commence bona-fide negotiations to extend the term of both agreements not
less than six months before their expiration.
Fees
The combined total compensation under the Puerto Rico Management Agreement,
the U.S. Management Agreement and the Technology License Agreement shall be
equal to:
- 8% of our earnings before deducting interest expenses, taxes and
depreciation allowance for each of years 1 and 2 of the agreements;
- 7% of our earnings before deducting interest expenses, taxes and
depreciation allowance for each of years 3 and 4 of the agreements; and
- 6% of our earnings before deducting interest expenses, taxes and
depreciation allowance for year 5 of the agreements.
Earnings before deducting interest expenses, taxes and depreciation
allowance is defined for purposes of the Technology License Agreement as
consolidated earnings before interest, taxes, depreciation, amortization and the
fees paid under the Puerto Rico Management Agreement, the U.S. Management
Agreement and the Technology License Agreement, calculated in accordance with
generally accepted accounting principles in the United States consistently
applied, except that EBITDA shall be increased by any non-recurring costs
resulting from the implementation by the Company or its Subsidiaries of
voluntary severance programs. GTE International is also entitled to
reimbursement under the Puerto Rico Management Agreement and the U.S. Management
Agreement for transportation expenses and meals and lodging expenses incurred by
its personnel in performing their obligations thereunder. The cash payment of
the fees and royalty will be deferred, with interest, until at least March 2,
2000.
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AFFILIATE AGREEMENTS NOT COVERED UNDER THE TECHNOLOGY LICENSE AND MANAGEMENT
AGREEMENTS
Directory Agreement
GTE Directories Corporation, an affiliate of GTE Corporation, has entered
into an advisory agreement with AXESA, pursuant to which GTE Directories
Corporation expects to receive approximately $2 million in revenues from the
publication of directories for the year 2000.
Proposed Reimbursement Agreement with GTE Corporation Affiliates
We have agreed to reimburse GTE Corporation and its affiliates for the
salaries and benefits paid by them to employees which are seconded to us. The
initial term of the agreement will expire on March 2, 2004
TRANSACTIONS WITH AFFILIATES OF POPULAR, INC.
Banco Popular has provided and will continue to provide us with general
banking services in the ordinary course of our banking business. In 1998, Banco
Popular provided bill collection services, lock-box, payroll and other cash
management services pursuant to contracts with Puerto Rico Telephone Company for
which Banco Popular received approximately $2.8 million in 1998. GTE Holdings
has agreed to use commercially reasonable efforts to cause us to use Banco
Popular's general banking services.
We also entered into a $200 million revolving credit facility with Banco
Popular in connection with the acquisition, under which we have drawn $26.1
million as of June 30, 1999.
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DESCRIPTION OF SOME OF OUR DEBT
OVERVIEW
On March 2, 1999 we entered into three credit facilities:
- a syndicated five-year revolving credit facility, with Citibank N.A.,
Bank of America National Trust and Savings Association, The Chase
Manhattan Bank and Morgan Guaranty Trust Company of New York and other
lenders, for up to $500,000,000, which we refer to as, the Five-Year
Revolving Credit Facility;
- a syndicated 364-day revolving credit facility, with Citibank N.A., Bank
of America National Trust and Savings Association, The Chase Manhattan
Bank and Morgan Guaranty Trust Company of New York and other lenders, for
up to $1,000,000,000, which we refer to as, the Capital Markets Bridge
Facility; and
- a syndicated 364-day revolving credit facility, arranged by Banco
Popular, for up to $200,000,000, which we refer to as, the BPOP Revolving
Credit Facility.
In connection with the closing of the acquisition, the Capital Markets
Bridge Facility and the Five-Year Revolving Credit Facility were fully drawn for
the purpose of funding the special dividend. In addition, a borrowing in the
amount of $91.1 million was made under the BPOP Revolving Credit Facility to
fund (i) the remaining portion of the special dividend, in the amount of $65
million, and (ii) a loan from Telecomunicaciones de Puerto Rico to the employee
stock ownership plan to finance the purchase by the employee stock ownership
plan of 3% of the Shares.
FIVE-YEAR REVOLVING CREDIT FACILITY
PURPOSE
The Five-Year Revolving Credit Facility was established for general
corporate purposes, including to finance the special dividend and related fees
and expenses, working capital and to provide alternative credit support for the
repayment of commercial paper notes we may issue in the future. The total amount
of the borrowings provided for under the facility is $500,000,000 and the
facility has a maturity of five years from March 2, 1999. The facility was fully
drawn on such date.
RANKING; GUARANTY
The Five-Year Revolving Credit Facility is a senior unsecured
non-amortizing credit facility. We are the borrower, and Puerto Rico Telephone
Company and Celulares Telefonica provide joint and several guaranties of our
obligations.
PREPAYMENT
The Five-Year Revolving Credit Facility provides for prepayment at our
option in a minimum aggregate amount of $10,000,000.
INTEREST
We pay interest on borrowings under the Five-Year Revolving Credit Facility
at a rate which is comprised of:
- a basic interest rate which, at our option, subject to some limitations,
is either a Eurodollar rate, as quoted in the London interbank market, or
a base rate which is the higher of either Citibank's publicly announced
"base" rate or 1/2 of 1% above an overnight Federal funds rate; and
- if we choose to borrow at a Eurodollar rate, a margin determined
according to our financial performance and the total amount of the credit
under the facility that we use.
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We can choose an interest period for each borrowing at a Eurodollar rate
which can be one, two, three or six months. The rate for the interest period is
set two days before the beginning of the interest period. The base rate which
may apply to borrowings may change daily.
The reference banks which quote the Eurodollar rates for our borrowings
under this facility are Citibank, N.A., Bank of America National Trust and
Savings Association, The Chase Manhattan Bank and Morgan Guaranty Trust Company
of New York.
We pay a margin on borrowings under the Five-Year Revolving Credit Facility
for which we select a Eurodollar rate which varies from 0.200% if our financial
performance is at its strongest, to 1.550% if our financial performance is at
its weakest, and we have borrowed half or less than half of the total amount
available under the facility. If we have borrowed more than half of the total
amount available under the facility when we borrow or when a new interest period
begins, then the margin ranges from 0.350% if our financial performance is at
its strongest, to 1.800% if our financial performance is at its weakest. Our
financial performance is measured by our credit rating, with A- from S&P and A3
from Moody's being the highest for these purposes, and BB+ from S&P and Ba1
being the lowest. If no credit rating is available, then the margin is
determined based on the ratio of our outstanding debt to EBITDA.
If we fail to make a payment when due under the Five-Year Credit Facility,
then we pay interest on the outstanding loans at a rate of 2% above the base
rate.
We also have the option of borrowing under the Five-Year Credit Facility at
interest rates which we solicit from banks in the syndicate on a competitive bid
basis.
FEES
We are also required to pay to each of the lenders in the Five-Year
Revolving Credit Facility, on a quarterly basis, a facility fee equal to a
specified percentage of such lender's commitment thereunder. Such percentage
varies in accordance with our performance level, which is structured on the same
scale as that described above for the interest rate determination.
COVENANTS
We, Puerto Rico Telephone Company and Celulares Telefonica are subject to
certain affirmative and negative covenants contained in the Five-Year Revolving
Credit Facility. The covenants among other things require us:
- to comply with laws;
- to pay taxes;
- to maintain insurance;
- to preserve our corporate existence;
- to maintain our properties;
- to engage in arm's-length transactions with our affiliates, subject to
certain exceptions;
- to report several events; and
- to maintain several financial ratios under a determined level.
In addition, these covenants restrict our ability to:
- incur liens;
- merge, other than with a subsidiary of GTE Corporation;
- change our accounting methods; and,
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- incur debt, other than the credit facilities entered into on March 2,
1999 (and refinancings thereof), certain inter-company debt, operating
leases, certain transactions in the ordinary course of business and other
unsecured debt in the ordinary course of business aggregating for each of
Puerto Rico Telephone Company and Celulares Telefonica not more than $75
million at any one time outstanding.
EVENTS OF DEFAULT
Events of default under the Five-Year Revolving Credit Facility include:
- failure to pay any amounts due;
- any error in any material respect of any representation or warranty when
made or deemed made;
- failure to perform any of certain specified covenants;
- breach of the guaranty by either Puerto Rico Telephone Company or
Celulares Telefonica;
- cross-default or cross-acceleration to other debt outstanding in an
aggregate principal amount of at least $20 million;
- certain bankruptcy or insolvency events;
- judgments or orders rendered against us aggregating $30 million, which
are not covered by insurance or indemnification;
- certain specified failures of GTE Corporation to maintain direct or
indirect control of Telecomunicaciones de Puerto Rico; and
- certain events under the Employee Retirement Income Security Act.
CAPITAL MARKETS BRIDGE FACILITY
PURPOSE
The Capital Markets Bridge Facility was established for the purpose of
financing the special dividend. The total amount of the borrowings provided for
under the facility is $1,000,000,000 and the facility has a maturity of 364 days
from the effective date thereof, which was March 2, 1999. The facility was fully
drawn on such date.
PREPAYMENT
The Capital Markets Bridge Facility provided for mandatory prepayment out
of the net proceeds of any long-term debt issued by us in the capital markets,
and we prepaid it in full with the proceeds from the offering of the old notes.
BPOP REVOLVING CREDIT FACILITY
PURPOSE
The BPOP Revolving Credit Facility was established for working capital and
general corporate purposes, including without limitation to finance a portion of
the special dividend. The total amount of the borrowings provided for under the
facility is $200,000,000. The facility matures on March 1, 2000. Approximately
$91 million was drawn under the BPOP Revolving Credit Facility on March 2, 1999.
STATUS; GUARANTY
The BPOP Revolving Credit Facility is a senior unsecured non-amortizing
credit facility. We are the borrower, and Puerto Rico Telephone Company and
Celulares Telefonica provide joint and several guaranties of our obligations.
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PREPAYMENT
The BPOP Revolving Credit Facility provides for prepayment at our option of
revolving credit advances thereunder in a minimum aggregate amount of
$1,000,000.
INTEREST
Borrowings under the BPOP Revolving Credit Facility may be maintained from
time to time, at our option as:
- Base rate loans which bear interest at the base rate, which is the simple
average of the rates of interest announced publicly in the Wall Street
Journal by the principal commercial banks in New York, New York as their
prime commercial lending rates, or
- LIBOR rate loans bearing interest at the LIBOR, plus the applicable
margin. The applicable margin for LIBOR rate loans is, for a utilization
of less than or equal to 50% of the total commitments under the BPOP
Revolving Credit Facility, 0.925% and for a utilization of greater than
50% of the total commitments 1.075%.
FEES
Commitment fees are payable by us to lenders under the BPOP Revolving
Credit Facility on the daily average unused amount of each lender's commitment
thereunder, on a quarterly basis.
COVENANTS
The covenants of Telecomunicaciones de Puerto Rico, Puerto Rico Telephone
Company and Celulares Telefonica under the BPOP Revolving Credit Facility are
substantially the same as those described above for the Five-Year Revolving
Credit Facility. The BPOP Revolving Credit Facility contains an additional
covenant that requires our significant subsidiaries to guarantee the BPOP
Revolving Credit Facility.
EVENTS OF DEFAULT
Events of default under the BPOP Revolving Credit Facility are
substantially the same as those described above for the Five-Year Revolving
Credit Facility.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
We will issue the exchange notes in accordance with the terms of the
indenture dated as of May 20, 1999 among us, the subsidiary guarantors and The
Bank of New York, as trustee. The terms of the exchange notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust indenture Act of 1939.
The following description is a summary of the material terms and provisions
of the indenture. It does not purport to be complete or to restate that
agreement in its entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of these exchange notes. The indenture and the
registration rights agreement are incorporated by reference into this
prospectus.
FORM
The exchange notes are to be issued in registered form only in
denominations of $1,000 and integral multiples of $1,000. The exchange notes
will be initially issued in the form of Global Securities and will be
exchangeable for exchange notes in certificate form only in the limited
circumstances set forth below under "-- Book Entry System."
MATURITY, PRINCIPAL AND INTEREST
The exchange notes will have the following terms:
<TABLE>
<CAPTION>
PRINCIPAL
SERIES AMOUNT INTEREST RATE MATURITY DATE
- ------ ------------ ------------- -------------
<S> <C> <C> <C>
2002 exchange notes......................... $300,000,000 6.15% May 15, 2002
2006 exchange notes......................... $400,000,000 6.65% May 15, 2006
2009 exchange notes......................... $300,000,000 6.80% May 15, 2009
</TABLE>
In each case, interest will be payable semi-annually in arrears on May 15
and November 15 of each year, commencing on November 15, 1999. We will pay
interest to those persons who were holders of record on the May 1 or November 1
immediately preceding each interest payment date.
Interest on the exchange notes will accrue from the date of original
issuance of the old notes or, if interest has already been paid, from the date
it was most recently paid. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
RANKING
The exchange notes will be senior unsecured obligations of
Telecomunicaciones de Puerto Rico, equal in ranking ("pari passu") with all of
our existing and future senior debt, and senior in right of payment to all of
our existing and future subordinated debt.
Each of Puerto Rico Telephone Company and Celulares Telefonica is currently
a subsidiary guarantor. Holders of the exchange notes will only be creditors of
Telecomunicaciones de Puerto Rico and of those subsidiaries that are subsidiary
guarantors. The note holders, through Telecomunicaciones de Puerto Rico, would
only have a stockholder's claim in the assets of its subsidiaries that were not
subsidiary guarantors. This stockholder's claim is junior to the claims that
creditors of our subsidiaries have against those subsidiaries. If in the future
we have subsidiaries that are not subsidiary guarantors, all the existing and
future liabilities of such subsidiaries, including any claims of trade creditors
and preferred stockholders, will be effectively senior to the exchange notes.
We conduct all of our operations through our subsidiaries. Therefore, our
ability to service our debt, including the exchange notes, is dependent upon the
earnings of our subsidiaries, and their ability to distribute
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those earnings as dividends, loans or other payments to us. Certain laws
restrict the ability of our subsidiaries to pay dividends or make loans and
advances to us. If in the future we have subsidiaries that are not subsidiary
guarantors and these restrictions apply to such subsidiaries, then we would not
be able to use the earnings of those subsidiaries to make payments on the
exchange notes. Furthermore, under certain circumstances, bankruptcy "fraudulent
conveyance" laws or other similar laws could invalidate the Subsidiary
Guaranties. If this were to occur, we would also be unable to use the earnings
of these subsidiary guarantors to the extent they face restrictions on
distributing funds to us. Any of the situations described above could make it
more difficult for us to service our debt.
SUBSIDIARY GUARANTIES
Our obligations under the indenture are fully and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis by the subsidiary
guarantors to the extent that they guarantee our credit facilities.
Upon the sale or other disposition of a subsidiary guarantor permitted by
the indenture, or the release or termination of all guarantees provided by a
subsidiary guarantor under all credit facilities, such subsidiary guarantor will
be released from all its obligations under its subsidiary guarantee.
We and each of the subsidiary guarantors will agree to contribute to any
other subsidiary guarantor which makes payments pursuant to a subsidiary
guarantee an amount equal to its proportionate share of such payment, based on
its net worth relative to the aggregate net worth of Telecomunicaciones de
Puerto Rico and the subsidiary guarantors.
OPTIONAL REDEMPTION
The 2006 exchange notes and the 2009 exchange notes will be redeemable, in
whole or in part, at our option, at any time at a redemption price equal to the
greater of (i) 100% of the principal amount of the exchange notes of such series
and (ii) the sum of the present values, as determined by a Quotation Agent, of
the remaining scheduled payments of principal and interest thereon (not
including any portion of such payments of interest accrued as of the date of
redemption) discounted to the redemption date on a semi-annual basis at the
Adjusted Treasury Rate, plus:
- 15 basis points for the 2006 exchange notes
- 15 basis points for the 2009 exchange notes
In the event of any optional redemption accrued interest will be payable up
to the redemption date.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the remaining
term of the 2006 exchange notes or the 2009 exchange notes, as the case may be,
to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining term of the applicable
series of exchange notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by us.
"Reference Treasury Dealer" means (i) Salomon Smith Barney Inc. and its
respective successors; provided, however, that if the foregoing shall cease to
be a primary U.S. Government securities dealer in New
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York City (a "Primary Treasury Dealer"), we shall substitute therefor another
primary treasury dealer; and (ii) other primary treasury dealers, if any,
selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date. Unless we default in payment of the
redemption price, on and after the redemption date, interest will cease to
accrue on the exchange notes or portions thereof called for redemption.
OPTIONAL TAX REDEMPTION
If, as a result of any change in or any amendment to the laws, regulations
or rulings of Puerto Rico or taxing authority thereof or therein, or any change
in the official administration, application or interpretation of such laws,
regulations or rulings, which become effective on or after the issue date of the
exchange notes, it is determined by us or by any subsidiary guarantor under or
with respect to its Subsidiary Guarantee that we would be required to pay any
additional amounts, as defined in the next subsection, pursuant to the indenture
or the terms of the exchange notes of any series, or the terms of any subsidiary
guarantee, in respect of interest on the next succeeding interest payment date,
and that such obligation cannot be avoided by such obligor or successor by
taking reasonable measures available to it, the applicable obligor may, at its
option, redeem (or cause to be redeemed) all (but not less than all) of the
exchange notes of such series upon not less than 30 nor more than 60 days'
written notice as provided in the indenture, at a redemption price equal to 100%
of the outstanding principal amount thereof plus accrued and unpaid interest to
the redemption date; provided, however, that (a) no such notice of redemption
may be given earlier than 60 days prior to the earliest date on which such
obligor or successor would be obligated to pay such additional amounts were a
payment in respect of the exchange notes of such series then due, and (b) at the
time any such redemption notice is given, such obligation to pay such additional
amounts must remain in effect.
Prior to the publication of the notice of redemption in accordance with the
foregoing, we will deliver to the trustee an Officers' Certificate (together
with a copy of an independent opinion of counsel to the effect that the
applicable obligor will be or will become obligated to pay additional amounts),
stating that the we are entitled to effect such redemption in accordance with
the terms set forth in the indenture and setting forth a statement of facts
showing that the conditions precedent to the right of redemption have been
satisfied. Such notice, once delivered by us to the trustee, will be
irrevocable.
ADDITIONAL AMOUNTS
All payments made by us under or with respect to the exchange notes or by
any subsidiary guarantor under or with respect to our subsidiary guarantee, we
and any such subsidiary guarantor being referred to for purposes of this section
"additional amounts" individually as "obligor" and collectively as "obligors",
shall be made free and clear of and without withholding or deduction for, or on
account of any present or future taxes, levies, fees, duties, assessments or
governmental charges of whatever nature imposed, levied, collected or assessed
by or on behalf of, or within Puerto Rico, or any taxing authority thereof or
therein, unless the applicable obligor or any successor, as the case may be, is
required to withhold or deduct taxes by law or by the interpretation or
administration thereof. In that event, the applicable obligor or any successor,
as the case may be, will (i) make any required withholding or deduction in
respect of any taxes, (ii) remit the full amount deducted or withheld to the
relevant taxing authority in accordance with applicable law, and (iii) pay such
additional amounts as may be necessary so that the net amount received by each
holder and beneficial owner of exchange notes after such withholding or
deduction or other payment of taxes will not be less than the
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amounts that the holder and beneficial owner would have received if such taxes
had not been withheld or deducted or paid, except that no additional amounts
shall be so payable with respect to:
(1) taxes that would not have been imposed, payable or due but for the
existence of any present or former connection between the holder, or
between a fiduciary, settlor, beneficiary, member or shareholder, or
possessor of a power over, such holder, if such holder is an estate, trust,
partnership or corporation, and Puerto Rico other than the mere holding of
the exchange notes;
(2) any taxes that are imposed or withheld after the Issue Date where
such withholding or imposition is by reason of the failure of the holder or
beneficial owner of the exchange note to comply with any reasonable request
by the applicable obligor or any successor, as the case may be, to provide
information concerning the nationality, residence or identity of such
holder or beneficial owner or to make any declaration or similar claim or
satisfy any information or reporting requirement (A) if such compliance is
required or imposed by a statute, treaty, regulation or administrative
practice of Puerto Rico as a precondition to exemption from all or part of
such taxes, (B) such holder or beneficial owner may legally comply with
such requirements and (C) at least 30 days prior to the date on which the
applicable obligor or any successor, as the case may be, shall apply this
clause (2), such obligor or successor shall have either notified the
holders or notified the trustee and the trustee shall have notified the
holders of such requirements;
(3) any estate, inheritance, gift, sale, transfer, personal property
or similar tax, assessment or other governmental charge; or
(4) any combination of items (1), (2) and (3) above.
Such additional amounts shall also not be payable where, had the beneficial
owner of the note been the holder of the note, it would not have been entitled
to payment of additional amounts by reason of any of clauses (1), (2), (3) or
(4) above.
The applicable obligor or any successor, as the case may be, will furnish
to the trustee, upon written request, certified copies of tax receipts
evidencing the payment of any taxes by such obligor or successor in such form as
provided in the normal course by the Taxing Authority imposing such taxes and as
is reasonably available to the obligor or successor, as the case may be, within
60 calendar days after the date of receipt of such evidence by such obligor or
successor. If notwithstanding the obligor's or successor's, as the case may be,
efforts to obtain such receipts, the same are not obtainable, such obligor or
successor will provide to the trustee other evidence reasonably satisfactory to
the trustee of such payments by such obligor or successor. Copies of such
receipts will be made available to holders of exchange notes that are
outstanding on the date of such withholding or deduction for or on account of
taxes upon request to the trustee.
At least 30 days prior to each date on which any payment under or with
respect to the exchange notes is due and payable (unless such obligation to pay
additional amounts arises after the 30th day prior to the date on which payment
under or with respect to the exchange notes is due payable, in which case it
shall be promptly thereafter), if the applicable obligor or successor, as the
case may be, will be obligated to pay additional amounts with respect to such
payment, such obligor or successor will deliver to the trustee an Officers'
Certificate stating that such additional amounts will be payable and specifying
the amounts so payable. The Officers' Certificate will also set forth such other
information as is necessary to enable the trustee to pay such additional amounts
to the holders of the exchange notes on the payment date.
The applicable obligor or successor, as the case may be, will pay any
present or future stamp, issue, registration, value added, documentary taxes or
any other similar taxes and other duties (including interest and penalties)
payable in Puerto Rico (or any other jurisdiction in which the obligor or
successor, as the case may be, is organized or engaged in business for tax
purposes or, in each case, any political subdivision thereof or therein having
the power to tax) in respect of the creation, issue, offering, execution or
enforcement of the exchange notes, the subsidiary guarantee or any documentation
relating thereto.
In the event that additional amounts actually paid with respect to any
exchange notes are based on taxes in excess of the appropriate taxes applicable
to the holder or beneficial owner of such exchange notes and, as a
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result thereof, such holder or beneficial owner is entitled to make a claim for
a refund of such excess, or credit such excess against taxes then, to the extent
it is able to do so without jeopardizing its entitlement to such refund or
credit, such holder or beneficial owner shall, by accepting the exchange notes,
be deemed to have assigned and transferred all right, title and interest to any
claim for a refund or credit of such excess to the applicable obligor or
Successor, as the case may be. By making such assignment and transfer, the
holder or beneficial owner makes no representation or warranty that the
applicable obligor or Successor, as the case may be, will be entitled to receive
such claim for a refund or credit and incurs no other obligation with respect
thereto (including executing or delivering any documents and paying any costs or
expenses of the applicable obligor or Successor, as the case may be, relating to
obtaining such refund). Nothing contained in this paragraph shall interfere with
the right of each holder or beneficial owner of a note to claim any refund or
credit or to disclose any information relating to its tax affairs or any
computations in respect thereof or to do anything that would prejudice its
ability to benefit from any other credits, relief, remissions or repayments to
which it may be entitled.
Whenever in the indenture or in this "Description of Exchange Notes" there
is mentioned, in any context, the payment of principal, interest, purchase price
in connection with a purchase of the exchange notes or any other amount payable
on or with respect to any of the exchange notes, such mention shall be deemed to
include mention of the payment of additional amounts provided for in this
section to the extent that, in such context, additional amounts are, were or
would be payable in respect thereof.
The obligation described under this heading shall survive any defeasance of
the indenture.
SINKING FUND AND DEFEASANCE
There will be no mandatory sinking fund payments for the exchange notes.
The indenture provides that the exchange notes are subject to defeasance.
CERTAIN COVENANTS
The indenture limits our ability to take several actions:
1. In general, we are not permitted to incur any liens upon any of our
property. We are permitted to incur liens of up to 10% of our
consolidated net tangible assets or any other lien if the exchange notes
are also secured by the lien. In addition, we are permitted to incur
some additional liens, including liens:
- on property we acquire or construct;
- for taxes, assessments or governmental charges;
- of a company that is merged into us; and
- to secure capital lease obligations.
2. Our non-guarantor subsidiaries are generally prohibited from incurring
any debt.
They can incur some debt, including debt:
- that does not exceed 10% of consolidated net tangible assets;
- that existed at the time the company became our subsidiary;
- pursuant to capital lease obligations; and
- for a receivables financing so long as it does not exceed 15% of net
tangible assets.
3. We are generally prohibited from entering into sale-leaseback
transactions.
We can enter into some sale and leaseback transactions, including those:
- for financing property we acquire;
- existing at the time a company is merged into us;
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- which are refinancings of existing sale and leaseback transactions;
and
- equal to the par value of the property sold and leased back so long as
the proceeds are used to purchase property with the same value as that
which was sold and leased back or is used to retire debt.
The indenture also requires our subsidiaries to guarantee the exchange
notes to the extent they guarantee any of our credit facilities.
1. LIMITATION ON LIENS. The indenture limits our ability to, directly or
indirectly, incur any Lien (other than Permitted Liens) upon any of our
Property, including Capital Stock, unless:
(a) the exchange notes or the applicable Subsidiary Guaranty will also
be secured by such Lien equally and ratably with (or prior to) all other
Debt of Telecomunicaciones de Puerto Rico or any subsidiary guarantor
secured by such Lien or
(b) immediately after the Incurrence or existence of such Lien, the
aggregate principal amount of Secured Debt then outstanding plus the
aggregate amount of Capitalized Rent (without duplication) in respect of
Sale and Leaseback Transactions would not exceed 10% of our Consolidated
Net Tangible Assets.
2. LIMITATION ON DEBT OF NON-GUARANTOR SUBSIDIARIES. The indenture states
that we shall not permit any Non-Guarantor Subsidiary to incur any Debt other
than the following:
(a) Debt of such Non-Guarantor Subsidiary Incurred after the Issue
Date; provided, however, that immediately after the Incurrence of such Debt
the aggregate amount of Debt Incurred and outstanding pursuant to this
clause (a) and not otherwise permitted pursuant to the indenture does not
exceed 10% of Consolidated Net Tangible Assets;
(b) Debt of any Person existing at the time such Person becomes our
Subsidiary, such Person is merged into or consolidated with the Company or
a Subsidiary of the Company, or the Company or a Subsidiary of the Company
acquires all or substantially all of the assets of such Person, other than
Debt Incurred by such Person as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of transactions pursuant to which such Person becomes
a Subsidiary of the Company, is merged into or consolidated with the
Company or pursuant to which all or substantially all of the assets of such
Person are acquired by the Company or a Subsidiary of the Company;
(c) Debt pursuant to Capitalized Lease Obligations; provided, however,
that immediately after the Incurrence of such Debt, the aggregate amount of
Debt Incurred and outstanding pursuant to this clause (c) and not otherwise
permitted pursuant to the indenture, together with any Debt Incurred in
respect of this clause (c) pursuant to clause (f) below, does not exceed
10% of Consolidated Net Tangible Assets;
(d) Debt owed to the Company or any Subsidiary of the Company;
(e) Debt of any such Non-Guarantor Subsidiary existing on the Issue
Date;
(f) Debt of any Non-Guarantor Subsidiary constituting any Refinancing
of any Debt Incurred pursuant to clauses (b), (c) and (e) above to the
extent the aggregate principal amount of such Debt is not increased unless
otherwise permitted hereunder; or
(g) Debt Incurred by a Receivables Subsidiary in a Permitted
Receivables Financing that is non-recourse to the Company or any Subsidiary
of the Company, except to a limited extent customary for such transactions.
For purposes of determining compliance with this "Limitation on Debt of
Non-Guarantor Subsidiaries" covenant, (a) in the event that an item of Debt
meets the criteria of more than one of the categories of Debt described above,
the Company, in its sole discretion, will classify such item of Debt and will
only be required
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to include the amount and type of such Debt in one of the above categories and
(b) an item of Debt may be divided and classified in more than one of the types
of Debt described above.
3. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company shall not,
and shall not permit any subsidiary guarantor to, enter into any Sale and
Leaseback Transaction unless immediately after the completion of such Sale and
Leaseback Transaction, giving effect to the application of the proceeds
therefrom, the aggregate amount of Capitalized Rent in respect of Sale and
Leaseback Transactions, other than Sale and Leaseback Transactions described in
clauses (a) to (d), inclusive, of the immediately succeeding paragraph, plus the
aggregate principal amount of Secured Debt then outstanding, without
duplication, would not exceed 10% of Consolidated Net Tangible Assets.
The foregoing restrictions shall not apply to, and there shall be excluded
in computing the aggregate amount of Capitalized Rent for the purpose of such
restrictions, the following Sale and Leaseback Transactions:
(a) any Sale and Leaseback Transaction entered into to finance the
payment of all or any part of the purchase price of Property acquired or
constructed by the Company or any subsidiary guarantor, including any
improvements to existing Property, or entered into prior to, at the time of
or within 270 days after the acquisition or construction of such Property,
which Sale and Leaseback Transaction is entered into for the purpose of
financing all or part of the purchase or construction price thereof;
provided, however, that in the case of any such acquisition, such Sale and
Leaseback Transaction shall not involve any Property transferred by the
Company to a Subsidiary of the Company or by a Subsidiary of the Company to
the Company or by a Subsidiary of the Company to another Subsidiary of the
Company in contemplation of or in connection with such Sale and Leaseback
Transaction or involve any Property of the Company or any subsidiary
guarantor other than the Property so acquired, other than, in the case of
construction or improvement, any theretofore unimproved real Property or
portion thereof on which the Property so constructed, or the improvement,
is located;
(b) any Sale and Leaseback Transaction involving Property of any
Person existing at the time such Person is merged into or consolidated with
the Company or a subsidiary guarantor or the Company or a subsidiary
guarantor acquires all or substantially all of the assets of such entity
(other than a Sale and Leaseback Transaction entered into by such Person as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of transactions
pursuant to which such Person is merged into or consolidated with the
Company or a subsidiary guarantor or pursuant to which all or substantially
all assets of such Person are acquired by the Company or a subsidiary
guarantor);
(c) any Sale and Leaseback Transaction involving the Refinancing (or
successive Refinancings) in whole or in part of a lease pursuant to a Sale
and Leaseback Transaction referred to in the foregoing clause (a) or (b);
provided, however, that such lease Refinancing shall be limited to all or
any part of the same Property leased under the lease so Refinanced (plus
improvements to such Property); and
(d) any Sale and Leaseback Transaction the net proceeds of which are
at least equal to the fair value (as determined by the Board of Directors
of the Company or the applicable subsidiary guarantor) of the Property
leased pursuant to such Sale and Leaseback Transaction, so long as within
270 days of the effective date of such Sale and Leaseback Transaction, the
Company or the applicable subsidiary guarantor applies (or irrevocably
commits to an escrow account for the purpose or purposes hereinafter
mentioned) an amount equal to the net proceeds of such Sale and Leaseback
Transaction to either (x) the purchase of other Property having a fair
value at least equal to the fair value of the Property leased in such Sale
and Leaseback Transaction and having a similar utility and function, or (y)
the retirement or repayment (other than any mandatory retirement or
repayment at maturity) of (i) the Notes, (ii) other Funded Debt of the
Company or a subsidiary guarantor which ranks prior to or on a parity with
the Notes or (iii) Debt of any Non-Guarantor Subsidiary maturing by its
terms more than one year from its date of issuance (notwithstanding that
any portion of such Debt is included in current liabilities) or preferred
stock of any Non-Guarantor Subsidiary (other than any such Debt owed to or
preferred stock owned by the Company or any Subsidiary of the Company);
provided, however, that in
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lieu of applying an amount equivalent to all or any part of such net
proceeds to such retirement or repayment (or committing such an amount to
an escrow account for such purpose), the Company may deliver to the trustee
Outstanding Notes and thereby reduce the amount to be applied pursuant to
(y) of this clause (d) by an amount equivalent to the aggregate principal
amount of the Notes so delivered.
For purposes of determining compliance with this "Limitation on Sale and
Leaseback Transactions" covenant, (i) in the event that a Sale and Leaseback
Transaction meets the criteria of more than one of the categories of Sale and
Leaseback Transactions described above, the Company, in its sole discretion,
will classify such Sale and Leaseback Transaction and will only be required to
include the Sale and Leaseback Transaction in one of the categories described
above and (ii) a Sale and Leaseback Transaction may be divided and classified in
more than one of the categories described above.
4. FUTURE SUBSIDIARY GUARANTORS. The Company shall cause each Subsidiary
of the Company that becomes a guarantor or other similar obligor (which does not
include being a direct borrower) under a Credit Facility following the Issue
Date to execute and deliver to the trustee a Subsidiary Guarantee at the time
such Person becomes a guarantor or other similar obligor under the Credit
Facility such that such Subsidiary becomes a guarantor or other similar obligor
of the Notes to the same extent as under the Credit Facility.
MERGER AND CONSOLIDATION
We may consolidate or amalgamate with or merge into any other Person or
convey, transfer, lease or otherwise dispose of our Property substantially as an
entirety to any Person or may permit any Person to consolidate or amalgamate
with or merge into, or convey, transfer, lease or otherwise dispose of its
Property substantially as an entirety to, us; provided, however, that:
- the successor, transferee or lessee, if other than us or the
applicable subsidiary guarantor, is organized under the laws of any
United States jurisdiction, including the Commonwealth of Puerto
Rico;
- the successor, transferee or lessee, if other than us or the
applicable subsidiary guarantor, expressly assumes the obligations
of Telecomunicaciones de Puerto Rico or the applicable subsidiary
guarantor, as the case may be, under the indenture and the exchange
notes by means of a supplemental indenture entered into with the
trustee;
- immediately before and after giving effect to the transaction on a
pro forma basis, no Default shall have occurred and be continuing;
and
- several other conditions are met.
SEC REPORTS
Notwithstanding that we may not be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, we will file with the Commission and
provide the trustee and holders of the exchange notes with the annual reports
and information, documents and other reports specified in Sections 13 and 15(d)
of the Exchange Act and applicable to a U.S. corporation subject to such
Sections. We will file such information, documents and reports at the times
specified in the Exchange Act for their filing; provided, however, that we will
not be obligated to file such information, documents and reports with the
Commission if the Commission does not permit such filings.
MODIFICATIONS OF INDENTURE
We, the subsidiary guarantors and the trustee, with the consent of the
holders of a majority in aggregate principal amount of the outstanding exchange
notes of a series, can modify the indenture or any supplemental
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indenture affecting such series of exchange notes or the rights of the holders
of such series of exchange notes. However, we are not permitted to
- extend the fixed maturity of any exchange notes;
- reduce the principal amount or the interest rate of any exchange notes
or extend the time of payment of interest thereon;
- reduce any premium payable upon the redemption of any exchange note;
- change the currency in which the principal of any exchange note or the
interest thereon is payable;
- impair the right of any holder of exchange notes to receive payment of
principal of and interest on the exchange notes on or after the fixed
maturity or impair the right of any holder to institute suit for the
enforcement of any such payment on or after the fixed maturity or, in
the case of redemption, on or after the redemption date;
- change any Subsidiary Guaranty in any way that would adversely affect
the holders of the exchange notes, other than as permitted by the
indenture, without the consent of the holder of each exchange note so
affected; or
- reduce the percentage of note holders of each series of exchange notes
which is required to consent to any supplemental indenture or for any
waiver of several provisions of the indenture, without the consent of
each holder of exchange notes of such series then outstanding and
affected by such change.
We, the subsidiary guarantors and the trustee may execute, without the
consent of any holder of the exchange notes, any supplemental indenture for
several other usual purposes.
EVENTS OF DEFAULT
The indenture provides that the occurrence of any of the following events
with respect to any series of the exchange notes will constitute an "Event of
Default" with respect to the exchange notes of such series:
- failure for 30 business days to pay interest on the exchange notes of
such series when due;
- failure to pay principal or premium, if any, on the exchange notes of
such series when due, whether at maturity, upon redemption, by
declaration or otherwise;
- failure to observe or perform any other covenant in the indenture for
90 days after we have been given notice by the trustee or by the
trustee by the holders of not less than 25% in principal amount of the
outstanding exchange notes of such series, specifying the default and
requiring that it be cured;
- acceleration of, or failure to pay at maturity after giving effect to
any applicable grace period, any Debt of Telecomunicaciones de Puerto
Rico or any of its Subsidiaries having an aggregate principal amount
at the time in excess of the greater of $25 million and the lesser of
1% of Consolidated Net Tangible Assets at such time and $50 million,
subject to several conditions;
- any Subsidiary Guarantee ceases to be in full force and effect, other
than in accordance with the terms of the indenture or such Subsidiary
Guarantee, or any subsidiary guarantor denies or disaffirms its
obligations under its Subsidiary Guarantee; or
- certain events of bankruptcy, insolvency or reorganization.
The holders of a majority in aggregate outstanding principal amount of the
exchange notes of a series have the right to direct the time, method and place
of conducting any proceeding for any remedy in respect of such series available
to the trustee for the exchange notes of such series.
Except in the case of an Event of Default involving bankruptcy, insolvency
or reorganization, the trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the exchange notes of a series may declare the
principal due and payable immediately upon the occurrence and during the
continuance of an
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Event of Default with respect to the exchange notes of such series, but the
holders of a majority in aggregate outstanding principal amount of the exchange
notes of such series may rescind and annul such declaration and waive the
default if the default has been cured and a sum sufficient to pay all matured
installments of interest and principal and any premium has been deposited with
the trustee. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company shall
occur, the aggregate outstanding principal amount of the Exchange notes of each
series shall be due and payable immediately without any declaration or other act
on the part of the trustee or the holders of the exchange notes.
The holders of a majority in aggregate outstanding principal amount of the
exchange notes of a series may, on behalf of the holders of all the exchange
notes of such series, waive any past Default in respect of such series, except a
Default in the payment of principal, premium, if any, or interest or a Default
in respect of any provision of the indenture, the amendment of which requires
the consent of each holder of the exchange notes affected thereby. The Company
is required to file annually with the trustee a certificate as to whether or not
the Company is in compliance with all the conditions and covenants under the
indenture.
THE TRUSTEE
The Bank of New York is the trustee for each series of exchange notes under
the indenture.
In general, the trustee will perform only such duties as are specifically
set forth in the indenture. However, during the existence of an Event of
Default, the trustee will exercise the rights and powers vested in it under the
indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
CERTAIN DEFINITIONS
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Stock" means and includes any and all shares, interests,
participations or other equivalents (however designated) of ownership in a
corporation or other Person.
"Capitalization" means with respect to a Person the total of (a) Funded
Debt, (b) the par value or, in the case of Capital Stock with no par value, a
value stated on the books, of all outstanding shares of Capital Stock, (c) the
paid-in surplus and retained earnings or minus the net surplus deficit, as the
case may be, (d) deferred taxes and deferred investment tax credits, (e)
Capitalized Rent, and (f) minority interests in subsidiaries of such Person.
"Capitalized Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP. For
purposes of "-- Certain Covenants -- Limitation on Liens," a Capitalized Lease
Obligation shall be deemed secured by a Lien on the Property being leased.
"Capitalized Rent" means the present value discounted semi-annually at a
discount rate equal to the actual percentage rate inherent in the applicable
lease, as determined in good faith by the Company of the total net amount of
rent payable for the remaining term of any lease of Property by the Company or
any subsidiary guarantor including any period for which such lease has been
extended; provided, however, that no such rental obligation shall be deemed to
be Capitalized Rent unless the lease resulted from a Sale and Leaseback
Transaction. The total net amount of rent payable under any lease for any period
shall be the total amount of the rent payable by the lessee with respect to such
period but shall not include amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates, sewer rates
and similar charges.
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"Consolidated Capitalization" means the Capitalization of the Company and
its Subsidiaries determined on a consolidated basis at the end of the Company's
then most recently reported fiscal year or quarter, as the case may be,
including minority interests in Subsidiaries.
"Consolidated Net Tangible Assets" means the consolidated total assets of
the Company and its Subsidiaries as reflected in the Company's most recent
balance sheet prepared in accordance with GAAP, less (a) current liabilities
excluding current maturities of long-term debt and obligations under capital
leases and (b) goodwill, trademarks, patents and minority interests of others.
"Credit Facility" means, with respect to the Company or any Subsidiary of
the Company, one or more debt or commercial paper facilities with banks or other
institutional lenders, including the $500,000,000 Five-Year Credit Agreement
dated as of March 2, 1999, as amended, among the Company, the subsidiary
guarantors and the lenders and agents named therein and the $200,000,000 Credit
Agreement dated as of March 2, 1999, as amended, among the Company, the
subsidiary guarantors and the lenders and agents named therein providing for
revolving credit loans, term loans, receivables or inventory financing,
including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
against such receivables or inventory or trade letters of credit, in each case
together with any extensions, revisions, refinancings or replacements thereof by
a lender or syndicate of lenders.
"Debt" means, with respect to any Person, the aggregate amount of, without
duplication: (a) all obligations for borrowed money; (b) all obligations
evidenced by debentures, notes or other similar instruments; (c) all obligations
to pay the deferred purchase price of property or services, except trade
accounts payable, accrued commissions and other similar accrued current
liabilities in respect of such obligations, in any case not more than 120 days
overdue, arising in the ordinary course of business; (d) all Capitalized Lease
Obligations of such Person, including Capitalized Rent; (e) all obligations or
liabilities of others secured by a Lien on any Property owned by such Person
whether or not such obligation or liability is assumed, the amount of such Debt
being deemed to be the lesser of the value of such Property or the amount of the
Debt so secured; (f) all reimbursement obligations of such Person in respect of
any letters of credit or bankers' acceptances related to Debt of such Person or
another Person; (g) any stock of such person that by its terms matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise; and
(h) guarantees of or similar obligations with respect to Debt of other Persons.
The term "Debt" shall not include any obligations of a Person under a Swap
Contract.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Funded Debt" means any Debt maturing by its terms more than one year from
its date of issuance, notwithstanding that any portion of such Debt is included
in current liabilities.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth:
(a) in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants,
(b) in the statements and pronouncements of the Financial Accounting
Standards Board,
(c) in such other statements by such other entity as approved by a
significant segment of the accounting profession, and
(d) the rules and regulations of the Commission governing the
inclusion of financial statements, including pro forma financial statements
in periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur by merger, conversion, exchange or otherwise, extend,
assume, guarantee or become liable in respect of such
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Debt or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Debt or obligation on the balance sheet of such Person.
"Incurrence" and "Incurred" shall have meanings correlative to the foregoing;
provided, however, that a change in GAAP that results in an obligation of such
Person that exists at such time, and is not theretofore classified as Debt,
becoming Debt shall not be deemed an Incurrence of such Debt.
"Issue Date" means the date on which the old notes were originally issued.
"Lien" means any mortgage, pledge, security interest, lien, charge or
similar encumbrance.
"Non-Guarantor Subsidiary" means any Subsidiary of the Company other than a
subsidiary guarantor.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer, the Treasurer, any Vice President or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the trustee.
"Outstanding" means, subject to certain exceptions, all Notes issued under
the indenture, except those theretofore canceled by the trustee or delivered to
it for cancellation, defeased in accordance with the indenture, paid in full, or
in respect of which substitute Notes have been authenticated and delivered by
the trustee.
"Permitted Liens" means:
(a) Liens existing on the Issue Date;
(b) Liens upon Property acquired or constructed by the Company or any
subsidiary guarantor after the Issue Date to secure payment of all or part
of the purchase price thereof or to secure Debt incurred prior to, at the
time of or within 270 days after the acquisition or construction thereof
for the purpose of financing all or part of the purchase or construction
price thereof, or Liens of any kind existing on such Property at the time
of the acquisition thereof, or conditional sales agreements or other title
retention agreements with respect to any Property acquired after the Issue
Date; provided, however, that in the case of any such acquisition, such
Lien or agreement shall not involve any Property transferred by the Company
to a Subsidiary of the Company or by a Subsidiary of the Company to the
Company or by a Subsidiary of the Company to another Subsidiary of the
Company in contemplation of or in connection with the Incurrence of such
Lien or the entering into of such agreement; provided further, however,
that no such Lien, and no such agreement, shall extend to or cover any
other Property of the Company or any Subsidiary of the Company unless
otherwise permitted hereunder;
(c) the Refinancing of any such Lien or of any such agreement,
permitted by the foregoing clause (a) or (b), or the replacement or
renewal, without increase in principal amount unless otherwise permitted
hereunder, of the Debt secured thereby;
(d) Liens for taxes or assessments or governmental charges or levies;
pledges or deposits to secure obligations under worker's compensation laws,
unemployment insurance or similar legislation; pledges or deposits to
secure performance in connection with bids, tenders, contracts, other than
contracts for the payment of money or leases to which the Company or any
subsidiary guarantor is a party; deposits to secure public or statutory
obligations of the Company or any subsidiary guarantor; materialmen's,
mechanics', carriers', workers', repairmen's, warehousemen's, suppliers',
employees' or other like Liens in the ordinary course of business, or
deposits to obtain the release of such Liens; deposits to secure surety and
appeal bonds to which the Company or any subsidiary guarantor is a party;
other pledges or deposits for similar purposes in the ordinary course of
business; Liens created by or resulting from any litigation or legal
proceeding which at the time is currently being contested in good faith by
appropriate proceedings; leases made, or existing on property acquired, in
the ordinary course of business; landlord's Liens under leases to which the
Company or any subsidiary guarantor is a party; zoning restrictions,
easements, licenses, restrictions on the use of real property or minor
irregularities in title thereto, which do not
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materially impair the use of such property in the operation of the business
of the Company or the applicable subsidiary guarantor or the value of such
property for the purpose of such business; Liens arising solely by virtue
of any statutory or common law provision relating to banker's Liens, rights
of set-off or similar rights and remedies as to deposit account or other
funds; other Liens on the Property of the Company or any subsidiary
guarantor incidental to the conduct of their respective businesses or the
ownership of their respective properties which were not created in
connection with the Incurrence of Debt or the obtaining of advances or
credit and which do not in the aggregate materially detract from the value
of their respective properties or materially impair the use thereof in the
operation of their respective businesses; or the Lien of the trustee
described in the indenture;
(e) Liens with respect to Debt of any Person at the time such Person
is merged into or consolidated with the Company or a subsidiary guarantor
or the Company or a subsidiary guarantor acquires all or substantially all
of the assets of such Person, other than a Lien Incurred by such Person as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of transactions
pursuant to which such Person is merged into or consolidated with the
Company or a subsidiary guarantor or pursuant to which all or substantially
all of the assets of such Person are acquired by the Company or a
subsidiary guarantor;
(f) Liens in favor of the Company or any subsidiary guarantor;
(g) Liens to secure Capitalized Lease Obligations; provided that (1)
any such Lien does not extend or cover any Property other than the Property
that is the subject of such Capitalized Lease Obligation (unless otherwise
permitted hereunder) and (2) such Capitalized Lease Obligation is otherwise
permitted under the indenture;
(h) Liens to secure obligations under Swap Contracts; and
(i) Liens Incurred in connection with any Permitted Receivables
Financing.
"Permitted Receivables Financing" means any financing not exceeding in the
aggregate, together with all other Permitted Receivables Financings Incurred
pursuant to clause (g) of "-- Certain Covenants -- Limitation on Debt of
Non-Guarantor Subsidiaries" or pursuant to clause (i) of the definition of
"Permitted Liens," 15% of Consolidated Net Tangible Assets pursuant to which the
Company or any Subsidiary of the Company may sell, convey or otherwise transfer
to a Receivables Subsidiary or any other Person, in the case of transfer by a
Receivables Subsidiary, or grant a security interest in, any accounts
receivable, and related assets of the Company or such Subsidiary; provided,
however, that (1) the covenants, events of default and other provisions
applicable to such financing shall be customary for such transactions and shall
be on market terms determined in good faith by the Board of Directors at the
time such financing is entered into, (2) the interest rate applicable to such
financing shall be a market interest rate determined in good faith by the Board
of Directors at the time such financing is entered into and (3) such financing
shall be non-recourse to the Company and its Subsidiaries, other than the
Receivables Subsidiary except to a limited extent customary for such
transactions. The grant of a security interest in any accounts receivable of the
Company or any Subsidiary of the Company, other than a Receivables Subsidiary to
secure Debt under any Credit Facility shall not be deemed a Permitted
Receivables Financing.
"Person" mean any individual, corporation, partnership, company, including
any limited liability company), joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Property" means, with respect to any Person, all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person and its
Subsidiaries under GAAP.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose Wholly
Owned Subsidiary formed in connection with a Permitted Receivables Financing.
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"Refinance" means to refinance, extend, renew, replace, refund, repay,
prepay, repurchase, redeem, defease or retire once or successive times. In
respect of any Debt, "Refinance" also means to issue other Debt, in exchange or
replacement for, such Debt. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Sale and Leaseback Transaction" means any arrangement with any Person
other than a Tax Consolidated Subsidiary providing for the leasing as lessee by
the Company or any subsidiary guarantor of any Property except for temporary
leases for a term, including any renewal thereof, of not more than three years
provided that any such temporary lease may be for a term of up to five years if
(a) the Board of Directors of the Company or the applicable subsidiary guarantor
reasonably finds such term to be in the best interest of the Company or the
applicable subsidiary guarantor and (b) the primary purpose of the transaction
of which such lease is a part is not to provide funds to or financing for the
Company, which Property has been or is to be sold or transferred by the Company
(1) to any Subsidiary of the Company in contemplation of or in connection with
such arrangement or (2) to such other Person. A "Tax Consolidated Subsidiary"
means a subsidiary of the Company with which, at the time a Sale and Leaseback
Transaction is entered into by the Company, the Company would be entitled to
file a consolidated federal income tax return.
"Secured Debt" means Debt of the Company or any subsidiary guarantor
secured by any Lien, other than Permitted Liens and Liens with which the Notes
are secured in accordance with the covenant described under "-- Certain
Covenants -- Limitation on Liens" on Property, including Capital Stock of the
Company or such subsidiary guarantor.
"Subsidiary," in respect of any Person, means (i) any Person of which more
than 50% of the total voting power of shares of Capital Stock entitled, without
regard to the occurrence of any contingency to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more of the Subsidiaries of that
Person or a combination thereof, and (ii) any partnership, joint venture or
other Person in which such Person or one or more of the Subsidiaries of that
Person or a combination thereof has the power to control by contract or
otherwise the board of directors or equivalent governing body or otherwise
controls such entity.
"Subsidiary Guarantee" means a guarantee on the terms set forth in the
indenture by a subsidiary guarantor of the Company's obligations with respect to
the Notes.
"Subsidiary Guarantor" means, unless released from their Subsidiary
Guaranties as permitted by the indenture, Puerto Rico Telephone Company, Inc.,
Celulares Telefonica, Inc. and any Person that becomes a subsidiary guarantor
pursuant to the covenant described under "-- Certain Covenants -- Future
Subsidiary Guarantors."
"Swap Contract" means any agreement relating to any transaction that is a
rate swap, basis swap, forward rate transaction, commodity option, equity or
equity index swap or option, bond, note or bill option, interest rate option,
forward transaction, cap collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other similar
transaction, including any option to enter into any of the foregoing or any
combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing, provided that such Swap Contract was entered into for the purpose of
managing risks associated with liabilities, commitments or assets of the Company
or any Subsidiary of the Company and not for speculation, and provided further
that to the extent the obligations under such Swap Contract are directly related
to payment obligations on Debt, such Debt is otherwise permitted by the
indenture.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled, without regard to the
occurrence of any contingency to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Subsidiary all the Voting
Stock of which, except directors' qualifying shares is at such time owned,
directly or indirectly, by the Company and its other Wholly Owned Subsidiaries.
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BOOK-ENTRY SYSTEM
The exchange notes will be initially issued in the form of one or more
global securities registered in the name of The Depository Trust Company or its
nominee.
Upon the issuance of a global security, The Depository Trust Company or its
nominee will credit the accounts of persons holding through it with the
respective principal amounts of the exchange notes represented by such global
security purchased by such persons in the offering. Such accounts shall be
designated by the initial purchasers. Ownership of beneficial interests in a
global security will be limited to persons that have accounts with The
Depository Trust Company ("participants") or persons that may hold interests
through participants. Any person acquiring an interest in a global security
through an offshore transaction in reliance on Regulation S of the Securities
Act may hold such interest through Cedel or Euroclear. Ownership of beneficial
interests in a global security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by The
Depository Trust Company and such participants. The laws of some jurisdictions
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a global security.
Payment of principal of and interest on exchange notes represented by a
global security will be made in immediately available funds to The Depository
Trust Company or its nominee, as the case may be, as the sole registered owner
and the sole holder of the exchange notes represented thereby for all purposes
under the indenture. Telecomunicaciones de Puerto Rico has been advised by The
Depository Trust Company that upon receipt of any payment of principal of or
interest on any global security, The Depository Trust Company will immediately
credit, on its book-entry registration and transfer system, the accounts of
participants with payments in amounts proportionate to their respective
beneficial interests in the principal or face amount of such global security as
shown on the records of The Depository Trust Company. Payments by participants
to owners of beneficial interests in a global security held through such
participants will be governed by standing instructions and customary practices
as is now the case with securities held for customer accounts registered in
"street name" and will be the sole responsibility of such participants.
A global security may not be transferred except as a whole by The
Depository Trust Company or a nominee of The Depository Trust Company to a
nominee of The Depository Trust Company or to The Depository Trust Company. A
global security is exchangeable for certificated exchange notes only if:
(a) The Depository Trust Company notifies the Company that it is
unwilling or unable to continue as a depositary for such global security or
if at any time The Depository Trust Company ceases to be a clearing agency
registered under the Exchange Act,
(b) the Company in its discretion at any time determines not to have
all the exchange notes represented by such global security, or
(c) there shall have occurred and be continuing a default or an event
of default with respect to the exchange notes represented by such
global security.
Any global security that is exchangeable for certificated exchange notes
pursuant to the preceding sentence will be exchanged for certificated exchange
notes in authorized denominations and registered in such names as The Depository
Trust Company or any successor depositary holding such global security may
direct. Subject to the foregoing, a global security is not exchangeable, except
for a global security of like denomination to be registered in the name of The
Depository Trust Company or any successor depositary or its nominee. In the
event that a global security becomes exchangeable for certificated exchange
notes,
(a) certificated exchange notes will be issued only in fully
registered form in denominations of $1,000 or integral multiples
thereof,
(b) payment of principal of, and premium, if any, and interest on, the
certificated exchange notes will be payable, and the transfer of
the certificated exchange notes will be registerable, at the
office or agency of the Company maintained for such purposes, and
(c) no service charge will be made for any registration of transfer or
exchange of the certificated exchange notes, although the Company
may require payment of a sum sufficient to cover any tax or
governmental charge imposed in connection therewith.
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So long as The Depository Trust Company or any successor depositary for a
global security, or any nominee, is the registered owner of such global
security, The Depository Trust Company or such successor depositary or nominee,
as the case may be, will be considered the sole owner or holder of the exchange
notes represented by such global security for all purposes under the indenture
and the exchange notes. Except as set forth above, owners of beneficial
interests in a global security will not be entitled to have the exchange notes
represented by such global security registered in their names, will not receive
or be entitled to receive physical delivery of certificated exchange notes in
definitive form and will not be considered to be the owners or holders of any
exchange notes under such global security. Accordingly, each person owning a
beneficial interest in a global security must rely on the procedures of The
Depository Trust Company or any successor depositary, and, if such person is not
a participant, on the procedures of the participant through which such person
owns its interest, to exercise any rights of a holder under the indenture.
Telecomunicaciones de Puerto Rico understands that under existing industry
practices, in the event that the Company requests any action of holders or that
an owner of a beneficial interest in a global security desires to give or take
any action which a holder is entitled to give or take under the indenture, The
Depository Trust Company or any successor depositary would authorize the
participants holding the relevant beneficial interest to give or take such
action and such participants would authorize beneficial owners owning through
such participants to give or take such action.
The Depository Trust Company has advised the Company that The Depository
Trust Company is a limited-purpose trust company organized under the Banking Law
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under the Exchange Act. The Depository Trust
Company was created to hold the securities of its participants and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depository Trust Company's participants include securities
brokers and dealers, which may include the Initial Purchasers, banks, trust
companies, clearing corporations and certain other organizations some of whom,
or their representatives, own The Depository Trust Company. Access to The
Depository Trust Company's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies, that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Although The Depository Trust Company has agreed to the foregoing
procedures in order to facilitate transfers of interests in global securities
among participants of The Depository Trust Company, it is under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the trustee or the initial
purchasers will have any responsibility for the performance by The Depository
Trust Company or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
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PLAN OF DISTRIBUTION
Each participating broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of exchange notes received pursuant to the exchange offer. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a participating broker-dealer in connection with resales of exchange notes
received in exchange for old notes where such old notes were acquired as a
result of market-making activities or other trading activities.
Telecomunicaciones de Puerto Rico has agreed that, starting on the expiration
date and ending on the close of business one year after the expiration date , it
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any resale of those exchange notes. In
addition, until , 1999, all dealers effecting transactions in the
exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sales of the exchange notes by
participating broker-dealers. Exchange notes received by participating
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes or
a combination of those methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or negotiated
prices. Any resale of that kind may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any of those participating broker-dealers and/or
the purchasers of any of those exchange notes. Any participating broker-dealer
that resells the exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of these exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any resale of exchange notes
and any commissions or concessions received by those persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act, a participating broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of one year after the expiration date, Telecomunicaciones de
Puerto Rico will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
those documents in the Letter of Transmittal. Telecomunicaciones de Puerto Rico
has agreed to pay all the expenses incident to this exchange offer, including
the expenses of one counsel for the holders of the old notes, and will indemnify
the holders of the old notes, including broker-dealers, against specific
liabilities, including liabilities under the Securities Act.
BROKER DEALER OBLIGATIONS
Each broker-dealer that receives exchange notes for its account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an underwriter within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of exchange
notes received in exchange for old notes where those old notes were acquired by
that broker-dealer as a result of market-making activities or other trading
activities. Telecomunicaciones de Puerto Rico has agreed that, starting on the
expiration date and ending on the close of business one year after the
expiration date, it will make this prospectus available to any broker-dealer for
use in connection with any resale. See "Plan of Distribution."
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TAX CONSIDERATIONS
GENERAL
The following summary describes the material United States federal income
and Puerto Rico tax consequences of the acquisition, ownership, and disposition
of exchange notes by (a) in the case of United States federal income tax
consequences, U.S. holders, and (b) in the case of Puerto Rico tax consequences,
holders that are not Puerto Rico holders. The summary is based on the advice of
Curtis, Mallet-Prevost, Colt & Mosle LLP, New York, with respect to United
States federal income taxes and the advice of O'Neill & Borges, Puerto Rico,
with respect to Puerto Rico taxes. The advice provided by Curtis, Mallet-
Prevost, Colt & Mosle LLP is based on the United States Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed Regulations and
temporary Regulations) promulgated thereunder, rulings, official pronouncements
and judicial decisions, all as in effect on the date of this prospectus, and the
advice of O'Neill & Borges is based on the Puerto Rico Internal Revenue Code of
1994, as amended, the regulations issued under the Puerto Rico Code and its
predecessor statute, the Puerto Rico Income Tax Act of 1954, administrative
practice and judicial decisions, all as in effect and applicable on the date of
this prospectus; all of which are subject to change, possibly with retroactive
effect, and to different interpretations. This summary does not purport to
address all of the tax consequences that may be applicable to holders of
exchange notes.
For purposes of this summary, a U.S. holder is any holder of exchange notes
who or that is, for United States federal income tax purposes:
- in the case of an individual, a resident of the United States, or a
citizen of the United States who is not a bona fide resident of Puerto
Rico during the entire taxable year within the meaning of Section 933 of
the Code,
- a corporation, partnership, or other entity created or organized in or
under the laws of the United States, or any political subdivision
thereof,
- an estate the income of which is includible in gross income for United
States federal income tax purposes regardless of source or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust.
For purposes of this summary, a Puerto Rico holder is any holder of
exchange notes who or that is, for Puerto Rico tax purposes:
- an individual, trust or estate resident of Puerto Rico,
- a Puerto Rico corporation or partnership,
- an individual, trust or estate engaged in a trade or business in Puerto
Rico, or
- a non-Puerto Rico corporation or partnership engaged in a trade or
business in Puerto Rico.
The description of the United States federal income tax and Puerto Rico tax
laws set forth below is based on the laws in force as of the date of this
prospectus and is subject to any changes in applicable United States or Puerto
Rico tax laws.
Each prospective holder should consult its tax advisors with respect to the
tax treatment applicable to such holder.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership, and disposition of exchange notes by
U.S. holders that hold exchange notes as capital assets as defined in Section
1221 of the Code. This summary is not addressed to certain types of holders
subject to special treatment under United States federal income tax law, such as
individual retirement and other tax-deferred accounts, dealers in securities or
currencies, insurance companies, tax-exempt organizations, persons holding
exchange notes as part of a straddle, hedging, conversion or other integrated
transaction, or persons whose functional currency is other than the U.S. Dollar.
The discussion below does not address United States federal estate and gift
tax considerations or the effect of any United States state or local tax law.
Persons considering the purchase of exchange notes should consult their own tax
advisors concerning the application of the United States federal income tax law
to their particular situations as well as any tax consequences arising under the
law of any state, local or foreign tax jurisdiction.
REGISTRATION OF NOTES
The exchange of old notes for exchange notes pursuant to the exchange offer
will not be treated as an exchange or other taxable event for U.S. federal
income tax purposes. Accordingly, there will be no U.S. federal income tax
consequences to holders of old notes who exchange old notes for exchange notes
pursuant to the exchange offer, and that holder will have the same adjusted tax
basis and holding period in the exchange notes as that holder had in the old
notes immediately before the exchange.
TAXATION OF INTEREST
The gross amount of interest in respect of the exchange notes generally
will be included in a U.S. holder's gross income as ordinary income at the time
it accrues or is paid, in accordance with the U.S. holder's usual method of tax
accounting for United States federal income tax purposes.
Interest on the exchange notes generally will be treated as foreign source
income for United States federal income tax purposes.
MARKET DISCOUNT
If a U.S. holder purchases an exchange note after its issue for an amount
that is less than its principal amount, then the amount of the difference will
be treated as "market discount" for United States federal income tax purposes,
unless the difference is less than a specified de minimis amount.
Under the market discount rules, a U.S. holder will be required to treat
any principal payment on an exchange note, or any gain on its sale, exchange,
retirement or other disposition, as ordinary income to the extent of the market
discount which has not previously been included in income. If the exchange note
is disposed of in a non-taxable transaction (other than a nonrecognition
transaction described in section 1276(c) of the Code), accrued market discount
will be included as ordinary income to the U.S. holder as if the holder had sold
the exchange note at its fair market value. In addition, a U.S. holder may be
required to defer, until the maturity of an exchange note or its earlier
disposition (including a non-taxable transaction other than a transaction
described in section 1276(c) of the Code), the deduction of all or a portion of
the interest expense in respect of any indebtedness incurred or continued to
purchase or carry the exchange note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of an exchange note, unless
the holder elects to accrue such discount on a constant yield basis. A U.S.
holder of an exchange note may elect to include market discount in income
currently, as it accrues (on either a ratable or a constant yield basis), in
which case the rules described above regarding the treatment as ordinary income
of gain upon the disposition of an exchange note and upon the receipt of certain
cash payments, and regarding the deferral of interest deductions, will not
apply. This election to include
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<PAGE> 110
market discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the election
applies, and may not be revoked without the consent of the Internal Revenue
Service.
In its fiscal year 2000 budget proposal, the Clinton Administration
recently proposed altering the taxation of market discount. Under the proposal,
subject to certain limitations, accrual basis U.S. holders would be required to
include market discount in income as it accrues. The proposal would affect U.S.
holders of debt instruments, such as the exchange notes, acquired on or after
the date of enactment.
AMORTIZABLE BOND PREMIUM
If a U.S. holder purchases an exchange note for an amount that is greater
than the amount payable at maturity, the excess will be considered an
"amortizable bond premium." Such a holder may elect to amortize the bond premium
to offset the interest from the exchange note he would otherwise be required to
include in income. In any tax year, a holder can only use as much of the bond
premium as the constant yield method would allocate to that year. The U.S.
holder's basis in an exchange note will be reduced by the amount of bond premium
offset against interest.
TAXATION OF DISPOSITIONS
A U.S. holder generally will recognize gain or loss for United States
federal income tax purposes upon the sale, exchange, retirement or other
disposition of the exchange note in an amount equal to the difference between
the amount realized and the U.S. holder's tax basis in the exchange note. A U.S.
holder's tax basis in an exchange note will generally be the cost of the
exchange note, increased by any market discount previously included in income by
the U.S. holder, and reduced by any amortized bond premium. For these purposes,
the amount realized does not include any amount attributable to accrued interest
on the exchange note, which will be taxable as interest income.
Except as described above with respect to market discount and accrued
interest, the gain or loss will be capital gain or loss. If, at the time of
sale, exchange, or retirement, the exchange note has been held for more than 12
months, the gain or loss will be long-term capital gain or loss. If the exchange
note has been held for less than 12 months, the gain or loss will be short-term
capital gain or loss. Under current law, net long-term capital gains of
individuals are typically taxed at lower rates than items of ordinary income.
The deductibility of capital losses is subject to limitations. Any gain or loss
recognized by a U.S. holder generally will be treated as from sources within the
United States for United States federal income tax purposes.
UNITED STATES TAXATION OF NON-U.S. HOLDERS
An individual holder of exchange notes who is a bona fide resident of
Puerto Rico during the entire taxable year within the meaning of Section 933 of
the Code will not be subject to United States federal income tax on payments of
interest on the exchange notes provided that (a) for the 3 year period ending
with the close of Telecomunicaciones de Puerto Rico taxable year immediately
preceding the payment of interest, or the part of that period as may be
applicable, less than 80% of the Telecomunicaciones de Puerto Rico gross income
is derived from sources outside Puerto Rico and attributable to the active
conduct of a trade or business outside Puerto Rico, this determination to be
made under Section 861(c)(1)(B) of the Code and provided that interest on the
exchange notes is not treated as paid by a trade or business outside Puerto Rico
by Telecomunicaciones de Puerto Rico, this determination to be made under
Section 884(f)(1)(A) of the Code, and (b) the payments of interest on the
exchange notes are not effectively connected with the conduct by the holder of a
trade or business in the United States. Pursuant to Notice 89-40 issued by the
United States Internal Revenue Service on March 27, 1989, gain on the sale of
the exchange notes by a Section 933 Holder who is not a United States resident
for purposes of Section 865(g)(1) of the Code will constitute Puerto Rico source
income and, therefore, will not be subject to United States federal income tax
provided the exchange notes do not constitute inventory in the hands of the
holder, and provided the gain is not effectively connected with the conduct by
the holder of a trade or business in the United States.
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<PAGE> 111
Holders of exchange notes that are not U.S. holders and not Section 933
Holders will not be subject to United States federal income tax on payments of
interest with respect to the exchange notes unless such interest is effectively
connected with the conduct by the non-U.S. holders of a trade or business in the
United States. A non-U.S. holder generally will not be subject to United States
federal income tax on any gain realized on the sale or other disposition of
exchange notes, unless (a) such gain is effectively connected with the conduct
by the non-U.S. holder of a trade or business in the United States, or (b) in
the case of gain realized by an individual non-U.S. holder, the non-U.S. holder
is present in the United States for 183 days or more during the year of the sale
or disposition and certain other conditions are met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
United States "backup" withholding may apply to certain payments of
principal and interest on the exchange notes and to certain payments of proceeds
from the sale or retirement of the exchange notes. Generally such payments made
by mail or wire transfer to an address in the United States or made by a paying
agent, broker or other intermediary in the United States will be subject to a
backup withholding tax equal to 31% of such payments if the U.S. holder fails to
furnish his taxpayer identification number (social security number or employer
identification number), to certify that it is not subject to backup withholding,
or to otherwise comply with the applicable requirements of the backup
withholding rules.
Certain U.S. holders (including, among others, all corporations) are not
subject to backup withholding. Interest paid with respect to exchange notes, and
payment of the proceeds from a sale of exchange notes to or through the United
States office of a broker or other intermediary, received by a non-U.S. holder
will be subject to backup withholding unless the payer has received the
appropriate certification from the non-U.S. holder or the non-U.S. holder
otherwise establishes an exemption therefrom. Payments made outside the United
States or to a non-U.S. holder by a non-U.S. broker or other intermediary
generally will not be subject to these United States certification requirements.
In addition, information reporting requirements may apply to certain payments of
principal and interest in respect of the exchange notes and to certain proceeds
from the sale or other disposition of the exchange notes.
Any amounts withheld under the backup withholding rules from a payment to a
U.S. holder or non-U.S. holder with respect to the exchange notes will be
allowed as a refund or credit against the U.S. holder or non-U.S. holder's
United States federal income tax liability; provided, however, the holder timely
furnishes the required information to the United States Internal Revenue
Service.
The Treasury Department has promulgated final regulations, which are
generally effective for payments made after December 31, 2000, subject to
certain transition rules, regarding the backup withholding rules discussed
above. In general, the final regulations do not significantly alter the
substantive withholding and information reporting requirements, but unify
current certification procedures and forms and clarify reliance standards. Under
the final regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners.
PUERTO RICO TAX CONSIDERATIONS
GENERAL
This summary of certain Puerto Rico tax considerations deals only with
holders of exchange notes who are not Puerto Rico holders.
PAYMENTS OF INTEREST
Interest on exchange notes received by a non-Puerto Rico holder who is a
citizen of the United States will be exempt from withholding or other Puerto
Rico taxes.
Interest on exchange notes received by a non-Puerto Rico holder, other than
a non-Puerto Rico holder that is a citizen of the United States, will also be
exempt from withholding or other Puerto Rico taxes, except in the case of a
non-Puerto Rico holder that may be regarded as a "related person" with respect
to Telecomunicaciones de Puerto Rico. For this purpose, a "related person"
generally will be a person that
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<PAGE> 112
directly or indirectly owns 50% or more in value of the stock of
Telecomunicaciones de Puerto Rico, or a corporation or partnership 50% or more
of the value of whose stock or interests are owned directly or indirectly by
Telecomunicaciones de Puerto Rico.
The Puerto Rico Code does not provide rules with respect to the treatment
of the excess of the amount due at maturity over the initial offering price.
Under current administrative practice followed by the Puerto Rico Department of
Treasury, original issue discount (if any) on the exchange notes would be
treated as interest.
SALE OR RETIREMENT OF NOTES
Any gain realized on the sale or other disposition of exchange notes by a
non-Puerto Rico holder will not be subject to Puerto Rico taxes, except in the
case where such gain constitutes income from sources within Puerto Rico. In
general, gain realized on the sale or other disposition of an exchange note will
constitute income from sources within Puerto Rico if the sale or other
disposition of the exchange note occurs in Puerto Rico, i.e., if all right,
title and interest in the exchange note passes from the seller to the purchaser
in Puerto Rico. Retirement of the old notes in New York at the office of the
paying agent, and sale of the exchange notes effected through transfer of
beneficial ownership on the depository's records or the records of a U.S.-based
participant thereof, pursuant to instructions given outside Puerto Rico, will
not be considered to have occurred in Puerto Rico.
Any gain subject to tax in Puerto Rico on the sale or other disposition of
an exchange note will be included in an annual Puerto Rico income tax return due
from such non-Puerto Rico holder. Non-Puerto Rico holders should consult their
tax advisors with respect to the Puerto Rico tax consequences to them in the
case of a sale or other disposition of exchange notes that is considered to have
occurred in Puerto Rico.
REGISTRATION OF NOTES
Any gain realized by non-Puerto Rico holders on an exchange of old notes
for exchange notes pursuant to the exchange offer will not be subject to Puerto
Rico income tax provided the exchange, as contemplated, is effected outside
Puerto Rico.
An exchange of the old notes for exchange notes will be considered to have
occurred outside Puerto Rico if the exchange of such notes occurs physically at
the office of the exchange agent in New York, pursuant to instructions given by
the holder and notice of acceptance given by the Telecomunicaciones de Puerto
Rico, in each case outside of Puerto Rico.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION AND THE PUERTO RICO TAX
DISCUSSION SET FORTH ABOVE ARE INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT
BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
UNITED STATES FEDERAL, PUERTO RICO OR OTHER TAX LAWS.
LEGAL MATTERS
The validity of the exchange notes, guarantees and certain other matters
governed by U.S. federal and New York state law will be passed upon by Curtis,
Mallet-Prevost, Colt & Mosle LLP, special U.S. and New York counsel to
Telecomunicaciones de Puerto Rico, Puerto Rico Telephone Company and Celulares
Telefonica, Inc. Certain matters governed by Puerto Rico law will be passed upon
by O'Neill & Borges, special Puerto Rico counsel to Telecomunicaciones de Puerto
Rico.
EXPERTS
The combined financial statements of Puerto Rico Telephone Company and
Celulares Telefonica, Inc. and related notes thereto as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998, the
consolidated balance sheet of Telecomunicaciones de Puerto Rico, Inc. and
109
<PAGE> 113
subsidiaries as of June 30, 1999, and the related consolidated statements of
operations, comprehensive income (loss), changes in shareholders' equity, and
cash flows for the period from March 2, 1999 through June 30, 1999, and the
combined statements of operations, comprehensive income (loss), changes in
shareholder's equity and cash flows of Puerto Rico Telephone Company, Inc. and
Celulares Telefonica, Inc. for the period from January 1, 1999 to March 1, 1999
incorporated in this prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
110
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
PUERTO RICO TELEPHONE COMPANY, INC. AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Combined Balance Sheets as of December 31, 1998 and 1997.... F-3
Combined Statements of Income for the years ended December
31, 1998, 1997 and 1996................................... F-4
Combined Statements of Comprehensive Income for the years
ended December 31, 1998, 1997 and 1996.................... F-5
Combined Statements of Changes in Shareholder's Equity for
the years ended December 31, 1998, 1997 and 1996.......... F-6
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-7
Notes to Combined Financial Statements for the years ended
December 31, 1998, 1997 and 1996.......................... F-8
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998.................................................. F-19
Consolidated Statements of Operations for the six-month
periods ended June 30, 1999 and 1998 (Unaudited).......... F-20
Consolidated Statements of Comprehensive Income (Loss) for
the six-month periods ended June 30, 1999 and 1998
(Unaudited)............................................... F-21
Consolidated Statements of Changes in Shareholders' Equity
for the six-month periods ended June 30, 1999 and 1998
(Unaudited)............................................... F-22
Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1999 and 1998 (Unaudited).......... F-23
Notes to Consolidated Financial Statements for the six-month
periods ended June 30, 1999 and 1998 (Unaudited).......... F-24
</TABLE>
F-1
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Puerto Rico Telephone Company and Celulares Telefonica, Inc.:
We have audited the accompanying combined balance sheets of Puerto Rico
Telephone Company and Celulares Telefonica, Inc. (the "Companies") as of
December 31, 1998 and 1997, and the related combined statements of income,
comprehensive income, changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Companies management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of Puerto Rico Telephone
Company and Celulares Telefonica, Inc. as of December 31, 1998 and 1997, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
San Juan, Puerto Rico
February 25, 1999
(March 2, 1999 as to Note 13)
F-2
<PAGE> 116
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 35,611 $ 21,254
Accounts receivable, net of allowance for doubtful
accounts of $56,003,000 and $64,277,000 in 1998 and
1997, respectively..................................... 365,137 319,467
Inventory and supplies.................................... 28,117 35,826
Prepaid expenses.......................................... 6,491 3,184
---------- ----------
Total current assets.............................. 435,356 379,731
PROPERTY, PLANT AND EQUIPMENT, Net (Notes 1, 2 and 6)....... 1,987,901 2,019,148
OTHER ASSETS, Net (Note 3).................................. 33,347 35,927
---------- ----------
TOTAL............................................. $2,456,604 $2,434,806
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases (Note
6)..................................................... $ 235 $ 431
Accounts payable and accrued expenses..................... 286,513 199,827
Compensated absences and other liabilities................ 60,480 43,347
---------- ----------
Total current liabilities......................... 347,228 243,605
OBLIGATIONS UNDER CAPITAL LEASES, LESS CURRENT PORTION (Note
6)........................................................ 515 748
CUSTOMERS' DEPOSITS......................................... 41,437 42,253
EMPLOYEE BENEFIT PLANS LIABILITY (Note 5)................... 221,085 196,243
OTHER LIABILITIES........................................... 33,655 26,919
---------- ----------
Total liabilities................................. 643,920 509,768
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 9)
SHAREHOLDER'S EQUITY:
Common stock, par value $0.01 per share; authorized,
10,000,000 shares; issued and outstanding, 1,000,000
shares................................................. 6 6
Additional paid-in capital................................ 1,835,800 1,930,792
Retained earnings......................................... -- --
Accumulated other comprehensive loss (Note 5)............. (23,122) (5,760)
---------- ----------
Total shareholders' equity........................ 1,812,684 1,925,038
---------- ----------
TOTAL............................................. $2,456,604 $2,434,806
========== ==========
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 117
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES AND SALES:
Local services..................................... $ 467,819 $ 447,338 $ 419,670
Long distance services (Note 4).................... 251,754 252,259 263,055
Access services (Note 4)........................... 300,448 277,469 257,527
Cellular services.................................. 100,265 102,082 135,101
Paging services.................................... 59,728 55,212 33,628
Directory services................................. 40,195 42,611 45,555
Other services and sales........................... 50,475 57,150 46,889
---------- ---------- ----------
Total revenues and sales................... 1,270,684 1,234,121 1,201,425
---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of services and sales......................... 482,877 450,288 468,915
Selling, general and administrative................ 264,013 260,084 336,995
Depreciation and amortization (Note 1)............. 296,493 279,198 254,609
---------- ---------- ----------
Total operating costs and expenses......... 1,043,383 989,570 1,060,519
---------- ---------- ----------
OPERATING INCOME..................................... 227,301 244,551 140,906
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income.................................... 3,208 3,705 3,322
Other expense, net (Note 7)........................ (6,142) (2,452) (2,499)
---------- ---------- ----------
Total other (expense) income, net.......... (2,934) 1,253 823
---------- ---------- ----------
NET INCOME (Note 8).................................. $ 224,367 $ 245,804 $ 141,729
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 118
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME................................................. $224,367 $245,804 $141,729
OTHER COMPREHENSIVE INCOME (LOSS):
Minimum pension liability adjustment....................... (17,362) 6,259 897
-------- -------- --------
COMPREHENSIVE INCOME....................................... $207,005 $252,063 $142,626
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 119
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS LOSS TOTAL
------ ---------- --------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............. $ 5 $1,824,605 $ -- $(12,916) $1,811,694
Net income........................... 141,729 141,729
Dividends and return of capital...... (361,335) (141,729) (503,064)
Capital contributions................ 1 400,084 400,085
Minimum pension liability
adjustment........................ 897 897
--- ---------- --------- -------- ----------
BALANCE, DECEMBER 31, 1996............. 6 1,863,354 -- (12,019) 1,851,341
Net income........................... 245,804 245,804
Dividends and return of capital...... (255,458) (245,804) (501,262)
Capital contributions................ 322,896 322,896
Minimum pension liability
adjustment........................ 6,259 6,259
--- ---------- --------- -------- ----------
BALANCE, DECEMBER 31, 1997............. 6 1,930,792 -- (5,760) 1,925,038
Net income........................... 224,367 224,367
Dividends and return of capital...... (305,468) (224,367) (529,835)
Capital contributions................ 210,476 210,476
Minimum pension liability
adjustment........................ (17,362) (17,362)
--- ---------- --------- -------- ----------
BALANCE, DECEMBER 31, 1998............. $ 6 $1,835,800 $ -- $(23,122) $1,812,684
=== ========== ========= ======== ==========
</TABLE>
See notes to combined financial statements.
F-6
<PAGE> 120
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 224,367 $ 245,804 $ 141,729
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 296,493 279,198 254,609
Loss on retirement of telephone plant.............. 13,638 -- --
Changes in assets and liabilities:
Accounts receivable................................ (45,670) (14,860) (20,250)
Inventory and supplies............................. 7,709 23,606 1,053
Prepaid expenses................................... (3,307) (153) (595)
Other assets....................................... (346) 5,351 (4,716)
Accounts payable and accrued expenses, employee
benefit plans, compensated absences and other
liabilities, customers' deposits and other
liabilities...................................... 120,867 (30,706) 132,282
--------- --------- ---------
Net cash provided by operating activities............. 613,751 508,240 504,112
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and construction of telephone plant,
including cost of removal.......................... (287,988) (362,247) (391,412)
Net salvage on retirements............................ 8,382 10,923 10,684
--------- --------- ---------
Net cash used in investing activities......... (279,606) (351,324) (380,728)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends and return of capital....................... (529,835) (501,262) (503,064)
Capital contributions................................. 210,476 322,896 400,085
Principal payments on capital lease obligations....... (429) (325) (546)
--------- --------- ---------
Net cash used in financing activities......... (319,788) (178,691) (103,525)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 14,357 (21,775) 19,859
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.......... 21,254 43,029 23,170
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 35,611 $ 21,254 $ 43,029
========= ========= =========
</TABLE>
See notes to combined financial statements.
F-7
<PAGE> 121
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Puerto Rico Telephone Company ("PRTC"), a Delaware corporation and a
wholly-owned subsidiary of Puerto Rico Telephone Authority (the "Authority") has
served as the primary provider of wireline local and inter-island long distance
telephone service in Puerto Rico. It was granted by the government the exclusive
franchises to provide these services and in exchange had the rates it charged to
customers established based upon its costs of providing non-discriminatory
services including a return on invested capital. The return on capital was
remitted to the Authority in the form of dividends each year. In addition, PRTC
participated in the cost-sharing pools established by the National Exchange
Carriers Association ("NECA") and in the universal service funds that provide
recovery of cost of service in rural high cost areas. Since 1996, regulation of
the rates and operations of PRTC were transferred to the Puerto Rico
Telecommunications Regulatory Board ("the Telecommunications Board"), an
independent agency of the Commonwealth of Puerto Rico established by the Puerto
Rico Telecommunications Act of 1996 to assume responsibility for regulating
telephone carriers. The Telecommunications Act directs the Telecommunications
Board to presume that PRTC controls the local service access and on-island toll
markets as of the date of enactment. The Telecommunications Act requires a list
of rates and charges be submitted to it and that they are to be based upon the
cost of providing services to customers. Accordingly, PRTC has followed the
accounting principles provided in Statement of Financial Accounting Standards
(SFAS) No. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION.
In October 1997, the Federal Communications Commission ("FCC") issued an
order requiring that incumbent local exchange carriers establish a separate
affiliate for the provision of in-region broadband Commercial Mobile Radio
Services. Effective September 1, 1998, CT (a Predecessor of the Company), which
previously operated as a division of PRTC, was organized as a separate
corporation to provide the services as instructed by the FCC.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of PRTC
and CT (the "Companies") as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998. All significant intercompany
balances and transactions have been eliminated in combination.
USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at the original cost of acquisition
or construction. Maintenance, repairs and the cost of removal of minor items of
property are charged to expense. Replacements of major items of property are
charged to the plant accounts. Property retired or otherwise disposed of in the
ordinary course of business, together with the cost of removal, less salvage, is
charged to accumulated depreciation with no gain or loss recognized.
Depreciation and amortization is computed on the straight-line method at rates
considered adequate to allocate the cost of the various classes of property over
their estimated service lives.
F-8
<PAGE> 122
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CASH AND CASH EQUIVALENTS
All short-term investments with original maturities of three months or less
are considered to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is an amount that management believes
will be adequate to absorb possible losses on existing receivables that may
become uncollectible based on evaluations of the collectibility of the
receivables and prior loss experience. Because of uncertainties inherent in the
estimation process, management's estimate of losses in the receivables
outstanding and the related allowance may change in the near term.
INVENTORY AND SUPPLIES
Inventory and supplies are stated at average cost.
IMPAIRMENT OF LONG-LIVED ASSETS
The Companies periodically review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. As the Government of Puerto Rico moves forward with the
privatization of the Companies, if the rate setting process is deregulated so
that rates are no longer based upon the Companies' cost of providing service and
if the Companies' markets are opened to entry by competitors, the Companies may
need to reassess their ability to continue to follow regulatory accounting
principles and the ability to realize its investment in property, plant and
equipment.
LONG DISTANCE, ACCESS, AND OTHER REVENUES
Revenues are generally recognized when services are rendered or products
are delivered to customers.
Long distance and access services revenues are derived from long distance
calls within Puerto Rico, carrier charges for access to the local exchange
network, subscriber line charges and other services offered to the long distance
carriers under contractual arrangements. Carrier Common Line access services
revenues are generated based on the participation by the Companies in revenue
pools with other telephone companies managed by NECA, which are funded by access
charges authorized by the FCC and long term support amounts received from the
Universal Service Fund. Such pooled amounts are subsequently divided among the
various telephone companies based upon their respective estimated allocations of
costs and investments in providing interstate services.
Revenues generated from access services and certain other long distance
services have been determined from preliminary allocations and cost studies and
are subject to final settlements in subsequent periods (refer to Note 4).
Toll services provided from overseas long distance telecommunications
services are recognized when earned regardless of the period in which they are
billed to the customer.
Other revenues include services generated based on independent agreements
with long distance carriers.
Revenues for installation fees are recognized as earned.
F-9
<PAGE> 123
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
EMPLOYEE BENEFIT PLANS
Pension and postretirement health care and life insurance benefits earned
as well as interest on projected benefit obligations are accrued currently.
Prior service costs and credits resulting from changes in plan benefits are
amortized over the average remaining service period of the employees expected to
receive the benefits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the combined balance sheets for cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value due to their short-term duration.
RECLASSIFICATIONS
Reclassifications of prior year data have been made, where appropriate, to
conform to the 1999 presentation.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Companies adopted Statement of Financial Accounting Standards
("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME. This Statement establishes
standards for reporting and displaying comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners.
In 1998, the Companies adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement introduces a new model for
segment reporting, called the "management approach." The management approach is
based on the way that the chief operating decision maker organizes segments
within a company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure -- any manner in which management disaggregates
a company. The management approach replaces the notion of industry and
geographic segments in current Financial Accounting Standards Board ("FASB")
standards. Management operates and reports the results of operations in two
segments -- Wireline and Wireless telecommunications, which conforms to its two
operating segments.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which established accounting and reporting
standards for derivative instruments and hedging instruments. SFAS No. 133, as
amended, is effective January 1, 2001. The statement requires entities that use
derivative instruments to measure and record these instruments at fair value as
assets or liabilities on the balance sheet. It also requires entities to reflect
the gains or losses associated with changes in the fair value of these
derivatives, either in earnings or as a separate component of comprehensive
income, depending on the nature of the underlying contract or transaction. The
Companies do not currently utilize derivative instruments. Therefore, the
adoption of SFAS No. 133 is not expected to have a significant effect on the
Companies' results of operations or its financial condition.
F-10
<PAGE> 124
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997 consists of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 26,871 $ 26,798
Buildings................................................... 315,867 304,233
Central office and transmission equipment................... 1,004,347 915,740
Outside plant............................................... 1,733,846 1,672,361
Other equipment............................................. 359,282 348,069
---------- ----------
Total plant in service...................................... 3,440,213 3,267,201
Less accumulated depreciation and amortization.............. 1,701,288 1,477,295
---------- ----------
Net plant in service.............................. 1,738,925 1,789,906
Construction in progress.................................... 248,976 229,242
---------- ----------
Total............................................. $1,987,901 $2,019,148
========== ==========
</TABLE>
3. OTHER ASSETS
Other assets at December 31, 1998 and 1997, consist of:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred pension asset (note 5)............................. $21,664 $25,312
Other....................................................... 11,683 10,615
------- -------
Total............................................. $33,347 $35,927
======= =======
</TABLE>
4. LONG DISTANCE, ACCESS, AND OTHER REVENUES
The Companies long distance, access, and other revenues increased by
$491,000, $8,994,000 and $2,228,000 in 1998, 1997 and 1996, respectively, to
reflect settlements of prior years revenues.
5. PENSION PLANS
The Companies have two separate noncontributory defined benefit pension
plans covering substantially all of their salaried and hourly employees. The
Companies' funding policy for these plans is to make annual contributions as
required by applicable regulations. Contributions are intended to provide not
only for benefits attributed to service to date, but also for those expected to
be earned in the future. Plan assets are invested in equity and government
securities and in other instruments.
All salaried and hourly employees of the Companies participate in the
Puerto Rico Telephone Company Lump Sum Retirement Plan (the "Lump Sum Plan").
Participants are entitled to a lump sum amount equal to a specified number of
months of the employee's earnings. The specified number of months is determined
based on the employees' years of service. The Lump Sum Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974, and is
qualified under the Puerto Rico Internal Revenue Code; accordingly, the Lump Sum
Plan is exempt from income tax in Puerto Rico.
F-11
<PAGE> 125
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The Companies provide certain health care and life insurance benefits for
retired employees. Substantially all of the employees may become eligible for
those benefits if they reach normal retirement age while working for the
Companies.
The following table sets forth the status of the plans, the actuarial
assumptions and the amounts in the Companies' combined balance sheets as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
PENSION AND LUMP OTHER
SUM BENEFITS POSTRETIREMENT BENEFITS
---------------------- ------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year........................... $ 617,694 $ 575,266 $ 132,340 $ 146,957
Service cost...................... 17,795 16,517 3,981 3,510
Interest cost..................... 48,640 45,677 11,404 9,748
Amendments........................ -- 13,969 -- --
Actuarial loss (gain)............. 114,131 804 37,276 (21,824)
Benefits paid..................... (37,074) (34,539) (7,555) (6,051)
--------- --------- --------- ---------
Benefit obligation at end of
year........................... 761,186 617,694 177,446 132,340
--------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at
beginning of year.............. 426,528 346,223 -- --
Actual return on plan assets...... 74,559 57,065
Employer contributions............ 41,668 57,779
Benefits paid..................... (37,074) (34,539)
--------- --------- --------- ---------
Fair value of plan assets at end
of year........................ 505,681 426,528 -- --
--------- --------- --------- ---------
Funded status....................... (255,505) (191,166) (177,446) (132,340)
Unrecognized (gain) loss............ 107,742 34,033 26,657 (10,543)
Unrecognized prior service cost..... 33,519 38,634 16,649 18,441
Unrecognized net transition
obligation........................ 9,407 10,689 62,678 67,081
--------- --------- --------- ---------
Net amount recognized............... $(104,837) $(107,810) $ (71,462) $ (57,361)
========= ========= ========= =========
Amounts recognized in the combined
balance sheets consist of:
Accrued benefit liability......... $(149,623) $(138,882) $ (71,462) $ (57,361)
Intangible asset (Note 3)......... 21,664 25,312
Accumulated other comprehensive
loss........................... 23,122 5,760
--------- --------- --------- ---------
Net amount recognized............... $(104,837) $(107,810) $ (71,462) $ (57,361)
========= ========= ========= =========
</TABLE>
F-12
<PAGE> 126
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
PENSION AND LUMP OTHER
SUM BENEFITS POSTRETIREMENT BENEFITS
-------------------- -----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of
December 31 of each year:
Discount rate............................. 7% 8% 8% 7% 8% 8%
Rate of compensation increase............. 6% 6% 6% 6% 6% 6%
Expected return on plan assets............ 9% 8% 8% n/a n/a n/a
</TABLE>
The assumed health-care cost trend rate used in 1998, 1997 and 1996 in
measuring the accumulated postretirement benefit obligation was 7%, 8%, and 9%,
respectively, declining by 1% per year to an ultimate rate of 5%.
In accordance with the provisions of SFAS No. 87, EMPLOYERS' ACCOUNTING FOR
PENSIONS, the Companies were required to record an additional minimum pension
liability at December 31, 1998 and 1997. This amount represents the excess of
the accumulated benefit obligations over the fair value of plan assets and
accrued pension liabilities. The liabilities have been offset by intangible
assets to the extent possible. Because the asset recognized may not exceed the
amount of unrecognized prior service cost, the balance of the liability at the
end of each period is reported as a separate reduction to shareholder's equity
(Accumulated Other Comprehensive Loss).
See Note 13 for a description of the Authority's commitment to contribute
$200 million over five years to cover unfunded pension and other post-employment
benefit obligations.
The net periodic pension cost for the years ended December 31, 1998, 1997
and 1996 include the following components:
<TABLE>
<CAPTION>
PENSION AND LUMP OTHER
SUM BENEFITS POSTRETIREMENT BENEFITS
-------------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost......... $ 17,795 $ 16,517 $ 14,070 $ 3,981 $ 3,510 $ 3,796
Interest cost........ 48,640 45,677 41,586 11,404 9,748 10,853
Expected return on
plan assets........ (34,280) (58,138) (36,516) -- -- --
Net amortization and
deferral........... 6,539 36,187 19,264 6,655 5,906 6,551
Effect of early
retirement
program............ -- -- 99,102 -- -- --
-------- -------- -------- ------- ------- -------
Net periodic pension
cost............... $ 38,694 $ 40,243 $137,506 $22,040 $19,164 $21,200
======== ======== ======== ======= ======= =======
</TABLE>
On January 25, 1996, a program was approved which allowed for the early
retirement of salaried employees who as of December 31, 1995 met certain
specific requirements. This "window benefit" program was accepted by most of the
eligible employees. The early retirement program resulted in an increase of
approximately $99 million in the net periodic pension cost for the year ended
December 31, 1996.
F-13
<PAGE> 127
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
PUERTO RICO EMPLOYEES' RETIREMENT SYSTEM
Some of the Companies' employees (the former employees of Puerto Rico
Communications Corporation, which was merged with PRTC on May 4, 1994)
participate in the Commonwealth of Puerto Rico Employees' Retirement System (the
"System"), a cost-sharing multiple-employer retirement system.
The Companies are required to contribute 9.275% of the employees' salaries.
Total payroll covered for the year ended December 31, 1998 was approximately
$16,752,000. Total employee and employer contributions for the year ended
December 31, 1998 amounted to approximately $1,285,000 and $1,538,000,
respectively. See Note 13 for change resulting from the acquisitions of PRTC and
CT by the GTE Group.
6. LEASES
The Companies use certain building facilities and equipment under various
capital and operating lease agreements.
At December 31, 1998 and 1997, the cost and accumulated amortization of
building facilities and equipment under capital leases are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Cost........................................................ $1,675 $2,305
Less accumulated amortization............................... 1,111 1,521
------ ------
Total............................................. $ 564 $ 784
====== ======
</TABLE>
The amortization of the building facilities and equipment under capital
leases is included in the depreciation and amortization expense account.
Future minimum lease payments under non-cancelable capital and operating
leases in effect at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDING DECEMBER 31,
1999...................................................... $295 $ 7,418
2000...................................................... 209 5,083
2001...................................................... 90 3,063
2002...................................................... 90 1,744
2003...................................................... 90 1,340
Thereafter................................................ 195 9,215
---- -------
Total minimum lease payments................................ 969 27,863
Less amount representing interest........................... 219 --
---- -------
Present value of minimum lease payments..................... $750 $27,863
==== =======
</TABLE>
Rental costs charged to operations under operating leases for the years
ended December 31, 1998, 1997 and 1996 amounted to approximately $9,898,000,
$10,426,000 and $9,361,000, respectively.
F-14
<PAGE> 128
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
7. OTHER EXPENSE, NET
The components of other expense at December 31, 1998, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest expense......................................... $ 729 $ 710 $1,726
Other expenses........................................... 5,413 1,742 773
------ ------ ------
Total.......................................... $6,142 $2,452 $2,499
====== ====== ======
</TABLE>
8. TAXES
As discussed in Note 13, the Companies were wholly-owned subsidiaries of
Puerto Rico Telephone Authority until March 2, 1999. The act authorizing the
creation of the Authority exempts the Authority and its wholly-owned
subsidiaries from all taxes levied on their properties or revenues by the
Commonwealth of Puerto Rico and its municipalities. Therefore, the Companies
were exempt from income, property and other taxes in Puerto Rico. For the
periods covered in the accompanying combined financial statements of the
Companies, all taxes and payments in lieu of taxes were the responsibility of
the Authority.
9. COMMITMENTS AND CONTINGENCIES
(A) CONSTRUCTION COMMITMENTS
The Companies' construction program for 1999 amounts to approximately $224
million, including commitments for the purchase and installation of telephone
equipment and materials and supplies.
(B) LITIGATION
The Companies and their former parent company, Puerto Rico Telephone
Authority, have been advised of certain unasserted claims and were defendants in
several lawsuits including those arising out of the conduct of their normal
course of business, including those related to regulatory actions and commercial
transactions. These claims have been vigorously contested and management of the
Authority and the Companies, after consultation with legal counsel, established
adequate reserves to cover the claims. Management believes that the final
resolution of the legal cases will not have a material adverse effect on their
financial statements.
F-15
<PAGE> 129
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. SHAREHOLDER'S EQUITY
Capital stock at December 31, 1998 and 1997 consists of:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------ ----------
DECEMBER 31, 1998 (IN THOUSANDS)
<S> <C> <C>
Puerto Rico Telephone Company:
Common stock -- par value of $10 per share:
1,000 shares authorized; 589 shares issued and
outstanding............................................ $6 $1,670,988
Celulares Telefonica, Inc.:
Common stock -- no par value: 10,000 shares authorized;
unissued............................................... 164,812
-- ----------
Total....................................................... $6 $1,835,800
== ==========
DECEMBER 31, 1997
Puerto Rico Telephone Company:
Common stock -- par value of $10 per share;
1,000 shares authorized; 579 shares issued and
outstanding............................................ $6 $1,930,792
-- ----------
</TABLE>
Under the terms of the Trust Agreement of the Authority with a financial
institution, the Companies were required to pay monthly dividends to the
Authority in amounts equal to their revenues less current expenses, excluding
depreciation and the Authority's current debt service requirements. Such
dividends were charged against retained earnings to the extent available and any
excess was accounted for as a return of capital to the Authority.
11. SIGNIFICANT EVENT
On September 21, 1998, Puerto Rico was struck by a hurricane which caused
extensive damages to the Island. The effect of the damages on the Companies'
telephone plant and telecommunications services was represented by the book
value of telephone plant destroyed and retired from the books of approximately
$13.6 million, cost of repairs and reconstruction of telephone plant of
approximately $54.0 million, and loss of revenues of approximately $18.6
million. At December 31, 1998, the Companies recorded expenses amounting to
approximately $31.7 million related to the above losses and as other income
amounts received from insurance companies and insurance claims outstanding for
approximately $6.4 million. In addition, the construction program for the year
was reallocated during the last quarter of 1998 to address reconstruction of the
telephone plant and services.
12. CASH FLOW INFORMATION
Noncash operating activities included changes in the accrual of additional
minimum liability amounting to approximately $13,714,000, $4,061,000 and
$3,495,000 as of December 31, 1998, 1997 and 1996, respectively, which had an
effect on deferred pension asset, employee benefit plans liability and
accumulated other comprehensive loss.
13. SALE OF THE COMPANIES
On April 7, 1997, the Governor of Puerto Rico announced the intention of
the Commonwealth of Puerto Rico to sell the Companies. In August 1997, the
Governor signed the legislation approved by the Legislature
F-16
<PAGE> 130
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
of Puerto Rico authorizing a committee to be designated by the Governor to
initiate the process to identify prospective buyers. In May 1998, the Governor
announced that the process had been completed, and that the Companies would be
sold to a consortium led by GTE Corporation. On February 12, 1999, the FCC
approved the sale of the Companies to a subsidiary of GTE Corporation. The
closing of the sale occurred on March 2, 1999 under the following terms:
- An Employee Stock Option Plan ("ESOP") was created, wherein the
Government of Puerto Rico contributed three percent (3%), and a
subsidiary of GTE Corporation and Popular Inc. contributed one percent
(1%) of the stock to the ESOP. The ESOP acquired an additional three
percent (3%) with funds borrowed from Telecomunicaciones de Puerto Rico,
Inc. ("Telpri").
- A subsidiary of GTE Corporation acquired 40.01% plus one share of Telpri
stock and Popular Inc. acquired 9.99% at the date of the closing.
- The Government of Puerto Rico retained forty-three percent (43%) less one
share of the shares of the stock of Telpri.
- The Authority received approximately $2.040 billion from the transaction.
Also, the Authority agreed to contribute cash or stock worth $200 million
over the next five years to cover unfunded pension and other
post-employment benefit obligations. Upon receipt of this contribution,
the Companies will be required to contribute amounts to the plans which
will produce an estimated tax benefit of approximately $128 million.
In addition, effective on the date of the closing the Companies' employees
which participated in the Commonwealth of Puerto Rico Employees' Retirement
System discontinued participating in the plan and became participants of the
Companies' noncontributory defined benefit pension plans.
Effective January 1, 1999, Puerto Rico Telephone Company, which was an
entity incorporated under the laws of the state of Delaware, U.S.A., was
reorganized as a Puerto Rico corporation under the name Puerto Rico Telephone
Company, Inc. On March 1, 1999, the ownership of Puerto Rico Telephone Company,
Inc. and Celulares Telefonica, Inc. was transferred to Telecomunicaciones de
Puerto Rico, Inc., which acquired all of PRTC and CT's stock from Puerto Rico
Telephone Authority.
14. SEGMENT INFORMATION
Effective December 31, 1998, the Companies adopted SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No.
131 establishes standards for reporting financial information about operating
segments in complete sets of financial statements.
The Companies have two reportable segments, Wireline and Wireless, in which
the Companies operate and organize their services. The Wireline segment
provides:
- Local service including basic voice, telephone and PBX rental, public
phone services, value-added services, high speed private line services,
Internet access and installations.
- Long distance service both in and off the island. Off-island services
began on February 1, 1999.
- Access service provided to long distance, competitor local exchange
carriers, cellular and paging operators to originate and terminate calls
on its network.
- Directory publishing right revenues and listing fees.
- PBX equipment sales and billing and collection services to competitor
long distance operators in Puerto Rico.
F-17
<PAGE> 131
PUERTO RICO TELEPHONE COMPANY AND CELULARES TELEFONICA, INC.
(PREDECESSORS)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The Wireless segment includes cellular and paging services and related
equipment sales.
The Companies measure and evaluate the performance of their segments based
on operating income. The accounting policies of the segments are the same as
those described in Note 1. The Companies account for intersegment sales of
products and services at current market prices. Intersegment revenues were not
material in 1998, 1997 and 1996. The Companies are not dependent on any single
customer.
Segment results for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
WIRELINE
Revenues and sales:
Local services............................ $ 467,819 $ 447,338 $ 419,670
Long distance services.................... 251,754 252,259 263,055
Access services........................... 300,448 277,469 257,527
Directory services and other.............. 90,670 99,761 92,444
---------- ---------- ----------
Total................................ $1,110,691 $1,076,827 $1,032,696
========== ========== ==========
Operating income............................. $ 203,137 $ 224,896 $ 103,452
Depreciation and amortization................ 275,005 261,711 240,997
Capital expenditures......................... 250,986 324,231 351,094
Total assets................................. 2,231,822 2,263,672 2,234,567
WIRELESS
Revenues and sales:
Cellular services......................... $ 100,265 $ 102,082 $ 135,101
Paging services........................... 59,728 55,212 33,628
---------- ---------- ----------
Total................................ $ 159,993 $ 157,294 $ 168,729
========== ========== ==========
Operating income............................. $ 24,164 $ 19,655 $ 37,454
Depreciation and amortization................ 21,488 17,487 13,612
Capital expenditures......................... 31,675 30,471 32,587
Total assets................................. 224,782 171,134 153,445
CONSOLIDATED REVENUES AND SALES................ $1,270,684 $1,234,121 $1,201,425
========== ========== ==========
CONSOLIDATED OPERATING INCOME.................. $ 227,301 $ 244,551 $ 140,906
========== ========== ==========
CONSOLIDATED ASSETS............................ $2,456,604 $2,434,806 $2,388,012
========== ========== ==========
</TABLE>
F-18
<PAGE> 132
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
------------- ------------
JUNE 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 63,711 $ 35,611
Accounts receivable, net of allowance for doubtful
accounts of $60,227 and $56,003 in 1999 and 1998,
respectively........................................... 357,781 365,137
Inventory and supplies.................................... 33,450 28,117
Prepaid expenses.......................................... 14,015 6,491
---------- ----------
Total current assets.............................. 468,957 435,356
PROPERTY, PLANT AND EQUIPMENT, Net.......................... 1,730,708 1,987,901
INTANGIBLES, Net............................................ 295,712 21,664
DEFERRED INCOME TAX......................................... 202,068 --
OTHER ASSETS................................................ 16,295 11,683
---------- ----------
TOTAL....................................................... $2,713,740 $2,456,604
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........................................... $ 26,263 $ 235
Accounts payable and accrued expenses..................... 279,797 286,513
Compensated absences and other liabilities................ 64,521 60,480
---------- ----------
Total current liabilities......................... 370,581 347,228
LONG-TERM DEBT, excluding current portion................... 1,500,226 515
CUSTOMERS' DEPOSITS......................................... 42,475 41,437
EMPLOYEE BENEFIT PLANS LIABILITY............................ 323,042 221,085
OTHER NON-CURRENT LIABILITIES............................... 24,698 33,655
---------- ----------
Total liabilities................................. 2,261,022 643,920
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock.............................................. 10 6
Additional paid-in capital................................ 699,274 1,835,800
Deferred ESOP compensation................................ (34,800) --
Subscription receivable................................... (161,808) --
Retained deficit.......................................... (40,055) --
Accumulated other comprehensive loss...................... (9,903) (23,122)
---------- ----------
Total shareholders' equity.................................. 452,718 1,812,684
---------- ----------
TOTAL....................................................... $2,713,740 $2,456,604
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE> 133
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMPANY PREDECESSORS (COMBINED)
-------- --------------------------
FOR THE 1999 PERIOD
--------------------- FOR THE SIX
MARCH 2 JANUARY 1 MONTHS ENDED
THROUGH THROUGH JUNE 30, 1998
JUNE 30, MARCH 1, (UNAUDITED)
-------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES AND SALES:
Local services........................................ $160,612 $ 80,196 $238,454
Long distance services................................ 73,971 48,613 125,564
Access services....................................... 119,147 49,517 149,861
Cellular services..................................... 44,226 20,541 48,192
Paging services....................................... 16,659 8,202 30,808
Directory services.................................... 13,131 6,726 18,547
Other services and sales.............................. 19,237 9,505 27,599
-------- -------- --------
Total revenues and sales...................... 446,983 223,300 639,025
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of services and sales............................ 179,518 91,723 236,904
Selling, general and administrative................... 107,756 49,983 122,078
ESOP compensation expense............................. 26,100
Effect of early retirement............................ 4,226
Depreciation and amortization......................... 99,484 50,393 145,687
-------- -------- --------
Total operating costs and expenses............ 386,758 222,425 504,669
-------- -------- --------
OPERATING INCOME........................................ 60,225 875 134,356
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income (expense), net........................ (29,336) 407 1,715
Other income (expense), net........................... 1,285 569 (129)
-------- -------- --------
Total other income (expense), net............. (28,051) 976 1,586
-------- -------- --------
INCOME BEFORE INCOME TAX................................ 32,174 1,851 135,942
INCOME TAX.............................................. 11,729 -- --
-------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE...................... 20,445 1,851 135,942
EXTRAORDINARY CHARGE-DISCONTINUANCE OF
REGULATORY ACCOUNTING, net of income tax benefit of
$38,750............................................... (60,500) -- --
-------- -------- --------
NET INCOME (LOSS)....................................... $(40,055) $ 1,851 $135,942
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE> 134
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
COMPANY PREDECESSORS (COMBINED)
-------- ---------------------------
FOR THE 1999 PERIOD
---------------------- FOR THE SIX
MARCH 2 JANUARY 1 MONTHS ENDED
THROUGH THROUGH JUNE 30, 1998
JUNE 30, MARCH 1, (UNAUDITED)
-------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME (LOSS)........................................ $(40,055) $ 1,851 $135,942
OTHER COMPREHENSIVE INCOME (LOSS):
Minimum pension liability adjustment................... -- (2,369) 3,344
-------- ------- --------
COMPREHENSIVE INCOME (LOSS).............................. $(40,055) $ (518) $139,286
======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE> 135
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DEFERRED RETAINED OTHER
COMMON PAID-IN ESOP SUBSCRIPTION EARNINGS COMPREHENSIVE
STOCK CAPITAL COMPENSATION RECEIVABLE (DEFICIT) LOSS TOTAL
------ ----------- ------------ ------------ --------- ------------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSORS (COMBINED):
BALANCE, DECEMBER 31, 1998......... $ 6 $ 1,835,800 $ -- $ -- $ -- $(23,122) $ 1,812,684
Net income, January 1, 1999 to
March 1, 1999.................. 1,851 1,851
Capital contributions............ 110,577 110,577
Special dividend................. (1,570,182) (1,570,182)
Dividends and return of
capital........................ (98,811) (1,851) (100,662)
Minimum pension liability
adjustment..................... 2,369 2,369
Shares of common stock
contributed to the ESOP........ 26,100 (26,100) -- -- -- --
--- ----------- -------- --------- --------- -------- -----------
PREDECESSOR (AUDITED)
BALANCE, MARCH 1, 1999............. $ 6 $ 303,484 $(26,100) $ -- $ -- $(20,753) $ 256,637
=== =========== ======== ========= ========= ======== ===========
COMPANY (AUDITED):
BALANCE, MARCH 1, 1999............. $-- $ -- $ -- $ -- $ -- $ -- $ --
Acquisition by GTE and Popular
Inc. and proportional purchase
accounting..................... 10 530,866 (26,100) (9,903) 494,873
ESOP contribution................ 8,700 (8,700)
Contribution receivable from
PRTA........................... 159,708 (159,708)
Accretion of discount on
subscription receivable........ (2,100) (2,100)
Net loss, March 2, 1999 to June
30, 1999....................... (40,055) (40,055)
--- ----------- -------- --------- --------- -------- -----------
BALANCE, JUNE 30, 1999............. $10 $ 699,274 $(34,800) $(161,808) $ (40,055) $ (9,903) $ 452,718
=== =========== ======== ========= ========= ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE> 136
TELECOMUNICACIONES DE PUERTO RICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMPANY PREDECESSORS (COMBINED)
----------- -------------------------------
FOR THE 1999 PERIOD FOR THE SIX
---------------------------- MONTHS
MARCH 2, JANUARY 1 ENDED JUNE 30,
THROUGH THROUGH 1998
JUNE 30, MARCH 1, (UNAUDITED)
----------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (40,055) $ 1,851 $ 135,942
Adjustments to reconcile net income (loss)to net cash
provided by operating activities:
Extraordinary charge................................ 60,500
Depreciation and amortization....................... 99,484 50,393 145,687
Accretion of discount on subscription receivable
discounted....................................... (2,100)
Deferred income tax................................. 11,729
Compensation expense resulting from the contribution
of shares by PRTA to the ESOP.................... 26,100
Changes in assets and liabilities:
Accounts receivable.............................. 12,556 (14,496) (16,523)
Inventory and supplies........................... (4,027) (1,306) 2,714
Prepaid expenses................................. (8,196) 672 1,793
Other assets..................................... (6,558) 1,702 636
Accounts payable and accrued expenses, employee
benefit plans, compensated absences and other
liabilities, customers' deposits and other
liabilities.................................... 483 (9,059) 2,547
----------- ----------- ---------
Net cash provided by operating activities...... 123,816 55,857 272,796
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and construction of telephone plant,
including cost of removal........................... (71,072) (33,237) (110,621)
Net salvage on retirements............................ 3,995 73 4,560
----------- ----------- ---------
Net cash used in investing activities.......... (67,077) (33,164) (106,061)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions................................. 110,577 106,639
Dividends and return of capital paid.................. (83,116) (273,132)
Deferred ESOP contribution............................ (26,100)
Net borrowings under line-of-credit agreement and
proceeds from issuance of long-term debt............ 1,034,711 1,583,044
Special dividend paid to PRTA......................... (1,570,182)
Payments of principal on debt and capital lease
obligations......................................... (1,100,266) (357)
----------- ----------- ---------
Net cash provided by (used in) financing
activities................................... (65,555) 14,223 (166,850)
----------- ----------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.... (8,816) 36,916 (115)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 72,527 35,611 21,254
----------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 63,711 $ 72,527 $ 21,139
=========== =========== =========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 137
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED JUNE 30, 1999 AND 1998
1. THE ACQUISITION, RELATED CORPORATE RESTRUCTURING AND CHANGE TO ACCOUNTING
BASIS
THE ACQUISITION AND CORPORATE RESTRUCTURING
On April 7, 1997, the Government of the Commonwealth of Puerto Rico (the
"Government of Puerto Rico") announced a plan, which would result in the
privatization of the Puerto Rico Telephone Company, Inc. ("PRTC") and Celulares
Telefonica, Inc. ("CT"), through a competitive bidding process. On July 21,
1998, after the conclusion of the bidding process, a consortium led by GTE
Corporation (the "GTE Group") was awarded the right to purchase a controlling
interest in Telecomunicaciones de Puerto Rico, Inc. (the "Company" or the
"Successor") (the "Acquisition") and entered into a purchase agreement. Under
the provisions of the Acquisition agreement, the Company, a Puerto Rico
corporation, was utilized for the purpose of acquiring the stock of PRTC and CT
from the Puerto Rico Telephone Authority ("PRTA") in connection with the
privatization. On March 1, 1999, pursuant to the terms of the Acquisition
agreement, the Company acquired 100% of the common stock of PRTC and CT (the
"Predecessors"). Prior to the Acquisition of the Predecessors, the Company had
no operations, nor assets and liabilities, and operated as a holding company
formed in connection with the efforts to privatize the Predecessors and to
consummate the sale of an interest in the Predecessors to the GTE Group under
the Acquisition agreement.
On March 2, 1999, just prior to the closing of the acquisition, the Puerto
Rico Telephone Authority received approximately $2.040 billion as part of the
acquisition. A portion of this amount was paid by the Company in the form of a
special dividend amounting to approximately $1.570 billion.
The closing of the sale occurred on March 2, 1999, under the following
terms:
- A subsidiary of GTE Corporation (member of the GTE Group) acquired 40.01%
plus one share of the Company stock and Popular Inc. (Popular) acquired
9.99%.
- The Government of Puerto Rico obtained a forty-three percent (43%)
interest less one share in the shares of the stock of the Company in
exchange for its remaining interests in PRTC and CT. Also, PRTA agreed to
contribute cash or stock worth a total of $200 million in exchange for
their investment in the Company in even installments over five years
beginning on March 2, 1999, to reduce unfunded pension and other
post-employment benefit obligations. The contribution must be in cash for
the first two installments and cash or stock of the Company for the last
three installments. The future receipts have been recorded at their
discounted present value of $159.7 million (at a 8% discount rate).
In conjunction with the Acquisition, PRTA contributed 3% of the Company's
shares to the Company's newly created employee stock ownership plan (the
"ESOP"), and the GTE Group purchased an additional 1% of the Company's shares
from the PRTA and contributed them to the ESOP. The ESOP also acquired an
additional 3% with funds borrowed from the Company.
PARTIAL STEP-UP IN ACCOUNTING BASIS
The Acquisition was accounted for following the applicable accounting rules
governing partial step-up in accounting basis under the Accounting Principles
Board Opinion (APB) No. 16, Business Combinations and EITF 88-16 "Basis in
Leveraged Buyout Transactions", for financial reporting purposes. The
Acquisition resulted in a purchase of 100% of the common stock of PRTC and CT by
the Company, a purchase of a controlling interest in the Company by a new group
of controlling investors with the shareholders of the Predecessors maintaining
only a minority interest in the new company. Under the provisions of EITF 88-16,
a partial change in the basis of assets and liabilities recorded based on the
higher fair market value paid by the GTE Group and Popular for their investment
in the transaction is required using a partial step-up in basis as required
under purchase accounting. Partial step-up accounting records a portion of the
assets and liabilities of
F-24
<PAGE> 138
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company at the amounts paid by the GTE Group. The application of partial
step-up accounting results in an increase in book value of the Company as the
GTE Group and Popular paid fair market value for their interests which exceeded
prior recorded book values. In accordance with EITF 88-16, the equity interests
of PRTA exchanged for their investment in the Predecessors were recorded at
prior book value amounts.
The excess of the purchase price over the basis in the assets and
liabilities of the Company has been allocated to the net assets acquired on a
preliminary basis reflecting the 50% interest acquired by the GTE Group and
Popular as follows (amounts in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $ 268,006
Deferred tax assets......................................... 171,356
Property, plant and equipment............................... (99,250)
Employee benefit plan liabilities........................... (116,426)
Other intangibles........................................... 3,700
---------
Total increase in paid-in capital........................... $ 227,386
=========
</TABLE>
These adjustments consider the effect of the change in the status of the
Company as a tax paying enterprise after March 2, 1999, as required by the
provisions of SFAS No. 109, Accounting for Income Taxes. The Company has made an
estimate of the allocation of the purchase price based upon an estimate of the
tax basis of the assets and liabilities that will be established with the Puerto
Rico Treasury Department. The Company intends to finalize the purchase price
allocation upon final determination of the tax basis of the assets and
liabilities for income tax purposes, which is expected to occur by the end of
1999.
DISCONTINUATION OF SFAS NO. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF
REGULATION
During 1996, the Government of the Commonwealth of Puerto Rico enacted the
Telecommunications Act of 1996 (the "Puerto Rico Act") which began a process to
open the local telecommunications market in Puerto Rico to competition. This
process resulted in the PRTA's decision to privatize the local exchange
telephone operations of the Predecessors through its acquisition by the GTE
Group and Popular Inc.
Prior to the Acquisition, PRTC's rates were regulated based upon rate of
return/cost of service regulation. The entity was also entitled to cost support
from subsidy pools administered by the National Exchange Carrier Association
("NECA") for operation in high cost regions. As a rate of return carrier, PRTC
was permitted to charge prices sufficient to cover its costs and provide the
entity with a permitted annual rate of return of up to 11.5%. The high cost
support subsidies provided the PRTC with the funds which assisted it in
achieving the 11.5% rate of return. After the Acquisition, PRTC, as an indirect
subsidiary of GTE, will be considered a price cap carrier. As a price cap
carrier, the PRTC's prices, rather than its costs and earnings, will be
regulated. The PRTC must exit the long-term support payment pool in the first
half of 2000 and implement a price cap mechanism related to the recovery of
common carrier line costs. When PRTC exits the long-term support pool, it will
be able to charge inter-exchange carriers a pre-subscribed inter-exchange common
carrier line charge ("PICC") which is assessed on an access line basis for
interconnection to the Company's local network. The PRTC estimates that the
annualized pre-tax loss in long term support will be approximately $58 million.
Competition will result in prices charged based upon market forces and not
PRTC's cost of providing customer service.
In addition to the opening of its markets to competitive entry and the
changes to the regulatory provisions for setting rates, PRTC also terminated, in
anticipation of the Acquisition, a mutual noncompete agreement with Telefonica
Larga Distancia (TLD), a provider of international long distance services to
Puerto Rico. The agreement had prohibited PRTC from providing international long
distance telephone service and had prohibited TLD from providing local exchange
telephone service in Puerto Rico. In addition, on February 1,
F-25
<PAGE> 139
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999, the requirement for customers of competitors to dial an access code has
been eliminated with the implementation of equal access dialing as mandated by
the FCC. These actions, along with entrance into the market place of other
competitors, will significantly increase competition in the future. PRTC also
agreed not to increase prices for basic wireline services for three years as a
condition in the Acquisition agreement.
As a result of the changes in the regulation of PRTC's rates, the
competitive environment and the terms of the Acquisition, PRTC has determined
that regulatory accounting principles as set forth in SFAS No. 71 are no longer
applicable to its operations. Accordingly, it has discontinued the application
of SFAS No. 71 in conformance with SFAS No. 101. In general, SFAS No. 71
required the Company to depreciate their telephone plant and equipment over
lives approved by the regulator that, in many cases, extended beyond the assets'
economic lives. SFAS No. 71 also required the deferral of certain costs based
upon approvals received from regulators to recover such costs in the future. As
a result of these requirements, the recorded net book value of the Company's
assets, primarily telephone plant and equipment, were in many cases higher than
that which would otherwise have been recorded had depreciation expense been
based on their economic lives. As a result of the decision to discontinue SFAS
No. 71, an assessment of the cost of property, plant and equipment that will not
be realized based on an analysis of the cash flows expected to be generated by
the telephone plant and equipment over their remaining economic lives
established in light of competitive trends and technology replacement by PRTC
has resulted in the write-down of plant and equipment in the amount of $198.5
million. A proportionate amount of this adjustment (approximately $99.2 million)
has been accounted for as a purchase price adjustment in accordance with the
provisions of proportional purchase accounting to reflect the fair market values
of the assets acquired on March 2, 1999, as prescribed by EITF 88-16. The
remaining $99.2 million was recorded as an extraordinary charge in the
accompanying consolidated statements of operations ($60.5 million after tax).
The Company has shortened the depreciable lives of its telephone plant and
equipment, as set forth below, to reflect the estimated changes in economic
lives experienced due to the introduction of competition and changes in
telecommunications technology.
<TABLE>
<CAPTION>
DEPRECIABLE
LIVES IN YEARS
---------------
ASSET CATEGORY BEFORE AFTER
- -------------- ------ -----
<S> <C> <C>
Digital Switching Equipment................................. 17.2 11.5
Digital Circuit Equipment................................... 12.7 8.4
Underground Cable........................................... 25.9 15.2
Buried Cable................................................ 23.9 14.5
Other....................................................... 6.3 3.8
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements of the Predecessors for the two-month
period ended March 1, 1999, the six-month period ended June 30, 1998, and as of
December 31, 1998, reflect the historical cost of its assets and liabilities and
results of its operations prior to completion of the Acquisition and are
referred to as the Predecessors' combined financial statements. Accordingly, the
accompanying financial statements of the Predecessors and the Company are not
comparable in all material respects, since the Company's financial statements
report financial position, results of operations, and cash flows using a new
accounting basis.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after the elimination of significant
intercompany transactions and balances.
F-26
<PAGE> 140
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The financial statements of the Predecessors include the combined accounts
of PRTC and CT after the elimination of all significant transactions between
these two companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with 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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at the original cost of acquisition
or construction. Maintenance, repairs and the cost of removal of minor items of
property are charged to expense. Replacements of major items of property are
charged to the plant accounts. Property retired or otherwise disposed of in the
ordinary course of business, together with the cost of removal, less salvage, is
charged to accumulated depreciation with no gain or loss recognized.
Depreciation and amortization is computed on the straight-line method at rates
considered adequate to allocate the cost of the various classes of property over
their estimated economic service lives.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenues are generally recognized when services are rendered or products
are delivered to customers.
Long distance and access services revenues are derived from long distance
calls within Puerto Rico, carrier charges for access to the local exchange
network, subscriber line charges and other services offered to the long distance
carriers under contractual arrangements. Carrier Common Line access services
revenues are generated based on the participation by the Companies in revenue
pools with other telephone companies managed by NECA, which are funded by access
charges authorized by the Federal Communications Commission ("FCC") and
long-term support amounts received from the Universal Service Fund. Such pooled
amounts are subsequently divided among the various telephone companies based
upon their respective estimated allocations of costs and investments in
providing interstate services.
Revenues generated from access services and certain other long distance
services have been determined from preliminary allocations and cost studies and
are subject to final settlements in subsequent periods.
Toll services provided from overseas long distance telecommunications
services are recognized when earned regardless of the period in which they are
billed to the customer.
Revenues for installation fees are recognized as earned.
Other revenues include services generated based on independent agreements
with long distance carriers.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is an amount that management believes
will be adequate to absorb possible losses on existing receivables that may
become uncollectible based on evaluations of the collectibility
F-27
<PAGE> 141
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the receivables and prior loss experience. Because of uncertainties inherent
in the estimation process, management's estimate of losses in the receivables
outstanding and the related allowance may change in the near term.
INVENTORY AND SUPPLIES
Inventory and supplies are stated at average cost net of reserves for
obsolescence.
INTANGIBLE ASSETS
Goodwill represents the excess of the amounts paid by GTE and Popular over
the fair value of net tangible and specifically identifiable intangible assets
of that portion of the Company acquired for which proportional purchase
accounting was applied. Goodwill is being amortized on the straight-line method
over a period of 40 years. The cellular customer base is being amortized over a
period of approximately three years to reflect the period over which revenue is
expected to be generated by customers acquired as of the acquisition date. The
Company monitors the loss of cellular subscribers due to attrition and plans to
adjust amortization if changes in attrition rates are experienced.
EMPLOYEE BENEFIT PLANS
Pension and post-retirement health care and life insurance benefits earned
as well as interest on projected benefit obligations are accrued currently.
Prior service costs and credits resulting from changes in plan benefits are
amortized over the average remaining service period of the employees expected to
receive the benefits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value due to their short-term duration.
VALUATION OF ASSETS
The impairment of tangible and intangible assets is assessed when changes
in circumstances indicate that their carrying value may not be recoverable.
Under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," a determination of impairment, if any, is
made based on estimated future cash flows, salvage value or expected net sales
proceeds depending on the circumstances. In circumstances where this assessment
indicates that impairment exists, a loss is recognized for the amount by which
the carrying value of the assets exceeds their fair value. Fair value is
determined based on quoted market prices or other pertinent information when
quoted market prices are not available.
In instances where goodwill has been recorded in connection with impaired
assets, the carrying amount of the goodwill would first be eliminated before any
reduction to the carrying value of tangible or identifiable intangible assets
would occur. The Company's policy is to record asset impairment losses, and any
subsequent adjustments to such losses as initially recorded, as well as net
gains or losses on sales of assets as a component of operating income. Under
Accounting Principles Board Opinion No. 17, "Intangible Assets," the Company
also annually evaluates the future period over which the benefit of goodwill
will be recovered, based on future cashflows, and changes the amortization life
accordingly.
INCOME TAXES
Deferred tax assets and liabilities are established for temporary
differences between the way certain income and expense items are reported for
financial reporting and tax purposes. Deferred tax assets and liabilities are
subsequently adjusted, to the extent necessary, to reflect tax rates expected to
be in effect when
F-28
<PAGE> 142
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the temporary differences reverse. A valuation allowance is established for
deferred tax assets for which realization is not likely.
RECLASSIFICATIONS
Reclassifications of prior year data have been made, where appropriate, to
conform to the 1999 presentation.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Under the provisions of this
SOP, effective January 1, 1999, the Company is required to capitalize and
amortize the cost of all internal-use software expenditures. Implementation of
this statement does not have a material effect on results of operations.
In June 1998, the Financial Accounting Standard Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The statement requires entities that use derivative
instruments to measure these instruments at fair value and record them as assets
or liabilities on the balance sheet. It also requires entities to reflect the
gains or losses associated with changes in the fair value of these derivatives,
either in earnings or as a separate component of comprehensive income, depending
on the nature of the underlying contract or transaction. The Company is
currently assessing the impact of adopting SFAS No. 133, as amended by SFAS No.
137, which is now effective January 1, 2001.
3. PRO FORMA INFORMATION
The following unaudited pro forma condensed consolidated financial
information was prepared assuming the acquisitions of PRTC and CT and the sale
of the interests to the GTE Group took place on January 1, 1998.
Pro forma information is presented for comparative purposes only and does
not purport to be indicative of the results which would have been achieved had
this acquisition occurred as of January 1, 1998, nor does it purport to be
indicative of the results that may be achieved in the future.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
-------------- ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Total revenues and sales.................................. $670,283 $1,270,684
-------- ----------
Income before income tax.................................. $ 2,813 $ 25,902
-------- ----------
Net income before extraordinary charge.................... $ 1,716 $ 15,800
======== ==========
</TABLE>
The pro forma amounts reflect the inclusion in expenses of pro forma
adjustments for the six months ended June 30, 1999 of $16.9 million of interest
expense, $8.7 million for property, municipal and unemployment taxes, $3.9
million of management and technology fees and $1.6 million of amortization
expense.
F-29
<PAGE> 143
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Land....................................................... $ 26,887 $ 26,871
Buildings.................................................. 275,087 315,867
Central office and transmission equipment.................. 781,930 1,004,347
Outside plant.............................................. 1,316,801 1,733,846
Other equipment............................................ 196,023 359,282
---------- ----------
Total plant in service..................................... 2,596,728 3,440,213
Less accumulated depreciation and amortization............. 1,000,385 1,701,288
---------- ----------
Net plant in service....................................... 1,596,343 1,738,925
Construction in progress................................... 134,365 248,976
---------- ----------
Total...................................................... $1,730,708 $1,987,901
========== ==========
</TABLE>
Fifty percent of the accumulated depreciation balance was adjusted based on
the revaluation of the original cost balances of property, plant and equipment,
as a part of proportional purchase accounting as required by EITF 90-12,
Allocating Basis to Individual Assets and Liabilities for Transactions Within
the Scope of Issue No. 88-16.
5. INTANGIBLES
Intangibles consist of:
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................... $268,006 $ --
Customer base............................................... 18,200 --
Deferred pension asset...................................... 14,017 21,664
-------- -------
Total gross cost.................................. 300,223 21,664
Less accumulated amortization............................... 4,511 --
-------- -------
Total............................................. $295,712 $21,664
======== =======
</TABLE>
6. PENSION PLANS
The Company has two separate noncontributory defined benefit pension plans
covering substantially all of its salaried and hourly employees. The Company's
funding policy for these plans is to make annual contributions as required by
applicable regulations. Contributions are intended to provide not only for
benefits attributed to service to data, but also for those expected to be earned
in the future. Plan assets are invested in equity and government securities and
in other instruments.
F-30
<PAGE> 144
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All salaried and hourly employees of the Company participate in the Puerto
Rico Telephone Company Lump Sum Retirement Plan (the "Lump Sum Plan").
Participants are entitled to a lump sum amount equal to a specified number of
months of the employee's earnings. The specified number of months is determined
based on the employees' years of service. The Lump Sum Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974, and is
qualified under the Puerto Rico Internal Revenue Code; accordingly, the Lump Sum
Plan is exempt from income tax in Puerto Rico.
The Company provides certain health care and life insurance benefits for
retired employees. Substantially all of the employees may become eligible for
those benefits if they reach normal retirement age while working for the
Company.
The following table sets forth the status of the plans, the actuarial
assumptions and the amounts in the Company's consolidated balance sheets as of
June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
PENSION AND LUMP OTHER
SUM BENEFITS POSTRETIREMENT BENEFITS
--------------------------------------- ---------------------------------------
FOR THE 1999 PERIOD FOR THE 1999 PERIOD
------------------------ ------------------------
PREDECESSORS PREDECESSORS
COMPANY (COMBINED) PREDECESSORS COMPANY (COMBINED) PREDECESSORS
--------- ------------ FOR THE YEAR --------- ------------ FOR THE YEAR
MARCH 2 JANUARY 1 ENDED MARCH 2 JANUARY 1 ENDED
THROUGH THROUGH DECEMBER 31, THROUGH THROUGH DECEMBER 31,
JUNE 30 MARCH 1 1998 JUNE 30 MARCH 1 1998
--------- ------------ ------------ --------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year...................... $ 767,977 $ 761,186 $ 617,694 $ 179,067 $ 177,446 $ 132,340
Service cost.................... 7,433 3,717 17,795 1,723 861 3,981
Interest cost................... 17,779 8,890 48,640 4,146 2,073 11,404
Amendments...................... -- -- -- -- -- --
Actuarial loss (gain)........... 2,061 1,031 114,131 37,276
Benefits paid................... (13,693) (6,846) (37,074) (2,627) (1,313) (7,555)
--------- --------- --------- --------- --------- ---------
Benefit obligation at end of
year......................... 781,558 767,977 761,186 182,309 179,067 177,446
--------- --------- --------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at
beginning of year............ 515,308 505,681 426,528 -- -- --
Actual return on plan assets.... 21,028 10,514 74,559 -- -- --
Employer contributions.......... 11,919 5,959 41,668 -- -- --
Benefits paid................... (13,693) (6,846) (37,074) -- -- --
--------- --------- --------- --------- --------- ---------
Fair value of plan assets at end
of year...................... 534,562 515,308 505,681 -- -- --
--------- --------- --------- --------- --------- ---------
Funded status..................... (246,996) (252,669) (255,505) (182,309) (179,067) (177,446)
Unrecognized (gain) loss.......... 52,944 107,361 107,742 14,247 26,512 26,657
Unrecognized prior service cost... 16,822 32,665 33,519 8,548 16,350 16,649
Unrecognized net transition
obligation...................... 4,764 9,193 9,407 32,858 61,963 62,678
--------- --------- --------- --------- --------- ---------
Net amount recognized............. (172,466) (103,450) $(104,837) (126,656) (74,242) (71,462)
========= ========= ========= ========= ========= =========
</TABLE>
F-31
<PAGE> 145
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION AND LUMP OTHER
SUM BENEFITS POSTRETIREMENT BENEFITS
--------------------------------------- ---------------------------------------
FOR THE 1999 PERIOD FOR THE 1999 PERIOD
------------------------ ------------------------
PREDECESSORS PREDECESSORS
COMPANY (COMBINED) PREDECESSORS COMPANY (COMBINED) PREDECESSORS
--------- ------------ FOR THE YEAR --------- ------------ FOR THE YEAR
MARCH 2 JANUARY 1 ENDED MARCH 2 JANUARY 1 ENDED
THROUGH THROUGH DECEMBER 31, THROUGH THROUGH DECEMBER 31,
JUNE 30 MARCH 1 1998 JUNE 30 MARCH 1 1998
--------- ------------ ------------ --------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Amounts recognized in the combined
balance sheets consist of:
Accrued benefit liability....... (196,386) (138,583) (149,623) (126,656) (74,242) (71,462)
Intangible asset (Note 3)....... 14,017 22,965 21,664 -- --
Accumulated other comprehensive
loss......................... 9,903 12,168 23,122 -- --
--------- --------- --------- --------- --------- ---------
Net amount recognized............. (172,466) (103,450) (104,837) (126,656) (74,242) (71,462)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
PENSION AND OTHER
LUMP POSTRETIREMENT
SUM BENEFITS BENEFITS
------------ --------------
1999 1998 1999 1998
---- ---- ----- -----
<S> <C> <C> <C> <C>
Weighted-average assumptions as of December 31 of each
year:
Discount rate............................................ 7% 7% 7% 7%
Rate of compensation increase............................ 6% 6% 6% 6%
Expected return on plan assets........................... 9% 9% n/a n/a
</TABLE>
The assumed health-care cost trend rate used for the six months ended June
30, 1999 and December 31, 1998 was 7%.
In accordance with the provisions of SFAS No. 87, EMPLOYERS' ACCOUNTING FOR
PENSIONS, the Company was required to record an additional minimum pension
liability at December 31, 1998 and 1997. This amount represents the excess of
the accumulated benefit obligations over the fair value of plan assets and
accrued pension liabilities. The liabilities have been offset by intangible
assets to the extent possible. Because the asset recognized may not exceed the
amount of unrecognized prior service cost, the balance of the liability at the
end of each period is reported as a separate reduction to shareholders' equity
(Accumulated Other Comprehensive Loss).
See Note 13 for a description of the Authority's commitment to contribute
$200 million over five years to cover unfunded pension and other post-employment
benefit obligations.
F-32
<PAGE> 146
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost for the six months ended June 30, 1999
and the year ended December 31, 1998 includes the following components:
<TABLE>
<CAPTION>
PENSION AND LUMP OTHER
SUM BENEFITS POST RETIREMENT BENEFITS
------------------------------------------- ------------------------------------------
FOR THE 1999 PERIOD FOR THE 1999 PERIOD
----------------------- ----------------------
PREDECESSORS PREDECESSORS
COMPANY (COMBINED) COMPANY (COMBINED)
-------- ------------ PREDECESSORS ------- ------------ PREDECESSORS
MARCH 2 JANUARY 1 FOR THE MARCH 2 JANUARY 1 FOR THE
THROUGH THROUGH YEAR ENDED THROUGH THROUGH YEAR ENDED
JUNE 30 MARCH 1 DECEMBER 31, 1998 JUNE 30 MARCH 1 DECEMBER 31, 1998
-------- ------------ ----------------- ------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost................ $ 7,433 $ 3,717 $ 17,795 $1,723 $ 861 $ 3,981
Interest cost............... 17,779 8,890 48,640 4,146 2,073 11,404
Expected return on plan
assets.................... (15,389) (7,588) (34,280) -- -- --
Net amortization and
deferral.................. 1,444 1,446 6,539 1,180 1,176 6,655
Effect of early retirement
program................... -- -- -- -- -- --
-------- ------- -------- ------ ------ -------
Net periodic pension cost... $ 11,267 $ 6,465 $ 38,694 $7,049 $4,110 $22,040
======== ======= ======== ====== ====== =======
</TABLE>
PUERTO RICO EMPLOYEES' RETIREMENT SYSTEM
Some of the predecessor company's employees (the former employees of Puerto
Rico Communications Corporation, which was merged with PRTC on May 4, 1994)
participated in the Commonwealth of Puerto Rico Employees' Retirement System
(the "System"), a cost-sharing multiple-employer retirement system.
The Company was required to contribute 9.275% of the employees' salaries.
Total employee and employer contributions for the predecessors during the period
January 1 through March 1, 1999 amounted to approximately $225,453 and $269,326,
respectively. These employees transferred to the successor Companies' pension
plans on March 2, 1999.
7. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
PREDECESSORS
COMPANY (COMBINED)
---------- ------------
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Senior notes payable, due in various dates through 2009;
interest payable semiannually at interest rates varying
from 6.15% to 6.80% (net of discount).................... $ 999,711 $ --
Notes payable to banks under credit facilities, due March
2, 2004.................................................. 500,000
Working capital facility, due March 2, 2000................ 26,100
Other debt, obligations under capital leases............... 678 750
---------- --------
Total...................................................... 1,526,489 750
Less short-term debt....................................... 26,263 235
---------- --------
Long-term debt, net........................................ $1,500,226 $ 515
========== ========
</TABLE>
F-33
<PAGE> 147
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company issued senior notes dated May 20, 1999 that have the following
terms: $300,000,000 at 6.15% due in 2002, $400,000,000 at 6.65% due in 2006 and
$300,000,000 at 6.80% due in 2009, all of which are fully and unconditionally
guaranteed by PRTC and CT. Notes payable to banks consist of a $500 million
syndicated five-year revolving credit facility with a prepayment at the option
of the Company in minimum aggregate amounts of $10,000,000. Notes payable bear
interest of LIBOR plus 92.5 basis points, approximately 6.24% at June 30, 1999.
The Company has a working capital facility totaling $200 million of which
approximately $174 million was available as of June 30, 1999. This working
capital facility provides for borrowings at LIBOR plus 87.5 basis points
(approximately 6.19% at June 30, 1999), is reviewed annually for renewal and may
be used on such terms as the Company and the bank granting the facility mutually
agree. This working capital credit facility does not require compensating
balances.
All of the debt is unsecured and non-amortizing. The approximate aggregate
maturities of long-term debt, excluding obligations under capital leases, for
the next five fiscal years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999................................................... $ --
2000................................................... --
2001................................................... --
2002................................................... 300,000
2003................................................... --
Thereafter............................................. 1,200,000
----------
Total.......................................... $1,500,000
==========
</TABLE>
8. SHAREHOLDERS' EQUITY
COMMON STOCK
The authorized common stock of the Company at June 30, 1999, consisted of
10,000,000 shares with a par value of $.01 per share, of which 1,000,000 shares
have been issued and are outstanding.
The authorized common stock of PRTC at December 31, 1998 consisted of 1,000
shares with a par value of $10 per share, of which 589 shares were issued and
outstanding. The authorized common stock of CT consisted of 10,000 no par value
shares, unissued at December 31, 1998.
ADDITIONAL PAID IN CAPITAL
Prior to the Acquisition, PRTC paid a cash dividend to the PRTA in an
amount equal to its net income plus amortization and depreciation. Also a
special dividend amounting to $1.565 billion from additional paid in capital was
paid to PRTA on March 1, 1999, as part of the Acquisition. In connection with
the Acquisition, our shareholders agreed that the common shares of Telpri will
bear a dividend, payable on a quarterly basis, to the extent funds are legally
available, and subject to any restrictions imposed by any financing, that is at
least equal to 50% of our consolidated net income. The indenture for the old
notes and the exchange notes and our credit facilities do not contain dividend
restrictions.
F-34
<PAGE> 148
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED ESOP COMPENSATION
An Employee Stock Option Plan ("ESOP") was created, wherein the PRTA
contributed 3% and a subsidiary of GTE Corporation and Popular, Inc. contributed
1% of the Company's stock to the ESOP. The ESOP acquired an additional 3% with
funds borrowed from the Company. The contribution by PRTA vested at
contribution. The contributions made by GTE and Popular, and funded with
borrowings, vest over future periods.
SUBSCRIPTION RECEIVABLE
The subscription receivable reflects future receipts at their discounted
present value (at a 8% discount rate) of the amount to be contributed by PRTA in
even installments over five years in exchange for its equity interest to be used
to reduce unfunded pension and other post-employment benefit obligations.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss represents the excess of the
accumulated benefit obligations over the fair value of plan assets and accrued
pension liabilities.
9. INCOME TAXES
PRTC and CT were wholly owned subsidiaries of PRTA until March 1, 1999. The
act authorizing the creation of the PRTA exempts the PRTA and its formerly
wholly owned subsidiaries from all taxes levied on their properties or revenues
by the Government of Puerto Rico and its municipalities. Therefore, the
Predecessors were exempt from income, property, municipal gross receipts, and
other taxes in Puerto Rico until March 2, 1999, as all taxes and payments in
lieu of taxes were the responsibility of the PRTA.
Effective March 2, 1999, due to the change in control brought about by the
Acquisition and under the provisions of the 1994 Puerto Rico Internal Revenue
Code, as amended, (the "Code"), the Company is subject to a regular or
alternative minimum tax ("AMT"). The Code imposes an AMT of 22% on regular
taxable income after adjustment for certain preference items. The income tax
liability is the greater of the tax computed under the regular tax or the AMT.
An AMT credit is generated for income taxes paid on an AMT basis in excess of
the regular tax and may be claimed in future years to the extent the regular tax
exceeds the AMT.
The provision for income tax is determined based on applying a statutory
tax rate of 39% to pretax income. During the period from March 2, 1999 through
June 30, 1999, the Company recorded deferred income tax expense of $11,729,000.
The components of the provision for the income tax expense are as set forth
below (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
Current.......................................... $ -- $ --
Deferred......................................... 11,729 --
------- -------
Total.................................. $11,729 $ --
======= =======
</TABLE>
F-35
<PAGE> 149
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amount of deferred tax assets as of June 30, 1999, which are all
non-current in nature, were as follows (amounts in thousands):
<TABLE>
<S> <C>
Goodwill.................................................. $ 71,491
Customer base intangible.................................. 7,529
Employee benefit plan liabilities......................... 120,682
Other items............................................... 2,366
--------
Total........................................... $202,068
========
</TABLE>
The above deferred tax asset will decrease in the future as associated tax
benefits are used to offset future taxable income. Management believes that the
realization of the recognized deferred tax asset is more likely than not, based
on expectations as to future taxable income. Consequently, no valuation
allowance against the deferred tax asset was recorded as of June 30, 1999.
10. EARLY RETIREMENT PROGRAM
The Company has introduced a voluntary early retirement program to its
workforce to reduce expenses and streamline operations. The program involves
providing an incentive equal to adding five years of age and five years of
service in the calculation of pension benefits for employees that reach a
minimum years of age and service threshold. Reduction factors in the calculation
of pension benefits will be eliminated. Employees accepting retirement will also
be entitled to normal medical and life insurance benefits.
The program was offered to the Company's non-union salaried workforce and
one of its unions in June 1999 and 814 employees accepted the offer in the third
quarter. A provision of $127 million will be recorded in the third quarter of
1999 associated with this program. The Company also reached terms on a program
with its second union involving approximately 200 employees who must accept the
offering in October 1999. Based on expected acceptance rates, the cost
associated with this offer is estimated to range from $30 million to $45
million. Approximately $25 million associated with the total cost for the union
and non-union offering involves cash disbursements.
11. SEGMENT REPORTING
Effective December 31 ,1998, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for reporting certain financial information about
operating segments in complete sets of financial statements.
The Company has two reportable segments, its Wireline and Wireless
businesses, in which the Company operates and organizes its services. The
Wireline segment provides:
- Local service including basic voice, telephone and PBX rental, public
phone services, value-added services, high speed private line services,
Internet access and installations.
- Long distance service both on and off the island. Off-island services
began on February 1, 1999.
- Access service provided to long distance, competitive local exchange
carriers, cellular and paging operators to originate and terminate calls
on its network.
- Directory publishing right revenues and listing fees.
- PBX equipment sales and billing and collection services to competitor
long distance operators in Puerto Rico.
The Wireless segment includes cellular and paging services and related
equipment sales.
F-36
<PAGE> 150
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company measures and evaluates the performance of its segments based on
operating income. The accounting policies of the segments are the same as those
described in Note 2. The Company accounts for intersegment sales of products and
services at current market prices. Intersegment revenues were not material in
1999 and 1998. The Company is not dependent on any single customer.
Segment results for the Company and its Predecessors were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSORS
---------------- ---------------------------------------
FOR THE 1999 PERIOD
------------------------------------ FOR THE SIX MONTHS
MARCH 2 JANUARY 1 ENDED JUNE 30,
THROUGH JUNE 30, THROUGH MARCH 1, 1998
---------------- ---------------- -------------------
<S> <C> <C> <C>
Wireline:
Revenues and sales
Local services......................... $ 160,612 $ 80,196 $ 238,454
Long distance services................. 73,971 48,613 125,564
Access services........................ 119,147 49,517 149,861
Directory services and other........... 32,368 16,231 46,146
---------- ---------- ----------
$ 386,098 $ 194,557 $ 560,025
========== ========== ==========
Operating Income.......................... $ 57,395 $ 888 $ 116,721
========== ========== ==========
Depreciation and amortization............. $ 79,786 $ 40,870 $ 135,699
========== ========== ==========
Capital expenditures...................... $ 57,982 $ 31,427 $ 101,627
========== ========== ==========
Wireless:
Revenues and sales
Cellular services...................... $ 44,226 $ 20,541 $ 48,192
Paging services........................ 16,659 8,202 30,808
---------- ---------- ----------
$ 60,885 $ 28,743 $ 79,000
========== ========== ==========
Operating Income (Loss)..................... $ 2,830 $ (13) $ 17,635
========== ========== ==========
Depreciation and amortization............... $ 10,203 $ 4,762 $ 9,988
========== ========== ==========
Capital expenditures........................ $ 4,815 $ 5,388 $ 5,321
========== ========== ==========
Consolidated revenues and sales............. $ 446,983 $ 223,300 $ 639,025
========== ========== ==========
Consolidated operating income............... $ 60,225 $ 875 $ 134,356
========== ========== ==========
AS OF AS OF AS OF
JUNE 30, 1999 MARCH 1, 1999 JUNE 30, 1998
---------- ---------- ----------
Wireline Assets............................. $2,441,333 $2,234,243 $2,199,447
Wireless Assets............................. 272,407 216,178 205,173
---------- ---------- ----------
Consolidated Assets......................... $2,713,740 $2,450,421 $2,404,620
========== ========== ==========
</TABLE>
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest by the Company during the period March 2, 1999
through June 30, 1999 amounted to approximately $22.4 million. There was no
interest paid by the Predecessors during the period January 1, 1999 to March 1,
1999.
F-37
<PAGE> 151
TELECOMUNICACIONES DE PUERTO RICO, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. LEASES
The Companies use certain building facilities and equipment under various
capital and operating lease agreements.
Future minimum lease payments under non-cancelable capital and operating
leases in effect at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDING DECEMBER 31,
1999...................................................... $295 $ 7,418
2000...................................................... 209 5,083
2001...................................................... 90 3,063
2002...................................................... 90 1,744
2003...................................................... 90 1,340
Thereafter................................................ 195 9,215
---- -------
Total minimum lease payments................................ 969 27,863
Less amount representing interest........................... 219 --
---- -------
Present value of minimum lease payments..................... $750 $27,863
==== =======
</TABLE>
Rental costs charged to operations under operating leases for the Company
during the period March 2, 1999 through June 30, 1999 amounted to approximately
$4.1 million. For the Predecessors during the period from January 1, 1999 to
March 1, 1999, such costs amounted to approximately $3.8 million.
14. COMMITMENTS AND CONTINGENCIES
(A) CONSTRUCTION COMMITMENTS
The Company's construction program for the year 1999 amounts to
approximately $224,000,000, including commitments for the purchase and
installation of telephone equipment and materials and supplies.
(B) LITIGATION
PRTC and CT and their former parent company, have been advised of certain
unasserted claims and were defendants in several lawsuits including those
arising out of the conduct of their normal course of business, including those
related to regulatory actions and commercial transactions. These claims have
been vigorously contested and management of the Authority, PRTC and CT, after
consultation with legal counsel, established adequate reserves to cover the
claims. Management believes that the final resolution of the legal cases will
not have a material adverse effect on their financial position and results of
operations.
On March 1, 1999, several Puerto Rico labor unions and a Puerto Rico
elected official filed a Notice of Appeal in the U.S. Court of Appeals for the
D.C. Circuit, challenging the FCC's order granting the applications for the
transfer of control of licenses held by PRTC and CT from the PRTA to GTE
Holdings and the authorization to provide off-island long distance service. The
Notice of Appeal claims that the FCC's denial of public hearings in Puerto Rico
resulted in a clear error of judgment, amounting to a capricious and arbitrary
action that constituted an abuse of discretion of the FCC's adjudicating
authority. The petitioners seek to stay the operation of the FCC Order pending
final hearing and determination of the petition, vacate the FCC Order, or in the
alternative, remand the FCC Order with instructions to hold public hearings in
Puerto Rico. The Company's management believes that the claims of the
petitioners are without merit.
******
F-38
<PAGE> 152
ANNEX A
COMMONWEALTH OF PUERTO RICO
The following information has been derived from various public sources
which have not been prepared or independently verified by the Company, the
Initial Purchasers or any of their respective affiliates or advisers, and none
of such persons or entities accepts responsibility in respect of the accuracy or
completeness of such information.
A. OVERVIEW
1. GEOGRAPHIC LOCATION AND DEMOGRAPHY
Puerto Rico, the fourth largest of the Caribbean islands, is located
approximately 1,600 miles southeast of New York City. Puerto Rico has a land
area of approximately 3,459 square miles and a population of approximately 3.8
million. The island is roughly 70% the size of the state of Connecticut. The
population is concentrated primarily in Puerto Rico's coastal regions,
particularly, the San Juan Metropolitan Statistical Area, which has
approximately 2.0 million inhabitants. This MSA is one of the most densely
populated in the United States, with over 1,900 residents per square mile. By
comparison, the average United States population density is 319 residents per
square mile.
2. RELATIONSHIP WITH THE UNITED STATES
Puerto Rico was a possession of the Spanish Crown during the period between
1493 and 1898. After the military invasion of the island by the United States
during the Spanish-American War, Puerto Rico came under the formal sovereignty
of the United States pursuant to the terms of the Treaty of Paris, signed on
December 10, 1898, which ended the hostilities between the United States and
Spain. Puerto Ricans became citizens of the United States in 1917 with the
enactment of the Jones Act by the Congress of the United States. In 1952, a new
constitution, drafted by a popularly elected constitutional convention, approved
in a special referendum by the people of Puerto Rico, amended and ratified by
the Congress of the United States and subsequently approved by the President of
the United States came into effect and created the Commonwealth of Puerto Rico.
Under Commonwealth status, Puerto Rico exercises the same control over its
internal affairs as do the fifty states. Puerto Rico, however, differs from the
states in its relationship with the federal government. Most federal taxes,
except those such as social security taxes, are not levied in Puerto Rico. No
federal income tax is collected from Puerto Rico residents on ordinary income
earned from sources in Puerto Rico, except for federal employees who are subject
to taxes on their salaries. Puerto Rico does have its own income tax regime,
however, with a maximum corporate rate of 39% and a maximum rate on individuals
of 33%. In addition, Puerto Ricans have non-voting representation in Congress
and cannot vote in national elections (unless they reside in the United States).
The local system of government is modeled after the state governments of
the United States, with an executive branch headed by a Governor, and a
legislature consisting of a 27-member Senate and a 51-member House of
Representatives. The judicial system is closely linked to the United States
system. Most United States federal laws apply in Puerto Rico and the island is
under the jurisdiction of the First Circuit Court of Appeals, which maintains a
United States District Court in Puerto Rico. Judicial decisions may be appealed
to the Supreme Court of the United States in the same manner that decisions are
appealed from the state courts. Communications policies are regulated by both
the Federal Communications Commission and Puerto Rico's Telecommunications
Regulatory Board. The United States and Puerto Rico also share common monetary,
immigration, defense, and postal systems. The official languages of the
Commonwealth of Puerto Rico are Spanish and English.
3. POLITICAL TRENDS
For many years there have been two major views in Puerto Rico with respect
to the island's relationship with the United States: one favoring annexation
into the union, represented by the New Progressive Party, and the other favoring
commonwealth status, represented by the Popular Democratic Party. While the
electoral choices of voters in Puerto Rico are not determined solely by their
preferences regarding the island's
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relationship with the United States, candidates who support a continuing
relationship between Puerto Rico and the United States have prevailed in all
general elections held since the creation of the Commonwealth in 1952.
On December 13, 1998, a referendum was held in Puerto Rico in which voters
were asked to express their preference among five options: (a) statehood, (b)
independence, (c) two options describing a relationship with the United States
with varying degrees of sovereignty over local, national and international
matters, and (d) the option to vote for "none of the above." The "none of the
above" option obtained a majority of those votes cast with 50.3% of the voters
choosing this option. The statehood option obtained the second highest number of
votes, capturing 46.5% of the vote. Most political analysts of the Puerto Rican
situation agree that this vote may have little or no bearing on the ultimate
resolution of the Puerto Rico status issue.
B. ECONOMY
1. GENERAL
Puerto Rico is the most dynamic and modern business center in the
Caribbean. The strength of the Puerto Rican economy is due primarily to Puerto
Rico's political stability, its relationship with the United States, its modern
infrastructure, and its successful implementation of industrial incentives. The
table below demonstrates Puerto Rico's economic strength compared to the United
States and several Latin American and Caribbean countries:
<TABLE>
<CAPTION>
TOTAL GDP PER
POPULATION CAPITA GDP
(MILLIONS) (US$) (US$ BILLIONS)
---------- ------- --------------
<S> <C> <C> <C>
Puerto Rico...................................... 3.8 $13,939 $ 53
United States.................................... 268.0 30,263 8,110
Argentina........................................ 35.4 9,017 319
Brazil........................................... 159.7 4,790 765
Central America*................................. 25.4 1,675 43
Colombia......................................... 40.9 2,398 98
Dominican Republic............................... 8.9 1,636 15
Ecuador.......................................... 12.2 1,660 20
Mexico........................................... 97.1 4,250 413
Peru............................................. 24.8 2,680 66
Venezuela........................................ 22.7 3,770 86
</TABLE>
- ---------------
* Central America includes: Costa Rica, El Salvador, Guatemala, Honduras,
Nicaragua, Panama Source: Pyramid Research (1997)
The Government of Puerto Rico has established policies and programs
directed at developing the manufacturing and service sectors of the economy and
modernizing the island's infrastructure. Domestic and foreign investment has
been stimulated by selective tax exemption, development loans and other
financial and tax incentives. The modernization of the island's infrastructure
has been financed to a large extent by bonds and notes issued by the
Commonwealth of Puerto Rico, its public corporations and municipalities.
Economic growth has also been fueled by the significant improvement in the
human capital of Puerto Rico, specifically in the levels of education and
occupational skills of the island's population. The adult literacy rate is 90%
and the percentage of the civilian labor force that has had one or more years of
college has increased from less than 20% in the early 1970s to roughly 40%. This
has provided corporations with a workforce capable of meeting the challenges of
more sophisticated value-added manufacturing and service industries.
According to a 1997 Report of the General Accounting Office
(GAO/GGD-97-101) between 1982 and 1996, Puerto Rico's per capita GNP grew at an
annual rate of 1.7% while its GDP grew at an annual rate of 3.5%. The growth of
both indicators slowed somewhat after 1990 following the recession that occurred
in the United States, but per capita GDP and GNP began to grow again in late
1992. The faster rate of growth for Puerto Rico's GDP in comparison with its GNP
means that an increasing portion of total income produced in
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Puerto Rico went to U.S. and foreign investors rather than to Puerto Rican
residents. GDP is a measure of total income produced within Puerto Rico while
GNP is a measure of the income produced that is received by Puerto Rican-owned
factors of production. The difference between the two measures represents, for
the most part, remittance of profits and interest income to U.S. and foreign
investors. The trends in GDP and GNP are consistent with Puerto Rico's
development strategy, which emphasizes long-term tax incentives to firms that
locate in Puerto Rico see -- "Commonwealth of Puerto Rico -- Federal Tax
Issues."
Also during the period between 1982 and 1996, unemployment in Puerto Rico
generally declined, while the participation of Puerto Rican residents in the
labor force increased. The unemployment rate in Puerto Rico was 23.5% in 1983,
following the recession that affected the United States in 1981 and 1982, but
declined in most years after 1983 to reach a low of 13.8% in 1995 and 1996. The
labor force participation rate increased during this period from an average rate
of 43% during the 1980s to an average of 46% during the 1990s.
Total nonagricultural employment in Puerto Rico grew from 660,000 in 1982
to 945,000 in 1996. Over this period, the share of manufacturing employment
declined from 22.4% of the total to 16.3%, and the share of government
employment fell from 36.2% to 32.6%. Manufacturing employment has actually
fallen in absolute terms since it peaked in 1990. In contrast, during the same
period the share of employment in the retail trade sector rose from 12% to
15.8%, and the share of the nonfinancial service sector rose from 13.3% to
18.5%.
The dominant sectors of the Puerto Rican economy are manufacturing and
services. The manufacturing sector has experienced a basic change over the years
as a result of an increased emphasis on offering incentives to higher-wage,
capital-intensive industries. The Puerto Rican manufacturing sector currently
consists of over 2,000 foreign and domestic manufacturing companies operating in
industries such as electronics, apparel plastics/rubber, chemicals, and
pharmaceuticals.
Over the past decade Puerto Rico has experienced significant growth in the
services sector of the economy in terms of both income and employment. During
the period between fiscal 1993 and 1997, the gross domestic product in the
services sector increased at an annual average rate of 6.8%, while employment in
this sector increased at an annual average rate of 3.7% during the period
between fiscal 1994 and 1998. The services sector in Puerto Rico is diversified
(including finance, insurance, real estate, wholesale and retail trade and hotel
services among other services) and ranks second to manufacturing in its
contribution to gross domestic product.
The Puerto Rican government continues to promote economic expansion through
proactive measures directed at the development of manufacturing and the
expansion and modernization of the island's infrastructure. An aggressive $7.8
billion program is currently being undertaken by the governor of the island and
is targeted at improving the Commonwealth's infrastructure. Specific targets of
the investment include the Highway Authority and the Electrical Power Authority.
Telecommunications has also been established as an important area of
development. The government has also focused on six main areas to ensure future
sustainable economic growth and social development in Puerto Rico: foreign
trade, privatization, infrastructure investment, education reform, healthcare
reform, and crime prevention/reduction.
2. FISCAL YEAR 1998
According to preliminary government figures gross national product expanded
by 3% in fiscal year 1997/98 (July/June). However, private analysts, including
the Economist Intelligence Unit (see "Puerto Rico Business Outlook," in Business
Latin America, Economist Intelligence Unit, November 2, 1998) estimate growth at
2.5% or less. This slowdown is attributed to the massive devastation caused by
Hurricane Georges, the worst storm to hit the island since 1928.
- Industrial Production
Manufacturing, which accounts for more than 40% of GNP, suffered
hurricane-related production losses because of disruption to water and power
supplies and average manufacturing employment fell by 4% to 146,300 in 1997/98
compared with the previous fiscal year. The Puerto Rico Development Company
registered 149 projects that pledged investments of $315 million in 1997/1998.
However, only 17 new projects
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were registered in the first quarter of the current fiscal year in contrast with
36 in the same period in the previous fiscal year.
- Tourism
Tourism, a priority of the current administration, continued to grow.
Puerto Rico received more than 4.1 million visitors in fiscal 1997/98, according
to the most recent official figures. Total registrations at island hotels and
inns climbed by 6.8% to 1.5 million, while spending by visitors advanced by 15%
to $2.2 billion, when compared with the previous fiscal year. Special incentives
enacted in 1993 have fueled hotel construction throughout the island. Five major
hotels projects have opened their doors recently and a 2% increase in the room
tax will fund development of a new convention center in San Juan.
- Investment
Investment is stagnant in the face of reductions in federal tax incentives
and continuing concerns over the island's competitiveness. Annual foreign direct
investment is currently $6.5 billion and is forecast to remain flat over the
short-term. This trend will be partially offset by increased activity in the
tourism sector and a couple of large infrastructure projects, such as the $1
billion urban train system and a $350 million "superaqueduct" to serve the San
Juan area. Privatization of state-owned assets should also generate additional
investment opportunities. Professional Services Group will assume full
management of the troubled Puerto Rico Aqueduct and Sewer Authority under a $500
million contract. In addition the privatization of government-owned hotels and
hospitals is scheduled to move forward during the current fiscal year.
- Agriculture
Agriculture, which accounts for less than 1% of GNP, has been battered by
droughts, floods, and hurricanes over the past four years, as well as by
reductions in government incentives introduced in 1996. The latter benefited
existing agricultural concerns but failed to attract foreign investment.
Nonetheless, agricultural income rose slightly in fiscal 1997/98 to $708.3
million from $694.7 million in fiscal 1996/97. Local farmers organizations
estimate losses of $406.7 million resulting from Hurricane Georges.
- Employment
Average total employment increased by 26,000, or 2.3%, to 1,157,000 in
fiscal 1997/98 from 1,131,000 in fiscal 1996/97. This translated into an average
unemployment rate of 13.6% during fiscal 1997/98. The recent increase in the
federal minimum wage, to $5.15 per hour, could hurt business and investment
prospects.
- Inflation
Official data show an increase of 5.7% in the consumer price index during
fiscal 1997/98 -- much higher than the US inflation rate, which Puerto Rico
usually tracks. This increase is partially explained by the destruction of
domestic crops of tropical produce widely consumed by Puerto Ricans, while
plantations in the Dominican Republic, the usual alternate source of supply,
suffered a similar fate.
- Credit
Credit conditions in Puerto Rico traditionally reflect those in the United
States. The phase-out of federal tax incentives has eliminated a cheap source of
financing in the form of deposits held at local banks by Section 936
beneficiaries, which had previously enjoyed a tax exemption on investment
earnings. During fiscal 1997/98 such deposits declined by $3.9 billion, or 55%,
to $3.1 billion from $7.0 billion in fiscal 1996/97.
- Trade
During fiscal 1997/98 Puerto Rico had a positive balance of trade, with
total exports amounting to $30.3 billion against imports of $21.8 billion.
Imports of raw materials and finished products by US firms operating in the
island made up as much as 85% of the total import bill, while approximately 90%
of Puerto Rico's merchandise exports went to the United States.
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3. FEDERAL TAX ISSUES
One important element in the historic growth of the Puerto Rican economy,
which is no longer available to corporations beginning operations in Puerto
Rico, was Section 936 of the United States Internal Revenue Code. Corporations
electing to file under Section 936 received a tax credit equal to what would
have been owed as federal taxes. This effectively eliminated all United States
taxes due from Puerto Rican-source income, whether it was passive or active.
This combined with Puerto Rico's minimal local taxes provided a favorable tax
environment for corporations. Manufacturing companies, particularly
pharmaceutical companies, were active participants in the Puerto Rican economy
as a result of Section 936.
In 1996 Congress eliminated the federal tax benefits of Section 936 for
United States firms beginning operations in Puerto Rico. For companies with
existing operations in Puerto Rico, certain provisions of Section 936 regarding
active income credits were maintained for a period of 10 years with caps on the
benefits in the latter part of the ten years. All federal tax credits associated
with passive income were eliminated for new and existing companies.
The 1996 amendments also added a new Section 30A to the Code. Section 30A
permits a "qualifying domestic corporation" that meets certain eligibility
tests, to claim a credit against the federal income tax imposed on taxable
income derived from sources outside the United States, from the active conduct
of a trade or business in Puerto Rico or from the sale of substantially all the
assets used in such business. This credit is limited to the sum of (a) 60% of
qualified possession wages as defined in the Code, (b) a specified percentage of
depreciation deductions, and (c) a portion of Puerto Rico income taxes paid by
the qualified domestic corporation. Section 30A applies only to taxable years
beginning after December 31, 1995 and before January 1, 2006.
During 1997, the government of Puerto Rico lobbied Congress for the
enactment of a new permanent federal incentive program similar to what is now
provided under Section 30A. The fiscal 1998 and 1999 budgets submitted by
President Clinton to Congress included a proposal to modify Section 30A to (a)
extend the availability of Section 30A indefinitely; (b) make it available to
companies establishing operations in Puerto Rico after October 13, 1995; and (c)
eliminate the income cap. This proposal was not included in the final version of
the budget for those fiscal years.
On January 19, 1999, Senator Daniel Moynihan (D-NY) introduced a bill to
expand the Section 30A wage credit that is currently included in the Code. The
bill removes provisions that limit, in taxable years beginning after 2001, the
aggregate taxable income taken into account in determining the amount of the
credit. Employers would generally be eligible for a tax credit equal to 60% of
wages and fringe benefit expenses for employees located in Puerto Rico. New as
well as existing employers would be rewarded for creating local jobs. Instead of
expiring at the end of 2005, the credit would terminate three years later for
tax years starting after 2008. Thus, businesses would have a 10 year period in
which to take advantage of these incentives. As of April 7, 1999 no action had
been taken by the Senate in regard to this bill.
Finally, on March 8, 1999, Representative Don Young (R-Alaska), chairman of
the Resources Committee of the United States House of Representatives, announced
that he is considering introducing a bill to impose federal income taxes on the
residents of Puerto Rico, presumably including corporations, for the first time
since the United States annexed the island in 1898. The government of Puerto
Rico has announced its opposition to this measure. As of April 1, 1999 no action
had been taken by Representative Young in connection with this matter.
In conclusion, it is not possible at this time to determine the long-term
effect on the Puerto Rican economy of the enactment of the 1996 amendments to
the Code. The government of the Commonwealth, however, has taken an active
approach to the potential reduction of business activity caused by the
elimination of Section 936. It plans to act as a facilitator to promote Puerto
Rico's competitiveness and to help develop the island's capital markets.
Corporate laws, labor laws, and the tax code have been reformed recently.
Additional deregulation is planned. A new tax incentives law was enacted. Among
the most important initiatives is a flat 7% income tax for qualifying
manufacturing and service industries. The exemption lasts between 10 and 25
years depending on the corporation's location.
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ANNEX B
GLOSSARY OF CERTAIN TELECOMMUNICATIONS TERMS
Access Lines: Revenue producing switched access lines in
service serving the local market.
Airtime: The actual time spent talking on a cellular
telephone including the time in which a
cellular telephone channel is occupied, the
call set-up, call time and clear-down time.
Analog: A transmission method employing a continuous
electrical signal that varies in amplitude or
frequency in response to changes in sound,
light, position, etc.
Asynchronous Transfer Mode A high speed transmission technology.
Asynchronous Transfer Mode is a high bandwidth,
low-delay connection-oriented packet-like
switching and multiplexing technique used to
transfer voice, video, images and
character-based data.
Band: A range of frequencies between two defined
limits.
Bandwidth: The range of electrical frequencies a device
can handle; the relative range of frequencies
that can be passed through a transmission
medium without distortion. The greater the
bandwidth, the greater the information carrying
capacity. Bandwidth is measured in Hertz.
Cell site: The location of a transmitting/receiving
station serving a given geographic area in a
cellular communications system. The area served
by a cell site is referred to as a "cell".
Channel: A pathway for the transmission of information
between a sending point and a receiving point.
Churn: The rate of customer defection, typically
expressed as a percentage of the total customer
base.
Digital Switching and
Transmission Network: A method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission and switching technologies employ
a sequence of discrete, distinct pulses to
represent information, as opposed to the
continuous analog signal.
Fiber Optics: A technology in which light is used to
transport information from one point to
another. Fiber optic cables are thin filaments
of glass through which light beams are
transmitted over long distances carrying
enormous amounts of data. Modulating light on
thin strands of glass produces major benefits
including high bandwidth, relatively low cost,
low power consumption, small space needs and
total insensitivity to electromagnetic
interference.
Private Branch Exchange: A switching system within an office building
which allows telephone calls from outside to be
routed directly to the individual instead of
through a central number. The Private Branch
Exchange also allows for calling within an
office by way of four-digit extensions.
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Personal Communications
Service: In Canada and the United States, Personal
Communications Service spectrum has been
allocated for use by public systems at the
1.9GHz frequency range. It is expected that
Personal Communications Service will initially
consist primarily of enhanced voice, two-way
data and text messaging services. Such Personal
Communications Service applications are
expected to be followed over time by services
offering integrated voice, data, image and
eventually perhaps video capability. Personal
Communications Service systems operate in a
similar manner to cellular systems.
Penetration: A cellular operator's subscribers within a
defined area divided by total POPs within that
area.
POPs: Population equivalent. One person residing in a
license area equals one POP.
Roaming: A service offered by mobile communications
providers which allows a subscriber to make and
receive calls using the telephone number
assigned to the subscriber's handset while in
the service area of another carrier.
Switch: A device that opens or closes circuits or
selects the paths or circuits to be used for
transmission of information. Switching is the
process of interconnecting circuits to form a
transmission path between users.
Time Division Multiple Access: Time Division Multiple Access is one of several
technologies used to separate multiple
conversations transmissions over a finite
frequency allocation. Time Division Multiple
Access employs digital techniques at the base
station and in the cellular radio to subdivide
each channel into time slots which can be
assigned to different users. Voice, data and
access information are converted to digital
information that is sent and received in bursts
over the time slots. These bursts can be
encoded, transmitted, and decoded in a fraction
of the time required to produce sound. The
result is that only a fraction of the air time
is used, and other subscribers can use the
remaining time on a radio channel.
Trunk: A communications channel between two switches.
"Trunking" calls reduces the likelihood of
traffic blockage due to network congestion. A
trunked system combines multiple channels with
unrestricted access in such a manner that user
demand for channels are automatically "queued"
and then allocated to the first available
channel.
Wireline Telephone: Conventional landline telephone which uses
cable for transmitting signals.
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TELECOMUNICACIONES DE PUERTO RICO, INC.
$300,000,000 6.15% SENIOR NOTES DUE 2002
$400,000,000 6.65% SENIOR NOTES DUE 2006
$300,000,000 6.80% SENIOR NOTES DUE 2009
-------------------------
P R O S P E C T U S
-------------------------
, 1999
Until , 1999, all dealers effecting transactions in the
exchange notes, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS
Telpri is incorporated under the laws of the Commonwealth of Puerto Rico.
Section 4.08 of the General Corporation Law of the Commonwealth of Puerto Rico
provides that a Puerto Rico corporation may indemnify directors, officers,
employees or agents involved in any litigation or proceeding involving the
corporation if he or she acted in good faith and in a manner which the person
reasonably deemed consistent with the best interests of the corporation or not
opposed thereto, and with respect to any criminal proceeding, if he or she did
not have reasonable cause to believe that his or her conduct was unlawful. The
indemnity may include expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such action or suit. In the case
of actions or suits other than those initiated by the corporation or initiated
to protect the interests of the corporation, the indemnity may also include the
amount of any judgement paid in settlement of such action. However, no
indemnification is permitted without judicial approval if the officer, director,
employee or agent is adjudged to be liable to the corporation. Where an officer,
director, employee or agent is successful on the merits or otherwise in the
defense of any action referred to above, the corporation may indemnify him/her
against the expenses which such officer or director has actually incurred.
The Certificate of Incorporation of Telpri provides for the indemnification
of directors and officers to the full extent permitted by the General
Corporation Law of the Commonwealth of Puerto Rico, as it currently exists or
may be hereafter amended.
Section 4.08 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him/her and incurred by him/her in any
such capacity, arising out of him/her status as such, regardless whether or not
the corporation would otherwise have the power to indemnify him/her under
Section 4.08.
Telpri maintains and has in effect insurance policies covering all of its
respective directors and officers against certain liabilities for actions taken
in such capacities. These employees are also covered for specified liabilities
under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
3.1 Articles of Incorporation of Telecomunicaciones de Puerto
Rico, Inc.
3.2 Articles of Incorporation of Puerto Rico Telephone Company,
Inc.
3.3 Articles of Incorporation of Celulares Telefonica, Inc.
3.4+ By-Laws of Telecomunicaciones de Puerto Rico, Inc.
3.5+ By-Laws of Puerto Rico Telephone Company, Inc.
3.6+ By-Laws of Celulares Telefonica, Inc.
4.1+ Trust Indenture dated as of May 20, 1999 between
Telecomunicaciones de Puerto Rico, Inc. and The Bank of New
York.
4.2+ Purchase Agreement.
4.3+ Registration Rights Agreement.
5.1 Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP.
5.2 Opinion of O'Neill & Borges
10.1+ Amended and Restated Stock Purchase Agreement, dated as of
May 27, 1998 and Amended and Restated as of July 21, 1998 by
and among Puerto Rico Telephone Authority, Puerto Rico
Telephone Company, GTE Holdings (Puerto Rico) LLC and GTE
International Telecommunications Incorporated.
</TABLE>
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<TABLE>
<C> <S>
10.2+ First Amendment to the Stock Purchase Agreement, dated as of
January 4, 1999, by and among Puerto Rico Telephone
Authority, Puerto Rico Telephone Company, GTE Holdings
(Puerto Rico) LLC and GTE International Telecommunications
Incorporated.
10.3+ Second Amendment to the Stock Purchase Agreement, dated as
of January 29, 1999, by and among Puerto Rico Telephone
Authority, Puerto Rico Telephone Company, GTE Holdings
(Puerto Rico) LLC and GTE International Telecommunications
Incorporated.
10.4+ Third Amendment to the Stock Purchase Agreement, dated as of
March 2, 1999, by and among Puerto Rico Telephone Authority,
Puerto Rico Telephone Company, GTE Holdings (Puerto Rico)
LLC, GTE International Telecommunications Incorporated,
Telecomunicaciones de Puerto Rico, Inc. and Celulares
Telefonica, Inc.
10.5+ Shareholders Agreement, dated as of March 2, 1999, by and
among Telecomunicaciones de Puerto Rico, Inc., GTE Holdings
(Puerto Rico) LLC, GTE International Telecommunications
Incorporated, Popular, Inc, Puerto Rico Telephone Authority
and the shareholders of Telecomunicaciones de Puerto Rico,
Inc., who shall from time to time be parties thereto as
provided therein.
10.6+ Amended and Restated Puerto Rico Management Agreement, dated
as of March 2, 1999, by and among Telecomunicaciones de
Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE
International Telecommunications Incorporated.
10.7+ Amended and Restated U.S. Management Agreement, dated as of
March 2, 1999, by and among Telecomunicaciones de Puerto
Rico, Inc., Puerto Rico Telephone Company, and GTE
International Telecommunications Incorporated.
10.8+ Amended and Restated Technology Transfer Agreement, dated as
of March 2, 1999, by and among Telecomunicaciones de Puerto
Rico, Inc., Puerto Rico Telephone Company, and GTE
International Telecommunications Incorporated.
10.9+ Non-Competition Agreement, dated as of March 2, 1999, by and
among Telecomunicaciones de Puerto Rico, Inc, GTE Holdings
(Puerto Rico) LLC, GTE International Telecommunications
Incorporated, Popular, Inc., Puerto Rico Telephone
Authority, and the Government Development Bank for Puerto
Rico.
10.10+ Share Option Agreement, dated as of March 2, 1999, by and
among Puerto Rico Telephone Authority, Telecomunicaciones de
Puerto Rico, Inc, GTE Holdings (Puerto Rico) LLC, and GTE
International Telecommunications Incorporated.
10.11+ Stock Purchase Agreement, dated as of March 1, 1999, by and
between Telecomunicaciones de Puerto Rico, Inc and Puerto
Rico Telephone Authority.
10.12 Trust Agreement of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc., dated as of March
2, 1999, by and between U.S. Trust, National Association and
Telecomunicaciones de Puerto Rico, Inc.
10.13+ ESOP Loan Agreement, dated as of March 2, 1999, by and
between the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc.
10.14 Stock Purchase Agreement, dated as of March 2, 1999, by and
between Puerto Rico Telephone Authority and the Trust of the
Employee Stock Ownership Plan of Telecomunicaciones de
Puerto Rico, Inc.
10.15 Pledge Agreement, dated as of March 2, 1999, by and between
the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc.
10.16+ Tag Along Agreement, dated as of March 2, 1999, by and among
GTE Holdings (Puerto Rico) LLC, GTE International
Telecommunications Incorporated, and the Trust of the
Employee Stock Ownership Plan of Telecomunicaciones de
Puerto Rico, Inc.
10.17 $500,000,000 Five-Year Credit Agreement, dated as of March
2, 1999, among Telecomunicaciones de Puerto Rico, Inc., as
Borrower, Puerto Rico Telephone Company and Celulares
Telefonica, as Guarantors, the Initial Lenders named
therein, Citibank, N.A., as Administrative Agent, Bank of
America National Trust and Savings Association, as
Syndication Agent, and The Chase Manhattan Bank and Morgan
Guaranty Trust Company of New York, as Documentation Agents.
10.18 Letter Amendment to the Five-Year Credit Agreement, dated
May 7, 1999.
</TABLE>
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<TABLE>
<C> <S>
10.19 $200,000,000 Revolving Credit Agreement, dated as of March
2, 1999, among Telecomunicaciones de Puerto Rico, Inc., as
Borrower, Puerto Rico Telephone Company and Celulares
Telefonica, as Guarantors, Banco Popular de Puerto Rico, as
Managing Agent and Administrative Agent, Scotiabank de
Puerto Rico, as Co-Agent, and Banco Popular de Puerto Rico,
Scotiabank de Puerto Rico, Banco Bilbao Vizcaya Puerto Rico
and Banco Popular North America, as Initial Lenders.
10.20 First Amendment to $200,000,000 Revolving Credit Agreement.
12.1+ Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
15.1+ Letter Regarding Unaudited Interim Financial Information.
21.1+ Subsidiaries of the Registrant.
23.1+ Consents of Deloitte & Touche LLP.
23.2 Consent of O'Neill & Borges -- included in Exhibit 5.2.
23.3 Consent of Curtis, Mallet-Prevost, Colt & Mosle
LLP -- included in Exhibit 5.1.
24.1+ Power of Attorney -- Included in signature page.
25.1+ Statement of Eligibility of Trustee.
27.1+ Financial Data Schedule as of December 31, 1998.
27.2+ Financial Data Schedule as of June 30, 1999.
99.1 Form of Letter of Transmittal and Tender Instructions for
Holders of the 6.15% Senior Notes due 2002.
99.2 Form of Letter of Transmittal and Tender Instructions for
Holders of the 6.65% Senior Notes due 2006.
99.3 Form of Letter of Transmittal and Tender Instructions for
Holders of the 6.80% Senior Notes due 2009.
99.4 Form of Notice of Guaranteed Delivery for Holders of the
6.15% Senior Notes due 2002.
99.5 Form of Notice of Guaranteed Delivery for Holders of the
6.65% Senior Notes due 2006.
99.6 Form of Notice of Guaranteed Delivery for Holders of the
6.80% Senior Notes due 2009.
99.7* Exchange Agent Agreement
</TABLE>
- ---------------
+ Previously filed.
* To be filed by Amendment
ITEM 22. UNDERTAKINGS
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
iii. To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-3
<PAGE> 163
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefor, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-4
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrants
certify that they have reasonable grounds to believe that they meet all of the
requirements for filing on Form S-4 and have duly caused this Registration
Statement or amendment thereto, as the case may be, to be executed on their
behalf by the undersigned, thereunto duly authorized, in the City of Guaynabo,
Commonwealth of Puerto Rico, on September , 1999.
TELECOMUNICACIONES DE PUERTO RICO,
INC.
By: /s/ JON SLATER
------------------------------------
Name: Jon Slater
Title: Chief Executive Officer
PUERTO RICO TELEPHONE COMPANY, INC.
By: /s/ JON SLATER
------------------------------------
Name: Jon Slater
Title: Chief Executive Officer
CELULARES TELEFONICA, INC.
By: /s/ JON SLATER
------------------------------------
Name: Jon Slater
Title: Chief Executive Officer
II-5
<PAGE> 165
POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto, as the case may be, has been signed
by the following persons in the capacities stated herein on September , 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ JON SLATER Chief Executive Officer
- --------------------------------------------------------
Jon Slater
/s/ FRANK GATTO Vice President -- Finance and
- -------------------------------------------------------- Chief Financial Officer
Frank Gatto
/s/ ROBERT HUBERTY Principal Accounting Officer
- --------------------------------------------------------
Robert Huberty
* Director
- --------------------------------------------------------
Fares Salloum
* Director
- --------------------------------------------------------
Alfred C. Giammarino
* Director
- --------------------------------------------------------
Michael T. Masin
* Director
- --------------------------------------------------------
Ignacio Santillana
* Director
- --------------------------------------------------------
Jon Slater
* Director
- --------------------------------------------------------
Richard Carrion
* Director
- --------------------------------------------------------
Angel Morey
* Director
- --------------------------------------------------------
Lourdes M. Rovira
* Director
- --------------------------------------------------------
Carlos Vivoni
*By:
---------------------------------------------------
Name: Felipe Piazza
Title: Treasurer and Attorney-in-Fact
</TABLE>
II-6
<PAGE> 166
AUTHORIZED REPRESENTATIVE
TELECOMUNICACIONES DE PUERTO RICO, INC.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
stated herein on September , 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- --------- --------
<C> <S>
/s/ DONALD J. PUGLISI Puglisi and Associates
------------------------------------------------------ Authorized Representative in the United
Donald J. Puglisi States
</TABLE>
II-7
<PAGE> 167
AUTHORIZED REPRESENTATIVE
PUERTO RICO TELEPHONE COMPANY, INC.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
stated herein on September , 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- --------- --------
<C> <S>
/s/ DONALD J. PUGLISI Puglisi and Associates
------------------------------------------------------ Authorized Representative in the United
Donald J. Puglisi States
</TABLE>
II-8
<PAGE> 168
AUTHORIZED REPRESENTATIVE
CELULARES TELEFONICA, INC.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
stated herein on September , 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- --------- --------
<C> <S>
/s/ DONALD J. PUGLISI Puglisi and Associates
------------------------------------------------------ Authorized Representative in the United
Donald J. Puglisi States
</TABLE>
II-9
<PAGE> 169
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
ITEM NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ----------- ------------
<C> <S> <C>
3.1 Articles of Incorporation of Telecomunicaciones de Puerto
Rico, Inc.
3.2 Articles of Incorporation of Puerto Rico Telephone Company,
Inc.
3.3 Articles of Incorporation of Celulares Telefonica, Inc.
3.4+ By-Laws of Telecomunicaciones de Puerto Rico, Inc.
3.5+ By-Laws of Puerto Rico Telephone Company, Inc.
3.6+ By-Laws of Celulares Telefonica, Inc.
4.1+ Trust Indenture dated as of May 20, 1999 between
Telecomunicaciones de Puerto Rico, Inc. and The Bank of New
York.
4.2+ Purchase Agreement.
4.3+ Registration Rights Agreement.
5.1 Opinion of Curtis, Mallet-Prevost, Colt & Mosle LLP.
5.2 Opinion of O'Neill & Borges
10.1+ Amended and Restated Stock Purchase Agreement, dated as of
May 27, 1998 and Amended and Restated as of July 21, 1998 by
and among Puerto Rico Telephone Authority, Puerto Rico
Telephone Company, GTE Holdings (Puerto Rico) LLC and GTE
International Telecommunications Incorporated.
10.2+ First Amendment to the Stock Purchase Agreement, dated as of
January 4, 1999, by and among Puerto Rico Telephone
Authority, Puerto Rico Telephone Company, GTE Holdings
(Puerto Rico) LLC and GTE International Telecommunications
Incorporated.
10.3+ Second Amendment to the Stock Purchase Agreement, dated as
of January 29, 1999, by and among Puerto Rico Telephone
Authority, Puerto Rico Telephone Company, GTE Holdings
(Puerto Rico) LLC and GTE International Telecommunications
Incorporated.
10.4+ Third Amendment to the Stock Purchase Agreement, dated as of
March 2, 1999, by and among Puerto Rico Telephone Authority,
Puerto Rico Telephone Company, GTE Holdings (Puerto Rico)
LLC, GTE International Telecommunications Incorporated,
Telecomunicaciones de Puerto Rico, Inc. and Celulares
Telefonica, Inc.
10.5+ Shareholders Agreement, dated as of March 2, 1999, by and
among Telecomunicaciones de Puerto Rico, Inc., GTE Holdings
(Puerto Rico) LLC, GTE International Telecommunications
Incorporated, Popular, Inc, Puerto Rico Telephone Authority
and the shareholders of Telecomunicaciones de Puerto Rico,
Inc., who shall from time to time be parties thereto as
provided therein.
10.6+ Amended and Restated Puerto Rico Management Agreement, dated
as of March 2, 1999, by and among Telecomunicaciones de
Puerto Rico, Inc., Puerto Rico Telephone Company, and GTE
International Telecommunications Incorporated.
10.7+ Amended and Restated U.S. Management Agreement, dated as of
March 2, 1999, by and among Telecomunicaciones de Puerto
Rico, Inc., Puerto Rico Telephone Company, and GTE
International Telecommunications Incorporated.
10.8+ Amended and Restated Technology Transfer Agreement, dated as
of March 2, 1999, by and among Telecomunicaciones de Puerto
Rico, Inc., Puerto Rico Telephone Company, and GTE
International Telecommunications Incorporated.
10.9+ Non-Competition Agreement, dated as of March 2, 1999, by and
among Telecomunicaciones de Puerto Rico, Inc, GTE Holdings
(Puerto Rico) LLC, GTE International Telecommunications
Incorporated, Popular, Inc., Puerto Rico Telephone
Authority, and the Government Development Bank for Puerto
Rico.
10.10+ Share Option Agreement, dated as of March 2, 1999, by and
among Puerto Rico Telephone Authority, Telecomunicaciones de
Puerto Rico, Inc, GTE Holdings (Puerto Rico) LLC, and GTE
International Telecommunications Incorporated.
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
SEQUENTIALLY
ITEM NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ----------- ------------
<C> <S> <C>
10.11+ Stock Purchase Agreement, dated as of March 1, 1999, by and
between Telecomunicaciones de Puerto Rico, Inc and Puerto
Rico Telephone Authority.
10.12 Trust Agreement of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc., dated as of March
2, 1999, by and between U.S. Trust, National Association and
Telecomunicaciones de Puerto Rico, Inc.
10.13+ ESOP Loan Agreement, dated as of March 2, 1999, by and
between the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc.
10.14 Stock Purchase Agreement, dated as of March 2, 1999, by and
between Puerto Rico Telephone Authority and the Trust of the
Employee Stock Ownership Plan of Telecomunicaciones de
Puerto Rico, Inc.
10.15 Pledge Agreement, dated as of March 2, 1999, by and between
the Trust of the Employee Stock Ownership Plan of
Telecomunicaciones de Puerto Rico, Inc. and
Telecomunicaciones de Puerto Rico, Inc.
10.16+ Tag Along Agreement, dated as of March 2, 1999, by and among
GTE Holdings (Puerto Rico) LLC, GTE International
Telecommunications Incorporated, and the Trust of the
Employee Stock Ownership Plan of Telecomunicaciones de
Puerto Rico, Inc.
10.17 $500,000,000 Five-Year Credit Agreement, dated as of March
2, 1999, among Telecomunicaciones de Puerto Rico, Inc., as
Borrower, Puerto Rico Telephone Company and Celulares
Telefonica, as Guarantors, the Initial Lenders named
therein, Citibank, N.A., as Administrative Agent, Bank of
America National Trust and Savings Association, as
Syndication Agent, and The Chase Manhattan Bank and Morgan
Guaranty Trust Company of New York, as Documentation Agents.
10.18 Letter Amendment to the Five-Year Credit Agreement, dated
May 7, 1999.
10.19 $200,000,000 Revolving Credit Agreement, dated as of March
2, 1999, among Telecomunicaciones de Puerto Rico, Inc., as
Borrower, Puerto Rico Telephone Company and Celulares
Telefonica, as Guarantors, Banco Popular de Puerto Rico, as
Managing Agent and Administrative Agent, Scotiabank de
Puerto Rico, as Co-Agent, and Banco Popular de Puerto Rico,
Scotiabank de Puerto Rico, Banco Bilbao Vizcaya Puerto Rico
and Banco Popular North America, as Initial Lenders.
10.20 First Amendment to $200,000,000 Revolving Credit Agreement
12.1+ Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
15.1+ Letter Regarding Unaudited Interim Financial Information.
21.1+ Subsidiaries of the Registrant.
23.1+ Consents of Deloitte & Touche LLP.
23.2 Consent of O'Neill & Borges -- Included in Exhibit 5.2.
23.3 Consent of Curtis, Mallet-Prevost, Colt & Mosle
LLP -- Included in Exhibit 5.1.
24.1+ Power of Attorney -- Included in signature page.
25.1+ Statement of Eligibility of Trustee.
27.1+ Financial Data Schedule as of December 31, 1998.
27.2+ Financial Data Schedule as of June 30, 1999.
99.1 Form of Letter of Transmittal and Tender Instructions for
Holders of the 6.15% Senior Notes due 2002.
99.2 Form of Letter of Transmittal and Tender Instructions for
Holders of the 6.65% Senior Notes due 2006.
99.3 Form of Letter of Transmittal and Tender Instructions for
Holders of the 6.80% Senior Notes due 2009.
99.4 Form of Notice of Guaranteed Delivery for Holders of the
6.15% Senior Notes due 2002.
</TABLE>
<PAGE> 171
<TABLE>
<CAPTION>
SEQUENTIALLY
ITEM NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ----------- ------------
<C> <S> <C>
99.5 Form of Notice of Guaranteed Delivery for Holders of the
6.65% Senior Notes due 2006.
99.6 Form of Notice of Guaranteed Delivery for Holders of the
6.80% Senior Notes due 2009.
99.7* Exchange Agent Agreement
</TABLE>
- ---------------
+ Previously Filed.
* To be Filed by Amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
I, the undersigned, for purposes of incorporating and organizing a
stock corporation under the General Corporation Law of 1995 of the Commonwealth
of Puerto Rico (the "General Corporation Law"), do execute this Certificate of
Incorporation and do hereby certify as follows:
FIRST: The name of this corporation is TELECOMUNICACIONES DE PUERTO
RICO, INC. (hereinafter referred to as the "Corporation").
SECOND: The physical address of the designated office of the
Corporation in the Commonwealth of Puerto Rico is 1515 F.D. Roosevelt Avenue,
12th Floor, Guaynabo, Puerto Rico 00968. Its mailing address is P. O. Box
360998, San Juan, PR 00936-0998. The name of its resident agent is Ms. Gladys
Batista Torres, Attorney-at-Law.
THIRD: The nature of the business and the object and purposes proposed
to be transacted, promoted and carried on for pecuniary profit are to operate a
telecommunications business. The Corporation shall also be authorized to do all
things incidental to such business and to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law.
FOURTH: The total number of shares of common stock which the
Corporation shall have authority to issue is TEN THOUSAND (10,000), without a
par value and all of the same class.
FIFTH: The sole incorporator of the Corporation is the PUERTO RICO
TELEPHONE AUTHORITY (the "PRTA"), whose physical address is located at 1515 F.D.
Roosevelt Avenue,
-3-
<PAGE> 2
12th Floor, Guaynabo, Puerto Rico 00968 and mailing address is P. O. Box 360998,
San Juan, PR 00936-0998.
SIXTH: Except to the extent that the by-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
SEVENTH: The books of the Corporation may be kept (subject to any
provisions contained in the statutes of the Commonwealth of Puerto Rico or in
the statutes of any state in which the Corporation may qualify to do business)
outside of the Commonwealth of Puerto Rico at such place or places as may from
time to time be designated by the Board of Directors or in the by-laws of the
Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the Commonwealth of Puerto Rico, the Board of Directors of the
Corporation is expressly authorized:
1. To make, alter and repeal the by-laws of the Corporation, subject to
the authority of the stockholders of the Corporation to adopt, amend,
alter or repeal any by-law adopted by the Board of Directors.
2. To provide reserve or reserves for any proper purpose and to abolish
the same when deemed appropriate.
3. By a majority of the whole Board, to designate one or more committees,
each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. The by-laws may provide that in
the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting
in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of
Directors, or in the by-laws of the Corporation, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may
authorize the seal of the Corporation to be affixed to all documents
which may require it. Notwithstanding the preceding, the
-4-
<PAGE> 3
delegation of power to any such committee shall be subject to the
limitations imposed by Article 4.01 C of the General Corporation Law.
4. To exercise all the powers of the Corporation except those conferred by
the General Corporation Law, by this Certificate of Incorporation or by
the by-laws of the Corporation upon the stockholders.
NINTH: Except as provided in Article 1.02 B 6 of the General
Corporation Law, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any amendment, modification or repeal of the foregoing
sentence shall not adversely affect any right or protection of a director of the
Corporation hereunder in respect of any act or omission occurring prior to the
time of such amendment, modification or repeal.
TENTH: No contract or transaction between the Corporation and one or
more of its directors or officers or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if any of the circumstances indicated in Article 4.05 A 1, 2 or 3 of the General
Corporation Law is present. Interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ELEVENTH: Except as provided in Article 4.08 of the General Corporation
Law and subject to the procedure described in paragraph D of said Article, the
following provisions shall apply to the indemnification of directors and
officers by the Corporation:
-5-
<PAGE> 4
1. The Corporation shall, to the broadest and maximum event permitted by
the General Corporation Law, as the same exists from time to time,
indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he or she is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding.
2. In addition, the Corporation shall, to the broadest and maximum extent
permitted by the General Corporation Law, as the same may exist from
time to time, pay to such person any and all expenses (including
attorneys fees) incurred in defending or settling any such action, suit
or proceeding in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the
director or officer, to repay such amount if it shall ultimately be
determined by a final judgment or other final adjudication that he or
she is not entitled to be indemnified by the Corporation as authorized
in this Article.
3. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
Certificate of Incorporation, the by-laws of this Corporation, by
agreement, vote of stockholders or disinterested directors or otherwise
with respect to actions executed in his official or in other capacity,
while discharging the duties of such position.
Any amendment, modification or repeal of this Article shall not
adversely affect any rights to indemnification of a director of the Corporation
hereunder with respect to any act or omission occurring prior to the time of
such amendment, modification or repeal.
TWELFTH: The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
Commonwealth of Puerto Rico at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation in
its present form, or as hereafter amended, are granted subject to the rights
reserved in this Article.
-6-
<PAGE> 5
THIRTEENTH: Subject to the provisions of Article 4.01 K of the General
Corporation Law, any and all directors may be removed, with or without cause, at
any time by either:
1. The vote of the holders of a majority of the stock of the Corporation
issued and outstanding and entitled to vote and present, in person or
by proxy, at any meeting of stockholders called for the purpose; or
2. An instrument or instruments in writing addressed to the Board of
Directors directing such removal and signed by the holders of all the
shares of capital stock of the Corporation issued and outstanding and
entitled to vote;
Upon the occurrence of any of the above described events, the term of
each such director who shall be so removed shall terminate.
FOURTEENTH: The existence of the Corporation shall commence on the date
in which this Certificate of Incorporation is filed with the Department of State
of the Commonwealth of Puerto Rico.
I, the undersigned, Executive Director of the PRTA, being the sole
incorporator herein before named for the purpose of executing this Certificate
of Incorporation pursuant to the General Corporation Law, hereby swear that the
statements contained herein are true.
-7-
<PAGE> 6
Given at San Juan, Puerto Rico, this 9th day of January, 1998.
PUERTO RICO TELEPHONE AUTHORITY
By: _________________________________
Carmen Ana Culpeper
Executive Director
<TABLE>
<S> <C>
Certification del Oficial Examinador _____99,283____
Num. de Registro
Certifico que he lefdo y revisado dicho documente y que este Certifico que el 9 de Enero de 1998 quedo registered
cumple con la Ley y Procedimientos de Corporaciones. dicho documento luego de haber cumplido con la Ley
Num. 144 del 10 de agosto de 1995.
13/1/98 __________________________
Firma
13/1/98 _________________________
Fecha Rafel A. Martinez Colon. LLM
Secretario Auziliar de
Administracion y Servicios
</TABLE>
-8-
<PAGE> 7
COMMONWEALTH OF PUERTO RICO
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION
BEFORE THE RECEIPT OF PAYMENT OF CAPITAL
FIRST: Articles Second and Fourth of the Certificate of Incorporation
of Telecomunicaciones de Puerto Rico, Inc., a corporation organized pursuant to
the laws of Puerto Rico, have been amended so that they read as follows:
SECOND: The physical address of the designated office of the
Corporation in the Commonwealth of Puerto Rico is 1500 F. D. Roosevelt
Avenue, Penthouse, Guaynabo, Puerto Rico 00968. Its mailing address is
P. O. Box 360998, San Juan, Puerto Rico 00936-0998. Its resident agent
at such address is Puerto Rico Telephone Company, Inc., Legal
Department.
FOURTH: The total number of shares of Common Stock which the
Corporation shall have authority to issue is TEN MILLION (10,000,000)
with a par value of ONE CENT ($.01) per share each and all of the same
class.
SECOND: Said amendments were adopted by a majority of the elected
members of the Board of Directors of the Corporation.
THIRD: No payment of capital to said corporation has been received.
I WITNESS WHEREOF, I, Carmen Ana Culpeper, President of
Telecomunicaciones de Puerto Rico, Inc. and Authorized Officer who signs this
certificate, hereby swears that the facts herein stated are true, this 10th of
February, 1999.
------------------------------
Carmen Ana Culpeper
President
Authorized Officer
<PAGE> 8
GOVERNMENT OF PUERTO RICO
DEPARTMENT OF STATE
SAN JUAN, PUERTO RICO
I, RAQUEL MERCADO VELAZQUEZ, Director, Corporate and Trademarks
Registries of the Department of State of the Government of Puerto Rico,
CERTIFY: That on FEBRUARY 11, 1999 AT 3:07 P.M., a Certificate of
Amendment to the Certificate of Incorporation of "TELECOMUNICACIONES DE PUERTO
RICO, INC.", file 99,283, a profit corporation organized under the laws of
Puerto Rico, was filed, amending Article II (resident agent, principal office
and mailing address) and Article IV (capital).
IN WITNESS WHEREOF, the undersigned by
virtue of the authority vested by law,
hereby issue this certificate and affixes
the Great Seal of the Commonwealth of Puerto
Rico, in the City of San Juan, this 26th day
of February nineteen hundred ninety nine.
Raquel Mercado Velazquez
Director
Corporate and Trademarks Registries
-2-
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
PRTC MERGER COMPANY, INC.
I, the undersigned, for purposes of incorporating and organizing a
stock corporation under the General Corporation Law of 1995 of the Commonwealth
of Puerto Rico (the "General Corporation Law"), do execute this Certificate of
Incorporation and do hereby certify as follows:
FIRST: The name of this corporation is PRTC MERGER COMPANY, INC.
(hereinafter referred to as the "Corporation).
SECOND: The physical address of the designated office of the
Corporation in the Commonwealth of Puerto Rico is 1500 F.D. Roosevelt Avenue,
Penthouse, Guaynabo, Puerto Rico 00968. Its mailing address is P. O. Box 360998,
San Juan, PR 00936-0998. Its resident agent is Puerto Rico Telephone Company,
Legal Department.
THIRD: The nature of the business and the object and purposes proposed
to be transacted, promoted and carried on for pecuniary profit are to operate a
telecommunications business. The Corporation shall also be authorized to do all
things incidental to such business and to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law.
FOURTH: The total number of shares of common stock which the
Corporation shall have authority to issue is FIVE HUNDRED EIGHTY-TWO (582) WITH
A PAR VALUE OF TEN DOLLARS ($10.00) and all of the same class.
FIFTH: The sole incorporator of the Corporation is the PUERTO RICO
TELEPHONE AUTHORITY (the "PRTA"), whose physical address is located at 1515 F.D.
Roosevelt Avenue,
<PAGE> 2
12th Floor, Guaynabo, Puerto Rico 00968 and mailing address is P.O. Box 360998,
San Juan, PR 00936-0998.
SIXTH: Except to the extent that the by-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
SEVENTH: The books of the Corporation may be kept (subject to any
provisions contained in the statutes of the Commonwealth of Puerto Rico or in
the statutes of any state in which the Corporation may qualify to do business)
outside of the Commonwealth of Puerto Rico at such place or places as may from
time to time be designated by the Board of Directors or in the by-laws of the
Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the Commonwealth of Puerto Rico, the Board of Directors of the
Corporation is expressly authorized:
1. To make, alter and repeal the by-laws of the Corporation,
subject to the authority of the stockholders of the
Corporation to adopt, amend, alter or repeal any by-law
adopted by the Board of Directors.
2. To provide reserve or reserves for any proper purpose and to
abolish the same when deemed appropriate.
3. By a majority of the whole Board, to designate one or more
committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of
the committee. The by-laws may provide that in the absence or
disqualification of
-2-
<PAGE> 3
a member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, or in the by-laws
of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business
and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all documents which may require it.
Notwithstanding the preceding, the delegation of power to any such
committee shall be subject to the limitations imposed by Article 4.01 C
of the General Corporation Law.
4. To exercise all the powers of the Corporation except those conferred by
the General Corporation Law, by this Certificate of Incorporation or by
the by-laws of the Corporation upon the stockholders.
NINTH: Except as provided in Article 1.02 (b) 6 of the General
Corporation Law, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any amendment, modification or repeal of the foregoing
sentence shall not adversely affect any right or protection of a director of the
Corporation hereunder in respect of any act or omission occurring prior to the
time of such amendment, modification or repeal.
TENTH: No contract or transaction between the Corporation and one or
more of its directors or officers or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or
-3-
<PAGE> 4
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if any of the circumstances indicated in Article 4.05
(a) 1, 2 or 3 of the General Corporation Law is present. Interested directors
may be counted in determining the presence of a quorum at a meeting of the Board
of Directors or of a committee which authorizes the contract or transaction.
ELEVENTH: Except as provided in Article 4.08 of the General Corporation
Law and subject to the procedure described in paragraph (d) of said Article, the
following provisions shall apply to the indemnification of directors and
officers by the Corporation:
1. The Corporation shall, to the broadest and maximum event permitted by
the General Corporation Law, as the same exists from time to time,
indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he or she is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding.
2. In addition, the Corporation shall, to the broadest and maximum extent
permitted by the General Corporation Law, as the same may exist from
time to time, pay to
-4-
<PAGE> 5
such person any and all expenses (including attorneys fees) incurred in
defending or settling any such action, suit or proceeding in advance of
the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer, to repay
such amount if it shall ultimately be determined by a final judgment or
other final adjudication, that he or she is not entitled to be
indemnified by the Corporation as authorized in this Article.
3. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
Certificate of Incorporation, the by-laws of this Corporation, by
agreement, vote of stockholders or disinterested directors or otherwise
with respect to actions executed in his official or in other capacity,
while discharging the duties of such position.
Any amendment, modification or repeal of this Article shall not
adversely affect any rights to indemnification of a director of the Corporation
hereunder with respect to any act or omission occurring prior to the time of
such amendment, modification or repeal.
TWELFTH: The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
Commonwealth of Puerto Rico at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation in
its present form, or as hereafter amended, are granted subject to the rights
reserved in this Article.
-5-
<PAGE> 6
THIRTEENTH: Subject to the provisions of Article 4.01 (k) of the
General Corporation Law, any and all directors may be removed, with or without
cause, at any time by either:
1. The vote of the holders of a majority of the stock of the Corporation
issued and outstanding and entitled to vote and present, in person or
by proxy, at any meeting of stockholders called for the purpose; or
2. An instrument or instruments in writing addressed to the Board of
Directors directing such removal and signed by the holders of all the
shares of capital stock of the Corporation issued and outstanding and
entitled to vote;
Upon the occurrence of any of the above described events, the term of
each such director who shall be so removed shall terminate.
FOURTEENTH: The existence of the Corporation shall commence on the date
in which this Certificate of Incorporation is filed with the Department of State
of the Commonwealth of Puerto Rico.
-6-
<PAGE> 7
I, the undersigned, as Executive Director of the PRTA, which is the
sole incorporator hereinbefore named for the purpose of executing this
Certificate of Incorporation pursuant to the General Corporation Law, hereby
swear that the statements contained herein are true.
Given at San Juan, Puerto Rico, this day of May, 1998.
PUERTO RICO TELEPHONE AUTHORITY
By: ____________________________________
Carmen Ana Culpeper
Executive Director
Affidavit No. ________
Sworn and subscribed Before Me by the said __________________ whose
identity was verified upon examination of his __________________ number
__________________, which carries his signature.
In Guaynabo, Puerto Rico, on this the ___ of _____________ in the year
1998.
------------------------------------
Notary Public
7
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
CELULARES TELEFONICA, INC.
I, the undersigned, for purposes of incorporating and organizing a
stock corporation under the General Corporation Law of 1995 of the Commonwealth
of Puerto Rico (the "General Corporation Law"), do execute this Certificate of
Incorporation and do hereby certify as follows:
FIRST: The name of this corporation is CELULARES TELEFONICA, INC.
(hereinafter referred to as the "Corporation").
SECOND: The physical address of the designated office of the
Corporation in the Commonwealth of Puerto Rico is 1515 F.D. Roosevelt Avenue,
12th Floor, Guaynabo, Puerto Rico 00968. Its mailing address is P. O. Box
360998, San Juan, PR 00936-0998. The name of its resident agent is Ms. Gladys
Batista Torres, Attorney-at-Law.
THIRD: The nature of the business and the object and purposes proposed
to be transacted, promoted and carried on for pecuniary profit are to operate a
wireless telecommunications business. The Corporation shall also be authorized
to do all things incidental to such business and to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
FOURTH: The total number of shares of common stock which the
Corporation shall have authority to issue is TEN THOUSAND (10,000), without a
par value and all of the same class.
FIFTH: The sole incorporator of the Corporation is the PUERTO RICO
TELEPHONE AUTHORITY (the "PRTA"), whose physical address is located at 1515 F.D.
Roosevelt Avenue,
<PAGE> 2
12th Floor, Guaynabo, Puerto Rico 00968 and mailing address is P. O. Box 360998,
San Juan, PR 00936-0998.
SIXTH: Except to the extent that the by-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
SEVENTH: The books of the Corporation may be kept (subject to any
provisions contained in the statutes of the Commonwealth of Puerto Rico or in
the statutes of any state in which the Corporation may qualify to do business)
outside of the Commonwealth of Puerto Rico at such place or places as may from
time to time be designated by the Board of Directors or in the by-laws of the
Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the Commonwealth of Puerto Rico, the Board of Directors of the
Corporation is expressly authorized:
1. To make, alter and repeal the by-laws of the Corporation,
subject to the authority of the stockholders of the
Corporation to adopt, amend, alter or repeal any by-law
adopted by the Board of Directors.
2. To provide reserve or reserves for any proper purpose and to
abolish the same when deemed appropriate.
3. By a majority of the whole Board, to designate one or more
committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of
the committee. The by-laws may provide that in the absence or
disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors,
or in the by-laws of the Corporation, shall have and may
exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to
be affixed to all documents which may require it.
Notwithstanding the preceding, the delegation of power to any
such
-2-
<PAGE> 3
committee shall be subject to the limitations imposed by
Article 4.01 C of the General Corporation Law.
4. To exercise all the powers of the Corporation except those
conferred by the General Corporation Law, by this Certificate
of Incorporation or by the by-laws of the Corporation upon the
stockholders.
NINTH: Except as provided in Article 1.02 B 6 of the General
Corporation Law, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any amendment, modification or repeal of the foregoing
sentence shall not adversely affect any right or protection of a director of the
Corporation hereunder in respect of any act or omission occurring prior to the
time of such amendment, modification or repeal.
TENTH: No contract or transaction between the Corporation and one or
more of its directors or officers or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if any of the circumstances indicated in Article 4.05 A 1, 2 or 3 of the General
Corporation Law is present. Interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ELEVENTH: Except as provided in Article 4.08 of the General Corporation
Law and subject to the procedure described in paragraph D of said Article, the
following provisions shall apply to the indemnification of directors and
officers by the Corporation:
1. The Corporation shall, to the broadest and maximum event
permitted by the General Corporation Law, as the same exists
from time to time,
-3-
<PAGE> 4
indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that he
or she is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him or her in connection with such action, suit or proceeding.
2. In addition, the Corporation shall, to the broadest and
maximum extent permitted by the General Corporation Law, as
the same may exist from time to time, pay to such person any
and all expenses (including attorneys fees) incurred in
defending or settling any such action, suit or proceeding in
advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of
the director or officer, to repay such amount if it shall
ultimately be determined by a final judgment or other final
adjudication that he or she is not entitled to be indemnified
by the Corporation as authorized in this Article.
3. The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of
any other right which any person may have or hereafter acquire
under any statute, this Certificate of Incorporation, the
by-laws of this Corporation, by agreement, vote of
stockholders or disinterested directors or otherwise with
respect to actions executed in his official or in other
capacity, while discharging the duties of such position.
Any amendment, modification or repeal of this Article shall
not adversely affect any rights to indemnification of a director of the
Corporation hereunder with respect to any act or omission occurring prior to the
time of such amendment, modification or repeal.
TWELFTH: The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
Commonwealth of Puerto Rico at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation in
its present form, or as hereafter amended, are granted subject to the rights
reserved in this Article.
-4-
<PAGE> 5
THIRTEENTH: Subject to the provisions of Article 4.01 K of the General
Corporation Law, any and all directors may be removed, with or without cause, at
any time by either:
1. The vote of the holders of a majority of the stock of the
Corporation issued and outstanding and entitled to vote and
present, in person or by proxy, at any meeting of stockholders
called for the purpose; or
2. An instrument or instruments in writing addressed to the Board
of Directors directing such removal and signed by the holders
of all the shares of capital stock of the Corporation issued
and outstanding and entitled to vote;
Upon the occurrence of any of the above described events, the term of
each such director who shall be so removed shall terminate.
FOURTEENTH: The existence of the Corporation shall commence on the date
in which this Certificate of Incorporation is filed with the Department of State
of the Commonwealth of Puerto Rico.
I, the undersigned, Executive Director of the PRTA, being the sole
incorporator hereinbefore named for the purpose of executing this Certificate of
Incorporation pursuant to the General Corporation Law, hereby swear that the
statements contained herein are true.
Given at San Juan, Puerto Rico, this 9 day of January, 1998.
PUERTO RICO TELEPHONE AUTHORITY
By:
-------------------------------------
Carmen Ana Culpeper
Executive Director
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<PAGE> 6
[COMMONWEALTH OF PUERTO RICO INSIGNIA]
GOVERNMENT OF PUERTO RICO
DEPARTMENT OF STATE
SAN JUAN, PUERTO RICO
I, RAQUEL MERCADO VELAZQUEZ, Director, Corporate and Trademarks
Registries of the Department of State of the Government of Puerto Rico,
CERTIFY: That on FEBRUARY 11, 1999 AT 3:08 P.M., a Certificate of
Amendment to the Certificate of Incorporation of "CELULARES TELEFONICA, INC.",
file 99,282, a profit corporation organized under the laws of Puerto Rico, was
filed, amending Article II (resident agent, principal office and mailing
address) and Article IV (capital).
IN WITNESS WHEREOF, the
undersigned by virtue of
the authority vested by
law, hereby issue this
certificate and affixes the
Great Seal of the
Commonwealth of Puerto
Rico, in the City of San
Juan, this 26th day of
February nineteen hundred
ninety nine.
Raquel Mercado Velazquez
Director
Corporate and Trademarks Registries
<PAGE> 7
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
CELULARES TELEFONICA, INC., a corporation organized and existing under
the laws of the Commonwealth of Puerto Rico, does hereby CERTIFY:
FIRST: That at a meeting of the Board of Directors of said CELULARES
TELEFONICA, INC., duly held and convened, resolutions were duly adopted setting
forth proposed amendments to the Certificate of Incorporation of said
corporation and declaring said amendments advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendments is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
and it hereby is amended by changing the Article SECOND to read as
follows:
SECOND: The physical address of the designated office of the
Corporation in the Commonwealth of Puerto Rico is 653 Munoz Rivera
Avenue, Hato Rey, Puerto Rico. Its mailing address is P.O. Box 70367,
San Juan, Puerto Rico, 00936-8367. Its resident agent at such address
is Celulares Telefonica, Inc., Legal Office.
RESOLVED, that the Certificate of Incorporation of this corporation be
and it hereby is amended by changing the Article FOURTH to read as
follows:
FOURTH: The total number of shares of Common Stock which the
Corporation shall have authority to issue is TEN MILLION (10,000,000)
with a par value of ONE CENT($.01) per share each and all of the same
class.
SECOND: The Board of Directors of the Corporation has determined by
resolution that the terms of the rights and options provided under said
amendment are, under the circumstances prevailing at the time of the adoption
thereof, fair and equitable to all the existing stockholders of the Corporation.
<PAGE> 8
THIRD: That said amendments have been consented to and authorized by
the holders of all the issued and outstanding stock of the Corporation, entitled
to vote, by written consent given in accordance with the provisions of Section
7.17 of the General Corporation Law for the Commonwealth of Puerto Rico.
IN WITNESS WHEREOF, I Carmen Ana Culpeper, in my capacity as President
of CELULARES TELEFONICA, INC. hereby swear that the statements contained in this
Certificate are true. Given at Guaynabo, Puerto Rico this 10th day of February,
1999.
CELULARES TELEFONICA, INC.
By:
-------------------------------------
Carmen Ana Culpeper
President
-2-
<PAGE> 1
EXHIBIT 5.1
[CURTIS, MALLETT-PREVOST, COLT & MOSLE LLP LETTERHEAD]
September 27, 1999
Telecomunicaciones de Puerto Rico, Inc.
1515 Franklin D. Roosevelt Avenue
Guaynabo, Puerto Rico 00968
Puerto Rico Telephone Company, Inc.
1515 Franklin D. Roosevelt Avenue
Guaynabo, Puerto Rico 00968
Celulares Telefonica, Inc.
1515 Franklin D. Roosevelt Avenue
Guaynabo, Puerto Rico 00968
Re: Exchange Offer
Ladies and Gentlemen:
We have acted as special United States counsel to Telecomunicaciones de
Puerto Rico, Inc. (the "Company"), a corporation organized under the laws of the
Commonwealth of Puerto Rico ("Puerto Rico"), Puerto Rico Telephone Company,
Inc., and Celulares Telefonica, Inc., both of which are corporations organized
under the laws of Puerto Rico (jointly, the "Guarantors") in connection with the
proposed exchange offer by the Company and the Guarantors of up to $300,000,000
aggregate principal amount of 6.15% Senior Notes due 2002, up to $400,000,000
aggregate principal amount of 6.65% Senior Notes due 2006 and up to $300,000,000
aggregate principal amount of 6.80% Senior Notes due 2009, to be issued by the
Company (the "Exchange Notes") which, if and when issued, will be fully and
unconditionally guaranteed by the Guarantors (the "Guarantees") to the extent
set forth in the Indenture, for the Company's issued and outstanding
unregistered $300,000,000 aggregate principal amount of 6.15% Senior Notes due
2002, $400,000,000 aggregate principal amount of 6.65% Senior Notes due 2006 and
$300,000,000 aggregate principal amount of 6.80% Senior Notes due 2009 (the "Old
Notes") which are fully and unconditionally guaranteed by the Guarantors to the
extent set forth in the Indenture, as more fully described in the registration
statement (the "Registration Statement") on Form S-4 filed by the Company and
the Guarantors with the Securities and Exchange Commission in accordance with
the requirements of the Securities Act of 1933, as
<PAGE> 2
Telecomunicaciones de Puerto Rico, Inc.
Page 2 September 27, 1999
amended (the "Act").
We have examined the Registration Statement and exhibits thereto, including
the Indenture, have reviewed originals or copies certified or otherwise
identified to our satisfaction of such documents and records of the Company and
the Guarantors and such other instruments and other certificates of public
officials, officers and representatives of the Company and the Guarantors and
such other persons, and have made investigations of law, as we have deemed
appropriate as a basis for the opinion expressed below.
In our examinations, we have assumed, without any independent investigation
or verification of any kind, the legal capacity of all persons, the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified, conformed or photostatic copies and the authenticity of the
originals of such latter documents. In making our examination of such documents,
we have assumed that the Indenture has been duly authorized, executed and
delivered by the Trustee.
This opinion is limited to matters arising under the laws of the State of
New York and the federal laws of the United States of America and we express no
opinion as to any system of law other than the laws of such jurisdictions. This
opinion does not cover any matters arising under the laws of any other
jurisdiction, including Puerto Rico. Insofar as the opinion set forth herein
relates to matters arising under the laws of Puerto Rico, we have assumed
without any independent investigation or verification of any kind the accuracy
of the opinion of O'Neill & Borges of even date herewith, and our opinion is
subject to any and all exceptions and reservations set forth therein.
Based upon the foregoing, and subject to the assumptions and qualifications
set forth below, we are of the opinion that when the Exchange Notes have been
(i) duly and validly executed by the Company in the form filed as Exhibit A to
the Indenture filed as Exhibit 4.1 to the Registration Statement, (ii)
authenticated by the Trustee in accordance with the Indenture and (iii) duly
issued and delivered by the Company in exchange for an equal principal amount of
Old Notes pursuant to the terms of the Exchange Offer as contemplated by the
Registration Statement, the Exchange Notes and the Guarantees will be valid,
binding and enforceable obligations of the Company and the Guarantors, as the
case may be.
Insofar as the foregoing opinion relates to the legality, validity, binding
effect or enforceability of the Exchange Notes and the Guarantees, (a) such
opinion is subject, as to enforceability, (i) to bankruptcy, insolvency
(including, without limitation, all laws relating to preferences and fraudulent
transfers), suspension of payments, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equitable principles (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, regardless of whether
enforcement is sought in a proceeding at law or
<PAGE> 3
Telecomunicaciones de Puerto Rico, Inc.
Page 3 September 27, 1999
equity), (ii) to the discretion of the court before which any proceeding
therefor may be brought, (iii) to the extent that rights to indemnity may be
limited by United States federal or state securities laws or the public policy
underlying such laws, and (b) such opinion is subject to the effect of judicial
application of foreign laws or foreign governmental actions affecting creditors'
rights.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the captions
"Legal Matters" and "Tax Considerations" in the prospectus that is included in
the Registration Statement. In giving these consents, we do not hereby admit
that we are "experts" within the meaning of the Act or the rules and regulations
of the Securities and Exchange Commission issued thereunder with respect to any
part of the Registration Statement, including this exhibit.
The opinion set forth herein is solely for your benefit in connection with
the Registration Statement and may not be relied upon in any manner or for any
purpose by any other person or entity without our prior express written consent
other than holders of Old Notes that will have exchanged their Old Notes for
Exchange Notes pursuant to the Exchange Offer.
Cordially,
<PAGE> 1
EXHIBIT 5.2
[Letterhead of O'Neill & Borges]
September 27, 1999
Telecomunicaciones de Puerto Rico, Inc.
Puerto Rico Telephone Company, Inc.
Celulares Telefonica, Inc.
1515 Franklin D. Roosevelt Avenue
Guaynabo, Puerto Rico 00968
RE: EXCHANGE OFFER
Ladies and Gentlemen:
We have acted as special Puerto Rico counsel to Telecomunicaciones de
Puerto Rico, Inc. (the "Company"), a corporation organized under the laws of the
Commonwealth of Puerto Rico ("Puerto Rico"), Puerto Rico Telephone Company,
Inc., and Celulares Telefonica, Inc., both of which are corporations organized
under the laws of Puerto Rico (jointly, the "Guarantors"), in connection with
the proposed exchange offer by the Company and the Guarantors of up to
$300,000,000 aggregate principal amount of 6.15% Senior Notes due 2002, up to
$400,000,000 aggregate principal amount of 6.65% Senior Notes due 2006 and up to
$300,000,000 aggregate principal amount of 6.80% Senior Notes due 2009 issued by
the Company (the "Exchange Notes"), which will be fully and unconditionally
guaranteed by the Guarantors (the "Guarantees"), for the Company's issued and
outstanding unregistered $300,000,000 aggregate principal amount 6.15% Senior
Notes due 2002, $400,000,000 aggregate principal amount 6.65% Senior Notes due
2006 and $300,000,000 aggregate principal amount 6.80% Senior Notes due 2009
(the "Old Notes"), which are fully and unconditionally guaranteed by the
Guarantors, as more fully described in the registration statement (the
"Registration Statement") on Form S-4 filed by the Company and the Guarantors
with the Securities and Exchange Commission in accordance with the requirements
of the Securities Act of 1933, as amended (the "Act"). Unless the context
otherwise requires, capitalized terms used herein but not defined herein shall
have the meanings ascribed to them in the Registration Statement.
We have examined the Registration Statement and certain of the exhibits
thereto, including the Indenture, have reviewed originals or copies certified or
otherwise identified to our satisfaction of such documents and records of the
Company and the Guarantors and such other instruments and other certificates of
public officials, officers and representatives of the Company and the Guarantors
and such other persons, and have made investigations of law, as we have deemed
appropriate as a basis for the opinion expressed below.
In our examinations, we have assumed, without any independent
investigation or verification of any kind, the legal capacity of all persons,
the genuineness of all signatures, the
<PAGE> 2
Telecomunicaciones de Puerto Rico, Inc.
Puerto Rico Telephone Company, Inc.
Celulares Telefonica, Inc.
September 27, 1999
Page 2
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such latter
documents. In making our examination of such documents, we have assumed that the
Indenture has been duly authorized, executed and delivered by the Trustee.
Based upon the foregoing, and subject to the assumptions and qualifications
set forth herein, we are of the opinion that when the Exchange Notes are
executed on behalf of the Company by the Chairman of the Board or the Chief
Executive Officer of the Company, and by the Chief Financial Officer or the
Treasurer or the Secretary or an Assistant Secretary of the Company, in the form
filed as Exhibit A to the Indenture filed as Exhibit 4.1 to the Registration
Statement, and authenticated by the Trustee in accordance with the Indenture,
and duly issued and delivered by the Company and the Guarantors in exchange for
an equal principal amount of Old Notes pursuant to the terms of the Exchange
Offer as contemplated by the Registration Statement, the Exchange Notes and the
Guarantees will have been duly authorized, executed and delivered and validly
issued by the Company and the Guarantors.
We are admitted to practice only in the Commonwealth of Puerto Rico and
express no opinion as to any matters governed by any laws other than the laws of
the Commonwealth of Puerto Rico. We note that the Indenture, the Exchange Notes
and the Guarantees are governed by New York law and that we are therefore not
expressing an opinion as to their enforceability.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the captions
"Legal Matters" and "Tax Considerations" in the prospectus that is included in
the Registration Statement. In giving these consents, we do not hereby admit
that we are "experts" within the meaning of the Act or the rules and regulations
of the Securities and Exchange Commission issued thereunder with respect to any
part of the Registration Statement, including this exhibit.
The opinion set forth herein is solely for your benefit in connection with
the Registration Statement and the benefit of holders of Old Notes that exchange
their Old Notes for Exchange Notes pursuant to the Exchange Offer, and may not
be relied upon for any other purpose or by any other person or entity without
our prior express written consent.
Cordially,
O'Neill & Borges
<PAGE> 1
Exhibit 10.12
TRUST OF THE
EMPLOYEE STOCK OWNERSHIP PLAN
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
(Effective March 2, 1999)
<PAGE> 2
ESOP TRUST AGREEMENT
PREAMBLE
Telecomunicaciones de Puerto Rico, Inc., a Puerto Rico corporation (the
"Company"), for itself and on behalf of its wholly-owned subsidiaries, Puerto
Rico Telephone Company, Inc. and Celulares Telefonica, Inc., and U.S. Trust
Company, National Association, as Trustee (the "Trustee"), by execution of this
Trust Agreement, hereby establish effective March 2, 1999, the Trust of the
Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. for the
purpose of holding and investing assets of and funding benefits under the
Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. (the
"Plan") which constitutes an employee stock ownership plan within the meaning of
Section 4975(e)(7) of the United States Internal Revenue Code of 1986, as
amended (the "US Code") and Section 1165(h)(1) of the Puerto Rico Internal
Revenue Code of 1994, as amended (the "PR Code"). The Trustee's rights, powers,
titles, duties, responsibilities, discretion, and immunities shall be governed
by this Trust Agreement, the Plan, and any applicable provisions of United
States or Puerto Rico law, including, but not limited to, ERISA, the US Code,
and the PR Code.
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS........................................................................................2
1.1 Incorporation of Definitions Used in Plan................................................................2
1.2 Definitions of Terms Used Exclusively in Trust Agreement.................................................2
1.3 Named Fiduciaries........................................................................................2
ARTICLE 2 ESTABLISHMENT OF TRUST AND CERTAIN PRIMARY CONDITIONS OF ITS OPERATION.............................2
2.1 Establishment of Trust...................................................................................2
2.2 Designation of Trust.....................................................................................2
2.3 Trust Fund...............................................................................................3
2.4 Exclusive Benefit Rule...................................................................................3
2.5 Reversion Prohibited.....................................................................................3
2.6 Spendthrift Clause.......................................................................................3
2.7 Claims against the Trust Fund............................................................................3
2.8 Employer Contributions...................................................................................4
2.9 Distributions............................................................................................4
ARTICLE 3 INVESTMENT OF THE TRUST FUND.......................................................................4
3.1 General Responsibility and Authority for Investment of Trust Fund Assets.................................4
3.2 ERISA Requirements.......................................................................................4
3.3 Investment in Company Stock..............................................................................5
3.4 Other Trust Fund Investments.............................................................................7
ARTICLE 4 POWERS OF THE TRUSTEE..............................................................................7
4.1 Scope of Powers..........................................................................................7
4.2 Powers Exercised by the Trustee..........................................................................8
4.3 Duties Relating to Voting of Shares of Company Stock and Tender Offers...................................9
4.4 Refinancings of Exempt Loans............................................................................12
4.5 Documents, Instruments and Facilities...................................................................12
ARTICLE 5 DUTIES AND OBLIGATIONS OF THE TRUSTEE.............................................................12
5.1 Scope of Duties and Obligations.........................................................................12
5.2 General Duties and Obligations..........................................................................12
5.3 Valuation...............................................................................................13
5.4 Records.................................................................................................13
5.5 Reports.................................................................................................13
5.6 Instructions............................................................................................14
ARTICLE 6 COMPENSATION, RIGHTS AND INDEMNITIES OF THE TRUSTEE...............................................15
6.1 Compensation and Reimbursement..........................................................................15
6.2 Rights of the Trustee...................................................................................15
6.3 Indemnification.........................................................................................17
6.4 Limitation of Liability of Trustee......................................................................17
6.5 Court Proceedings and Necessary Litigation..............................................................17
6.6 Bonding of Trustee......................................................................................18
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6.7 Third Party.............................................................................................18
6.8 Tax and Information Returns.............................................................................18
ARTICLE 7 RESIGNATION OR REMOVAL OF THE TRUSTEE.............................................................18
7.1 Resignation.............................................................................................18
7.2 Removal.................................................................................................18
7.3 Successor Trustee.......................................................................................19
7.4 Settlement..............................................................................................19
7.5 Transfer to Successor Trustee...........................................................................19
7.6 Duties of the Trustee Prior to Transfer to Successor Trustee............................................19
7.7 Powers, Duties and Rights of the Successor Trustee......................................................19
7.8 Merger or Consolidation Involving Corporate Trustee.....................................................19
ARTICLE 8 AMENDMENT OF THE TRUST AGREEMENT OR TERMINATION OF THE PLAN.......................................20
8.1 Amendment of the Trust Agreement........................................................................20
8.2 Termination of Trust....................................................................................20
8.3 Termination of the Plan.................................................................................21
8.4 Settlor Functions.......................................................................................22
ARTICLE 9 COMMUNICATIONS....................................................................................22
9.1 Company's and Committee's Address.......................................................................22
9.2 Trustee's Address.......................................................................................22
9.3 Binding Upon Receipt....................................................................................22
9.4 Communication in Writing................................................................................22
ARTICLE 10 MISCELLANEOUS..................................................................................23
10.1 Gender, Tense and Headings...........................................................................23
10.2 Governing Law........................................................................................23
10.3 Mistake of Fact......................................................................................23
10.4 Qualification of Plan................................................................................23
10.5 Deductibility of Contributions.......................................................................24
10.6 Receipt or Release...................................................................................24
10.7 Accounting Period....................................................................................24
10.8 Title of Trust Assets................................................................................24
10.9 Waiver...............................................................................................24
10.10 Partial Invalidity...................................................................................24
10.11 Duration.............................................................................................25
10.12 Entire Agreement; Parties Bound......................................................................25
10.13 Executed Counterparts................................................................................25
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ARTICLE 1 DEFINITIONS
1.1 INCORPORATION OF DEFINITIONS USED IN PLAN.
The definitions stated in Article I of the Plan are hereby
incorporated by reference into this Trust Agreement, except to the extent
otherwise defined herein.
1.2 DEFINITIONS OF TERMS USED EXCLUSIVELY IN TRUST AGREEMENT.
(a) "Bank" means (1) a banking institution organized under the laws of
the United States; (2) a member bank of the Federal Reserve System; or (3) any
other banking institution, whether or not incorporated, doing business under the
laws of any state, the Commonwealth of Puerto Rico, or the United States, a
substantial portion of the business of which consists of receiving deposits or
exercising fiduciary powers similar to those permitted to national banks under
the authority of the Comptroller of the Currency, and which is supervised and
examined by state (including Puerto Rico) or federal authority having
supervision over banks.
(b) "Fiduciary" means a person or organization to the extent the
person or organization is a fiduciary with respect to the Plan or the Trust Fund
within the meaning of ERISA section 3(21).
1.3 NAMED FIDUCIARIES
The Committee shall be a named fiduciary of the Plan for
purposes of section 402 of ERISA, except that, to the extent, if any, permitted
by ERISA, each Participant and Beneficiary also shall be a named fiduciary with
respect to the exercise of voting and tender or exchange offer rights for
Company Stock credited to such Participant's or Beneficiary's Account, or to the
Account of a Participant or Beneficiary who fails to provide timely instructions
to the Trustee pursuant to Section 4.3, or in a Suspense Account.
ARTICLE 2 ESTABLISHMENT OF TRUST AND CERTAIN PRIMARY CONDITIONS OF ITS OPERATION
2.1 ESTABLISHMENT OF TRUST
This Trust Agreement establishes a trust pursuant to the Plan
that is intended to be a tax-exempt organization under US Code section 501(a)
and PR Code section 1165(a). The Company and the Trustee hereby agree that the
Trust Fund shall be held in trust and administered, invested and distributed for
the benefit of Participants and their Beneficiaries under the terms and
conditions of the Plan and this Trust Agreement.
2.2 DESIGNATION OF TRUST
The trust established hereunder shall be known as the Trust of
the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc.
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2.3 TRUST FUND
The Trust Fund shall consist of the cash, Company Stock and
other property, if any, held by the Trustee which shall represent at any time
the total of the Company Stock acquired by the Trustee, the contributions made
by the Company or other persons or entities to the Trust Fund under the
provisions of the Plan, or amounts transferred to the Trustee from any other
trust or funding medium established under the Plan, plus the earnings and less
the losses thereupon, without distinction which at the time of reference have
been made by the Trustee as authorized herein. Unless otherwise directed by the
Committee, the Trustee shall hold, invest, and administer the Trust assets as a
single fund without identification of any part of the Trust assets to the
Company or to any Participant or group of Participants or their Beneficiaries.
The Trustee need not inquire into the source of any money or property
transferred to it nor into the authority or right to transfer such money or
property to the Trustee.
2.4 EXCLUSIVE BENEFIT RULE
Except to the extent otherwise permitted by the ERISA, the US
Code and the PR Code, it shall be impossible , at any time prior to the
satisfaction of all liabilities with respect to Participants and their
Beneficiaries, for any part of the principal or income of the Trust Fund to be
used for, or diverted to, any purpose which is not for the exclusive benefit of
Participants and their Beneficiaries. The preceding sentence shall not be
construed in such a way as to prohibit the use of assets of the Trust Fund to
pay fees and other expenses and obligations (including without limitation
obligations of the Trustee under an Exempt Loan) incurred in the maintenance,
administration and investment of the Trust Fund in accordance with the
provisions of this Trust Agreement. No Participant or Beneficiary shall have any
interest in the Trust Fund that has not been allocated to his Account, except as
otherwise provided under the terms of the Plan.
2.5 REVERSION PROHIBITED
Except as permitted in the Plan or in Sections 2.4, 8.3, 10.3,
10.4 and 10.5 of this Agreement, it shall be impossible for any part of the
Trust Fund to revert to the Company or any Affiliate.
2.6 SPENDTHRIFT CLAUSE
Except as otherwise provided by federal law, the rights of any
Participant or Beneficiary to and in any benefits under the Plan shall not be
subject to assignment or alienation, and no Participant or Beneficiary shall
have the power to assign, transfer or dispose of such rights, nor shall any such
rights to benefits be subject to attachment, execution, garnishment,
sequestration, the laws of bankruptcy or any other legal or equitable process.
This Section shall not apply with respect to qualified domestic relations orders
as defined in US Code section 414(p) and ERISA section 206(d)(3).
2.7 CLAIMS AGAINST THE TRUST FUND
Subject to the claims procedure provided under the Plan, the
Committee shall have complete control and authority to determine the existence,
nonexistence, nature and amount
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of the rights and interests of all persons in or to the Trust Fund or under the
Plan. Except as otherwise required by ERISA, the Trustee shall have no duty to
question or to examine any determination made by the Committee or direction
given by the Committee to the Trustee in respect of such matters.
2.8 EMPLOYER CONTRIBUTIONS
Employer contributions to the Trust Fund shall consist only of
cash, Company Stock or other property acceptable to the Trustee. The Trustee
shall have no duty to administer the Plan nor to determine that the
contributions received from the Employer comply with the provisions of the Plan
or any Exempt Loan, or that the assets of the Trust are adequate to provide any
benefit payable pursuant to the Plan or are adequate to make the payments under
any Exempt Loan. The Trustee shall have no right, power, authority, duty or
responsibility to enforce payment of any contribution by the Employer to the
Plan.
2.9 DISTRIBUTIONS
Payments shall be made from the Trust Fund by the Trustee to
such persons, in such manner, at such times, and in such amounts as the
Committee shall from time to time direct in writing. The Trustee shall not be
liable for any distribution made or acts done by it in reasonable reliance on
written directions of the Committee. Neither shall the Trustee be obligated to
inquire as to whether any payee or distributee is entitled to any payment or
distribution. Rather, any payment or distribution made by the Trustee on the
order or direction of the Committee shall operate as a complete discharge of all
obligations of the Trustee with respect thereto. Without limiting the generality
of the foregoing, the Trustee may rely upon directions from the Committee with
respect to withholding obligations under the laws of the United States and
Puerto Rico.
ARTICLE 3 INVESTMENT OF THE TRUST FUND
3.1 GENERAL RESPONSIBILITY AND AUTHORITY FOR INVESTMENT OF TRUST
FUND ASSETS
The assets of the Trust Fund shall be invested and reinvested
by the Trustee, subject to and in accordance with ERISA and the provisions of
this Trust Agreement.
3.2 ERISA REQUIREMENTS
(a) The Trustee shall discharge its duties hereunder with the care,
skill, prudence and diligence, under the circumstances then prevailing, which
prudent men, acting in like capacity and familiar with such matters, would use
in the conduct of an enterprise of like character and with like aims.
(b) Except as authorized by regulations promulgated by the United
States Department of Labor, no Fiduciary may maintain the indicia of ownership
of any assets of the Trust Fund outside the jurisdiction of the district courts
of the United States.
(c) Notwithstanding any other provision of the Trust Agreement, the
Trustee shall not be required to comply with any provision of the Trust
Agreement that is not consistent
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with the requirements of Title I of ERISA. In the event a court of competent
jurisdiction shall issue an opinion or order to the Plan, the Company or the
Trustee, which shall, in the opinion of counsel to the Company or the Trustee,
invalidate under ERISA, in all circumstances or in any particular circumstances,
any provision or provisions of this Trust Agreement, then, upon notice thereof
to the Company or to the Trustee, as the case may be, such invalid or
conflicting provisions of this Trust Agreement shall be given no further force
or effect.
3.3 INVESTMENT IN COMPANY STOCK
The primary purpose of the Plan is to acquire an ownership
interest in the Company either from the Company or its shareholders and to
provide deferred compensation benefits to Participants and Beneficiaries in the
form of shares of Company Stock. Accordingly, the Plan has been established to
provide for investment primarily in shares of Company Stock. In furtherance of
the purpose for which the Plan has been established and designed, the Trustee
shall, in accordance with the terms of the Plan, (a) acquire shares of Company
Stock with assets of the Trust Fund or with the proceeds of an Exempt Loan, (b)
hold unallocated shares of Company Stock which have been acquired with the
proceeds of an Exempt Loan in a Suspense Account for release and allocation to
the Accounts of Participants, (c) hold shares of Company Stock which have been
contributed by the Company and (d) distribute to Participants or their
Beneficiaries under the terms of the Plan all shares of Company Stock and other
assets which have been allocated to the Accounts of such Participants in
accordance with the terms of the Plan, notwithstanding any otherwise applicable
fiduciary standard relating to (i) diversification of Trust Fund assets or (ii)
the suitability of Company Stock as a Trust Fund investment. Subject to the
provisions of the Plan, the Trustee is expressly authorized, but is not
required, to hold 100% of the assets of the Trust Fund in shares of Company
Stock.
The Trustee may purchase or sell Company Stock for the Trust
Fund either (a) directly or indirectly to or from the Company or any shareholder
of the Company, including any person deemed to be a "party in interest" within
the meaning of ERISA section 3(14) or a "disqualified person" within the meaning
of US Code section 4975 or (b) if the Company Stock is publicly traded, through
"blind" transactions on a national securities exchange in which neither the
purchaser nor the seller knows the identity of the other party to the
transaction. In purchasing any securities on a national securities exchange, the
Trustee shall give due consideration to the trading volume, if any, of Company
Stock at the time of each purchase and accordingly regulate the amount and
timing of such purchases so as to minimize the effect on market price
fluctuations which may be caused by such purchases. The Trustee shall comply
with all federal, state and Puerto Rican securities laws and with all applicable
provisions of ERISA and the Plan when purchasing or selling Company Stock,
including, if required, the condition that no more than adequate consideration
(as defined in Section 3(18) of ERISA) be paid for such Company Stock, or no
less than adequate consideration be received for such Company Stock, and no
commission be charged when a purchase or sale of Company Stock is made to or
from a "party in interest" or a "disqualified person."
The Trustee may enter into an Exempt Loan, the proceeds of
which must be used within a reasonable time after their receipt by the Trustee
to acquire shares of Company Stock and/or repay a prior Exempt Loan; provided,
however, that the terms and conditions of the Exempt Loan together with any
other documents executed by the Trustee in connection
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therewith (including without limitation any security or guarantee agreements)
shall be subject to the following provisions:
(a) The Exempt Loan must be primarily for the benefit of the Plan
Participants and their Beneficiaries. The terms of the Exempt Loan, whether or
not between independent parties, must, at the time the loan is made, be at least
as favorable to the Plan as the terms of a comparable loan resulting from
arms'-length negotiations between independent parties. The loan must be for a
specific term and must not be payable at the demand of any person, except in the
case of default.
(b) The Exempt Loan shall bear no more than a reasonable rate of
interest.
(c) Any collateral pledged to the creditor shall consist only of the
shares of Company Stock acquired with the proceeds of such Exempt Loan or shares
of Company Stock that were pledged as collateral in connection with a prior
Exempt Loan of the Trustee that was repaid with the proceeds of the current
Exempt Loan, together with all related rights, including the right to receive
dividends, provided, however, that the foregoing shall not prohibit the Company
from providing collateral, guarantees or other credit supports for the Exempt
Loan.
(d) Under the terms of the Exempt Loan or other documents executed by
the Trustee in connection therewith, the creditor shall not have recourse
against the assets of the Trust Fund except that an Exempt Loan may permit
recourse with respect to (1) the collateral pledged as security for the Exempt
Loan, (2) contributions (other than contributions of Company Stock) that are
made to meet the Trustee's obligations under the Exempt Loan, and (3) earnings
attributable to such collateral and the investment of such contributions.
(e) The Exempt Loan or any security agreements executed by the Trustee
in connection therewith shall provide for the release of shares of Company Stock
from encumbrance in a manner permitted by United States Treasury Regulations
under US Code section 4975(e)(7). The mere refinancing of an Exempt Loan shall
not cause the release of Company Stock from a Suspense Account.
(f) The Exempt Loan or any security agreements executed by the Trustee
in connection therewith shall provide that in the event of default under such
Exempt Loan, the value of the Plan assets, if any, transferred in satisfaction
of such obligation must not exceed the amount of such default, and if the lender
is a "disqualified person," the Exempt Loan must provide for the transfer of
Plan assets only upon and to the extent of the failure of the Trustee to meet
the payment schedule of the Exempt Loan. For purposes of this paragraph (f), the
preceding sentence shall not apply solely because a guarantor is a disqualified
person.
(g) Payments made by the Trustee from the Trust Fund with respect to
an Exempt Loan during a Plan Year shall not exceed the sum of (1) contributions
(other than contributions of shares of Company Stock) made to the Trust Fund for
the Plan Year and each prior Plan Year to meet its obligations under such Exempt
Loan and the earnings attributable to the investment of such contributions and
(2) earnings attributable to allocated and unallocated shares of Company Stock
purchased with such Exempt Loan, reduced by (3) payments made under such Exempt
Loan in prior Plan Years, and increased by (4) the proceeds of any sale of
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Company Stock held in the Suspense Account. Such contributions and earnings must
be accounted for separately in the books of account of the Trustee until the
Exempt Loan is repaid. Notwithstanding the foregoing, if at the date of
termination of the Plan, the Trustee remains indebted under any Exempt Loan, the
Committee may instruct the Trustee, prior to making the final Plan allocations,
to pay accrued interest and principal and to prepay the remaining principal
balance of the Exempt Loan with shares of Company Stock held in the Suspense
Account or with the proceeds of a sale or other disposition of such Company
Stock. If any assets remain in the Suspense Account after all Exempt Loans have
been fully discharged, such assets will be allocated as income of the Trust Fund
for the Plan Year in which the Plan terminates.
(h) Except as provided in the Plan or as otherwise required by
applicable law, no shares of Company Stock acquired with the proceeds of an
Exempt Loan shall be subject to a put, call, right of first refusal or other
option or buy-sell or similar arrangement, while such Stock is held by or when
distributed from the Plan, whether or not the Exempt Loan is repaid or the Plan
is then an employee stock ownership plan (as defined by section 4975(e)(7) of
the US Code). To the extent required by Treasury Regulation Section
54.4975-1l(a)(3)(ii), the restrictions of this paragraph (h) shall be
nonterminable.
(i) An Exempt Loan which refinances a prior Exempt Loan shall be on
terms and conditions that are no less favorable in the aggregate to Participants
and Beneficiaries than the terms and conditions of the prior Exempt Loan.
3.4 OTHER TRUST FUND INVESTMENTS
In the discretion of the Trustee or at the direction of the
Committee, the Trustee may deposit or invest any assets of the Trust Fund other
than shares of Company Stock, (a) in short-term cash-equivalent investments,
such as Treasury Notes, Treasury Bills or other similar short-term obligations
of the United States Government or any instrumentality thereof, savings
accounts, bankers' acceptances, certificates of deposit, commercial paper or
other interest bearing accounts in a Bank (including those of the Trustee, if
the Trustee is a Bank and such instruments or accounts bear a reasonable rate of
interest), or in a non-interest bearing checking account for the purpose of
meeting contemplated payments under the Plan, (b) in other securities or
investments, including mutual funds, (c) in any common or collective trust fund
or pooled investment fund maintained by the Trustee, and the instrument
establishing any such common or collective trust fund or pooled investment fund,
including all amendments thereto, shall be deemed to have been adopted and made
a part of this Trust Agreement, or (d) in such other investment funds as the
Committee may establish from time to time.
ARTICLE 4 POWERS OF THE TRUSTEE
4.1 SCOPE OF POWERS
The Trustee shall have whatever powers are required to
discharge its obligations and exercise its rights under this Trust Agreement,
without being limited by any state or Puerto Rican statute or rule of law
regarding investments by trustees, including (but not limited to) the powers
specified in the following Sections of this Article 4, and the powers and
authority granted to the Trustee under other provisions of this Trust Agreement.
The enumeration of any power
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herein shall not be by way of limitation, but shall be cumulative and construed
as full and complete power in favor of the Trustee.
4.2 POWERS EXERCISED BY THE TRUSTEE
In furtherance of the purposes of the Plan and the Trust and
except as otherwise required by the Plan or applicable law, the Trustee shall be
authorized and empowered to exercise the following powers in its sole
discretion:
(a) Except as provided in Section 4.3, to sell, mortgage, pledge,
lease or otherwise dispose of any securities or other property in the Trust at
public or private sale.
(b) To register any investment held in the Trust Fund in its own name
or in the name of a nominee, with or without the addition of words indicating
that such securities are held in a fiduciary capacity, and to hold any
investment in bearer form, and to deposit any investment in a depositary or
clearing corporation, but the books and records of the Trustee shall show that
all such investments are part of the Trust Fund.
(c) To determine, for all purposes of the Plan, the market value of
any securities or other property held by the Trustee in the Trust and, where any
securities or other property are determined by the Trustee not to be publicly
traded, to determine their value in accordance with sound practice and standards
for evaluating such property; subject, however, in the case of Company Stock
held in the Trust that is not publicly traded within the meaning of US Code
section 401(a)(28) or PR Code section 1165(h)(1)(B)(i), to any valuation of such
Company Stock rendered by an independent appraiser selected by the Trustee.
(d) To employ suitable agents, including such public accountants,
brokers, custodians, ancillary trustees, and appraisers as shall be necessary
and appropriate, and to employ counsel (which may be counsel for the Committee
or the Company), and to pay their reasonable expenses and compensation. The
written opinion of such counsel shall be full and complete protection of the
Trustee in respect to any action taken or suffered by the Trustee hereunder in
good faith and reasonable reliance on said opinion.
(e) Other than with respect to payments required under an Exempt Loan
and except as otherwise provided in Section 4.3, to sell, exchange, convey,
transfer or otherwise dispose of shares of Company Stock.
(f) To make commitments either alone or in concert with others to
purchase at any future date any property, investments or securities authorized
by this Agreement.
(g) Subject to Section 4.4, to borrow funds from any lender other than
the Trustee (including the Company) to finance the acquisition of Company Stock,
provided however, that any evidence of indebtedness to any "party in interest"
or "disqualified person" or to any other lender which is guaranteed by a "party
in interest" or "disqualified person" shall be an Exempt Loan subject to the
provisions of Section 3.3.
(h) To accept, compromise or otherwise settle any obligations or
liability due to or from it as Trustee hereunder, including any claim that may
be asserted for taxes under
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present or future laws, or to enforce or contest the same by appropriate legal
proceedings; provided, however, that the Trustee shall first consult with the
Company with regard to the merits of any such claimed obligation or liability.
(i) Except as otherwise provided in Section 4.3, to vote Company Stock
held in the Trust Fund and to exercise any other rights or privileges associated
with such Stock in accordance with the terms of the Plan.
(j) To the extent directed by the Committee, to use the proceeds of
the sale or disposition of Company Stock held in the Suspense Account to repay
an Exempt Loan.
4.3 DUTIES RELATING TO VOTING OF SHARES OF COMPANY STOCK AND
TENDER OFFERS
(a) For purposes of voting or responding to offers with respect to the
shares of Company Stock held by the Plan (including shares of Company Stock that
are held in the Trust or in a Suspense Account and are not allocated to a
Participant's or Beneficiary's Account), each Participant or Beneficiary whose
Account is invested in whole or in part in shares of Company Stock shall be a
"named fiduciary" within the meaning of section 403(a)(1) of ERISA. The Trustee
shall follow the proper directions of the Participants and Beneficiaries with
respect to such securities in the manner described in this Section 4.3. The
instructions received by the Trustee from Participants or Beneficiaries shall be
held by the Trustee in strict confidence and shall not be divulged or released
to any person, including directors, officers, or employees of the Company or of
any other company, except as otherwise required by law.
(b) Before each annual or special meeting of shareholders of the
Company, the Trustee shall send to each Participant and Beneficiary to whose
Accounts shares of Company Stock are allocated under the Plan a copy of the
proxy solicitation material for the meeting, if any, together with a form
requesting instructions to the Trustee on how to vote the Company Stock and
other voting securities of the Company credited to the Participant's or
Beneficiary's Account. Upon receipt of such instructions, the Trustee shall vote
the securities as instructed. The Trustee shall vote the shares of Company Stock
for which no voting instructions are timely received (including shares that are
not allocated to the Account of a Participant or Beneficiary) in accordance with
the voting instructions it receives with respect to a plurality of the shares of
Company Stock for which it receives timely voting instructions.
(c) In the event that a offer (such as a tender offer or exchange
offer) shall be made to acquire shares of Company Stock held by the Trustee,
each Participant and Beneficiary shall be entitled to direct the Trustee as to
the disposition of the shares of Company Stock (including fractional shares)
allocated to his Account and to direct the Trustee to take other solicited
action on his behalf (excluding the voting of such shares) with respect to the
shares of Company Stock allocated to his Account. The Company, with the
cooperation of the Trustee, shall use its best efforts to provide each
Participant and Beneficiary to whom this subsection (c) may apply with a copy of
any offer solicitation material generally available to members of the public, if
any, who hold the shares of Company Stock affected by the offer, or with such
other written information as the offer or may provide. Such material shall be
provided with a form requesting instructions to the Trustee as to the
disposition under the offer of the shares of Company Stock allocated to each
Account. Upon receipt of such instructions from the
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Participant or Beneficiary, the Trustee shall respond to the offer in accordance
with such instructions with respect to the shares of Company Stock allocated to
the Participant's or Beneficiary's Account. The Trustee shall respond to an
offer described in this subsection (c) with respect to securities for which no
instructions are timely received (including shares of Company Stock that are not
allocated to a Participant's or Beneficiary's Account) in accordance with the
instructions it receives with respect to a plurality of the shares of Company
Stock for which it receives instructions.
(d) In the event, under the terms of a tender offer or otherwise, any
shares of Company Stock tendered for sale, exchange or transfer pursuant to such
offer may be withdrawn from such offer, the Trustee shall follow instructions
respecting the withdrawal of such securities from such offer that are timely
received by the Trustee from the Participants, as named fiduciaries, under the
foregoing provisions of this Section 4.3. The Trustee shall respond to an offer
described in subsection (c) with respect to securities for which no instructions
are timely received (including shares of Company Stock that are not allocated to
a Participant's or Beneficiary's Account) in accordance with the instructions it
receives with respect to a plurality of the shares of Company Stock for which it
receives instructions, such plurality to be determined after taking into account
any shares withdrawn pursuant to this subsection (d).
(e) In the event that an offer for fewer than all of the shares of
Company Stock held by the Trustee shall be received by the Trustee, each
Participant who has been allocated any Company Stock subject to such offer shall
be entitled to direct the Trustee as to the acceptance or rejection of such
offer (as provided by subsections (a)-(d) of this Section 4.3) with respect to
the largest portion of such Company Stock as may be possible given the total
number or amount of shares of Company Stock the Plan may sell, exchange or
transfer pursuant to the offer based upon the instructions received by the
Trustee from all other Participants who shall timely instruct the Trustee
pursuant to this Section 4.3 to sell, exchange or transfer such shares pursuant
to such offer, each on a pro rata basis in accordance with the number or amount
of such shares allocated to his Account. The Trustee shall sell, exchange or
transfer pursuant to the offer shares of Company Stock for which Participant and
Beneficiary instructions are timely received before selling, exchanging or
transferring shares for which no instructions are timely received (including
shares of Company Stock that are not allocated to a Participant's or
Beneficiary's Account).
(f) In the event an offer shall be received by the Trustee and
instructions shall be solicited from Participants pursuant to subsections
(a)-(d) of this Section 4.3 regarding such offer, and prior to the termination
of such offer, another offer is received by the Trustee for the securities
subject to the first offer, the Trustee shall treat the offer as a new offer for
purposes of apprising Participants of their rights to direct the Trustee and
shall use its best efforts under the circumstances to solicit instructions from
the Participants to the Trustee (i) with respect to securities tendered for
sale, exchange or transfer pursuant to the first offer, whether to withdraw such
tender, if possible, and, if withdrawn, whether to tender any securities so
withdrawn for sale, exchange or transfer pursuant to the second offer and (ii)
with respect to securities not tendered for sale, exchange or transfer pursuant
to the first offer, whether to tender or not to tender such securities for sale,
exchange or transfer pursuant to the second offer. The Trustee shall follow all
such instructions received in a timely manner from Participants in the same
manner as provided in subsections (a)-(d) of this Section 4.3. In the event a
Participant who
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failed to direct the Trustee with respect to the first offer directs the Trustee
in response to a subsequent offer, the Trustee will be subject to that
Participant's direction with respect to the instructions given pursuant to (i)
and (ii) above. In the event a Participant who directed the Trustee with respect
to an earlier offer fails to direct the Trustee in response to a subsequent
offer, the Participant and the shares for which he would have been entitled to
provide the Trustee with directions will thereafter be subject to the directions
of Participants with respect to the latest tender or exchange offer. With
respect to any further offer for any Company Stock received by the Trustee and
subject to any earlier offer (including successive offers from one or more
existing offerors), the Trustee shall act in the same manner as described above.
(g) A Participant's instructions to the Trustee to tender or exchange
shares of Company Stock will not be deemed a withdrawal or suspension from the
Plan or a forfeiture of any portion of the Participant's interest in the Plan.
Funds received in exchange for tendered shares will be credited to the Account
of the Participant whose shares were tendered or the Suspense Account from which
such shares were tendered.
(h) In the event that a tender or exchange offer is received by the
Trustee before any shares of Company Stock have been allocated to the Accounts
of Participants, the then Participants in the Plan, as Named Fiduciaries, shall
confidentially instruct the Trustee whether or not to accept the offer. The
Trustee shall respond to the tender or exchange offer by following the
instructions of such Participants on a one person - one vote basis in the same
proportion and in the same manner as provided in this Section 4.3 pursuant to
the instructions timely received by the Trustee.
(i) The Trustee shall take all steps necessary, including appointment
of a corporate trustee and/or an outside independent administrator to the extent
such action, after consultation with the Company and the Committee, is found
necessary to maintain confidentiality of Participant responses and/or to
adequately discharge their obligations as Named Fiduciary.
(j) In the event the Company initiates a tender or exchange offer, the
Trustee may, in its sole discretion, enter into an agreement with the Company
not to tender or exchange any shares of Company Stock in such offer, in which
event, the foregoing provisions of this section 4.3 shall have no effect with
respect to such offer and the Trustee shall not tender or exchange any shares of
Company Stock (allocated or unallocated) in such offer.
(k) In the case of shares of Company Stock that previously had been
allocated to an Account under the Plan, the proceeds received upon the
acceptance of any offer described in subsection (c), above, shall be invested by
the Trustee as directed by the Committee. In the case of shares of Company Stock
that previously had not been allocated to an Account under the Plan, the
proceeds received upon the acceptance of an offer described in subsection (c),
above, shall be used to repay an outstanding Exempt Loan, reinvested in shares
of Company Stock, or allocated to Participants and Beneficiaries in a manner
directed by the Committee.
(l) The provisions of this Section 4.3 shall not apply if and to the
extent that, upon the advice of counsel, the Trustee determines that such
provisions would violate ERISA or other laws or any fiduciary duty owed to
Participants and Beneficiaries.
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4.4 REFINANCINGS OF EXEMPT LOANS
No Exempt Loan shall be refinanced by the Trustee except
pursuant to directions of the Committee and only to the extent the terms and
conditions of the refinanced Exempt Loan satisfy Section 3.3(i).
4.5 DOCUMENTS, INSTRUMENTS AND FACILITIES
(a) In order to effectuate the specific powers and authority herein
granted to the Trustee, the Trustee may make, execute, acknowledge and deliver
any and all documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate.
(b) The Trustee may use its own facilities in effecting any
transaction involving assets of the Trust Fund, unless such use is prohibited by
ERISA section 406 or US Code section 4975.
ARTICLE 5 DUTIES AND OBLIGATIONS OF THE TRUSTEE
5.1 SCOPE OF DUTIES AND OBLIGATIONS
(a) The Trustee agrees to perform the duties and obligations imposed
by this Trust Agreement, to the extent those duties or obligations are
consistent with applicable law. No duties or obligations shall be imposed upon
the Trustee with respect to the Trust Fund unless undertaken by the Trustee
under the express terms of this Trust Agreement or unless imposed upon the
Trustee by statute or at common law. The Trustee shall have no duty or
obligation to advise Participants or Beneficiaries as to the effect of federal,
state or Puerto Rico securities laws on the Plan, the Trust Fund or any
distributions therefrom.
(b) The Trustee shall comply with the provisions of any applicable
United States or Puerto Rico law, including but not limited to ERISA, the US
Code, and the PR Code.
(c) Notwithstanding any provision of this Trust Agreement to the
contrary, the Trustee shall have no duties, responsibilities or obligations
under or with respect to and shall not be deemed to have knowledge or
constructive knowledge of, any provision of the Plan, except to the extent the
Trustee is directed by the Committee to take any action in accordance with one
or more provisions of the Plan.
5.2 GENERAL DUTIES AND OBLIGATIONS
(a) The Trustee shall hold all property received by it and any income
and gains thereupon. The Trustee shall manage, invest and reinvest the Trust
Fund, shall collect the income therefrom, and shall make payments as provided in
the Plan and in this Trust Agreement. The Trustee may utilize depositories to
hold assets of the Trust Fund, provided however that the Trustee shall not be
relieved of any fiduciary responsibility with respect to the assets so held.
(b) The Trustee is responsible only for money or assets that it
actually receives. The Trustee has no duty to compute amounts to be paid to it
by the Employer or to enforce collection of any contribution due from the
Employer. The Trustee is not responsible for
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the correctness of the computation of the amount of any contribution made or to
be made by the Employer.
(c) The Trustee shall make payments and disbursements from the Trust
Fund in accordance with Section 2.9 of the Trust Agreement.
(d) Subject to the provisions of Section 8.2(c), the Trustee shall
comply with any directive issued by the Company's Board of Directors or the
Committee to withdraw and transfer all or any part of the Trust Fund to another
trustee or another successor funding agent.
5.3 VALUATION
(a) The Trustee shall determine, and report to the Committee, the
current fair market value of the assets and liabilities of the Trust Fund, and
Participants' and Beneficiaries' interests therein, as of the regular Valuation
Date and as of any interim Valuation Date that may be fixed by the Committee.
(b) The fair market value of assets of the Trust Fund shall be
determined by the Trustee. In valuing the assets, the Trustee may rely on
information from the Company, the Committee, appraiser or other sources, and to
the extent permitted by applicable law will not be liable for an inaccurate
valuation based in good faith on such information. Notwithstanding the
foregoing, the fair market value of shares of Company Stock shall be (i) if the
Company Stock is readily traceable on an established securities market, the fair
market value of such stock on such market on the Valuation Date or (ii) if the
Company Stock is not readily traceable on an established securities market, the
fair market value determined in good faith by the Trustee based upon an
appraisal by an independent appraiser meeting requirements similar to the
requirements of US Code section 170(a)(1) and PR Code section 1165(a)(10).
(c) Reasonable costs incurred in valuing the Trust Fund that are not
paid by the Company shall be a charge against the Trust Fund.
5.4 RECORDS
The Trustee shall keep complete accounts of all investments,
receipts and disbursements, other transactions hereunder, and gains and losses
resulting from same. Such accounts shall be sufficiently detailed to meet the
requirements of the Plan and the Trustee's duties of reporting and disclosure
required under applicable federal, state or Puerto Rican law as shall exist from
time to time. All accounts, books, contracts and records relating to the Trust
Fund shall be open to inspection and audit at all reasonable times by any person
designated by the Committee.
5.5 REPORTS
(a) Within 90 days following the close of each Plan Year, and as
otherwise directed by the Committee, and within 90 days following the Trustee's
resignation or removal under Article 7 of this Trust Agreement, the Trustee
shall furnish the Committee with a written report setting forth the transactions
effected by the Trustee during the period since it last furnished such a report
and any gains or losses resulting from same, any payments or
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disbursements made by the Trustee during such period, the assets of the Trust
Fund as of the last day of such period (at cost and at fair market value), and
any other information about the Trust Fund that the Committee may reasonably
request. The Trustee shall certify the accuracy of the report if such
certification is required by any applicable federal, state or Puerto Rican law
or regulation.
(b) Each report submitted pursuant to subsection (a) shall be examined
by the Committee. If the Committee approves of such report, the Trustee shall be
forever released from any liability of accountability with respect to the
propriety of any of its accounts or transactions so reported, as if such account
had been settled by judgment or decree of a court of competent jurisdiction in
which the Trustee, the Committee, the Company, and all persons having or
claiming any interest in the Trust Fund were made parties. The foregoing,
however, is not to be construed to deprive the Trustee of the right to have its
account judicially settled if it so desires.
(c) The Committee may approve of any report furnished by the Trustee
under subsection (a) either by written statement of approval furnished to the
Trustee or shall be deemed to have approved of any such report by failure to
file a written objection to the report with the Trustee within 90 days of the
date on which the Committee receives such report. The Committee shall not be
liable to any person for its approval, disapproval or failure to approve any
such report rendered by the Trustee.
(d) The Trustee shall render such interim accounts for such intervals
and as of such dates, and setting forth such information, as the Company or the
Committee reasonably direct from time to time.
(e) Upon request from the Company or the Committee, the Trustee shall
reasonably cooperate with and provide reports and data to firms selected and
appointed by the Company or the Committee.
(f) The Trustee shall retain all records and accounts it develops in
regard to the Trust in a form readily accessible to the Trustee and the Company
and for such length of time as the Company directs or, if greater, as is
required by law.
5.6 INSTRUCTIONS
All communications required hereunder from the Company or the
Committee to the Trustee shall be in writing signed by an officer of the Company
or by a member of the Committee authorized to sign on its behalf. The Committee
may authorize one or more of its members to sign on its behalf all
communications required hereunder between the Committee and the Trustee. At all
times during which communications between the Committee and the Trustee are
required hereunder, the Company and the Committee shall keep the Trustee advised
of the names and specimen signatures of all members of the Committee and the
individuals authorized to sign on behalf of the Committee. In the absence of any
notification of changes, the Trustee may assume that the members of the
Committee are the same as last reported by the Company to the Trustee.
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ARTICLE 6 COMPENSATION, RIGHTS AND INDEMNITIES OF THE TRUSTEE
6.1 COMPENSATION AND REIMBURSEMENT
(a) The Trustee shall receive for its services reasonable compensation
as agreed upon in writing from time to time between the Company and the Trustee,
unless the Trustee is an Employee, in which case the Trustee shall serve without
compensation.
(b) The Trustee shall be reimbursed for all reasonable expenses it
incurs in the performance of its duties arising under the Plan, this Trust
Agreement, and ERISA. In this regard, reasonable expenses include (but are not
limited to) accounting, consulting, appraisal, legal, brokerage, custodial and
actuarial fees related to the administration of the Plan and this Trust
Agreement, as well as legal fees incurred in connection with any legal action
taken in respect of the Trustee's duties.
(c) Compensation and expenses payable under this Section 6.1 shall be
paid from the Trust Fund (and may be charged, if applicable, to an appropriate
subaccount or subtrust), unless the Company pays such compensation and expenses
directly. In addition, the Company in its discretion may reimburse the Trust
Fund for any such compensation and expenses paid from the Trust Fund.
6.2 RIGHTS OF THE TRUSTEE
(a) Whenever in the administration of the Plan a certification or
direction is required to be given to the Trustee, or the Trustee deems it
necessary that a matter be approved prior to taking, suffering or omitting any
action hereunder, such certification or direction shall be fully made, or such
matter may be deemed to be conclusively approved, by delivery to the Trustee of
an instrument signed either:
(1) in the name of the Company by an officer of the
Company; or
(2) unless the matter concerns the authority of the
Committee, in the name of the Committee by the Chairman or Secretary of the
Committee;
and the Trustee may fully rely upon such instrument to the extent permitted by
law. Notwithstanding the foregoing, the Trustee may in its sole discretion
accept such other evidence of a matter or require such further evidence as it
determines to be necessary, in lieu of such instrument. The Trustee shall be
protected in acting upon any notice, resolution, order, certificate, opinion,
telegram, letter or other document reasonably believed by the Trustee to be
genuine and to have been signed by the proper party or parties, and may act
thereon without notice to a Participant or Beneficiary and without considering
the rights of any Participant or Beneficiary.
(b) The Trustee may make any payment which it is required to make
hereunder by mailing an amount in satisfaction of such payment and any other
necessary papers by first class mail in a sealed envelope addressed to the
person to whom such payment is to be made, according to the certification of the
Committee. In this respect, the Trustee shall recognize only instructions given
to it by the Committee and has the right to act thereon without
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<PAGE> 19
notice to any person and without considering the rights of any Participant or
Beneficiary. The Trustee is not required to determine or to make any
investigation to determine, the identity or mailing address of any person
entitled to benefits under the Plan, and is entitled to withhold payment of
benefits or directions to issuing companies with respect to such payment until
the identity and mailing address of the Participant or Beneficiary entitled to
receive such benefits is certified by the Committee. The Trustee shall not be
responsible for the determination or computation of any benefit due to a
Participant or Beneficiary.
(c) In the event that any dispute arises as to the identity or rights
of any person or persons to whom the Trustee is to make payment or delivery of
any funds or property, the Trustee may withhold payment or delivery of such
funds or property without liability until the dispute is resolved by
arbitration, adjudicated by a court of competent jurisdiction, or settled by
written stipulation of the parties concerned. The Trustee shall not be liable
for the payment of and interest or income on the cash or other property held by
it under such circumstances. The Trustee, at its discretion, may bring any
action in the nature of an interpleader, but shall not be obligated to do so.
(d) The Trustee shall be provided with specimen signatures of the
current members of the Committee. The Trustee shall be entitled to rely in good
faith upon any directions signed by a majority of the members of the Committee
or their appointed delegate, and shall incur no liability for following such
directions.
(e) The Trustee may accept communications by photostatic
teletransmissions with duplicate or facsimile signatures as a delivery of such
communications in writing until notified in writing by the Committee that the
use of such devices is no longer authorized.
(f) Until advised to the contrary by the Company, the Trustee shall
assume that the Trust is exempt from all federal, state, Puerto Rico and local
income taxes and that any act taken by the Trustee that satisfies the applicable
provisions of the US Code or ERISA is not inconsistent with, and will not
violate any applicable provision of, the PR Code, and may act in accordance with
those assumptions. If the whole or any part of the Trust Fund, or the proceeds
thereof, becomes liable for the payment of any estate, inheritance, income or
other tax, charge or assessment which the Trustee is required to pay, the
Trustee shall have full power and authority to pay such tax, charge or
assessment out of any money or other property in its hand for the account of the
person whose interests hereunder are so liable, but at least 10 business days
prior to the making of any such payment the Trustee must mail notice to the
Committee of its intention to make such payment. Prior to making any transfers
or distributions of any of the proceeds of the Trust Fund, the Trustee may
require such releases or other documents from any lawful taxing authority and
may require such indemnity from any payee or distributee, as it deems necessary.
(g) Notwithstanding any other provision of this Trust Agreement, the
Trustee shall not be required to follow the direction of any person if the
Trustee determines in good faith that to do so would result in a breach of its
fiduciary duties under ERISA.
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6.3 INDEMNIFICATION
(a) The Company and its successors shall indemnify and hold harmless
the Trustee from all loss or liability (including expenses and reasonable
attorneys' fees) to which the Trustee may be subject by reason of its execution
of its duties under this Trust Agreement, or by reason of any acts taken in good
faith in accordance with directions, or acts omitted in good faith due to
absence of directions, from the Committee unless such loss or liability is due
to the Trustee's gross negligence or willful misconduct. The Trustee is entitled
to collect on the indemnity provided by this Section 6.3 only from the Company,
and is not entitled to any direct or indirect indemnity payment from assets of
the Trust Fund.
(b) In the event that the Trustee is named as a defendant in a lawsuit
or proceeding involving the Plan or the Trust Fund, the Trustee shall be
entitled to receive on a current basis the indemnity payments provided for in
this Section. If, however, the final judgment entered in the lawsuit or
proceeding holds that the Trustee is guilty of gross negligence or willful
misconduct with respect to one or more counts alleged against it, the Trustee
shall refund the portion of the indemnity payments that are reasonably allocable
to the defense of those counts with respect to which the Trustee has been found
to have committed acts of gross negligence or willful misconduct.
6.4 LIMITATION OF LIABILITY OF TRUSTEE
(a) If the Trustee makes a written request for directions from the
Committee, the Trustee may await such directions without incurring liability.
The Trustee has no duty to act in the absence of such requested directions, but
the Trustee may in its discretion take such action as it deems appropriate to
carry out the purposes of this Trust Agreement, without liability therefor.
(b) The Trustee is not responsible for determining the adequacy of the
Trust Fund to meet liabilities under the Plan, and is not liable for any
obligations of the Plan or the Trust Fund in excess of the assets of the Trust
Fund.
(c) The Trustee shall not be liable for the acts or omissions of any
other fiduciary or person with respect to the Plan or the Trust Fund except to
the extent provided under Section 405(a) of ERISA.
(d) The Trustee is not responsible for any matter affecting the
administration of the Plan by the Company, the Committee, or any other person or
persons to whom responsibility for administration of the Plan is delegated
pursuant to the terms of the Plan.
6.5 COURT PROCEEDINGS AND NECESSARY LITIGATION
The Trustee may institute, maintain or defend any litigation
necessary in connection with the administration of the Trust Fund, provided, the
Trustee shall be under no duty or obligation to do so unless it shall have been
indemnified to its satisfaction against all expenses and liabilities which it
may sustain or reasonably anticipate by reason thereof. All costs and expenses
of litigation for which the Trustee would be liable shall be paid by the
Company, or if not paid by the Company, from the Trust Fund. Except as required
by ERISA
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section 502(h), only the Employer, the Committee and the Trustee shall be
considered necessary parties in any legal action or proceeding with respect to
the Trust Fund, and no Participant, Beneficiary or other person having an
interest in the Trust Fund shall be entitled to notice. Any judgment entered on
any such action or proceeding shall be binding on the Employer, Committee,
Trustee and all persons claiming under the Trust. Nothing in this Section 6.5 is
intended to preclude a Participant or Beneficiary from enforcing his legal
rights.
6.6 BONDING OF TRUSTEE
The Trustee shall not be required to furnish any bond or
security for the performance of its powers and duties hereunder, unless
irrespective of this provision, the Trustee is required to do so by state,
Puerto Rico or federal statute or regulation.
6.7 THIRD PARTY
No person dealing with the Trustee shall be obligated to see
to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the Trustee has acted pursuant to any of the
terms of the Plan or this Trust Agreement. Each person dealing with the Trustee
may act upon any notice, request, or representation in writing by the Trustee,
or by the Trustee's duly authorized agent, and shall not be liable to any person
whomsoever in so doing. The certificate of the Trustee that it is acting in
accordance with the Plan or this Trust Agreement shall be conclusive in favor of
any person relying on the certificate.
6.8 TAX AND INFORMATION RETURNS
The Trustee and the Company respectively shall comply with
those reporting and disclosure requirements with which they are required to
comply under applicable law. Except to the extent otherwise provided in the
preceding sentence or in a separate agreement between the Company and the
Trustee, the Company shall be responsible for timely filing all tax and
information returns, as well as all required descriptions, reports, and
disclosures, relating to the Plan and Trust. The Trustee shall provide the
Company with such information as the Company may reasonable request to make its
filings.
ARTICLE 7 RESIGNATION OR REMOVAL OF THE TRUSTEE
7.1 RESIGNATION
The Trustee may resign at any time by delivering to the
Company's Board of Directors or the Committee a written notice of resignation,
to take effect not less than 90 days after delivery, unless such notice is
waived by the Company.
7.2 REMOVAL
The Company's Board of Directors or the Committee may remove
the Trustee at any time by delivering to the Trustee, not less than 60 days
before it is to take effect, a written notice of removal (unless such notice is
waived by the Trustee).
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7.3 SUCCESSOR TRUSTEE
Upon the resignation or removal of the Trustee, the Company's
Board of Directors or the Committee shall appoint a successor Trustee, which may
accept such appointment by execution of this Trust Agreement or a successor
trust agreement. In the event that no successor Trustee is appointed, the
Committee shall act as Trustee until a successor is appointed.
7.4 SETTLEMENT
The Trustee shall have the right to have a final settlement of
the accounts of the Trust by judicial settlement in an action instituted by the
Trustee in a court of competent jurisdiction, or by agreement of settlement
between the Trustee and the Company.
7.5 TRANSFER TO SUCCESSOR TRUSTEE
Upon settlement of the Trustee's account, the Trustee shall
transfer to the successor Trustee the Trust Fund as it is then constituted and
true copies of its records relating to the Trust Fund. Upon the completion of
this transfer, the Trustee's responsibilities under this Trust Agreement shall
cease and the Trustee shall be discharged from further accountability for all
matters embraced in its settlement; provided, however, that the Trustee executes
and delivers all documents and written instruments which are necessary to
transfer and convey the right, title and interest in the Trust Fund assets, and
all rights and privileges with respect to such assets, to the successor Trustee.
Notwithstanding the foregoing, the Trustee is authorized to reserve such amount
as it may deem advisable for payment of its fees and expenses in connection with
the settlement of its account. Any balance of such reserve remaining after the
payment of such fees and expenses shall be paid over to the successor Trustee.
Notwithstanding any provision of the Trust Agreement to the contrary, the
Trustee may invest and reinvest such reserves in any investment or investment
vehicle appropriate for the temporary investment of cash reserves of trust.
7.6 DUTIES OF THE TRUSTEE PRIOR TO TRANSFER TO SUCCESSOR TRUSTEE
The Trustee's powers, duties, rights and responsibilities
under this Trust Agreement shall continue until the date on which the transfer
of the Trust Fund assets and delivery of the related documents to the successor
Trustee under Section 7.5 is completed. Nothing contained herein shall relieve
the Trustee of its duties under Section 5.5.
7.7 POWERS, DUTIES AND RIGHTS OF THE SUCCESSOR TRUSTEE
Upon its receipt of all the assets of the Trust Fund and all
of the documents related thereto, the successor Trustee shall become vested with
all the estate, powers, duties, rights and discretion of the Trustee under this
Trust Agreement with the same effect as though the successor Trustee were
originally named as Trustee hereunder.
7.8 MERGER OR CONSOLIDATION INVOLVING CORPORATE TRUSTEE
Any corporation into which a corporation acting as Trustee
hereunder may be merged or with which it may be consolidated, or any corporation
resulting from any merger,
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reorganization or consolidation to which such Trustee may be a party, shall be
the successor of the Trustee hereunder without the necessity of any appointment
or other action, provided it does not resign and is not removed.
ARTICLE 8 AMENDMENT OF THE TRUST AGREEMENT OR TERMINATION OF THE PLAN
8.1 AMENDMENT OF THE TRUST AGREEMENT
(a) The Company reserves the right to amend this Trust Agreement in
the manner set forth in subsection (b) at any time and to any extent that it may
deem advisable or appropriate, provided, however, that:
(1) No amendment may affect the duties, rights,
responsibilities or liabilities of the Trustee without its written consent;
(2) No amendment may have the effect of vesting in
the Company or any Affiliate any interest in or control over any property
subject to the terms of this Trust Agreement; and
(3) No amendment may contravene the provisions of
Section 2.4.
(b) Any amendment to this Trust Agreement shall be made only pursuant
to action of the Company's Board of Directors. A certified copy of the
resolution adopting any amendment and a copy of the adopted amendment as
executed by the Company shall be delivered to the Trustee. Upon such action by
the Company, the Trust Agreement shall be deemed amended as of the date
specified as the effective date by such action or in the instrument of the
amendment. The effective date of any amendment may be before, on, or after the
date of such action.
(c) Unless an amendment expressly provides otherwise, each Employer
shall be bound by any amendment adopted pursuant to this Article 8.
8.2 TERMINATION OF TRUST
This Agreement and the Trust created hereby may be terminated
at any time by the Company, and upon such termination or upon the dissolution or
liquidation of the Company in the event that a successor to the Company by
operation of law or by an acquisition of its business interests shall not elect
to continue this Trust, the beneficial interest of the Plan in the Trust Fund
shall be paid out of the Trust in accordance with the directions of the Company;
provided that the Trustee shall not be required to pay out any assets of the
Trust Fund until it shall have received such rulings or determinations of the
United States Internal Revenue Service, the United States Department of Labor,
the Pension Benefit Guaranty Corporation, the Puerto Rico Treasury Department,
or any other administrative agency as it may deem necessary or appropriate in
order to assure itself that any such payment is made in accordance with the
provisions of law and that it will not subject the Trust Fund or the Trustee,
individually or as such Trustee, to any liability.
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8.3 TERMINATION OF THE PLAN
(a) In the event that the Plan is terminated, the Committee shall
notify the Trustee as to whether the Trust Fund is to be distributed or is to be
maintained by the Trustee in accordance with the provisions of the Plan and this
Trust Agreement. If the Committee directs that the Trust Fund is to be
distributed, the Trustee shall establish the fair market value of the Trust Fund
as of such Valuation Date as is designated by the Committee, and, after paying
the reasonable expenses involved in the termination of the Plan, shall
distribute all or a part of the assets of the Trust Fund (converting such assets
into cash, as necessary) in accordance with the written directions of the
Committee (including, to the extent permitted by applicable federal law and as
directed by the Company, a direct distribution to the Company of any excess
assets of the Trust Fund remaining after all liabilities of the Plan and the
Trust Fund to the Participants and Beneficiaries have been satisfied).
(b) If, at the date of termination of the Plan, the Plan remains
indebted with respect to an Exempt Loan, the Committee shall instruct the
Trustee, prior to making the final Plan allocations, to pay the accrued
principal and interest and to prepay the remaining principal balance of the
Exempt Loan with the shares of Company Stock held in the Suspense Account or
with the proceeds of a sale or other disposition of such Company Stock. If any
assets remain in the Suspense Account after all Exempt Loans have been fully
discharged, such assets shall be allocated as income of the Trust Fund for the
Plan Year in which the Plan terminates.
(c) In the event of the withdrawal of any Employer from the Plan, the
Trustee shall distribute the assets of the Trust Fund attributable to the
Participants employed by the Employer, and their Beneficiaries, to the extent
provided in and in accordance with the written directions of the Committee.
(d) Notwithstanding the provisions of subsections (a), (b) and (c):
(1) To the extent permitted by the United States
Department of Labor, the Trustee may pay, from the assets of the Trust Fund, the
reasonable expenses involved in the termination of the Trust Fund prior to
distributing the assets of the Trust Fund as directed by the Committee;
(2) The Trustee shall not comply with any instruction
to transfer assets of the Trust Fund to the funding agent of any other employee
benefit plan unless the Trustee determines that such transfer of assets will
comply with the requirements of the US Code and the PR Code, and that any
required actuarial statement of valuation has been properly filed; and
(3) The Trustee may condition the delivery, transfer
or distribution of any or all assets of the Trust Fund upon its receipt of
assurance satisfactory to it that the approval of appropriate governmental or
other authorities has been secured (including, if the Trustee so requests, a
favorable determination letter issued by the United States Internal Revenue
Service to the effect that the termination of the Plan will not adversely affect
the Plan's qualified status) and that there has been proper compliance with all
notices and other procedures required by applicable law.
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<PAGE> 25
8.4 SETTLOR FUNCTIONS
Decisions regarding the design of the Plan and any decision to
amend or terminate the Plan or the Trust in accordance with this Article 8 shall
be made in a settlor capacity and shall not be governed by the fiduciary
responsibility provisions of ERISA.
ARTICLE 9 COMMUNICATIONS
9.1 COMPANY'S AND COMMITTEE'S ADDRESS
Communications to the Company shall be addressed to:
Vice President of Human Resources
Telecomunicaciones de Puerto Rico, Inc.
1515 Franklin D. Roosevelt Avenue
Guaynabo, Puerto Rico 00968
Telephone: (787) 793-1818
Facsimile: (787) 792-9830
Communications to the Committee shall be addressed to it in care of the Company,
at the address above, provided, however, that upon the Company's or the
Committee's written request, such communications shall be sent to such other
address as the Company or the Committee, as the case may be, may specify.
9.2 TRUSTEE'S ADDRESS
Communications to the Trustee shall be addressed to the
attention of:
Dennis M. Kunisaki
U.S. Trust Company, N.A.
515 South Flower Street
Los Angeles, California 90171
Telephone: (213) 861-5073
Facsimile: (213) 488-1366
provided, however, that upon the written request of the Trustee, such
communications shall be sent to such other address or addresses as the Trustee
may specify.
9.3 BINDING UPON RECEIPT
No communication shall be binding on the Trustee, Company or
Committee until it is received by such party.
9.4 COMMUNICATION IN WRITING
Any action of the Company or the Committee pursuant to this
Trust Agreement, including all orders, requests, directions, instructions,
approvals and objections of the Company or the Committee to the Trustee, shall
be in writing signed on behalf of the Company or the
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<PAGE> 26
Committee by any duly authorized officer of the Company or member of the
Committee, respectively, unless such writing requirement is waived by the
Trustee. The Trustee shall be governed by such action and, to the maximum extent
permitted by ERISA, be fully protected, and indemnified in accordance with and
subject to the conditions of Section 6.3 hereof, in relying thereon.
ARTICLE 10 MISCELLANEOUS
10.1 GENDER, TENSE AND HEADINGS
Whenever any words are used herein in the masculine gender,
they shall be construed as though they were also used in the feminine gender in
all cases where they would so apply. Whenever any words used herein are in the
singular form, they shall be construed as though they were also used in the
plural form in all cases where they would so apply.
Headings of Articles, Sections and subsections as used herein
are inserted solely for convenience and reference and constitute no part of this
Trust Agreement.
10.2 GOVERNING LAW
This Trust Agreement shall be construed and governed in all
respects in accordance with applicable federal law, and, to the extent not
preempted by such federal law, in accordance with the laws of the State of
California.
10.3 MISTAKE OF FACT
Notwithstanding any other provisions herein contained, if any
contribution is made due to a mistake of fact, such contribution shall, upon the
direction of the Committee, which shall be given in conformity with the
provisions of ERISA, be returned to the Company or the party who made it, as
directed by the Company, without liability to any person (including, but not
limited to, Participants and Beneficiaries). However, in no event shall any such
return be made after the expiration of one year following the payment of such
contribution.
10.4 QUALIFICATION OF PLAN
Notwithstanding any other provisions herein contained, the
Trust Agreement is entered into on the condition that the Plan and the Trust
Agreement shall be approved by the Internal Revenue Service and the Puerto Rico
Department of Treasury as a qualified and exempt plan and trust under the
provisions of the US Code, the PR Code and any applicable regulations. If such
approval should be denied for any reason (including failure to comply with any
conditions for such approval imposed by the United States Internal Revenue
Service or the Puerto Rico Department of Treasury), contributions made after the
execution of the Trust Agreement and prior to such denial shall, upon the
direction of the Committee, which shall be given in conformity with the
provisions of ERISA, be returned to the Company or the party who made it, as
directed by the Company, without any liability to any person, within one year
after the date of denial of such approval. All remaining assets in the Trust
shall be returned to the Company.
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<PAGE> 27
10.5 DEDUCTIBILITY OF CONTRIBUTIONS
Notwithstanding any other provisions herein contained, all
contributions made under the Plan are hereby expressly conditioned upon their
deductibility under Section 404 of the US Code, Section 1023 of the PR Code and
any applicable regulations, as amended from time to time, and if the deduction
for any contribution is disallowed in whole or in part, then such contribution
(to the extent the deduction is disallowed) shall, upon the direction of the
Committee, which shall be given in conformity with the provisions of ERISA, be
returned to the Company or the party who made it without liability to any
person. However, in no event shall any such return be made after the expiration
of one year following the disallowance of the deduction.
10.6 RECEIPT OR RELEASE
Any payment to any Participant or Beneficiary in accordance
with the provisions of this Trust Agreement shall be in satisfaction of all
claims against the Trustee to the extent of the payment, and the Trustee may
require such Participant or Beneficiary, as a condition precedent to such
payment, to execute a receipt and release to such effect.
10.7 ACCOUNTING PERIOD
This Trust shall adopt as its fiscal year the twelve (12)
consecutive month period beginning January 1st of each year and ending December
31st of such year for accounting purposes; provided, however, that the first
fiscal year shall begin on March 2, 1999, and shall end on December 31, 1999.
10.8 TITLE OF TRUST ASSETS
The legal and equitable title and ownership of all assets at
any time constituting a part of the Trust Fund shall be and remain with the
Trustee and neither the Company nor any Participant shall ever have any legal or
equitable estate therein, save and except that a Participant shall be entitled
to receive distributions as and when lawfully made under the terms of the Plan
and this Trust Agreement, and the Company may receive a distribution to the
extent permitted by Sections 8.2(a), 8.3, 10.3, 10.4, or 10.5.
10.9 WAIVER
No waiver by either party of any failure or refusal to comply
with an obligation hereunder shall be deemed a waiver of any other or subsequent
failure or refusal to comply.
10.10 PARTIAL INVALIDITY
If any term or provision of this Agreement or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
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<PAGE> 28
10.11 DURATION
The Trust shall continue in effect without limit as to time,
subject, however, to the provisions of this Trust Agreement relating to
amendment, modification, and termination thereof.
10.12 ENTIRE AGREEMENT; PARTIES BOUND
The Trust Agreement and the Plan contain the entire agreement
and understanding of the Company and the Trustee with respect to the subject
matter hereof and supersede all prior agreements and understandings related to
such subject matter. This Agreement shall be binding upon the parties hereto and
their successors and assigns.
10.13 EXECUTED COUNTERPARTS
The Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original although the
others shall not be produced.
IN WITNESS WHEREOF, the Company and the Trustee have executed
this Trust Agreement as of the 2nd day of March, 1999.
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<PAGE> 29
"COMPANY"
TELECOMMUNICACIONES DE PUERTO RICO,
INC., A PUERTO RICO CORPORATION
BY:
------------------------------------------
"TRUSTEE"
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
BY:
------------------------------------------
OTIS A. SIMNOTT, JR.
VICE PRESIDENT
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<PAGE> 1
Exhibit 10.14
Execution Copy
STOCK PURCHASE AGREEMENT
Dated as of
March 2, 1999
between
PUERTO RICO TELEPHONE AUTHORITY
and
THE TRUST
OF
THE EMPLOYEE STOCK OWNERSHIP PLAN
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of March
2, 1999, by and between Puerto Rico Telephone Authority (the "Authority" or
"Seller"), a public corporation and government instrumentality of the
Commonwealth of Puerto Rico ("Puerto Rico"), and the Trust of the Employee Stock
Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. (the "Trust" or
"Buyer").
WHEREAS, the Authority, Puerto Rico Telephone Company, GTE
Holdings (Puerto Rico) LLC and GTE International Telecommunications Incorporated
("GITI") entered into an Amended and Restated Stock Purchase Agreement dated as
of July 21, 1998 (as amended from time to time, the "Stock Purchase Agreement"),
pursuant to which the Authority agreed to sell certain shares of common stock,
par value $0.01 per share ("Company Shares"), of Telecomunicaciones de Puerto
Rico, Inc. (the "Company");
WHEREAS, pursuant to authority granted under Act No. 54 of
August 4, 1997 and Joint Resolution No. 209 of June 24, 1998 (collectively, the
"Authorizing Legislation"), the Authority agreed to offer to sell, in
conjunction with the closing of the Stock Purchase Agreement, Company Shares,
constituting 3.0% of the outstanding Company Shares, to a stock bonus plan or
employee stock ownership plan, as described in Section 8.02(1)(ii) of the Stock
Purchase Agreement;
WHEREAS, immediately prior to the closing of the Stock
Purchase Agreement, the Authority was the owner of 1,000,000 Company Shares,
representing 100% of the issued and outstanding capital stock of the Company;
and
WHEREAS, the Trust desires to purchase, and the Authority
desires to sell, on the terms and conditions set forth herein, 30,000 Company
Shares, representing 3.0% of the issued and outstanding Company Shares (the
"Shares").
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements contained herein,
the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase of Shares. The Authority hereby agrees to sell, assign,
transfer, convey and deliver to Buyer, and Buyer agrees to purchase, from the
Authority, the Shares. In full consideration therefor, Buyer agrees to pay to
the Authority $26,100,000 in cash or in immediately available funds by wire
transfer to an account designated in writing by the Authority (the "Purchase
Price").
1.2 Legend. Each certificate representing the Shares shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
<PAGE> 3
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS
OF ANY STATE OR THE COMMONWEALTH OF PUERTO RICO, AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE) OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT."
ARTICLE II
REPRESENTATION AND WARRANTIES OF THE AUTHORITY
The Authority hereby represents and warrants to Buyer that:
2.1 Existence and Power. The Authority is validly existing as a
public corporation under the laws of Puerto Rico and has all requisite power,
authority and legal right to conduct its affairs as currently conducted, and to
execute, deliver and perform its obligations under this Agreement.
2.2 Corporate Authorization.
(a) The execution, delivery and performance by the Authority of this
Agreement and the documents to be delivered in connection
herewith are within the Authority's powers and have been duly
authorized by the Governing Board of the Authority and, upon
execution thereof, will be duly executed and delivered by the
Authority.
(b) This Agreement constitutes the valid and legally binding
agreement of the Authority, that is enforceable against it in
accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditors generally,
or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
2.3 Governing Authorization. The execution, delivery and performance
by the Authority of this Agreement and the documents to be delivered in
connection herewith require no approval or other action by or in respect of, or
filing with, any Puerto Rico and United States governmental authority other
than: (i) compliance with any applicable requirements of the Communications Act
of 1934, as amended, and any rules, regulations practices and policies
promulgated by the Federal Communications Commission; (ii) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended; and (iii) compliance with any applicable requirements of the
Telecommunications Regulatory Board of Puerto Rico.
2.4 Absence of Conflicts. Provided that the Trust and the Employee
Stock Ownership Plan of Telecomunicaciones de Puerto Rico, Inc. (the "ESOP") are
an employee stock ownership plan and trust that meets the requirements of
clauses (i) and (ii) of Section
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<PAGE> 4
8.02(1)(i) of the Stock Purchase Agreement, neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby
by the Authority, (i) conflicts with, or will result in any violation of, any
judgment, decree, order, statute, rule or regulation applicable to or binding on
the Authority, (ii) conflicts with, violates or will result in a breach of any
agreement or instrument to which the Authority is a party or by which it is
bound, or (iii) conflicts with or violates any provision of the governing
instruments of the Authority. The Authority has obtained all consents and
approvals that are necessary for the execution, delivery and performance of this
Agreement.
2.5 Capitalization. The Authority was, immediately prior to the
closing of the Stock Purchase Agreement, the record and beneficial owner of all
the issued and outstanding Company Shares.
2.6 No Broker. The Authority has not authorized any broker, dealer,
agent or finder to act on its behalf nor does the Authority have any knowledge
of any broker, dealer, agent or finder purporting to act on its behalf with
respect to this transaction.
2.7 Title to Shares. The Shares are duly authorized, validly issued,
fully paid, and non-assessable and free of preemptive rights, and upon delivery
of the Shares to Buyer, Buyer will acquire good and indefeasible title to the
Shares, free and clear of any and all liens, claims or encumbrances of any kind.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Authority that:
3.1 Existence and Power. Buyer is a trust duly organized and validly
existing under the laws of the State of California and has all requisite power,
authority and legal right to conduct its affairs as currently conducted, and to
execute, deliver and perform its obligations under this Agreement.
3.2 Corporate Authorization.
(a) The execution, delivery and performance by Buyer of this
Agreement and the documents to be delivered in connection herewith are within
Buyer's powers and have been duly authorized by the trustee of Buyer and, upon
execution thereof, will be duly executed and delivered by Buyer.
(b) This Agreement constitutes the valid and legally binding
agreement of Buyer, that is enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors
generally, or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
-3-
<PAGE> 5
3.3 Absence of Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby by
Buyer, (i) conflicts with, or will result in any violation of, any judgment,
decree, order, statute, rule or regulation applicable to or binding on Buyer,
(ii) conflicts with, violates or will result in a breach of any agreement or
instrument to which Buyer is a party or by which it is bound, or (iii) conflicts
with or violates any provision of the governing instruments of Buyer. Buyer has
obtained all consents and approvals that are necessary for the execution,
delivery and performance of this Agreement.
3.4 Investment Intent. Buyer understands that the Shares have not
been registered under the Securities Act of 1933, as amended, or any other
applicable state securities law, and that the Company has no present intention
of so registering the Shares. Buyer is purchasing the Shares for its own
account, for investment purposes only, and with no present intention of
reselling, directly or indirectly participating in any distribution of or
otherwise disposing of the Shares, except in compliance with applicable
securities laws. Buyer understands that transferability of the Shares is
restricted by virtue of the Shares not being registered for resale and that the
Company is not required to register the Shares on Buyer's behalf.
3.5 Sophisticated Investor. Buyer acknowledges that it has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of purchasing the Shares.
3.6 No Brokers. Buyer has not authorized any broker, dealer, agent
or finder to act on its behalf nor does Buyer have any knowledge of any broker,
dealer, agent or finder purporting to act on its behalf with respect to this
transaction.
ARTICLE IV
CONDITIONS TO CLOSING
4.1 Conditions to Obligations of Authority. The obligation of the
Authority to consummate the closing of this Agreement is subject to the
Authority having received satisfactory assurances to the effect that the Trust
and the ESOP:
(a) satisfied the applicable requirements of Title I of the Employee
Retirement Income Security Act of 1974, as amended; and
(b) qualified for favorable tax treatment under the Puerto Rico
Internal Revenue Code of 1994, as amended (the "PR Code").
4.2 Conditions to Obligations of Buyer. The obligation of Buyer to
consummate the closing of this Agreement is subject to Buyer having received:
(a) one or more opinions of counsel to GITI, reasonably satisfactory
to Buyer, to the effect that (i) the Shares are employer securities under
Section 409(1) of the United States Internal Revenue Code of 1986, as amended
(the "Code"), and Section 1165(h)(2) of the PR
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<PAGE> 6
Code, and (ii) the Trust and the ESOP constitute a qualified plan and a
tax-exempt trust under Section 401(a) of the Code and Section 1165(a) of the PR
Code; and
(b) one or more opinions of counsel to the Authority, reasonably
satisfactory to Buyer, to the effect that this Agreement is enforceable by the
Trust against the Authority in accordance with its terms under the laws of
Puerto Rico.
ARTICLE V
CROSS-RECEIPT
5.1 Receipt of Shares. By execution and delivery of this Agreement,
Buyer hereby acknowledges the receipt of the Shares.
5.2 Receipt of Purchase Price. By execution and delivery of this
Agreement, the Authority hereby acknowledges receipt of the Purchase Price.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
6.1 Survival. The representations and warranties of the parties
contained in this Agreement shall survive the purchase and sale of the Shares
under this Agreement.
6.2 Indemnification by Buyer. Buyer shall indemnify and hold
harmless the Authority from and against any and all claims, losses, liabilities
and damages, including, without limitation, amounts paid in settlement,
reasonable costs of investigation and reasonable fees and disbursements of
counsel, arising out of or resulting from the inaccuracy of any Buyer
representation or warranty, or the breach by Buyer of any covenant or agreement,
contained herein or in any instrument or certificate delivered pursuant hereto.
6.3 Indemnification by the Authority. The Authority shall indemnify
and hold harmless Buyer from and against any and all claims, losses, liabilities
and damages, including, without limitation, amounts paid in settlement,
reasonable costs of investigation and reasonable fees and disbursements of
counsel, arising out of or resulting from the inaccuracy of any representation
or warranty by the Authority, or the breach by the Authority of any covenant or
agreement, contained herein or in any instrument or certificate delivered
pursuant hereto.
ARTICLE VII
MISCELLANEOUS
7.1 Notices. All notices, requests and other communications to each
party hereunder shall be in writing (including telecopy or similar writing, with
confirmation of receipt) and shall be given:
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<PAGE> 7
If to the Authority, to:
Puerto Rico Telephone Authority
c/o Government Development Bank for Puerto Rico
Minillas Government Center
San Juan, Puerto Rico 00940
Telephone: (787) 722-8460
Telecopy: (787) 721-1443
Attention: President
With a copy to
Pietrantoni, Mendez & Alvarez
Banco Popular Center
Suite 1901
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone: (787) 274-4912
Telecopy: (787) 274-1470
Attention: Manuel R. Pietrantoni
Akin, Gump, Strauss, Hauer & Feld L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
Telephone: (202) 887-4000
Telecopy: (202) 887-4288
Attention: Russell W. Parks, Jr.
If to Buyer, to:
U.S. Trust Company, N.A.
515 South Flower Street
Los Angeles, CA 90071
Telephone: (213) 861-5025
Telecopy: (213) 488-1366
Attention: Charles E. Wert
Executive Vice President
With a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Suite 3500
Chicago, IL 60601
Telephone: (312) 782-3939
-6-
<PAGE> 8
Telecopy: (312) 782-8585
Attention: Ronald S. Rizzo
GTE International Telecommunications Incorporated
5221 North O'Connor Boulevard
Irving, Texas 75039
Telephone: (972) 718-5000
Telecopy: (972) 718-2916
Attention: Fares Salloum
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, DC 20044-7566
Telephone: (202) 662-6000
Telecopy: (202) 662-6291
Attention: Amy N. Moore
7.2 Amendment and Modification. This Agreement may be amended,
modified, or supplemented only by written agreement of both of the parties
hereto.
7.3 Waiver of Compliance; Consents. Any failure of a party to comply
with any obligation, covenant, agreement, or condition herein may be waived by
the other party; provided, however, that any such waiver may be made only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement, or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 6.3, with appropriate notice in
accordance with Section 6.1 of this Agreement.
7.4 Expenses. All fees and expenses (including all fees of counsel
and accountants) incurred by any party in connection with the negotiation and
execution and consummation of this Agreement shall be borne by the party who
incurred them.
7.5 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of Puerto Rico without giving effect to principles
of conflicts of laws.
7.6 Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.
7.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise,
-7-
<PAGE> 9
understanding, condition or warranty not set forth herein has been made or
relied upon by either party hereto.
7.8 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
7.9 Severability. If any one or more provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or, unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
IN WITNESS WHEREOF, the parties hereto here caused this
Agreement to be duly executed by their respective authorized representatives as
of the day and year first above written.
PUERTO RICO TELEPHONE AUTHORITY
By:__________________________________
Name:
Title:
TRUST OF THE EMPLOYEE STOCK OWNERSHIP
PLAN OF TELECOMUNICACIONES DE PUERTO
RICO, INC.
By: U.S. TRUST COMPANY, NATIONAL
ASSOCIATION, solely in its capacity as trustee
and not in its individual capacity
By:__________________________________
Name: Norman P. Goldberg
Title: Managing Director
-8-
<PAGE> 1
Exhibit 10.15
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Pledge Agreement"), is made this
2nd day of March 1999, by and between the TRUST OF THE EMPLOYEE STOCK OWNERSHIP
PLAN OF TELECOMUNICACIONES DE PUERTO RICO, INC. (the "Pledgor") and
TELECOMUNICACIONES DE PUERTO RICO, INC. (the "Company").
W I T N E S S E T H:
WHEREAS, the Pledgor is a Trust established pursuant to the
Trust Agreement dated as of March 2, 1999, by and between Telecomunicaciones de
Puerto Rico, Inc. and U.S. Trust Company, National Association, to fund benefits
under the Employee Stock Ownership Plan of Telecomunicaciones de Puerto Rico,
Inc. (the "ESOP"); and
WHEREAS, the Pledgor and the Company have entered into an ESOP
Loan Agreement (the "Loan Agreement") of even date herewith pursuant to which
the Company is lending to the Pledgor Twenty-Six Million, One Hundred Thousand
Dollars (U.S. $26,100,000.00) (the "Loan") in order to finance the acquisition
of securities of the Company for the benefit of the participants and
beneficiaries of the ESOP; and
WHEREAS, the execution and delivery of this Pledge Agreement
is a condition precedent to the Company's obligation to make the Loan under the
Loan Agreement.
NOW, THEREFORE, the Pledgor and the Company agree as follows:
1. Collateral Pledged. The Pledgor hereby pledges, assigns and
sets over to the Company, its successors and assigns all of the Common Stock,
par value $0.01 per share, of the Company (the "Stock") purchased by the Pledgor
with the proceeds of the Loan made by the Company pursuant to the Loan
Agreement, together with any cash or other securities or property derived
therefrom, substituted therefor or otherwise subjected to the lien hereof
pursuant to any provision hereof (all of which shares of Stock, cash, securities
and property which have not been released from the Suspense Account (as provided
below) are herein called "Collateral"), as security for: (a) the punctual and
full payment of the principal of and interest on the Note referred to in the
Loan Agreement; and (b) the prompt observance and performance by the Pledgor of
all of the covenants, agreements and other provisions in the Note and Loan
Agreement and herein to be performed on its part.
The Stock and any securities that are part of the Collateral
and that are "employer securities" within the meaning of Section 409(1) of the
Internal Revenue Code of 1986, as amended (the "US Code"), and Section
1165(h)(2) of the Puerto Rico Internal Revenue Code of 1994, as amended (the "PR
Code"), shall be held by the Pledgor in a "Suspense Account" for the benefit of
the Company as "Qualifying Collateral." As of the last day of each Plan Year (as
defined in the ESOP) of the Pledgor, a portion of the Qualifying Collateral held
in the Suspense Account, determined in accordance with the following formula,
shall be released from the Suspense Account and shall not thereafter be deemed
Collateral for any purpose under this Pledge Agreement, the Loan Agreement or
the Note: For each Plan Year of the Pledgor during
<PAGE> 2
the duration of this Pledge Agreement, the number of shares of Stock released
shall equal the aggregate number of such shares remaining pledged before such
release multiplied by a fraction, the numerator of which is the amount of
principal and interest paid by the Pledgor on the Loan during the Plan Year in
question, and the denominator of which fraction is the sum of the numerator plus
the aggregate amount of the principal of and interest on the Loan to be paid in
all future Plan Years during which the Note remains outstanding and unpaid as
calculated as of such date. If the interest rate under the Note is variable, the
interest to be paid in future years shall be computed by using the interest rate
of the Note as of the end of the applicable Plan Year. If the ESOP has more than
one loan outstanding at the end of any Plan Year, the loans shall be aggregated
for purposes of determining the amount of collateral released by all loan
payments for that Plan Year, and the collateral released shall be attributed to
each loan in proportion to the principal and interest paid on that loan for the
Plan Year, unless each lender agrees in writing that the release of collateral
shall be determined separately for each loan. If the Qualifying Collateral
includes more than one class of employer securities as defined in Section 409(1)
of the US Code and Section 1165(h)(2) of the PR Code, the number of shares of
each class of employer securities to be released for such Plan Year must be
determined by applying the same fraction to each class of employer securities.
Once all Collateral is released pursuant to this Section 1, this Pledge
Agreement shall terminate.
2. Effect of Refinancing. A payment of principal or interest
to refinance all or any portion of the Loan shall not be taken into account
under the preceding paragraph to determine the amount of Qualifying Collateral
released from the Suspense Account. The Company may assign its rights and
interest in all or a portion of the Collateral under this Pledge Agreement to a
different lender in connection with a refinancing transaction.
3. Distribution on Collateral. The Pledgor shall receive and
shall hold pursuant to this Pledge Agreement as part of the Collateral all
dividends declared and paid by the Company on the Collateral other than in the
ordinary course of business and all dividends or distributions paid or made on
the Collateral in the course of dissolution or liquidation of the Company or as
the result of stock dividends, split-ups or other recapitalizations,
reclassifications or rearrangements of the capital structure of the Company and
all cash, securities or other property received as a result of any merger or
consolidation of the Company with any other person or as a result of any other
similar transaction. So long as no Event of Default (as defined in the Loan
Agreement) shall have occurred and be continuing as provided in the ESOP, all
dividends declared and paid on the Collateral in the ordinary course of business
by the Company shall be used to repay the Note or allocated to the accounts of
ESOP Participants. Upon the occurrence and continuation of an Event of Default,
all dividends declared and paid on the Collateral in the ordinary course of
business by the Company shall be used to repay the Note.
4. Voting of Stock Held As Collateral. So long as no Event of
Default shall have occurred and be continuing, the Pledgor shall have the right,
from time to time, to vote any and all shares of Stock or other securities with
voting rights included in the Collateral and to give consents, waivers and
ratifications in respect thereof, with the same force and effect as if such
shares and securities were not pledged hereunder; provided, however, that no
such vote shall be cast and no such consent, waiver or ratification shall be
given or action taken which would be inconsistent with or violate any of the
provisions of the Loan Agreement or this Pledge Agreement; and provided,
further, that the Pledgor shall vote such Stock and securities in
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<PAGE> 3
accordance with the terms of the ESOP and the Trust Agreement and in accordance
with applicable law. Subject to the requirements of applicable law, upon the
occurrence and continuation of an Event of Default, the Pledgor shall not vote
or otherwise exercise any voting rights with respect to any or all shares of
Stock and such securities except in accordance with written instructions of the
Company.
5. Warranties. The Pledgor represents and warrants that the
Stock pledged hereby constitutes all of the issued and outstanding shares of
Common Stock, par value $0.01 per share, of the Company that were purchased by
the Pledgor with the proceeds of the Loan made by the Company pursuant to the
Loan Agreement.
6. Rights of the Company Upon Default.
(a) In the event that the Company desires to invoke the
remedies provided by this Pledge Agreement upon the occurrence of an Event of
Default, the Company shall mail or otherwise deliver to the Pledgor written
notice of such Event of Default and its intention to invoke such remedies. After
a ten (10) day period beginning on the date such notice is mailed or otherwise
delivered, and subject to the provisions of Section 1.06 of the Loan Agreement,
the Company may exercise in respect of the Collateral all the rights and
remedies of a secured party upon default under the Uniform Commercial Code (the
"UCC") in effect in the State of New York at that time, and the Company may also
in its sole discretion, without notice except as specified below or as required
by law, sell the Collateral or any part thereof in one or more transactions at
public or private sale, at any exchange, broker's board or at any of the
Company's offices or elsewhere, for cash, on credit or for future delivery, and
at such price or prices and upon such other terms as are commercially
reasonable. The Pledgor acknowledges that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the Pledgor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification to the Pledgor. The Company shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. The Company may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(b) The Pledgor recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), and the securities laws of Puerto Rico and applicable state
securities laws, the Company may be compelled, with respect to any sale of all
or any part of the Collateral, to limit purchasers to those who will agree,
among other things, to acquire the Collateral for their own accounts, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sales may be at prices and on terms
less favorable to the Company than those obtainable through a public sale
without such restrictions (including, without limitation, a public offering made
pursuant to a registration statement under the Securities Act) and,
notwithstanding such circumstances, agrees, to the extent permitted by law, that
any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Company shall have no obligation to engage in
public sales and no obligation to delay the sale of any Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the
-3-
<PAGE> 4
Securities Act or under the securities laws of Puerto Rico and applicable state
securities laws, even if the Pledgor would agree to so delay.
(c) If the Company determines to exercise its right to sell
any or all of the Collateral, upon written request, the Pledgor shall from time
to time furnish to the Company all such information as the Company may request
in order to determine the number of shares of Stock and other assets included in
the Collateral that may be sold by the Company in exempt transactions under the
Securities Act and the rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
(d) If the proceeds realized upon all such sales of Collateral
exceed the amount of the due and unpaid principal and interest of the Note, then
the balance of the proceeds will be deposited in the Suspense Account. The
Company shall not sell Collateral in excess of the amount required to make the
foregoing payments to the Company. The Pledgor shall remain liable for any
deficiency to the extent permitted by Section 1.06 of the Loan Agreement.
(e) In addition to the rights, remedies and powers of the
Company set forth above, the Company shall have any and all other rights,
remedies and powers of a secured party under the laws of the State of New York
and any other rights, remedies and powers provided by law or in equity or by
other agreements between the Company and the Pledgor which are consistent with
Section 7 of this Pledge Agreement. All of such rights, remedies and powers of
the Company are cumulative and may be exercised alternatively or conjunctively,
at such times, in such order and from time to time, all as determined by the
Company.
7. Discharge of Pledgor. At such time as all of the principal
of and interest on the Note shall have been paid in full, then all rights and
interests assigned and pledged hereby or pursuant hereto by the Pledgor shall
revert to the Pledgor, its administrators, successors and assigns, and the
right, title and interest of the Company in the Collateral shall cease and the
Collateral shall forthwith be transferred and delivered to the Pledgor, or its
administrators, successors and assigns.
8. Non-Recourse Nature. No Person (including, but not limited
to, the Company and any subsequent holder of the Note) entitled to payment with
respect to the Loan (whether under this Pledge Agreement, the Loan Agreement,
the Note or otherwise) shall have any right of recourse against the Pledgor (or
the Trustee in its individual capacity) with respect to the Loan or shall have
any right to assets of the Pledgor with respect to the Loan other than:
(a) the Collateral;
(b) Participant contributions, if any, and Company
Contributions other than contributions of employer securities, to the Pledgor
under the ESOP to meet the Pledgor's obligations under the Loan Agreement or
under the Note; and
(c) earnings attributable to the Collateral and the investment
of non-excluded contributions referred to in Section 8(b) above.
The Pledgor shall account for such earnings and nonexcluded contributions
separately on its books of account until the Loan is repaid in full.
Notwithstanding the foregoing, in the event of
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<PAGE> 5
any default with respect to the Loan, the value of any assets of the Pledgor
applied in satisfaction of the Loan shall not exceed the amount of the default,
and if the Person (including, but not limited to, the Company and any subsequent
holder of the Note) for whose benefit such assets are or would be applied is a
disqualified person within the meaning of Section 4975(e)(2) of the US Code with
respect to the Pledgor, such application of assets of the Pledgor upon a default
with respect to the Loan shall be made only upon and to the extent of the
failure of the Pledgor to meet the payment schedule of the Loan. The provisions
of this Section 8 shall apply notwithstanding any other provision to the
contrary contained in this Pledge Agreement, the Loan Agreement or the Note.
9. Notices. All notices hereunder shall be deemed to have been
sufficiently given or served for purposes hereof when mailed, first class,
postage prepaid, to the addressee at the address given below, or at such other
address as either the Company or the Pledgor may have designated to the other in
writing:
(a) if to the Pledgor, to:
Dennis M. Kunisaki
U.S. Trust Company, National Association
515 South Flower Street
Los Angeles, California 90171
Telephone: (213) 861-5073
Fax: (213) 488-1366
With a copy to:
Ronald S. Rizzo
Jones, Day, Reavis & Pogue
77 West Wacker
Suite 3500
Chicago, Illinois 60601-1692
Telephone: (312) 782-3939
Fax: (312) 782-8585
To the Company:
Vice President of Human Resources
Telecomunicaciones de Puerto Rico, Inc.
1515 Franklin D. Roosevelt Avenue
Guaynabo, Puerto Rico 00968
Telephone: (787) 793-1818
Fax: (787) 792-9830
-5-
<PAGE> 6
With a copy to:
Fares Salloum
GTE International Telecommunications
Incorporated
5221 North O'Connor Boulevard
Irving, Texas 75039
Telephone: (972) 718-5000
Fax: (972) 718-2916
10. Definitions. Unless otherwise defined herein, all
capitalized terms which are defined in the Loan Agreement shall be used as
defined therein.
11. Persons Bound. This Pledge Agreement shall be binding upon
the Pledgor and its successors and assigns, and shall inure to the benefit of
and be enforceable by the Company, its successors and assigns.
12. Amendments. The terms of this Pledge Agreement may be
modified or amended only by an instrument in writing executed by the Pledgor and
by the Company.
13. Governing Law. This Pledge Agreement shall be deemed to be
a contract made under and shall be construed in accordance with and governed by
the laws of the State of New York without reference to the State of New York's
conflict of laws provisions.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Pledgor and the Company have executed
this Pledge Agreement on the day and year first above written by their
respective representatives thereunto duly authorized.
TELECOMUNICACIONES DE PUERTO
RICO, INC.
By:_________________________________
Name: _____________________________
Title _______________________________
TRUST OF THE EMPLOYEE STOCK
OWNERSHIP PLAN OF
TELECOMUNICACIONES DE PUERTO
RICO, INC.
By: U.S. TRUST COMPANY,
NATIONAL ASSOCIATION, solely
in its capacity
as trustee and not in its
individual capacity
By: ________________________________
Name: Norman P. Goldberg
Title Managing Director
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<PAGE> 8
IN WITNESS WHEREOF, the Pledgor and the Company have executed
this Pledge Agreement on the day and year first above written by their
respective representatives thereunto duly authorized.
TELECOMUNICACIONES DE PUERTO
RICO, INC.
By:_________________________________
Name: _____________________________
Title _______________________________
TRUST OF THE EMPLOYEE STOCK
OWNERSHIP PLAN OF
TELECOMUNICACIONES DE PUERTO
RICO, INC.
By: U.S. TRUST COMPANY,
NATIONAL ASSOCIATION, solely
in its capacity as trustee and not in its
individual capacity
By: ________________________________
Name: Norman P. Goldberg
Title Managing Director
-8-
<PAGE> 1
EXHIBIT 10.17
FIVE-YEAR CREDIT AGREEMENT
Dated as of March 2, 1999
TELECOMUNICACIONES DE PUERTO RICO, INC., a Puerto Rico
corporation (the "Borrower"), PUERTO RICO TELEPHONE COMPANY, INC., a Puerto Rico
corporation ("Wireline"), and CELULARES TELEFONICA, INC., a Puerto Rico
corporation ("Wireless" and, collectively with Wireline, the "Guarantors"), the
banks, financial institutions and other institutional lenders (the "Initial
Lenders") listed on the signature pages hereof, Citibank, N.A. ("Citibank"), as
administrative agent (in such capacity, the "Agent") for the Lenders (as
hereinafter defined), Bank of America National Trust and Savings Association, as
syndication agent, and The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, as documentation agents, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Advance" means a Revolving Credit Advance or a Competitive
Bid Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 10% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
"Agent's Account" means the account of the Agent maintained by
the Agent at Citibank with its office at 399 Park Avenue, New York, New
York 10043, Account No. 36852248, Attention: Loan Investor Services.
"Applicable Lending Office" means, with respect to each
Lender, such Lender's Domestic Lending Office in the case of a Base
Rate Advance and such Lender's Eurodollar Lending Office in the case of
a Eurodollar Rate Advance and, in the case of
<PAGE> 2
2
a Competitive Bid Advance, the office of such Lender notified by such
Lender to the Agent as its Applicable Lending Office with respect to
such Competitive Bid Advance.
"Applicable Margin" means, as of any date, a percentage per
annum determined by reference to the Performance Level in effect on
such date as set forth below:
<TABLE>
<CAPTION>
Performance Level Applicable Margin Applicable Margin Applicable Margin for
for Base Rate for Eurodollar Rate Eurodollar Rate Advances
Advances Advances
Utilization of 50% Utilization of greater
or less than 50%
<S> <C> <C> <C>
Level 1 0.000% 0.200% 0.350%
Level 2 0.000% 0.325% 0.475%
Level 3 0.000% 0.575% 0.725%
Level 4A 0.000% 0.900% 1.050%
Level 4B 0.000% 0.950% 1.150%
Level 5 0.000% 1.150% 1.400%
Level 6 0.000% 1.550% 1.800%
</TABLE>
"Applicable Percentage" means, as of any date, a percentage
per annum determined by reference to the Performance Level in effect on
such date as set forth below:
<TABLE>
<CAPTION>
Performance Level Applicable Percentage
<S> <C>
Level 1 0.100%
Level 2 0.125%
Level 3 0.150%
Level 4A 0.200%
Level 4B 0.250%
</TABLE>
<PAGE> 3
3
<TABLE>
<S> <C>
Level 5 0.350%
Level 6 0.450%
</TABLE>
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Agent, in substantially the form of Exhibit C hereto.
"Base Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the higher of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate that is offered to its customers
generally (before giving effect to any applicable margin); and
(b) 1/2 of one percent per annum above the Federal
Funds Rate.
"Base Rate Advance" means a Revolving Credit Advance that
bears interest as provided in Section 2.07(a)(i).
"Borrower" has the meaning specified in the recital of
parties.
"Borrower's Account" means the account of the Borrower
maintained by the Borrower at Citibank with its office at 399 Park
Avenue, New York, New York 10043, Account No. 4078-8269.
"Borrowing" means a Revolving Credit Borrowing or a
Competitive Bid Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City or San Juan,
Puerto Rico, provided that, if the applicable Business Day relates to
any Eurodollar Rate Advances or LIBO Rate Advances, "Business Day"
means a day of the year on which banks are not required or authorized
by law to close in New York City or San Juan, Puerto Rico and on which
dealings are carried on in the London interbank market.
"Commitment" has the meaning specified in Section 2.01.
<PAGE> 4
4
"Competitive Bid Advance" means an advance by a Lender to the
Borrower as part of a Competitive Bid Borrowing resulting from the
competitive bidding procedure described in Section 2.03 and refers to a
Fixed Rate Advance or a LIBO Rate Advance.
"Competitive Bid Borrowing" means a borrowing consisting of
simultaneous Competitive Bid Advances from each of the Lenders whose
offer to make one or more Competitive Bid Advances as part of such
borrowing has been accepted under the competitive bidding procedure
described in Section 2.03.
"Competitive Bid Note" means a promissory note of the Borrower
payable to the order of any Lender, in substantially the form of
Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such
Lender resulting from a Competitive Bid Advance made by such Lender.
"Competitive Bid Reduction" has the meaning specified in
Section 2.01.
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Controlling Interest" means (a) on and prior to the third
anniversary of the date of the initial Borrowing, ownership of at least
40.01% plus one share, and thereafter, ownership of at least 35% plus
one share, of the Voting Stock of the Borrower and (b) the ability to
appoint a majority of the Board of Directors of the Borrower.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Revolving Credit Advances of one Type into Revolving
Credit Advances of the other Type pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services
(other than trade payables incurred in the ordinary course of such
Person's business for which collection proceedings have not been
commenced, provided that trade payables for which collection
proceedings have commenced shall not be included in the term "Debt" so
long as the payment of such trade payables is being contested in good
faith and by proper proceedings and for which appropriate reserves are
being maintained), (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all
obligations of such Person created or arising under any conditional
sale or other similar title retention agreement with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee
<PAGE> 5
5
under leases that have been, in accordance with GAAP, recorded as
capital leases, (f) all obligations of such Person in respect of
acceptances, letters of credit or similar extensions of credit, (g) all
net obligations of such Person in respect of Hedge Agreements, (h) all
Debt of others referred to in clauses (a) through (g) above or clause
(i) below guaranteed directly, or indirectly through a Subsidiary, by
such Person, or in effect guaranteed directly, or indirectly through a
Subsidiary, by such Person through a written agreement either (1) to
pay or purchase such Debt or to advance or supply funds for the payment
or purchase of such Debt or (2) to purchase, sell or lease (as lessee
or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Debt or to
assure the holder of such Debt against loss and (i) all Debt referred
to in clauses (a) through (h) above secured by (or for which the holder
of such Debt has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including, without limitation,
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Debt.
"Debt to EBITDA Ratio" of any Person at any date means the
ratio of (a) Debt of the types that, in accordance with GAAP, would be
classified as indebtedness on a Consolidated balance sheet of such
Person on such date to (b) EBITDA for the period of four fiscal
quarters of such Person or its predecessor entities ended on or
immediately prior to such date, provided that for purposes of clause
(a) of this definition, Debt shall not include (1) the obligations
specified in clause (g) of the definition thereof set forth above or
(2) with respect to the Borrower, any obligations which may be assumed
by the Borrower for guaranties of any indebtedness of the Borrower's
employee stock ownership plan up to an aggregate principal amount of
$26,100,000.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Disclosed Litigation" has the meaning specified in Section
3.01(c).
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender, or such other office
of such Lender as such Lender may from time to time specify to the
Borrower and the Agent.
"EBITDA" means the sum, determined on a Consolidated basis, of
the Borrower's (i) net income (or net loss), (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense, (v) amortization
expense and (vi) non-cash severance charges
<PAGE> 6
6
in an aggregate amount not to exceed $120,000,000 in calendar year
1999, $30,000,000 in calendar year 2001 and $40,000,000 in calendar
year 2002.
"EBITDA to Interest Ratio" of any Person on any date means the
ratio of (a) EBITDA for the period of four fiscal quarters of such
Person or its predecessor entities ended on or immediately prior to
such date to (b) interest payable on, and amortization of debt discount
in respect of, all Debt of such Person for the period of four fiscal
quarters of such Person or its predecessor entities ended on or
immediately prior to such date, provided that for purposes of clause
(b) of this definition, Debt shall not include the obligations
specified in clause (g) of the definition thereof set forth above.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender that is a financial institution and is majority-owned by such
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, or the Commonwealth of Puerto Rico, and
having total assets in excess of $5,000,000,000; (iv) a savings and
loan association or savings bank organized under the laws of the United
States, or any State thereof, or the Commonwealth of Puerto Rico, and
having total assets in excess of $5,000,000,000; (v) a commercial bank
organized under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development or has concluded
special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow or of the Cayman
Islands, or a political subdivision of any such country, and having
total assets in excess of $5,000,000,000 so long as such bank is acting
through a branch or agency located in the Commonwealth of Puerto Rico,
the United States or in the country in which it is organized or another
country that is described in this clause (v); (vi) the central bank of
any country that is a member of the Organization for Economic
Cooperation and Development; or (vii) any other Person approved by the
Agent and, so long as no Default has occurred and is continuing, the
Borrower, such approval not to be unreasonably withheld; provided,
however, that neither the Borrower nor any Affiliate of the Borrower
shall qualify as an Eligible Assignee.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, Environmental Permit or Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the
environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response,
remedial or other actions or damages and (b) by any
<PAGE> 7
7
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment,
decree or judicial or agency interpretation, policy or guidance
relating to pollution or protection of the environment, health, safety
or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal,
release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of the Loan Parties' controlled group, or under
common control with the Borrower, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA Event" means (a) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has
been waived by the PBGC; (b) the application for a minimum funding
waiver with respect to a Plan; (c) the provision by the administrator
of any Plan of a notice of intent to terminate such Plan pursuant to
Section 4041(a)(2) of ERISA (including any such notice with respect to
a plan amendment referred to in Section 4041(e) of ERISA); (d) the
cessation of operations at a facility of any of the Loan Parties or any
ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA; (e) the withdrawal by any of the Loan Parties or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA;
(f) the imposition of a lien under Section 302(f) of ERISA with respect
to any Plan; (g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA; or
(h) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition described in Section 4042 of ERISA that is reasonably
expected to result in the termination of, or the appointment of a
trustee to administer, a Plan.
<PAGE> 8
8
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender (or, if no such office
is specified, its Domestic Lending Office), or such other office of
such Lender as such Lender may from time to time specify to the
Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Revolving Credit
Borrowing, an interest rate per annum equal to the rate per annum
obtained by dividing (a) the average (rounded upward to the nearest
whole multiple of 1/16 of 1% per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S. dollars are
offered by the principal office of each of the Reference Banks in
London, England to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such
Interest Period in an amount approximately equal to such Reference
Bank's pro rata share of the contemplated Eurodollar Rate Advance
comprising part of such Borrowing to be outstanding during such
Interest Period and for a period equal to such Interest Period by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage
for such Interest Period. The Eurodollar Rate for any Interest Period
for each Eurodollar Rate Advance comprising part of the same Borrowing
shall be determined by the Agent on the basis of applicable rates
furnished to and received by the Agent from the Reference Banks two
Business Days before the first day of such Interest Period, subject,
however, to the provisions of Section 2.08.
"Eurodollar Rate Advance" means a Revolving Credit Advance
that bears interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period
for all Eurodollar Rate Advances or LIBO Rate Advances comprising part
of the same Borrowing means the reserve percentage applicable two
Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank
of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
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9
includes deposits by reference to which the interest rate on Eurodollar
Rate Advances or LIBO Rate Advances is determined) having a term equal
to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fixed Rate Advances" has the meaning specified in Section
2.03(a)(i).
"GAAP" means (a) in the case of the preparation of all
financial reporting requirements, generally accepted accounting
principles in the United States, as in effect from time to time, and
(b) in the case of the calculation, certification and compliance with
all financial tests and covenants, generally accepted accounting
principles in the United States, as in effect on the date of the
financial statements delivered to each Lender in accordance with
Section 4.01(e), in each case applied on a consistent basis both as to
classification of items and amounts.
"GITI" means GTE International Telecommunications
Incorporated, a Delaware corporation.
"GTE" means GTE Corporation, a New York corporation, or its
successor.
"Guaranteed Obligations" has the meaning specified in Section
7.01.
"Guaranty" has the meaning specified in Section 7.01.
"Hazardous Materials" means (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
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10
"Hedge Agreements" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"Information Memorandum" means the information memorandum
dated January 27, 1999 used by the Agent in connection with the
syndication of the Commitments.
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Revolving Credit Borrowing and each LIBO
Rate Advance comprising part of the same Competitive Bid Borrowing, the
period commencing on the date of such Eurodollar Rate Advance or LIBO
Rate Advance or the date of the Conversion of any Base Rate Advance
into such Eurodollar Rate Advance and ending on the last day of the
period selected by the Borrower pursuant to the provisions below and,
thereafter, with respect to Eurodollar Rate Advances, each subsequent
period commencing on the last day of the immediately preceding Interest
Period and ending on the last day of the period selected by the
Borrower pursuant to the provisions below. The duration of each such
Interest Period shall be one, two, three or six months, as the Borrower
may, upon notice received by the Agent not later than 11:00 A.M. (New
York City time) on the third Business Day prior to the first day of
such Interest Period, select; provided, however, that:
(i) the Borrower may not select any Interest Period
that ends after the Termination Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Revolving
Credit Borrowing or for LIBO Rate Advances comprising part of
the same Competitive Bid Borrowing shall be of the same
duration;
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding
Business Day; and
(iv) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of
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months equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such succeeding
calendar month.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Lenders" means the Initial Lenders and each Person that shall
become a party hereto pursuant to Section 9.07.
"LIBO Rate" means, for any Interest Period for all LIBO Rate
Advances comprising part of the same Competitive Bid Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) the average (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such average is not such a multiple) of the
rate per annum at which deposits in U.S. dollars are offered to the
principal office of each of the Reference Banks in London, England by
prime banks in the London interbank market at 11:00 A.M. (London time)
two Business Days before the first day of such Interest Period in an
amount substantially equal to the amount that would be such Reference
Bank's ratable share of such Borrowing if such Borrowing were to be a
Revolving Credit Borrowing to be outstanding during such Interest
Period and for a period equal to such Interest Period by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage
for such Interest Period. The LIBO Rate for any Interest Period for
each LIBO Rate Advance comprising part of the same Competitive Bid
Borrowing shall be determined by the Agent on the basis of applicable
rates furnished to and received by the Agent from the Reference Banks
two Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.08.
"LIBO Rate Advances" has the meaning specified in Section
2.03(a)(i).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind.
"Loan Party" means each of the Borrower and the Guarantors.
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), operations,
performance, properties or prospects of any Loan Party or any Loan
Party and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the ability of any Loan Party to conduct its business on
substantially the same basis as conducted on
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12
the Effective Date or (b) the ability of any Loan Party to service its
Debt obligations on a timely basis.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of any Loan Party or any ERISA Affiliate and at least one
Person other than such Loan Party and the ERISA Affiliates or (b) was
so maintained and in respect of which any Loan Party or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated.
"Note" means a Revolving Credit Note or a Competitive Bid
Note.
"Notice of Competitive Bid Borrowing" has the meaning
specified in Section 2.03(a)(i).
"Notice of Revolving Credit Borrowing" has the meaning
specified in Section 2.02(a).
"Other Taxes" has the meaning specified in Section 2.14(b).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Performance Level" means, as of any date of determination,
the level set forth below as then in effect for the Borrower, as
determined in accordance with the following provisions of this
definition:
Level 1: Public Debt Rating of at least A- by S&P or A3 by
Moody's.
Level 2: Public Debt Rating of lower than Level 1 but at least
BBB+ by S&P or Baa1 by Moody's.
Level 3: Public Debt Rating of lower than Level 2 but at
least BBB by S&P or Baa2 by Moody's.
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13
Level 4A: Public Debt Rating of lower than Level 3 but at least
BBB- by S&P and Baa3 by Moody's; or, if no Public
Debt Rating is available, a Debt to EBITDA Ratio of
3.5:1.0 or less.
Level 4B: Public Debt Rating of lower than Level 3 but at least
BBB- by S&P or Baa3 by Moody's; or, if no Public Debt
Rating is available, a Debt to EBITDA Ratio of
greater than 3.5:1.0 but less than or equal to
3.7:1.0.
Level 5: Public Debt Rating of lower than Level 4B but at
least BB+ by S&P and Ba1 by Moody's; or, if a Public
Debt Rating is not available from both S&P and
Moody's, a Debt to EBITDA Ratio of greater than
3.7:1.00 but less than or equal to 3.9:1.0.
Level 6: Public Debt Rating of lower than Level 5; or, if a
Public Debt Rating is not available from both S&P and
Moody's, a Debt to EBITDA Ratio of greater than
3.9:1.0.
For purposes of the foregoing, (a) if only one of S&P and
Moody's shall have in effect a Public Debt Rating, the Performance
Level for Levels 1, 2, 3 and 4B shall be determined by reference to the
available rating, (b) if only one of S&P and Moody's shall have in
effect a Public Debt Rating, the Performance Level for Levels 5 and 6
shall be determined by reference to the Debt to EBITDA Ratio and (c) if
the Public Debt Ratings established by S&P and Moody's shall fall
within different Performance Levels for Levels 1, 2, 3 and 4B, the
Performance Level shall be based upon the higher rating unless such
Public Debt Ratings differ by two or more levels, in which case the
rating one level higher than the lower rating level will apply.
"Permitted Liens" means, with respect to any Person, (a) Liens
for taxes, assessments and governmental charges and levies to the
extent not required to be paid under Section 5.01(b) hereof; (b)
pledges or deposits to secure obligations under workers' compensation
laws or similar legislation; (c) pledges or deposits to secure
performance in connection with bids, tenders, contracts (other than
contracts for the payment of money) or leases to which such Person is a
party; (d) deposits to secure public or statutory obligations of such
Person; (e) materialmen's, mechanics', carriers', workers', repairmen's
or other like Liens in the ordinary course of business, or deposits to
obtain the release of such Liens to the extent such Liens, in the
aggregate, would not have a Material Adverse Effect; (f) deposits to
secure surety and appeal bonds to which such Person is a party; (g)
other pledges or deposits for similar purposes in the ordinary course
of business; (h) Liens created by or resulting from any litigation or
legal proceeding which at the time is currently being contested in good
<PAGE> 14
14
faith by appropriate proceedings; (i) leases made, or existing on
property acquired, in the ordinary course of business; (j) landlord's
Liens under leases to which such Person is a party; (k) zoning
restrictions, easements, licenses, and restrictions on the use of real
property or minor irregularities in title thereto, which do not
materially impair the use of such property in the operation of the
business of such Person or the value of such property for the purpose
of such business; and (l) bankers' liens, rights of set-off or
analogous rights granted or arising by operation of law to any deposits
held by or other indebtedness owing by any lender or any affiliate
thereof to or for the credit or account of such Person.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability company or
other entity, or a government or any political subdivision or agency
thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Public Debt Rating" means, as of any date, the rating that
has been most recently announced by any of S&P or Moody's, as the case
may be, for any class of non-credit enhanced long-term senior unsecured
debt issued by the Borrower. For purposes of the foregoing, (a) if any
rating established by S&P or Moody's shall be changed, such change
shall be effective as of the date on which such change is first
announced publicly by the rating agency making such change; and (b) if
S&P or Moody's shall change the basis on which ratings are established,
each reference to the Public Debt Rating announced by S&P or Moody's,
as the case may be, shall refer to the then equivalent rating by S&P or
Moody's, as the case may be.
"Purchase" means the acquisition by GITI, directly or
indirectly, of the Controlling Interest.
"Reference Banks" means initially, Citibank, Bank of America
National Trust and Savings Association, The Chase Manhattan Bank and
Morgan Guaranty Trust Company of New York or, if less than three of
such banks are able to furnish timely information in accordance with
Section 2.08, any other commercial bank designated by the Borrower and
approved by the Required Lenders as constituting a "Reference Bank"
hereunder.
"Register" has the meaning specified in Section 9.07(d).
"Required Lenders" means at any time Lenders owed at least a
majority in interest of the then aggregate unpaid principal amount of
the Revolving Credit
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15
Advances owing to Lenders, or, if no such principal amount is then
outstanding, Lenders having at least a majority in interest of the
Commitments.
"Revolving Credit Advance" means an advance by a Lender to the
Borrower as part of a Revolving Credit Borrowing and refers to a Base
Rate Advance or a Eurodollar Rate Advance (each of which shall be a
"Type" of Revolving Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by each of
the Lenders pursuant to Section 2.01.
"Revolving Credit Note" means a promissory note of the
Borrower payable to the order of any Lender, in substantially the form
of Exhibit A-1 hereto, evidencing the aggregate indebtedness of the
Borrower to such Lender resulting from the Revolving Credit Advances
made by such Lender.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc.
"Shareholders Agreement" means the Shareholders Agreement as
defined in the Stock Purchase Agreement, as amended from time to time.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Borrower or any ERISA Affiliate and no Person other
than the Loan Parties and the ERISA Affiliates or (b) was so maintained
and in respect of which any Loan Party or any ERISA Affiliate could
have liability under Section 4069 of ERISA in the event such plan has
been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person,
(b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
such debts and liabilities as they mature and (d) such Person is not
engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would
constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the
light of all
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16
the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability after taking into account any indemnification pursuant to the
terms of the Stock Purchase Agreement and any other agreements entered
into in connection therewith.
"Special Dividend" has the meaning specified in Section 2.16.
"Stock Purchase Agreement" means the Amended and Restated
Stock Purchase Agreement dated as of May 27, 1998, as amended and
restated as of July 21, 1998 and as further amended from time to time
on or before the Effective Date, among Puerto Rico Telephone Authority,
Puerto Rico Telephone Company, Inc., GTE Holdings (Puerto Rico) LLC and
GITI.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b)
the interest in the capital or profits of such limited liability
company, partnership or joint venture or (c) the beneficial interest in
such trust or estate, is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Taxes" has the meaning specified in Section 2.14(a).
"Termination Date" means the earlier of the date that is five
years after the date of this Agreement (but in no event later than
March 30, 2004) and the date of termination in whole of the Commitments
pursuant to Section 2.05 or 6.01.
"Utilization" refers to the aggregate principal amount of
Advances outstanding as a percentage of the aggregate Commitments.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the
happening of such a contingency.
<PAGE> 17
17
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms. All terms of an accounting or
financial nature not specifically defined herein shall be construed in
accordance with GAAP.
Article II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances. Each Lender severally
agrees, on the terms and conditions hereinafter set forth, to make Revolving
Credit Advances to the Borrower from time to time on any Business Day during the
period from the Effective Date until the Termination Date in an aggregate amount
not to exceed at any time outstanding the amount set forth opposite such
Lender's name on the signature pages hereof or, if such Lender has entered into
any Assignment and Acceptance, set forth for such Lender in the Register
maintained by the Agent pursuant to Section 9.07(d), as such amount may be
reduced pursuant to Section 2.05 (such Lender's "Commitment"), provided that the
aggregate amount of the Commitments of the Lenders shall be deemed used from
time to time to the extent of the aggregate amount of the Competitive Bid
Advances then outstanding and such deemed use of the aggregate amount of the
Commitments shall be allocated among the Lenders ratably according to their
respective Commitments (such deemed use of the aggregate amount of the
Commitments being a "Competitive Bid Reduction"), and provided further that any
Competitive Bid Advance made by a Lender shall not reduce such Lender's
obligation to lend its pro rata share of the remaining undrawn Commitments. Each
Revolving Credit Borrowing shall be in an aggregate amount of $10,000,000 or an
integral multiple of $1,000,000 in excess thereof and shall consist of Revolving
Credit Advances of the same Type made on the same day by the Lenders ratably
according to their respective Commitments. Within the limits of this Section
2.01, the Borrower may borrow under this Section 2.01, prepay pursuant to
Section 2.10 and reborrow under this Section 2.01.
SECTION 2.02. Making the Revolving Credit Advances. (a) Each
Revolving Credit Borrowing shall be made on notice, given not later than 11:00
A.M. (New York City time) on the third Business Day prior to the date of the
proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of Eurodollar Rate Advances, or the Business Day of the proposed
Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of Base Rate Advances, by the Borrower to the Agent, which shall give
to each Lender prompt notice thereof by telecopier or telex. Each such notice of
a Revolving Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be
by telephone,
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confirmed immediately in writing, or telecopier or telex in substantially the
form of Exhibit B-1 hereto, specifying therein the requested (i) date of such
Revolving Credit Borrowing, (ii) Type of Advances comprising such Revolving
Credit Borrowing, (iii) aggregate amount of such Revolving Credit Borrowing, and
(iv) in the case of a Revolving Credit Borrowing consisting of Eurodollar Rate
Advances, initial Interest Period for each such Revolving Credit Advance. Each
Lender shall, before 12:00 noon (New York City time) on the date of such
Revolving Credit Borrowing, make available for the account of its Applicable
Lending Office to the Agent at the Agent's Account, in same day funds, such
Lender's ratable portion of such Revolving Credit Borrowing. After the Agent's
receipt of such funds and upon fulfillment of the applicable conditions set
forth in Article III, the Agent will make such funds available to the Borrower
at the Borrower's Account.
(b) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
any Revolving Credit Borrowing if the aggregate obligation of the Lenders to
make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08
or 2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of
more than twelve separate Revolving Credit Borrowings.
(c) Each Notice of Revolving Credit Borrowing shall be irrevocable
and binding on the Borrower. In the case of any Revolving Credit Borrowing that
the related Notice of Revolving Credit Borrowing specifies is to be comprised of
Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the date specified in such Notice of Revolving Credit
Borrowing for such Revolving Credit Borrowing the applicable conditions set
forth in Article III, including, without limitation, any loss (excluding loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the
Revolving Credit Advance to be made by such Lender as part of such Revolving
Credit Borrowing when such Revolving Credit Advance, as a result of such
failure, is not made on such date.
(d) Unless the Agent shall have received notice from a Lender prior
to the time of any Revolving Credit Borrowing that such Lender will not make
available to the Agent such Lender's ratable portion of such Revolving Credit
Borrowing, the Agent may assume that such Lender has made such portion available
to the Agent on the date of such Revolving Credit Borrowing in accordance with
subsection (a) of this Section 2.02 and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have so made such ratable
portion available to the Agent, such Lender and the Borrower severally agree to
repay to the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Agent, at (i) in the
case of the Borrower, the interest rate applicable at the time to
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Revolving Credit Advances comprising such Revolving Credit Borrowing and (ii) in
the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute such
Lender's Revolving Credit Advance as part of such Revolving Credit Borrowing for
purposes of this Agreement and the Borrower shall be relieved of its obligations
to repay such amount under this Section 2.02(d).
(e) The failure of any Lender to make the Revolving Credit Advance
to be made by it as part of any Revolving Credit Borrowing shall not relieve any
other Lender of its obligation hereunder to make its Revolving Credit Advance on
the date of such Revolving Credit Borrowing, but no Lender shall be responsible
for the failure of any other Lender to make the Revolving Credit Advance to be
made by such other Lender on the date of any Revolving Credit Borrowing.
SECTION 2.03. The Competitive Bid Advances. (a) Each Lender
severally agrees that the Borrower may make Competitive Bid Borrowings under
this Section 2.03 from time to time on any Business Day during the period from
the Effective Date until the date occurring 30 days prior to the Termination
Date in the manner set forth below; provided that, following the making of each
Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding
shall not exceed the aggregate amount of the Commitments of the Lenders
(computed without regard to any Competitive Bid Reduction).
(i) The Borrower may request a Competitive Bid Borrowing under this Section
2.03 by delivering to the Agent, by telecopier or telex, a notice of a
Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in
substantially the form of Exhibit B-2 hereto, specifying therein the
requested (v) date of such proposed Competitive Bid Borrowing, (w)
aggregate amount of such proposed Competitive Bid Borrowing, (x) (i) in the
case of a Competitive Bid Borrowing consisting of LIBO Rate Advances,
Interest Period and maturity date for repayment of each LIBO Rate Advance
to be made as part of such Competitive Bid Borrowing or (ii) in the case of
a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity
date for repayment of each Fixed Rate Advance to be made as part of such
Competitive Bid Borrowing (which maturity date may not be earlier than the
date occurring 7 days after the date of such Competitive Bid Borrowing or
later than the Termination Date), (y) interest payment date or dates
relating thereto, and (z) other terms, including the terms applicable to
prepayment thereof, if any, to be applicable to such Competitive Bid
Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one
Business Day prior to the date of the proposed Competitive Bid Borrowing,
if the Borrower shall specify in the Notice of Competitive Bid Borrowing
that the rates of interest to be offered by the Lenders shall be fixed
rates per annum (the Advances comprising any such Competitive Bid Borrowing
being referred to herein as "Fixed Rate Advances") and (B) at least four
Business Days prior to the date of the
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proposed Competitive Bid Borrowing, if the Borrower shall instead specify
in the Notice of Competitive Bid Borrowing that the rates of interest to be
offered by the Lenders are to be based on the LIBO Rate (the Advances
comprising such Competitive Bid Borrowing being referred to herein as "LIBO
Rate Advances"). Each Notice of Competitive Bid Borrowing shall be
irrevocable and binding on the Borrower. The Agent shall in turn promptly
notify each Lender of each request for a Competitive Bid Borrowing received
by it from the Borrower by sending such Lender a copy of the related Notice
of Competitive Bid Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do so,
irrevocably offer to make one or more Competitive Bid Advances to the
Borrower as part of such proposed Competitive Bid Borrowing at a rate or
rates of interest specified by such Lender in its sole discretion, by
notifying the Agent (which shall give prompt notice thereof to the
Borrower), before 9:30 A.M. (New York City time) on the date of such
proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of Fixed Rate Advances and before 10:00 A.M. (New York
City time) two Business Days before the date of such proposed Competitive
Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of
LIBO Rate Advances, of the minimum amount and maximum amount of each
Competitive Bid Advance which such Lender would be willing to make as part
of such proposed Competitive Bid Borrowing (which amounts may, subject to
the proviso to the first sentence of this Section 2.03(a), exceed such
Lender's Commitment), the rate or rates of interest therefor and such
Lender's Applicable Lending Office with respect to such Competitive Bid
Advance; provided that if the Agent in its capacity as a Lender shall, in
its sole discretion, elect to make any such offer, it shall notify the
Borrower of such offer at least 30 minutes before the time and on the date
on which notice of such election is to be given to the Agent by the other
Lenders. If any Lender shall elect not to make such an offer, such Lender
shall so notify the Agent, before 10:00 A.M. (New York City time) on the
date on which notice of such election is to be given to the Agent by the
other Lenders, and such Lender shall not be obligated to, and shall not,
make any Competitive Bid Advance as part of such Competitive Bid Borrowing;
provided that the failure by any Lender to give such notice shall
not cause such Lender to be obligated to make any Competitive Bid Advance
as part of such proposed Competitive Bid Borrowing.
(iii) The Borrower shall, in turn, before 10:30 A.M. (New York City
time) on the date of such proposed Competitive Bid Borrowing, in the case
of a Competitive Bid Borrowing consisting of Fixed Rate Advances, and
before 11:00 A.M. (New York City time) two Business Days before the date of
such proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of LIBO Rate Advances, either:
<PAGE> 21
21
(x) cancel such Competitive Bid Borrowing by giving the Agent
notice to that effect, or
(y) accept one or more of the offers made by any Lender or
Lenders pursuant to paragraph (ii) above (provided that the Borrower
may not accept bids in excess of the aggregate amount of such
Competitive Bid Borrowing), in its sole discretion, by giving notice to
the Agent of the amount of each Competitive Bid Advance (which amount
shall be equal to or greater than the minimum amount, and equal to or
less than the maximum amount, notified to the Borrower by the Agent on
behalf of such Lender for such Competitive Bid Advance pursuant to
paragraph (ii) above) to be made by each Lender as part of such
Competitive Bid Borrowing, and reject any remaining offers made by
Lenders pursuant to paragraph (ii) above by giving the Agent notice to
that effect. The Borrower shall accept the offers made by any Lender or
Lenders to make Competitive Bid Advances in order of the lowest to the
highest rates of interest offered by such Lenders. If two or more
Lenders have offered the same interest rate, the amount to be borrowed
at such interest rate will be allocated among such Lenders in
proportion to the amount that each such Lender offered at such interest
rate.
(iv) If the Borrower notifies the Agent that such Competitive Bid
Borrowing is canceled pursuant to paragraph (iii)(x) above, the Agent shall
give prompt notice thereof to the Lenders and such Competitive Bid
Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to paragraph (iii)(y) above, the Agent shall in
turn promptly notify (A) each Lender that has made an offer as described in
paragraph (ii) above, of the date and aggregate amount of such Competitive
Bid Borrowing and whether or not any offer or offers made by such Lender
pursuant to paragraph (ii) above have been accepted by the Borrower, (B)
each Lender that is to make a Competitive Bid Advance as part of such
Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to
be made by such Lender as part of such Competitive Bid Borrowing, and (C)
each Lender that is to make a Competitive Bid Advance as part of such
Competitive Bid Borrowing, upon receipt, that the Agent has received forms
of documents appearing to fulfill the applicable conditions set forth in
Article III. Each Lender that is to make a Competitive Bid Advance as part
of such Competitive Bid Borrowing shall, before 12:00 noon (New York City
time) on the date of such Competitive Bid Borrowing specified in the notice
received from the Agent pursuant to clause (A) of the preceding sentence or
any later time when such Lender shall have received notice from the Agent
pursuant to clause (C) of the preceding sentence, make available for the
account of its Applicable Lending Office to the Agent at the Agent's
Account, in same day funds, such Lender's
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portion of such Competitive Bid Borrowing. Upon fulfillment of the
applicable conditions set forth in Article III and after receipt by the
Agent of such funds, the Agent will make such funds available to the
Borrower at the Borrower's Account. Promptly after each Competitive Bid
Borrowing the Agent will notify each Lender of the amount of the
Competitive Bid Borrowing, the consequent Competitive Bid Reduction and
the dates upon which such Competitive Bid Reduction commenced and will
terminate.
(vi) If the Borrower notifies the Agent that it accepts one or
more of the offers made by any Lender or Lenders pursuant to paragraph
(iii)(y) above, such notice of acceptance shall be irrevocable and
binding on the Borrower. The Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result
of any failure to fulfill on or before the date specified in the
related Notice of Competitive Bid Borrowing for such Competitive Bid
Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund
the Competitive Bid Advance to be made by such Lender as part of such
Competitive Bid Borrowing when such Competitive Bid Advance, as a
result of such failure, is not made on such date.
(b) Each Competitive Bid Borrowing shall be in an aggregate
amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof
and, following the making of each Competitive Bid Borrowing, the Borrower shall
be in compliance with the limitation set forth in the proviso to the first
sentence of subsection (a) above.
(c) Within the limits and on the conditions set forth in this
Section 2.03, the Borrower may from time to time borrow under this Section 2.03,
repay or prepay pursuant to subsection (d) below, and reborrow under this
Section 2.03, provided that a Competitive Bid Borrowing shall not be made within
three Business Days of the date of any other Competitive Bid Borrowing.
(d) The Borrower shall repay to the Agent for the account of
each Lender that has made a Competitive Bid Advance, on the maturity date of
each Competitive Bid Advance (such maturity date being that specified by the
Borrower for repayment of such Competitive Bid Advance in the related Notice of
Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and
provided in the Competitive Bid Note evidencing such Competitive Bid Advance),
the then unpaid principal amount of such Competitive Bid Advance. The Borrower
shall have no right to prepay any principal amount of any Competitive Bid
Advance (i) unless, and then only on the terms, specified by the Borrower for
such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing
delivered
<PAGE> 23
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pursuant to subsection (a)(i) above and set forth in the Competitive Bid Note
evidencing such Competitive Bid Advance or (ii) as required pursuant to Section
2.10(b).
(e) The Borrower shall pay interest on the unpaid principal amount of
each Competitive Bid Advance from the date of such Competitive Bid Advance to
the date the principal amount of such Competitive Bid Advance is repaid in full,
at the rate of interest for such Competitive Bid Advance specified by the Lender
making such Competitive Bid Advance in its notice with respect thereto delivered
pursuant to subsection (a)(ii) above, payable on the interest payment date or
dates specified by the Borrower for such Competitive Bid Advance in the related
Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i)
above, as provided in the Competitive Bid Note evidencing such Competitive Bid
Advance. Upon the occurrence and during the continuance of an Event of Default
under Section 6.01(a), the Borrower shall pay interest on the amount of unpaid
principal of and interest on each Competitive Bid Advance owing to a Lender,
payable in arrears on the date or dates interest is payable thereon, at a rate
per annum equal at all times to 2% per annum above the rate per annum required
to be paid on such Competitive Bid Advance under the terms of the Competitive
Bid Note evidencing such Competitive Bid Advance unless otherwise agreed in such
Competitive Bid Note.
(f) The indebtedness of the Borrower resulting from each
Competitive Bid Advance made to the Borrower as part of a Competitive Bid
Borrowing shall be evidenced by a separate Competitive Bid Note of the Borrower
payable to the order of the Lender making such Competitive Bid Advance.
SECTION 2.04. Fees. (a) Facility Fee. The Borrower agrees to
pay to the Agent for the account of each Lender a facility fee on the aggregate
amount of such Lender's Commitment from the Effective Date in the case of each
Initial Lender and from the later of the Effective Date and the effective date
specified in the Assignment and Acceptance pursuant to which it became a Lender
in the case of each other Lender until the Termination Date at a rate per annum
equal to the Applicable Percentage in effect from time to time, payable in
arrears quarterly on the last day of each March, June, September and December,
commencing June 30, 1999, and on the Termination Date.
(b) Agent's Fees. The Borrower shall pay to the Agent for its
own account such fees as may from time to time be agreed between the Borrower
and the Agent.
SECTION 2.05. Optional Termination or Reduction of the
Commitments. The Borrower shall have the right, upon at least three Business
Days' notice to the Agent, to terminate in whole or reduce ratably in part the
unused portions of the respective Commitments of the Lenders, provided that each
partial reduction shall be in the aggregate amount of $10,000,000 or an integral
multiple of $1,000,000 in excess thereof and provided further that
<PAGE> 24
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the aggregate amount of the Commitments of the Lenders shall not be reduced to
an amount that is less than the aggregate principal amount of the Competitive
Bid Advances then outstanding.
SECTION 2.06. Repayment of Revolving Credit Advances. The
Borrower shall repay to the Agent for the ratable account of the Lenders on the
Termination Date the aggregate principal amount of the Revolving Credit Advances
then outstanding.
SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower
shall pay interest on the unpaid principal amount of each Revolving Credit
Advance owing to each Lender from the date of such Advance until such principal
amount shall be paid in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Revolving
Credit Advance is a Base Rate Advance, a rate per annum equal at all
times to the sum of (x) the Base Rate in effect from time to time plus
(y) the Applicable Margin in effect from time to time, payable in
arrears quarterly on the last day of each March, June, September and
December during such periods and on the date such Base Rate Advance
shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Revolving Credit Advance is a Eurodollar Rate Advance, a rate per annum
equal at all times during each Interest Period for such Revolving
Credit Advance to the sum of (x) the Eurodollar Rate for such Interest
Period for such Revolving Credit Advance, plus (y) the Applicable
Margin in effect from time to time, payable in arrears on the last day
of such Interest Period and, if such Interest Period has a duration of
more than three months, on each day that occurs during such Interest
Period every three months from the first day of such Interest Period
and on the date such Eurodollar Rate Advance shall be Converted or paid
in full.
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default under Section 6.01(a), the Borrower shall pay
interest on (i) the unpaid principal amount of each Revolving Credit Advance
owing to each Lender, payable in arrears on the dates referred to in clause
(a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum
above the rate per annum required to be paid on such Revolving Credit Advance
pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent
permitted by law, the amount of any interest, fee or other amount payable
hereunder that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid on Base Rate
Advances pursuant to clause (a)(i) above.
<PAGE> 25
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SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank
agrees to furnish to the Agent timely information for the purpose of determining
each Eurodollar Rate and each LIBO Rate. If any one or more of the Reference
Banks shall not furnish such timely information to the Agent for the purpose of
determining any such interest rate, the Agent shall determine such interest rate
on the basis of timely information furnished by the remaining Reference Banks.
The Agent shall give prompt notice to the Borrower and the Lenders of the
applicable interest rate determined by the Agent for purposes of Section
2.07(a)(i) or (ii), and the rate, if any, furnished by each Reference Bank for
the purpose of determining the interest rate under Section 2.07(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the Required
Lenders notify the Agent that the Eurodollar Rate for any Interest Period for
such Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Agent shall forthwith so notify the Borrower and the
Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving
Credit Advances into, Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $10,000,000, such Advances shall
automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of
Default under Section 6.01(a), (i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make,
or to Convert Advances into, Eurodollar Rate Advances shall be suspended.
(f) If fewer than two Reference Banks determine and furnish timely
information to the Agent for determining the Eurodollar Rate or LIBO Rate for
any Eurodollar Rate Advances or LIBO Rate Advances, as the case may be,
<PAGE> 26
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(i) the Agent shall forthwith notify the Borrower and the
Lenders that the interest rate cannot be determined for such Eurodollar
Rate Advances or LIBO Rate Advances, as the case may be,
(ii) with respect to Eurodollar Rate Advances, each such
Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Base Rate Advance (or if such
Advance is then a Base Rate Advance, will continue as a Base Rate
Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate
Advances or LIBO Rate Advances or to Convert Revolving Credit Advances
into Eurodollar Rate Advances shall be suspended until the Agent shall
notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.
SECTION 2.09. Optional Conversion of Revolving Credit
Advances. The Borrower may on any Business Day, upon notice given to the Agent
not later than 11:00 A.M. (New York City time) on the third Business Day prior
to the date of the proposed Conversion and subject to the provisions of Sections
2.08 and 2.12, Convert all Revolving Credit Advances of one Type comprising the
same Borrowing into Revolving Credit Advances of the other Type; provided,
however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances
shall be made only on the last day of an Interest Period for such Eurodollar
Rate Advances and any Conversion of Base Rate Advances into Eurodollar Rate
Advances shall be in an amount not less than $10,000,000. Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Revolving Credit Advances to be Converted and (iii)
if such Conversion is into Eurodollar Rate Advances, the duration of the initial
Interest Period for each such Advance. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
SECTION 2.10. Optional Prepayments of Revolving Credit
Advances. The Borrower may, upon notice not later than 11:00 A.M. (New York City
time) for Base Rate Advances and upon at least two Business Days' notice to the
Agent for Eurodollar Rate Advances stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding principal amount of the Revolving Credit Advances
comprising part of the same Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the principal amount prepaid;
provided, however, that (x) each partial prepayment shall be in an aggregate
principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess
thereof and (y) in the event of any such prepayment of a Eurodollar Rate
Advance, the Borrower shall be obligated to reimburse the Lenders in respect
thereof pursuant to Section 9.04(c).
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SECTION 2.11. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any written guideline or request from any
central bank or other governmental authority (whether or not having the force of
law), there shall be any increase in the cost to any Lender of agreeing to make
or making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances
(excluding for purposes of this Section 2.11 any such increased costs resulting
from (i) Taxes or Other Taxes (as to which Section 2.14 shall govern) and (ii)
changes in the basis of taxation of overall net income or overall gross income
by the United States or by the foreign jurisdiction or state under the laws of
which such Lender is organized or has its Applicable Lending Office or any
political subdivision thereof), then the Borrower shall from time to time, upon
demand by such Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender additional amounts sufficient to compensate
such Lender for such increased cost (whether or not such increased costs arise
prior to the receipt of written notification from such central bank or other
governmental authority); provided that the Borrower shall not be required to pay
any such increased costs to the extent such increased costs accrued prior to the
date that is six months prior to such notice. A certificate as to the amount of
such increased cost, submitted to the Borrower and the Agent by such Lender,
shall be conclusive and binding for all purposes, absent error in the
calculation of such amount.
(b) If any Lender determines that compliance with any law or
regulation or any written guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender (excluding any reserves
included in the computation of the Eurodollar Rate or the LIBO Rate) and that
the amount of such capital is increased by or based upon the existence of such
Lender's commitment to lend hereunder and other commitments of this type, then,
upon demand by such Lender (with a copy of such demand to the Agent), the
Borrower shall pay to the Agent for the account of such Lender, from time to
time as specified by such Lender, additional amounts sufficient to compensate
such Lender or such corporation (whether or not such amounts arise prior to the
receipt of written notification from such central bank or other governmental
authority) in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable (in the
proportion that such Lender's Commitment hereunder bears to all of such Lender's
commitments of this type) to the existence of such Lender's commitment to lend
hereunder; provided that the Borrower shall not be required to compensate such
Lender to the extent such amounts arose prior to the date that is six months
prior to such notice. A certificate as to such amounts submitted to the Borrower
and the Agent by such Lender shall be conclusive and binding for all purposes,
absent error in the calculation of such amounts.
(c) Any Lender claiming any additional amounts payable pursuant to
this Section 2.11 agrees to use reasonable efforts (consistent with its internal
policy and legal and
<PAGE> 28
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regulatory restrictions) to minimize such additional amounts and to change the
jurisdiction of its Applicable Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any additional amounts that
may thereafter accrue and would not, in the reasonable judgment of such Lender,
be otherwise notably disadvantageous to such Lender. The Borrower shall
reimburse such Lender for such Lender's reasonable expenses incurred in
connection with such change or in considering such a change in an amount not to
exceed the Borrower's pro rata share of such expenses based on such Lender's
Commitment and Advances and the total lending commitments and loans of such
Lender to its similarly situated customers.
SECTION 2.12. Illegality. Notwithstanding any other provision
of this Agreement, if any Lender shall notify the Agent that the introduction of
or any change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority having relevant
jurisdiction asserts that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances
or LIBO Rate Advances hereunder, (i) each Eurodollar Rate Advance and each LIBO
Rate Advance made by such Lender will automatically, upon such demand, Convert
into an Advance that bears interest at the rate set forth in Section 2.07(a)(i)
or a Base Rate Advance, as the case may be, and (ii) the obligation of such
Lender to make Eurodollar Rate Advances and LIBO Rate Advances or to Convert
Revolving Credit Advances into Eurodollar Rate Advances shall be suspended until
the Agent shall notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
SECTION 2.13. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Agent at the
Agent's Account in same day funds. The Agent will promptly thereafter cause to
be distributed like funds relating to the payment of principal or interest or
facility fees ratably (other than amounts payable pursuant to Section 2.03,
2.11, 2.14 or 9.04(c)) to the Lenders for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of any other
amount payable to any Lender to such Lender for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant to Section 9.07(c),
from and after the effective date specified in such Assignment and Acceptance,
the Agent shall make all payments hereunder and under the Notes in respect of
the interest assigned thereby to the Lender assignee thereunder, and the parties
to such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
<PAGE> 29
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(b) All computations of interest based on the Base Rate shall be made
by the Agent on the basis of a year of 365 or 366 days, as the case may be, and
all computations of interest based on the Eurodollar Rate, LIBO Rate or the
Federal Funds Rate and of facility fees shall be made by the Agent on the basis
of a year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or facility fees are payable. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
error in the calculation of such interest rate.
(c) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be
made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
(d) Unless the Agent shall have received notice from the Borrower prior
to the time on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the Agent,
each Lender shall repay to the Agent forthwith on demand such amount distributed
to such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Federal Funds Rate.
SECTION 2.14. Taxes. (a) Subject to subsections (e) and (f) below, any
and all payments by the Borrower hereunder or under the Notes shall be made, in
accordance with Section 2.13, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto imposed by Puerto Rico,
the United States or any political subdivision of either (or in the case of any
payments by or on behalf of the Borrower through an account or branch outside
the United States or Puerto Rico or by or on behalf of the Borrower by a payor
that is not a United States person or not organized or resident in Puerto Rico
such payments shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto imposed by a foreign
jurisdiction or any political subdivision thereof), excluding, in the case of
each Lender and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it in lieu of net income taxes (x) in the case of a
Lender pursuant to the laws of the jurisdiction (or
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any political subdivision or taxing authority therein) in which it is organized
or in which the principal office of such Lender, or Applicable Lending Office of
such Lender is located, or (y) in the case of any payment to the Agent in its
capacity as Agent, the jurisdiction (or any political subdivision or taxing
authority therein) in which it is organized or in which the principal office of
the Agent is located or in which the office designated by the Agent to act as
Agent is located (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities in respect of payments hereunder or under
the Notes being hereinafter referred to as "Taxes"). Subject to subsections (e)
and (f) below, if the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to any Lender or
the Agent, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.14) such Lender or the Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law. Within 30 days
after the date of any payment of Taxes, the Borrower shall furnish to the Agent,
at its address referred to in Section 9.02, the original or a certified copy of
a receipt evidencing payment thereof. For purposes of this subsection (a) and
subsection (e), the terms "United States" and "United States person" shall have
the meanings specified in Section 7701 of the Internal Revenue Code.
(b) In addition, the Borrower agrees to pay any stamp or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or the Notes as a result of the introduction of or any change in
or in the interpretation of any law or regulation after the Effective Date
(hereinafter referred to as " Other Taxes").
(c) Subject to subsections (d), (e) and (f) below, the Borrower shall
indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes
(to the extent not previously paid under subsection (a) or (b) above) imposed on
or paid by such Lender or the Agent (as the case may be) and any liability
(including penalties, interest and expenses but excluding any taxes imposed by
any jurisdiction on amounts payable under this Section 2.14) arising therefrom
or with respect thereto. This indemnification shall be made within 30 days from
the date such Lender or the Agent (as the case may be) makes written demand
therefor.
(d) Each Lender organized under the laws of a jurisdiction outside of
Puerto Rico from time to time, as requested in writing by the Borrower (but only
so long as such Lender remains lawfully able to do so), shall provide each of
the Agent and the Borrower with two properly and accurately completed and duly
executed original copies of any form,
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document or other certificate that is necessary for such Lender to be exempt
from, or entitled to a reduced rate of Taxes or payments hereunder or under the
Notes or for the Borrower to determine the applicable rate of deduction or
withholding of any Taxes. If any Lender which is organized under the laws of a
jurisdiction outside of Puerto Rico is unable to provide the above-described
forms, documents or other certificates for a relevant interest period (or if the
Lender's appropriate personnel responsible for providing the forms, documents or
other certificates actually become aware that the forms, documents or other
certificates provided by it are inaccurate), such Lender shall notify the
Borrower in writing prior to or immediately upon the commencement of such
relevant interest period.
(e) For any period with respect to which a Lender has failed to provide
the Borrower with the appropriate form, document or other certificate requested
by the Borrower in accordance with Section 2.14(d) (other than if such failure
is due to a change in law occurring subsequent to the date on which a form,
document or other certificate originally was required to be provided, or if such
form, document or other certificate is no longer required to establish an
exemption from the applicable tax), such Lender shall not be entitled to
indemnification under Section 2.14(a) or (c) with respect to Taxes by reason of
such failure and the Borrower shall be entitled to withhold Taxes from payments
to such Lender; provided, however, that should a Lender become subject to Taxes
because of its failure to deliver a form, document or other certificate required
hereunder, the Borrower shall take such steps at such Lender's expense as such
Lender shall reasonably request to assist such Lender to recover such Taxes.
(f) Notwithstanding anything else contained in this Section 2.14, the
Borrower shall only be required to pay additional sums with respect to Taxes
(subject to subsection (h) below) to a Lender (or the Agent, as the case may be)
pursuant to subsection (a) or (c) above if the obligation to pay such Taxes
results from such Lender's inability to obtain a complete exemption from Taxes
as a result of (i) any amendment to the laws (or any regulations thereunder), or
any amendment to, or change in, an interpretation or application of any such
laws or regulations by any legislative body, court, governmental agency or
regulatory authority adopted or enacted after the date hereof (or in the case of
an entity that becomes a Lender after the date hereof, the date such entity
becomes a Lender), (ii) an amendment, modification or revocation of any existing
applicable tax treaty ratified, enacted or amended after the date hereof (or in
the case of an entity that becomes a Lender after the date hereof, the date such
entity becomes a Lender), or (iii) the ratification of a new tax treaty ratified
after the date hereof (or in the case of an entity that becomes a Lender after
the date hereof, the date such entity becomes a Lender).
(g) In the event that the Borrower makes an additional payment under
Section 2.14(a) or 2.14(c) for the account of any Lender and such Lender, in its
sole opinion, determines that it has finally and irrevocably received or been
granted a credit against, or relief
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or remission from, or repayment of, any tax paid or payable by it in respect of
or calculated with reference to the deduction or withholding giving rise to such
additional payment, such Lender shall, to the extent that it determines that it
can do so without prejudice to the retention of the amount of such credit,
relief, remission or repayment, pay to the Borrower such amount as such Lender
shall, in its sole opinion, have determined is attributable to such deduction or
withholding and will leave such Lender (after such payment) in no worse position
than it would have been had the Borrower not been required to make such
deduction or withholding. Nothing contained herein shall (i) interfere with the
right of a Lender to arrange its tax affairs in whatever manner it thinks fit or
(ii) oblige any Lender to claim any tax credit or to disclose any information
relating to its tax affairs or any computations in respect thereof or (iii)
require any Lender to take or refrain from taking any action that would
prejudice its ability to benefit from any other credits, reliefs, remissions or
repayments to which it may be entitled. Each Lender and the Agent shall
reasonably cooperate with the Borrower at the Borrower's written request and
sole expense, in contesting any Taxes or Other Taxes the Borrower would bear
pursuant to this Section 2.14, provided, however, that (i) no tax return of such
Lender or the Agent is or would be held open as a result of such contest, (ii)
neither such Lender nor the Agent is required to reopen a tax year that has
already closed and (iii) such Lender and the Agent shall, in the sole opinion of
such Lender and the Agent, respectively, have determined that such contest will
leave such Lender and the Agent, respectively, in no worse position than it
would have been in had it not contested such Taxes or Other Taxes. Nothing
contained herein shall interfere with the right of a Lender or the Agent to
arrange its tax affairs in whatever manner it thinks fit, if in the sole
judgment of such Lender or the Agent, such contest would be disadvantageous to
such Lender or the Agent. In pursuing a contest in the Lender's or the Agent's
name, such Lender or the Agent will be represented by counsel of such Lender's
or the Agent's choice, and will defend against, settle or otherwise control the
contest and will not relinquish control or decision making over the contest.
(h) Any Lender claiming any additional amounts payable pursuant to this
Section 2.14 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to minimize such additional
amounts and to change the jurisdiction of its Eurodollar Lending Office if the
making of such a change would avoid the need for, or reduce the amount of, any
additional amounts that may thereafter accrue and would not, in the reasonable
judgment of such Lender, be otherwise notably disadvantageous to such Lender.
The Borrower shall reimburse such Lender for such Lender's reasonable expenses
incurred in connection with such change or in considering such a change in an
amount not to exceed the Borrower's pro rata share of such expenses based on
such Lender's Commitment and Advances to the Borrower and the total lending
commitments and loans of such Lender to its similarly situated customers.
SECTION 2.15 Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or
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33
otherwise) on account of the Revolving Credit Advances owing to it (other than
pursuant to Section 2.11, 2.14, 9.01(b), 9.04(c) or 9.07) in excess of its
ratable share of payments on account of the Revolving Credit Advances obtained
by all the Lenders, such Lender shall forthwith purchase from the other Lenders
such participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender by
delivering payment pursuant to this Section 2.15 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
SECTION 2.16 Use of Proceeds. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use such proceeds)
solely for general corporate purposes of the Borrower and its Subsidiaries,
including, without limitation, to pay a one-time dividend to the Puerto Rico
Telephone Authority (the "Special Dividend"), to pay related fees and expenses
and to provide a backstop for commercial paper, provided that such proceeds
shall not be used for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System).
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01 Conditions Precedent to Effectiveness of Sections
2.01 and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective
on and as of the first date (the "Effective Date") on which the following
conditions precedent have been satisfied:
(a) The Purchase shall have been consummated in accordance
with the terms of the Stock Purchase Agreement, without any waiver or
amendment from the date of the Information Memorandum that, in the
reasonable judgment of the Lenders, could reasonably be expected to
materially adversely affect the ability of the Borrower or either
Guarantor to perform their respective obligations hereunder, and in
material compliance with all applicable laws.
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(b) There shall have occurred no Material Adverse Change since
December 31, 1997 other than as disclosed in Schedule 3.01(b) hereto.
(c) There shall exist no action, suit, investigation,
litigation or proceeding affecting any of the Loan Parties or any of
their respective Subsidiaries pending or threatened before any court,
governmental agency or arbitrator that (i) could be reasonably likely
to have a Material Adverse Effect other than the matters described on
Schedule 3.01(c) hereto (the "Disclosed Litigation") or (ii) is
initiated by any Person other than a Lender in its capacity as a Lender
that purports to affect the legality, validity or enforceability of
this Agreement or any Note or the consummation of the transactions
contemplated hereby, and there shall have been no material adverse
change in the status, or financial effect on any Loan Party, of the
Disclosed Litigation from that described on Schedule 3.01(c) hereto.
(d) All governmental and third party consents and approvals
necessary to consummate the Purchase (including, in the case of the
Federal Communications Commission approval, the grant of the Federal
Communications Commission Transfer Applications) and necessary in
connection with the execution, delivery and performance of this
Agreement and the Notes shall have been obtained (without the
imposition of any conditions that could reasonably be expected to
materially adversely affect the ability of any Loan Party to perform
its obligations hereunder) and shall remain in effect, and no law or
regulation shall be applicable that restrains, prevents or imposes
adverse conditions upon the transactions contemplated hereby that could
reasonably be expected to materially adversely affect the ability of
any Loan Party to perform its obligations hereunder.
(e) The Borrower shall have notified each Lender and the Agent
in writing as to the proposed Effective Date.
(f) The Borrower shall have paid all invoiced fees and
expenses of the Agent and the Lenders (including the invoiced fees and
expenses of counsel to the Agent).
(g) On the Effective Date, the following statements shall be
true and the Agent shall have received for the account of each Lender a
certificate signed by a duly authorized officer of the Borrower, dated
the Effective Date, stating that:
(i) The representations and warranties contained in
Section 4.01 are correct on and as of the Effective Date, and
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35
(ii) No event has occurred and is continuing that constitutes
a Default.
(h) The Agent shall have received on or before the Effective Date the
following, each dated such day, in form and substance satisfactory to the Agent
and (except for the Revolving Credit Notes) in sufficient copies for each
Lender:
(i) The Revolving Credit Notes to the order of the Lenders,
respectively.
(ii) Certified copies of the resolutions of the Board of
Directors of each Loan Party approving the transactions contemplated by
this Agreement and the Notes and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Agreement and such Notes.
(iii) A certificate of the Secretary or an Assistant Secretary
of each Loan Party certifying the names and true signatures of the
officers of each Loan Party authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder.
(iv) Certified copies of the Stock Purchase Agreement, duly
executed by the parties thereto, together with all agreements,
instruments and other documents delivered in connection therewith.
(v) A certificate, in substantially the form of Exhibit D
hereto, attesting to the Solvency of each Loan Party after giving
effect to the Purchase, the Special Dividend and the Borrowings
contemplated hereunder, from the chief financial officer of each such
Loan Party.
(vi) Certified copies of the resolutions of the Board of
Directors (or committee thereof) of the Borrower and each other Loan
Party approving the Special Dividend as contemplated by the Stock
Purchase Agreement.
(vii) Certified copies of (A) all amendments to the Stock
Purchase Agreement and (B) each other document delivered pursuant
thereto, duly executed by the parties thereto, together with all
agreements, instruments and other documents delivered in connection
therewith.
(viii) A favorable opinion of Curtis, Mallet-Prevost, Colt &
Mosle, New York counsel for the Loan Parties, substantially in the form
of Exhibit E hereto.
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36
(ix) A favorable opinion of O'Neill & Borges, Puerto Rico
counsel for the Loan Parties, substantially in the form of Exhibit F
hereto.
(x) A favorable opinion of Shearman & Sterling, counsel for
the Agent, in form and substance satisfactory to the Agent.
SECTION 3.02 Conditions Precedent to Each Revolving Credit
Borrowing. The obligation of each Lender to make a Revolving Credit Advance on
the occasion of each Revolving Credit Borrowing shall be subject to the
conditions precedent that the Effective Date shall have occurred and on the date
of such Revolving Credit Borrowing the following statements shall be true (and
each of the giving of the applicable Notice of Revolving Credit Borrowing and
the acceptance by the Borrower of the proceeds of such Revolving Credit
Borrowing shall constitute a representation and warranty by the Borrower that on
the date of such Borrowing such statements are true):
(a) the representations and warranties contained in Section
4.01 are correct in all material respects on and as of the date of such
Revolving Credit Borrowing, before and after giving effect to such
Revolving Credit Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date, and
(b) no event has occurred and is continuing, or would result
from such Revolving Credit Borrowing or from the application of the
proceeds therefrom, that constitutes a Default.
SECTION 3.03 Conditions Precedent to Each Competitive Bid
Borrowing. The obligation of each Lender that is to make a Competitive Bid
Advance on the occasion of a Competitive Bid Borrowing to make such Competitive
Bid Advance as part of such Competitive Bid Borrowing is subject to the
conditions precedent that (i) the Agent shall have received the written
confirmatory Notice of Competitive Bid Borrowing with respect thereto, (ii)
prior to such Competitive Bid Borrowing, the Agent shall have received a
Competitive Bid Note payable to the order of such Lender for each of the one or
more Competitive Bid Advances to be made by such Lender as part of such
Competitive Bid Borrowing, in a principal amount equal to the principal amount
of the Competitive Bid Advance to be evidenced thereby and otherwise on such
terms as were agreed to for such Competitive Bid Advance in accordance with
Section 2.03, and (iii) on the date of such Competitive Bid Borrowing the
following statements shall be true (and each of the giving of the applicable
Notice of Competitive Bid Borrowing and the acceptance by the Borrower of the
proceeds of such Competitive Bid Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Competitive Bid Borrowing such
statements are true):
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37
(a) the representations and warranties contained in Section
4.01 are correct in all material respects on and as of the date of such
Competitive Bid Borrowing before and after giving effect to such
Competitive Bid Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date,
(b) no event has occurred and is continuing, or would result
from such Competitive Bid Borrowing or from the application of the
proceeds therefrom, that constitutes a Default, and
(c) no event has occurred and no circumstance exists as a
result of which the information concerning the Loan Parties that has
been provided to the Agent and each Lender by any Loan Party in writing
in connection herewith, taken as a whole, would include an untrue
statement of a material fact or omit to state any material fact or any
fact necessary to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading.
SECTION 3.04 Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Borrower,
by notice to the Lenders, designates as the proposed Effective Date, specifying
its objection thereto. The Agent shall promptly notify the Lenders of the
occurrence of the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
(b) The execution, delivery and performance by each Loan Party
of this Agreement and the Notes executed by it and the consummation of
the transactions contemplated hereby, are within such Loan Party's
corporate powers, have been duly authorized by all necessary corporate
action, and do not contravene (i) such Loan
<PAGE> 38
38
Party's charter or by-laws (or other equivalent organizational
documents) or (ii) any law or any material contractual restriction
binding on or affecting such Loan Party or, to the knowledge of the
chief financial officer of the Borrower, any other contract the breach
of which would limit the ability of any Loan Party to perform its
obligations under this Agreement or the Notes.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery
and performance by any Loan Party of this Agreement or the Notes.
(d) This Agreement has been, and each of the Notes when
delivered hereunder will have been, duly executed and delivered by the
Borrower. This Agreement has been duly executed and delivered by each
Guarantor. Assuming that this Agreement has been duly executed by the
Agent and each of the Initial Lenders, this Agreement is, and each of
the Notes when delivered hereunder will be, the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with their respective terms. Assuming that this Agreement
has been duly executed by the Agent and each of the Initial Lenders,
this Agreement is the legal, valid and binding obligation of each
Guarantor enforceable against each Guarantor in accordance with its
terms.
(e) The Consolidated balance sheet of the Borrower (or its
predecessor entities) and its Subsidiaries as at December 31, 1997, and
the related Consolidated statements of income and cash flows of the
Borrower (or its predecessor entities) and its Subsidiaries for the
fiscal year then ended, accompanied by an opinion of Deloitte & Touche
LLP, independent public accountants, and the Consolidated balance sheet
of the Borrower (or its predecessor entities) and its Subsidiaries as
at September 30, 1998, and the related Consolidated statements of
income and cash flows of the Borrower (or its predecessor entities) and
its Subsidiaries for the nine months then ended, duly certified by the
chief financial officer of the Borrower (or its predecessor entities),
copies of which have been furnished to each Lender, fairly present,
subject, in the case of said balance sheet as at September 30, 1998,
and said statements of income and cash flows for the nine months then
ended, to year-end audit adjustments, the Consolidated financial
condition of the Borrower (or its predecessor entities) and its
Subsidiaries as at such dates and the Consolidated results of the
operations of the Borrower (or its predecessor entities) and its
Subsidiaries for the periods ended on such dates, all in accordance
with generally accepted accounting principles consistently applied.
(f) There is no pending or (to the knowledge of any Loan
Party) threatened action or proceeding, including, without limitation,
any Environmental Action,
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39
affecting any Loan Party or any of its Subsidiaries before any court,
governmental agency or arbitrator that is initiated by any Person other
than a Lender in its capacity as a Lender that purports to affect the
legality, validity or enforceability of this Agreement or any Note.
(g) Neither the Borrower nor any of its Subsidiaries is an
Investment Company, as such term is defined in the Investment Company
Act of 1940, as amended.
(h) No Loan Party is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
(i) The Borrower (i) has initiated a review and assessment of
all areas within its and each of its Subsidiaries' business and
operations (including those affected by suppliers, vendors and
customers) that could be materially adversely affected by the risk that
computer applications used by the Borrower or any of its Subsidiaries
(or suppliers, vendors and customers) may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior
to and any date on or after December 31, 1999 ("Year 2000 Problem"),
(ii) has developed a plan and timetable for addressing the Year 2000
Problem on a timely basis (which may include the procurement of new
systems) and (iii) reasonably believes that such plan is being
implemented on a timely basis. Based on the foregoing, the Borrower
believes that all computer applications that are material to its or any
of its Subsidiaries' business and operations are reasonably expected on
a timely basis to be able to perform properly date-sensitive functions
for all dates on and after January 1, 2000 except to the extent that a
failure to do so could not reasonably be expected to have a Material
Adverse Effect.
ARTICLE V
COVENANTS OF THE LOAN PARTIES
SECTION 5.01 Affirmative Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, each Loan
Party will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable
laws, rules, regulations and
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40
orders, such compliance to include, without limitation, compliance with
ERISA and Environmental Laws, except where the failure to so comply
would not have a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each
of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property and (ii) all lawful claims
that, if unpaid, might by law become a Lien upon its property;
provided, however, that neither any Loan Party nor any of its
Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and
by proper proceedings and as to which appropriate reserves are being
maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors and
the aggregate of such Liens would have a Material Adverse Effect.
(c) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which such
Loan Party or such Subsidiary operates; provided, however, that such
Loan Party and its Subsidiaries may self-insure to the extent
consistent with prudent business practice.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain,
its corporate existence, rights (charter and statutory) and franchises;
provided, however, that each Loan Party and its Subsidiaries may
consummate any transaction permitted under Section 5.02(b) and provided
further that neither any Loan Party nor any of its Subsidiaries shall
be required to preserve any right or franchise if the senior management
of such Loan Party or of such Subsidiary shall determine that the
preservation thereof is no longer desirable in the conduct of the
business of such Loan Party or such Subsidiary, as the case may be, and
that the loss thereof is not disadvantageous in any material respect to
such Loan Party or such Subsidiary.
(e) Visitation Rights. During normal business hours and upon
reasonable notice from time to time, permit the Agent or any of the
Lenders or any agents or representatives thereof, to examine and make
copies of and abstracts from the records and books of account of
(excluding any confidential information), and visit the properties of,
such Loan Party and any of its Subsidiaries, and to discuss the
affairs, finances and accounts of such Loan Party and any of its
Subsidiaries with the appropriate representatives of such Loan Party
and together with the appropriate
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41
representatives of such Loan Party's independent certified public accountants,
provided, however, that examination of the records of any Loan Party or any of
its Subsidiaries and the making of copies or abstracts shall occur only at times
when an Advance is outstanding.
(f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep,
proper books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of such Loan
Party and each such Subsidiary in accordance with generally accepted accounting
principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, its material properties that
are used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under this
Agreement with any of their Affiliates, other than another Loan Party, (i) on
terms that are fair and reasonable and no less favorable to such Loan Party or
such Subsidiary than it would obtain in a comparable arm's-length transaction
with a Person not an Affiliate except where the failure to do so, in the
aggregate, would not have a Material Adverse Effect, (ii) as required by the
Federal Communications Commission's rules and regulations for transactions among
affiliates or (iii) as contemplated by the Management Agreement and the
Technology Transfer Agreement (each such agreement as defined in the Stock
Purchase Agreement).
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 60
days after the end of each of the first three quarters of each
fiscal year of the Borrower, the Consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of such
quarter and the Consolidated statements of income and cash
flows of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending
with the end of such quarter, duly certified (subject to
year-end audit adjustments) by the chief financial officer,
treasurer or controller of the Borrower as having been
prepared in accordance with generally accepted accounting
principles and certificates of the chief financial officer,
treasurer or controller of the Borrower as to compliance with
the terms of this Agreement and setting forth in reasonable
detail the calculations necessary to demonstrate compliance
with Section 5.03, provided that in the event of any
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42
change in GAAP used in the preparation of such financial
statements, the Borrower shall also provide, if necessary for
the determination of compliance with Section 5.03, a statement
of reconciliation showing the calculations used for purposes
of Section 5.03;
(ii) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, a copy
of the annual audited report for such year for the Borrower
and its Subsidiaries, containing the Consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of
such fiscal year and the Consolidated statements of income and
cash flows of the Borrower and its Subsidiaries for such
fiscal year, in each case accompanied by an opinion acceptable
to the Required Lenders by Deloitte & Touche LLP or other
independent public accountants of nationally recognized
standing, provided that in the event of any change in GAAP
used in the preparation of such financial statements, the
Borrower shall also provide, if necessary for the
determination of compliance with Section 5.03, a statement of
reconciliation showing the calculations used for purposes of
Section 5.03;
(iii) as soon as possible and in any event within
five Business Days after the occurrence of each Default
continuing on the date of such statement, a statement of the
chief financial officer, treasurer or controller of the
Borrower setting forth details of such Default and the action
that the Borrower has taken and proposes to take with respect
thereto;
(iv) promptly after the sending or filing thereof,
copies of any quarterly and annual reports and proxy
solicitations that any Loan Party sends to any of its
securityholders, and copies of any reports on Form 8-K that
such Loan Party files with the Securities and Exchange
Commission (other than reports on Form 8-K filed solely for
the purpose of incorporating exhibits into a registration
statement previously filed with the Securities and Exchange
Commission);
(v) prompt notice of all actions and proceedings
before any court, governmental agency or arbitrator affecting
any Loan Party or any of its Subsidiaries of the type
described in Section 3.01(c); and
(vi) such other information respecting any Loan Party
or any of its Subsidiaries as any Lender through the Agent may
from time to time reasonably request.
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SECTION 5.02. Negative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien on or with respect to any of
its properties, whether now owned or hereafter acquired, or assign for security
purposes (but not in connection with a bona fide sale thereof), or permit any of
its Subsidiaries to assign for security purposes (but not in connection with a
bona fide sale thereof), any right to receive income; provided that nothing in
this Section 5.02 shall be construed to prevent or restrict the following:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real
property or equipment acquired or held by the Borrower or any
of its Subsidiaries in the ordinary course of business to
secure the purchase price of such property or equipment or to
secure Debt incurred solely for the purpose of financing the
acquisition of such property or equipment, or Liens existing
on such property or equipment at the time of its acquisition
or conditional sales or other similar title retention
agreements with respect to property hereafter acquired or
extensions, renewals or replacements of any of the foregoing
for the same or a lesser amount, provided, however, that no
such Lien shall extend to or cover any properties of any
character other than the real property or equipment being
acquired, and no such extension, renewal or replacement shall
extend to or cover any properties not theretofore subject to
the Lien being extended, renewed or replaced,
(iii) the Liens existing on the Effective Date and
described on Schedule 5.02(a) hereto and other undisclosed
Liens existing on the Effective Date securing obligations in
aggregate amount not to exceed $10,000,000,
(iv) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the
Borrower or any of its Subsidiaries; provided that any such
Liens that were created during the period immediately prior to
such merger, consolidation or acquisition were created in the
ordinary course of business of such Person and the Debt
secured by such Liens does not exceed the fair market value of
the assets (including intangible assets) of such Person so
merged into or consolidated with the Borrower or any of its
Subsidiaries,
(v) the replacement, extension or renewal of any Lien
permitted by clauses (iii) and (iv) above upon or in the same
property theretofore subject
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thereto or the replacement, extension or renewal (without
increase in the amount or extension of the final maturity
date) of the Debt secured thereby, and
(vi) Liens not otherwise permitted pursuant to
clauses (i) through (v) above securing obligations not to
exceed at any one time the amount of $10,000,000.
(b) Mergers, Etc. Merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to, any Person, or permit any of its Subsidiaries
to do so, except that (i) any Subsidiary of the Borrower may merge or
consolidate with or into, or dispose of assets to, any other Subsidiary of the
Borrower, (ii) any Subsidiary of the Borrower may merge into or dispose of
assets to the Borrower, and (iii) the Borrower may merge with any Subsidiary of
GTE so long as the surviving corporation assumes all obligations of the Borrower
hereunder and under the Notes, and provided, in each case, that no Default shall
have occurred and be continuing at the time of such proposed transaction or
would result therefrom.
(c) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or reporting
practices, except (i) as required or permitted by generally accepted accounting
principles or (ii) where the effect of such change, together with all other
changes in accounting policies or reporting practices made pursuant to this
clause (ii) since the Effective Date, is immaterial to the Borrower and its
Subsidiaries taken as a whole.
(d) Subsidiary Debt. Permit any of its Subsidiaries to create
or suffer to exist, any Debt other than:
(i) Debt owed to the Borrower or to a wholly owned
Subsidiary of the Borrower (it being understood that
such Debt includes any Debt incurred (A) in connection
with the Purchase and (B) under the contribution
agreement being entered into by and between the
Guarantors as of the closing date of the Purchase),
(ii) Debt existing on the Effective Date and described
on Schedule 5.02(d) hereto (the "Existing Debt"), and
any Debt extending the maturity of, or refunding or
refinancing, in whole or in part, the Existing Debt,
provided that the principal amount of such Existing
Debt shall not be increased above the principal amount
thereof outstanding immediately prior to such
extension, refunding or refinancing, and the direct and
contingent obligors
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therefor shall not be changed, as a result of or in connection with
such extension, refunding or refinancing,
(iii) unsecured Debt incurred in the ordinary course of
business aggregating for each of the Guarantors not more than
$75,000,000 at any one time outstanding,
(iv) Debt in respect of operating leases, and
(v) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
SECTION 5.03 Financial Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will:
(a) Debt to EBITDA Ratio. Maintain a Debt to EBITDA Ratio, as at the
end of each fiscal quarter of the Borrower, of not more than 4.0:1.0.
(b) EBITDA to Interest Ratio. Maintain an EBITDA to Interest Ratio, as
at the end of each fiscal quarter of the Borrower, of not less than
3.25:1.0.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable; or the Borrower shall fail to pay any
interest on any Advance within five Business Days after the same becomes
due and payable; or any fees or other amounts payable under this Agreement
or any Note are not paid within five Business Days after the same becomes
due and payable; or
(b) Any representation or warranty made or deemed made by the Borrower
herein or by the Borrower (or any of its officers) in connection with this
Agreement shall prove to have been incorrect in any material respect when
made or deemed made; or
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(c) (i) Any Loan Party shall fail to perform or observe any
term, covenant or agreement contained in Section 5.01(d), (e), (h),
(i)(iii) or (i)(v), 5.02 or 5.03, (ii) any Loan Party shall fail to
perform or observe any term, covenant or agreement contained in Section
5.01(i) (other than clauses (iii) and (v) thereof) if such failure
shall remain unremedied for five Business Days after written notice
thereof shall have been given to such Loan Party by the Agent or any
Lender or (iii) any Loan Party shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement on its
part to be performed or observed if such failure shall remain
unremedied for 30 days after written notice thereof shall have been
given to such Loan Party by the Agent or any Lender; or
(d) Article VII is breached by any Guarantor or shall cease to
be in full force and effect or any Guarantor shall so state in writing;
or
(e) The Borrower or any of its Subsidiaries shall fail to pay
any principal of or premium or interest on any Debt that is outstanding
in a principal, or in the case of Hedge Agreements net, amount of at
least $20,000,000 in the aggregate (but excluding Debt outstanding
hereunder) of the Borrower or such Subsidiary (as the case may be) (the
"Requisite Amount"), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the later of five
Business Days and the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or any such Debt
aggregating the Requisite Amount shall be declared due and payable in
accordance with its terms or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt
aggregating the Requisite Amount and shall continue after the
applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate
the maturity of such Debt; or any such Debt aggregating the Requisite
Amount shall be required to be prepaid or redeemed (other than by a
regularly scheduled required prepayment or redemption), purchased or
defeased in accordance with its terms, or any offer to prepay, redeem,
purchase or defease such Debt shall be required to be made in
accordance with its terms, in each case prior to the stated maturity
thereof where the cause of such prepayment, redemption, purchase or
defeasance or offer therefor is the occurrence of an event or condition
that is premised on a material adverse deterioration of the financial
condition, results of operation or properties of the Borrower or any of
its Subsidiaries, provided that with respect to Debt aggregating the
Requisite Amount of the types described in clauses (h) or (i) of the
definition of "Debt" and to the extent such Debt relates to the
obligations of any Person other than the Borrower or any of its
Subsidiaries, no Event of Default shall occur so long as the payment of
such Debt is being contested in good faith and by proper proceedings
and as to which appropriate reserves are being maintained; or any event
shall occur or condition shall exist under
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any agreement or instrument relating to any Debt that is outstanding in
a principal, or in the case of Hedge Agreements net, amount of at least
$40,000,000 and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or permit the acceleration of, the
maturity of such Debt; or
(f) The Borrower or any of its Subsidiaries shall generally
not pay their respective debts as such debts become due, or shall admit
in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower or its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 60
days, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official
for, it or for any substantial part of its property) shall occur; or
the Borrower or its Subsidiaries shall take any corporate action to
authorize any of the actions set forth in this subsection (f) under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors; or
(g) Judgments or orders for the payment of money in excess of
$30,000,000 in the aggregate shall be rendered against the Borrower or
its Subsidiaries and enforcement proceedings shall have been commenced
by any creditor upon such judgment or order for which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; provided, however, that any such
judgment or order shall not be an Event of Default under this Section
6.01(g) if and for so long as (i) (A) the amount of such judgment or
order is covered by a valid and binding policy of insurance between the
defendant and the insurer or insurers covering payment thereof, (B)
such insurer shall be rated, or, if more than one insurer, at least 90%
of such insurers as measured by the amount of risk insured, shall be
rated, at least "A-" by A.M. Best Company or its successor or its
successors and (C) such insurer(s) has been notified of, and has not
disputed the claim made for payment of, the amount of such judgment or
order or (ii) (A) the amount of such judgment or order is covered by a
valid and binding indemnification agreement between the defendant and
an indemnitor, (B) such indemnitor shall have a rating for any class of
its non-credit enhanced long-term senior unsecured debt of not lower
than BBB+ by S&P or Baa3 by
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Moody's and (C) such indemnitor has been notified of, and has not
disputed the claim made for payment of, the amount of such judgment or
order; or
(h) (i) After the Effective Date, GITI or any entity
controlling GITI shall cease for any reason to maintain, directly or
indirectly, the Controlling Interest; or (ii) any Person or two or more
Persons acting in concert shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934), directly or
indirectly, of Voting Stock of GITI or other Person holding the
Controlling Interest (or other securities convertible into such Voting
Stock) representing more of the combined voting power of all Voting
Stock of GITI or such other Person than that owned by GTE or its
Subsidiaries or Bell Atlantic Corporation as successor to or parent of
GTE after the merger of GTE with Bell Atlantic Corporation or any of
its Subsidiaries; or (iii) GTE or its Subsidiaries or Bell Atlantic
Corporation as successor to or parent of GTE after the merger of GTE
with Bell Atlantic Corporation or any of its Subsidiaries shall fail to
have the ability to appoint a majority of the Board of Directors of
GITI or other Person holding the Controlling Interest or the business
and affairs of GITI or such other Person shall not be managed by or
under the direction of such Board of Directors; or (iv) the Borrower
shall for any reason cease to own 100% of the Voting Stock of either
Guarantor; or
(i) Any Loan Party or its ERISA Affiliates shall incur, or
shall be reasonably likely to incur, liability that would have a
Material Adverse Effect as a result of one or more of the following:
(i) the occurrence of any ERISA Event; (ii) the partial or complete
withdrawal of such Loan Party or its ERISA Affiliates from a
Multiemployer Plan; or (iii) the reorganization or termination of a
Multiemployer Plan;
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower under the
Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
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Article VII
GUARANTY
SECTION 7.01. Guaranty; Limitation of Liability. (a) Each Guarantor
hereby unconditionally and irrevocably guarantees the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all obligations of
each other Loan Party now or hereafter existing under this Agreement or any
Note, whether for principal, interest, fees, expenses or otherwise (such
obligations, to the extent not paid by such Loan Party or specifically waived in
accordance with Section 9.01, being the "Guaranteed Obligations"), and agrees to
pay any and all expenses (including reasonable counsel fees and expenses)
incurred by the Agent or the Lenders in enforcing any rights under this Article
VII ("this Guaranty"). Without limiting the generality of the foregoing, each
Guarantor's liability shall extend to all amounts that constitute part of the
Guaranteed Obligations and would be owed by any Loan Party to the Agent or any
Lender under this Agreement or any Note but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Loan Party.
(b) (i) Each Guarantor and, by its acceptance of this Guaranty, the
Agent and each other Lender, hereby confirms that it is the intention of all
such parties that this Guaranty not constitute a fraudulent transfer or
fraudulent conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal,
state or Commonwealth of Puerto Rico law to the extent applicable to this
Guaranty. To effectuate the foregoing intention, the Agent, each other Lender
and each Guarantor hereby irrevocably agrees that the obligations of each
Guarantor under this Guaranty shall not exceed the greater of (A) the benefit
realized by such Guarantor from the proceeds of the Advances made from time to
time by the Borrower to such Guarantor and (B) the maximum amount that will,
after giving effect to such maximum amount and all other probable contingent and
fixed liabilities of such Guarantor that are relevant under applicable law, and
after giving effect to any collections from, rights to receive contribution
from, or payments made by or on behalf of the other Guarantor in respect of the
obligations of such other Guarantor under this Guaranty, result in the
obligations of such Guarantor under this Guaranty not constituting a fraudulent
transfer or fraudulent conveyance. For purposes hereof, "Bankruptcy Law" means
Title 11, United States Code, or any similar Federal, state or Commonwealth of
Puerto Rico law for the relief of debtors.
(ii) Each Guarantor agrees that in the event any payment shall
be required to be made to the Lenders under this Guaranty, such
Guarantor will contribute, to the maximum extent such that the
contribution will not result in a fraudulent transfer or fraudulent
conveyance, such amounts to the other Guarantor so as to maximize the
aggregate amount paid to the Lenders under this Agreement and the
Notes.
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SECTION 7.02. Guaranty Absolute. Each Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement and the Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Agent or the Lenders with respect thereto. The obligations of each
Guarantor under this Guaranty are independent of the Guaranteed Obligations, and
a separate action or actions may be brought and prosecuted against such
Guarantor to enforce this Guaranty, irrespective of whether any action is
brought against the Borrower or the other Guarantor or whether the Borrower or
the other Guarantor is joined in any such action or actions. The liability of
each Guarantor under this Guaranty shall be irrevocable, absolute and
unconditional irrespective of, and, to the maximum extent permitted by law, each
Guarantor hereby irrevocably waives, any defenses it may now or hereafter have
in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of this Agreement
or any agreement or instrument relating hereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from this
Agreement or any Note, including, without limitation, any increase in
the Guaranteed Obligations resulting from the extension of additional
credit to the Borrower or otherwise;
(c) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of the Borrower; or
(e) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any
representation by the Agent or any Lender that might otherwise
constitute a defense available to, or a discharge of, any Guarantor,
the Borrower or any other guarantor or surety other than payment when
due.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Agent or any Lender upon the insolvency,
bankruptcy or reorganization of the Borrower or either Guarantor or otherwise,
all as though such payment had not been made.
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SECTION 7.03. Waiver. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and any requirement that the Agent or
any Lender exhaust any right or take any action against the Borrower or any
other Person or any collateral. Each Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated herein
and that the waiver set forth in this Section 7.03 is knowingly made in
contemplation of such benefits. Each Guarantor hereby waives any right to revoke
this Guaranty, and acknowledges that this Guaranty is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in the future.
SECTION 7.04. Continuing Guaranty; Assignments. This Guaranty is a
continuing guaranty and shall (a) remain in full force and effect until the
later of the cash payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty and the Termination Date, (b) be binding
upon each Guarantor, its successors and assigns and (c) inure to the benefit of
and be enforceable by the Lenders, the Agent and their successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), any
Lender may assign or otherwise transfer all or any portion of its rights and
obligations hereunder (including, without limitation, all or any portion of its
Commitment, the Advances owing to it and the Note or Notes held by it) to any
other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender herein or otherwise, in each
case as provided in Section 9.07.
SECTION 7.05. Subrogation. Neither Guarantor will exercise any rights
that it may now or hereafter acquire against the Borrower or any other insider
guarantor that arise from the existence, payment, performance or enforcement of
such Guarantor's obligations under this Guaranty, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the Agent
or any Lender against the Borrower, the other Guarantor or any other insider
guarantor or any collateral, whether or not such claim, remedy or right arises
in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from the Borrower, the other Guarantor
or any other insider guarantor, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security solely on
account of such claim, remedy or right, unless and until all of the Guaranteed
Obligations and all other amounts payable under this Guaranty shall have been
paid in full in cash and the Termination Date shall have occurred. If any amount
shall be paid to either Guarantor in violation of the preceding sentence at any
time prior to the later of the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and the
Termination Date, such amount shall be held in trust for the benefit of the
Agent and the Lenders and shall forthwith be paid to the Agent to be credited
and applied to the Guaranteed Obligations and all other amounts payable under
this Guaranty, whether matured or unmatured, in accordance with the terms of
this Guaranty, or to be held as collateral for any
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Guaranteed Obligations or other amounts payable under this Guaranty thereafter
arising. If (i) either Guarantor shall make payment to the Agent or any Lender
of all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed
Obligations and all other amounts payable under this Guaranty shall be paid in
full in cash and (iii) the Termination Date shall have occurred, the Agent and
the Lenders will, at such Guarantor's request and expense, execute and deliver
to such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Guaranteed Obligations resulting from such
payment by such Guarantor.
Article VIII
THE AGENT
SECTION 8.01. Authorization and Action . Each Lender hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders and such instructions shall be binding upon all Lenders and
all holders of Notes; provided, however, that the Agent shall not be required to
take any action that exposes the Agent to personal liability or that is contrary
to this Agreement or applicable law. The Agent agrees to give to each Lender
prompt notice of each notice given to it by the Borrower pursuant to the terms
of this Agreement.
SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i) may treat the
payee of any Note as the holder thereof until the Agent receives and accepts an
Assignment and Acceptance entered into by the Lender that is the payee of such
Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section
9.07; (ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written
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or oral) made in or in connection with this Agreement; (iv) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of the Borrower
or to inspect the property (including the books and records) of the Borrower
except as specifically set forth in this Agreement; (v) shall not be responsible
to any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other instrument or
document furnished pursuant hereto; and (vi) shall incur no liability under or
in respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 8.03. Citibank and Affiliates. With respect to its Commitment,
the Advances made by it and the Note or Notes issued to it, Citibank shall have
the same rights and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Citibank in its
individual capacity. Citibank and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, any Loan
Party, any of its Subsidiaries and any Person who may do business with or own
securities of any Loan Party or any of its Subsidiaries, all as if Citibank were
not the Agent and without any duty to account therefor to the Lenders.
SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 8.05. Indemnification. The Lenders agree to indemnify the Agent
(to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Revolving Credit Advances owed each of them
(or if no Revolving Credit Advances are at the time outstanding, ratably
according to their Commitments), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this Agreement or any action taken or omitted by the Agent under this
Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the
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Agent's gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including reasonable counsel
fees) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, to the extent that
the Agent is not reimbursed for such expenses by the Borrower.
SECTION 8.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent which, so long as no Default shall have occurred and be
continuing, shall be subject to the Borrower's approval, which approval shall
not be unreasonably withheld. If no successor Agent shall have been so appointed
by the Required Lenders, and shall have accepted such appointment, within 30
days after the retiring Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which shall be a commercial bank
organized or licensed under the laws of the United States of America or of any
State thereof or the Commonwealth of Puerto Rico and having a combined capital
and surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, discretion, privileges
and duties of the retiring Agent, and the retiring Agent, upon appointment of
such successor Agent, shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article VIII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement
SECTION 8.07. Other Agents. Bank of America National Trust and Savings
Association has been designated as syndication agent, The Chase Manhattan Bank
and Morgan Guaranty Trust Company of New York have been designated as
documentation agents, and certain other Lenders have been designated as managing
agents or co-agents and the use of such titles does not impose on Bank of
America National Trust and Savings Association, The Chase Manhattan Bank, Morgan
Guaranty Trust Company of New York or such other Lender any rights, duties or
obligations greater than those of any other Lender.
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Article IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. (a) No amendment or waiver of any
provision of this Agreement or the Revolving Credit Notes, nor consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that (i) no amendment,
waiver or consent shall, unless in writing and signed by all the Lenders, do any
of the following: (A) waive any of the conditions specified in Section 3.01, (B)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Revolving Credit Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder, (C)
release either Guarantor from any of the obligations imposed upon it by this
Agreement or (D) amend this Section 9.01; and (ii) no amendment, waiver or
consent shall, unless in writing and signed by the Required Lenders and each
Lender that has or is owed obligations under this Agreement or the Notes that
are modified by such amendment, waiver or consent, (A) increase the Commitment
of such Lender or subject such Lender to any additional obligations, (B) reduce
the principal of, or interest on, the Revolving Credit Note held by such Lender
or any fees or other amounts payable hereunder to such Lender, (C) postpone any
date fixed for any payment of principal of, or interest on, the Revolving Credit
Note held by such Lender or any fees or other amounts payable hereunder to such
Lender or (D) waive the application of Section 2.15; and provided further that
no amendment, waiver or consent shall, unless in writing and signed by the Agent
in addition to the Lenders required above to take such action, affect the rights
or duties of the Agent under this Agreement or any Note.
(b) Each Lender grants (x) to the Agent the right to purchase all (but
not less than all) of such Lender's Commitments and Advances owing to it and the
Notes held by it and all of its rights and obligations hereunder and under the
Notes at a price equal to the aggregate amount of outstanding Advances owed to
such Lender (together with all accrued and unpaid interest, fees and other
amounts owed to such Lender), and (y) to the Borrower the right to cause an
assignment of all (but not less than all) of such Lender's Commitments and
Advances owing to it and the Notes held by it and all of its rights and
obligations hereunder and under the Notes to Eligible Assignees, which right may
be exercised by the Agent or the Borrower, as the case may be, if such Lender
refuses to execute any amendment, waiver or consent which requires the written
consent of all the Lenders and to which Lenders owed at least 90% of the
aggregate unpaid principal amount of Revolving Credit Advances or, if no such
principal amount is then outstanding, Lenders having at least 90% of the
Commitments, the Agent and the Borrower have agreed. Each Lender agrees that if
the Agent or the Borrower, as the case
<PAGE> 56
56
may be, exercises its option hereunder, it shall promptly execute and deliver
all agreements and documentation necessary to effectuate such assignment as set
forth in Section 9.07.
SECTION 9.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier communication)
and mailed, telecopied or delivered by hand or by courier, if to the Borrower,
at 1515 Roosevelt Avenue, 12th Floor, Guaynabo, Puerto Rico 00968 or P.O. Box
360998 San Juan, Puerto Rico 00936-0998, Attention: Luis E. Caldero (fax
no.(787) 782-3006), with a copy to __________ (fax no. __________); if to
Wireline, at 1515 Roosevelt Avenue, 12th Floor, Guaynabo, Puerto Rico 00968 or
P.O. Box 360998 San Juan, Puerto Rico 00936-0998, Attention: Armando Melendez
(fax no. (787) 282-0958), with a copy to __________ (fax no. __________); if to
Wireless, at 1515 Roosevelt Avenue, 12th Floor, Guaynabo, Puerto Rico 00968 or
P.O. Box 360998 San Juan, Puerto Rico 00936-0998, Attention: Jorge R.
Menendez-Chiques (fax no. (787) 783-4636), with a copy to __________ (fax no.
__________); if to any Initial Lender, at its Domestic Lending Office specified
opposite its name on Schedule I hereto; if to any other Lender, at its Domestic
Lending Office specified in the Assignment and Acceptance pursuant to which it
became a Lender; and if to the Agent, at its address at Two Penns Way, New
Castle, Delaware 19720, Attention: Loan Investor Services; or, as to any Loan
Party or the Agent, at such other address as shall be designated by such party
in a written notice to the other parties and, as to each other party, at such
other address as shall be designated by such party in a written notice to the
Borrower and the Agent. All such notices and communications shall, when mailed
or telecopied, be effective when deposited in the first class mails or, in the
case of international delivery, when deposited with mails or couriers that
deliver within two Business Days or telecopied, provided that notices and
communications to the Agent pursuant to Article II, III or VIII shall not be
effective until received by the Agent, and provided, further, that notices and
communications to any Person required to be provided hereunder within five
Business Days shall only be made by hand or via telecopy or courier. Delivery by
telecopier of an executed counterpart of any amendment or waiver of any
provision of this Agreement or the Notes or of any Exhibit hereto to be executed
and delivered hereunder shall be effective as delivery of a manually executed
counterpart thereof.
SECTION 9.03. No Waiver; Remedies. No failure on the part of any Lender
or the Agent to exercise, and no delay in exercising, any right hereunder or
under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs and Expenses. (a) The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Agent and the
Arranger in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered hereunder,
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including, without limitation, (A) all due diligence, syndication (including
printing, distribution and bank meetings), transportation, computer,
duplication, appraisal, audit and insurance expenses and (B) the reasonable fees
and expenses of counsel for the Agent with respect thereto and with respect to
advising the Agent as to its rights and responsibilities under this Agreement.
Such expenses shall be paid by the Borrower upon presentation of an itemized
statement of account (after reasonable time for the Borrower to review such
statement of account), regardless of whether the transactions contemplated by
this Agreement are consummated. The Borrower further agrees to pay on demand all
costs and expenses of the Agent and the Lenders, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 9.04(a).
(b) The Borrower agrees to indemnify and hold harmless the Agent and
each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with (i) the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances or (ii) the actual or alleged presence of Hazardous
Materials on any property of the Borrower or any of their respective
Subsidiaries or any Environmental Action relating in any way to the Borrower or
any of their respective Subsidiaries, in each case whether or not such
investigation, litigation or proceeding is brought by any Loan Party, its
directors, shareholders or creditors or an Indemnified Party or any other Person
or any Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claim, damage, loss, liability or expense (A) is found by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct, (B) arises from disputes among two or more Lenders (but not
including any such dispute that involves a Lender to the extent such Lender is
acting in any different capacity (i.e., Agent or Arranger) under the Credit
Agreement or the Notes or to the extent that it involves the Agent's syndication
activities) or (C) arises from or relates to a breach by such Indemnified Party
of its obligations under this Agreement. The Borrower also agrees not to assert
any claim against the Agent, any Lender, any of their Affiliates, or any of
their respective directors, officers, employees, attorneys and agents, on any
theory of liability, for special, indirect, consequential or punitive damages
arising out of or otherwise relating to the Notes, this Agreement, any of the
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transactions contemplated herein or the actual or proposed use of the proceeds
of the Advances.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance or LIBO Rate Advance is made by the Borrower (or pursuant to
Section 9.01(b)) to or for the account of a Lender other than on the last day of
the Interest Period for such Advance, as a result of a payment, prepayment or
Conversion pursuant to this Agreement or acceleration of the maturity of the
Notes pursuant to Section 6.01, the Borrower shall, upon demand by such Lender
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Lender any amounts required to compensate such Lender for any additional
losses, costs or expenses that it may reasonably incur as a result of such
payment or Conversion, including, without limitation, any loss (excluding loss
of anticipated profits), cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.11, 2.14 and 9.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 by the Required Lenders to
authorize the Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01 and notice to the Borrower as required under Section
6.01, each Lender and each of its Affiliates is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
or such Affiliate to or for the credit or the account of any Loan Party against
any and all of the obligations of such Loan Party now or hereafter existing
under this Agreement and the Note held by such Lender, whether or not such
Lender shall have made any demand under this Agreement or such Note and although
such obligations may be unmatured. Each Lender agrees promptly to notify the
applicable Loan Party after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender and its Affiliates under this Section are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender and its Affiliates may have.
SECTION 9.06. Binding Effect. This Agreement shall become effective
(other than Sections 2.01 and 2.03, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the
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59
Borrower and the Agent and when the Agent shall have been notified by each
Initial Lender that such Initial Lender has executed it and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Agent and each Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of all of the Lenders.
SECTION 9.07. Assignments and Participations. (a) Each Lender may, with
the consent of the Agent (except as provided in clause (g) below) and, so long
as no Default has occurred and is continuing, the Borrower (such consent, in the
case of the Agent or the Borrower, not to be unreasonably withheld) and, so long
as no Default has occurred and is continuing, if demanded by the Borrower
pursuant to Section 9.01(b) or following a request for a payment to or on behalf
of such Lender under Section 2.11 or Section 2.14 or following a notice given by
such Lender pursuant to Section 2.12 upon at least ten Business Days' notice to
such Lender and the Agent, will, assign to one or more Persons all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Revolving Credit Advances
owing to it and the Revolving Credit Note or Notes held by it); provided, that
the Borrower may make demand with respect to a Lender that has given notice
pursuant to Section 2.12 only if the Borrower makes such demand of all Lenders
similarly situated that have given such notice; provided, further, that (i) each
such assignment shall be of a constant, and not a varying, percentage of all
rights and obligations under this Agreement and the Revolving Credit Notes
(other than any right to make Competitive Bid Advances, Competitive Bid Advances
owing to it and Competitive Bid Notes), (ii) except in the case of an assignment
to a Person that, immediately prior to such assignment, was a Lender or an
assignment of all of a Lender's rights and obligations under this Agreement, the
amount of the Commitment of the assigning Lender being assigned pursuant to each
such assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 or an
integral multiple of $1,000,000 in excess thereof, (iii) each such assignment
shall be to an Eligible Assignee, (iv) each such assignment made as a result of
a demand by the Borrower shall be arranged by the Borrower after consultation
with the Agent and shall be either an assignment of all of the rights and
obligations of the assigning Lender under this Agreement or an assignment of a
portion of such rights and obligations made concurrently with another such
assignment or other such assignments that together cover all of the rights and
obligations of the assigning Lender under this Agreement, (v) no Lender shall be
obligated to make any such assignment as a result of a demand by the Borrower
unless and until such Lender shall have received one or more payments from
either the Borrower or one or more Eligible Assignees in an aggregate amount at
least equal to the aggregate outstanding principal amount of the Advances owing
to such Lender, together with accrued interest thereon to the date of payment of
such principal and all other amounts payable to such Lender under this Agreement
and (vi) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any
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Revolving Credit Notes subject to such assignment and a processing and
recordation fee of $3,500 (which shall be paid by Persons other than the
Borrower unless such assignment is made as a result of a demand by the
Borrower). Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights other than rights of indemnification under Section 9.04 or
otherwise relating to a time prior to the effective date of such Assignment and
Acceptance and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any Loan
Party or the performance or observance by any Loan Party of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, an assignee representing that it is an Eligible Assignee and
the Borrower, together with the Revolving Credit Note or Notes subject to such
assignment, the Agent shall,
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if such Assignment and Acceptance has been completed and is in substantially the
form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the Agent
in exchange for the surrendered Revolving Credit Note a new Note to the order of
such Eligible Assignee in an amount equal to the Commitment assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Commitment hereunder a new Revolving Credit Note to the order of the
assigning Lender in an amount equal to the Commitment retained by it hereunder.
Such new Revolving Credit Note or Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Revolving
Credit Note or Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A-1
hereto.
(d) The Agent shall maintain at its address referred to in Section 9.02
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Advances owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the Agent
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and the
Notes held by it); provided, however, that (i) such Lender's obligations under
this Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by the Borrower therefrom, except that a Lender may agree with a
participant as to the manner in which the Lender shall exercise the Lender's
rights to approve any amendment, waiver or consent to the extent that such
amendment, waiver or consent would reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, in each case to the extent
subject to such participation, or postpone any date fixed for any payment of
principal of,
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or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation.
(f) Any Lender may at any time, without the consent of the Agent or the
Borrower, create a security interest in all or any portion of its rights under
this Agreement (including, without limitation, the Advances owing to it and the
Note or Notes held by it) in favor of any Federal Reserve Bank in accordance
with Regulation A of the Board of Governors of the Federal Reserve System,
provided, however, that no such assignment shall have the effect of increasing
the costs payable by the Borrower.
(g) Any Lender may at any time, without the consent of, but with notice
to the Agent, assign all or part of its rights or obligations under this
Agreement to any Affiliate of such Lender, provided, however, that no such
assignment shall have the effect of increasing the costs payable by the
Borrower.
SECTION 9.08 Nondisclosure. None of the Agent, any Lender or any
Affiliate thereof shall disclose without the prior consent of the Borrower
(other than to the Agent, another Lender or any such Affiliate, their respective
directors, employees, auditors, affiliates or counsel who shall agree to be
bound by the terms of this provision) any information with respect to the Loan
Parties or any Subsidiary thereof contained in financial statements, projections
or reports provided to the Agent, any Lender or any Affiliate thereof by, or on
behalf of, the Loan Parties or any Subsidiary, provided that the Agent, any
Lender or any Affiliate thereof may disclose any such information (a) as has
become generally available to the public in a manner, or through actions, which
do not violate the terms of this Section 9.08, (b) to, or as may be required or
appropriate in any report, statement or testimony submitted to, any municipal,
state or federal regulatory body having or claiming to have jurisdiction over
the Agent, any Lender or any Affiliate thereof or to the Federal Reserve Board
or the Federal Deposit Insurance Corporation or similar organizations (whether
in the United States or elsewhere) or their successors, (c) as may be required
or appropriate in response to any summons or subpoena or in connection with any
litigation, (d) in order to comply with any law, order, regulation or ruling
applicable to the Agent, any Lender or any Affiliate thereof and (e) to a
prospective co-lender or participant in the amounts outstanding hereunder or
under the Advances, provided, however, that such prospective co-lender or
participant executes an agreement containing provisions substantially identical
to those contained in this Section 9.08 and which shall by its terms inure to
the benefit of the Borrower and provided, further, that to the extent
practicable, the Agent, each Lender and their respective Affiliates shall use
reasonable best efforts to provide prior written notice of such disclosure to
the Borrower.
SECTION 9.09 Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
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SECTION 9.10 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 9.11 Jurisdiction, Etc. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted by law,
in such federal court. Each of the Loan Parties hereby agrees that service of
process in any such action or proceeding brought in any such New York State
court or in such federal court may be made upon CT Corporation System at its
offices at 1633 Broadway, New York, New York 10019 (the "Process Agent") and
each Loan Party hereby irrevocably appoints the Process Agent its authorized
agent to accept such service of process, and agrees that the failure of the
Process Agent to give any notice of any such service shall not impair or affect
the validity of such service or of any judgment rendered in any action or
proceeding based thereon. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this Agreement
or the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
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SECTION 9.12 Waiver of Jury Trial. Each of the Borrower, the Guarantor,
the Agent and the Lenders hereby irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the Notes or the
actions of the Agent or any Lender in the negotiation, administration,
performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TELECOMUNICACIONES DE PUERTO RICO, INC., as Borrower
By ______________________________________________
Title:
PUERTO RICO TELEPHONE COMPANY, INC., as Guarantor
By ______________________________________________
Title:
CELULARES TELEFONICA, INC., as Guarantor
By ______________________________________________
Title:
CITIBANK, N.A.
as Administrative Agent
By ______________________________________________
Title:
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The Lenders
<TABLE>
<CAPTION>
Commitment Arrangers
- ---------- ---------
<S> <C>
$33,666,667 CITIBANK, N.A.
By ___________________________________________________
Title:
$33,666,667 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By ___________________________________________________
Title:
$33,666,667 THE CHASE MANHATTAN BANK
By___________________________________________________
Title:
$33,666,667 MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By___________________________________________________
Title:
</TABLE>
<PAGE> 66
66
Managing Agents
<TABLE>
<S> <C>
$23,333,333 ABN AMRO BANK N.V.
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$23,333,333 BANCO BILBAO VIZCAYA, S.A.
By___________________________________________________
Title:
By ___________________________________________________
Title:
$23,333,333 THE BANK OF NEW YORK
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$23,333,333 BANQUE NATIONALE DE PARIS
By ___________________________________________________
Title:
By ___________________________________________________
Title:
</TABLE>
<PAGE> 67
67
<TABLE>
<S> <C>
$23,333,333 DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$23,333,333 FLEET NATIONAL BANK
By ___________________________________________________
Title:
$23,333,333 THE INDUSTRIAL BANK OF JAPAN, LIMITED
By ___________________________________________________
Title:
$23,333,333 ROYAL BANK OF CANADA
By ___________________________________________________
Title:
$23,333,333 WACHOVIA BANK, N.A.
</TABLE>
<PAGE> 68
68
<TABLE>
<S> <C>
$23,333,333 WESTDEUTSCHE LANDESBANK GIROZENTRALE
By ___________________________________________________
Title:
By ___________________________________________________
Title:
</TABLE>
Co-Agents
<TABLE>
<S> <C>
$15,000,000 BANKBOSTON N.A.
By ___________________________________________________
Title:
$15,000,000 BAYERISCHE LANDESBANK GIROZENTRALE, CAYMAN ISLANDS
BRANCH
By ___________________________________________________
Title:
By ___________________________________________________
Title:
</TABLE>
<PAGE> 69
69
<TABLE>
<S> <C>
$15,000,000 DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCHES
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$15,000,000 KBC BANK N.V.
By____________________________________________________
Title:
By ___________________________________________________
Title:
</TABLE>
Lenders
<TABLE>
<S> <C>
$9,000,000 ARGENTARIA, CAJA POSTAL Y BANCO HIPOTECARIO S.A., NEW
YORK BRANCH
By ___________________________________________________
Title:
By ___________________________________________________
Title:
</TABLE>
<PAGE> 70
70
<TABLE>
<S> <C>
$9,000,000 BANCA POPOLARE DI MILANO-NEW YORK BRANCH
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$9,000,000 BANCO CENTRAL HISPANOAMERICANO S.A.
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$9,000,000 CITIBANK, N.A.
By ___________________________________________________
Title:
By ___________________________________________________
Title:
</TABLE>
<PAGE> 71
71
<TABLE>
<S> <C>
$9,000,000 BAYERISCHE HYPO- UND VEREINSBANK AG, NEW YORK BRANCH
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$9,000,000 BW CAPITAL MARKETS, INC.
By ___________________________________________________
Title:
By ___________________________________________________
Title:
$9,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By ___________________________________________________
Title:
$9,000,000 PNC BANK, NATIONAL ASSOCIATION
By ___________________________________________________
Title:
$500,000,000 Total of Commitments
</TABLE>
<PAGE> 72
EXHIBIT A-1 - FORM OF
REVOLVING CREDIT
PROMISSORY NOTE
$___________ Dated: _________, 199_
FOR VALUE RECEIVED, the undersigned, TELECOMUNICACIONES DE PUERTO RICO,
INC., a Puerto Rico corporation (the "Borrower"), HEREBY PROMISES TO PAY to the
order of _________________________ (the "Lender") for the account of its
Applicable Lending Office on the Termination Date (each as defined in the Credit
Agreement referred to below) the principal sum of U.S. $ [amount of Lender's
Commitment in figures] or, if less, the aggregate amount of the Revolving Credit
Advances made by the Lender to the Borrower pursuant to the Five-Year Credit
Agreement dated as of March 2, 1999 among the Borrower, Puerto Rico Telephone
Company, Inc. and Celulares Telefonica, Inc., as Guarantors, the Lender and
certain other lenders parties thereto, Citibank, N.A. ("Citibank"), as
administrative agent (in such capacity, the "Agent") for the Lender and such
other lenders, Bank of America National Trust and Savings Association, as
syndication agent, and The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, as documentation agents (as amended or modified from time
to time, the "Credit Agreement"; the terms defined therein being used herein as
therein defined), outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal amount of
each Revolving Credit Advance from the date of such Advance until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Citibank, as Agent, at 399 Park Avenue, New York, New York
10043, in same day funds. Each Revolving Credit Advance owing to the Lender by
the Borrower pursuant to the Credit Agreement, and all payments made on account
of principal thereof, shall be recorded by the Lender and, prior to any transfer
hereof, endorsed on the grid attached hereto which is part of this Promissory
Note.
This Promissory Note is one of the Revolving Credit Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of Revolving Credit
Advances by the Lender to the Borrower from time to time in an aggregate amount
not to exceed at any time outstanding the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Revolving
Credit Advance being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events
<PAGE> 73
2
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
TELECOMUNICACIONES DE
PUERTO RICO, INC.
By ____________________________________________
Title:
<PAGE> 74
A-1-2
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF PRINCIPAL UNPAID
AMOUNT OF PAID PRINCIPAL NOTATION
DATE ADVANCE OR PREPAID BALANCE MADE BY
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 75
EXHIBIT A-2 - FORM OF
COMPETITIVE BID
PROMISSORY NOTE
U.S.$___________ Dated: _________, 199_
FOR VALUE RECEIVED, the undersigned, TELECOMUNICACIONES DE PUERTO RICO,
INC., a Puerto Rico corporation (the "Borrower"), HEREBY PROMISES TO PAY to the
order of _________________________ (the "Lender") for the account of its
Applicable Lending Office (as defined in the Five-Year Credit Agreement dated as
of March 2, 1999 among the Borrower, Puerto Rico Telephone Company, Inc. and
Celulares Telefonica, Inc., as Guarantors, the Lender and certain other lenders
parties thereto, Citibank, N.A. ("Citibank"), as Agent for the Lender and such
other lenders, Bank of America National Trust and Savings Association, as
syndication agent, and The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, as documentation agents (as amended or modified from time
to time, the "Credit Agreement"; the terms defined therein being used herein as
therein defined)), on _______________, ____, the principal amount of
U.S.$_______________.
The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: _____% per annum (calculated on the basis of a year of
_____ days for the actual number of days elapsed).
Interest Payment Date(s):_____________________.
Both principal and interest are payable in lawful money of the United
States of America to Citibank for the account of the Lender at the office of
Citibank, at 399 Park Avenue, New York, New York 10043, Account No.
________________ Attention: ________________________, in same day funds.
This Promissory Note is one of the Competitive Bid Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events.
<PAGE> 76
A-2-2
The Borrower hereby waives presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising, any
rights hereunder on the part of the holder hereof shall operate as a waiver of
such rights.
This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
TELECOMUNICACIONES DE PUERTO RICO, INC.
By ______________________________________________
Title:
<PAGE> 77
EXHIBIT B-1 - FORM OF NOTICE OF
REVOLVING CREDIT BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043
[Date]
Attention: _______________
Ladies and Gentlemen:
The undersigned, Telecomunicaciones de Puerto Rico, Inc.,
refers to the Five-Year Credit Agreement, dated as of March 2, 1999 (as amended
or modified from time to time, the "Credit Agreement", the terms defined therein
being used herein as therein defined), among the undersigned, Puerto Rico
Telephone Company, Inc. and Celulares Telefonica, Inc., as Guarantors, certain
Lenders parties thereto, Citibank, N.A. ("Citibank"), as Agent for the Lenders,
Bank of America National Trust and Savings Association, as syndication agent,
and The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, as
documentation agents, and hereby gives you notice, irrevocably, pursuant to
Section 2.02 of the Credit Agreement that the undersigned hereby requests a
Revolving Credit Borrowing under the Credit Agreement, and in that connection
sets forth below the information relating to such Revolving Credit Borrowing
(the "Proposed Revolving Credit Borrowing") as required by Section 2.02(a) of
the Credit Agreement:
(i) The Business Day of the Proposed Revolving Credit
Borrowing is _______________, 199_.
(ii) The Type of Advances comprising the Proposed Revolving
Credit Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Revolving Credit
Borrowing is $_______________.
[(iv) The initial Interest Period for each Eurodollar Rate
Advance made as part of the Proposed Revolving Credit Borrowing is
_____ month[s].]
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed
Revolving Credit Borrowing:
<PAGE> 78
B-1-2
(A) the representations and warranties contained in Section
4.01 of the Credit Agreement are correct, before and after giving
effect to the Proposed Revolving Credit Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date; and
(B) no event has occurred and is continuing, or would result
from such Proposed Revolving Credit Borrowing or from the application
of the proceeds therefrom, that constitutes a Default.
Very truly yours,
TELECOMUNICACIONES DE PUERTO RICO, INC.
By ______________________________________________
Title:
<PAGE> 79
EXHIBIT B-2 - FORM OF NOTICE OF
COMPETITIVE BID BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043
[Date]
Attention: _______________
Ladies and Gentlemen:
The undersigned, Telecomunicaciones de Puerto Rico, Inc.,
refers to the Five-Year Credit Agreement, dated as of March 2, 1999 (as amended
or modified from time to time, the "Credit Agreement", the terms defined therein
being used herein as therein defined), among the undersigned, Puerto Rico
Telephone Company, Inc. and Celulares Telefonica, Inc., as Guarantors, certain
Lenders parties thereto, Citibank, N.A. ("Citibank"), as Agent for the Lenders,
Bank of America National Trust and Savings Association, as syndication agent,
and The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, as
documentation agents, and hereby gives you notice, irrevocably, pursuant to
Section 2.03 of the Credit Agreement that the undersigned hereby requests a
Competitive Bid Borrowing under the Credit Agreement, and in that connection
sets forth the terms on which such Competitive Bid Borrowing (the "Proposed
Competitive Bid Borrowing") is requested to be made:
(A) Date of Competitive Bid Borrowing ________________________
(B) Amount of Competitive Bid Borrowing ________________________
(C) [Maturity Date] [Interest Period] ________________________
(D) Interest Rate Basis ________________________
(E) Interest Payment Date(s) ________________________
(F) ___________________ ________________________
(G) ___________________ ________________________
(H) ___________________ ________________________
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed
Competitive Bid Borrowing:
<PAGE> 80
B-2-2
(a) the representations and warranties contained in Section 4.01 are
correct, before and after giving effect to the Proposed Competitive Bid
Borrowing and to the application of the proceeds therefrom, as though made on
and as of such date;
(b) no event has occurred and is continuing, or would result from the
Proposed Competitive Bid Borrowing or from the application of the proceeds
therefrom, that constitutes a Default;
(c) no event has occurred and no circumstance exists as a result of
which the information concerning the undersigned that has been provided to the
Agent and each Lender by the undersigned in connection with the Credit Agreement
would include an untrue statement of a material fact or omit to state any
material fact or any fact necessary to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading; and
(d) the aggregate amount of the Proposed Competitive Bid Borrowing and
all other Borrowings to be made on the same day under the Credit Agreement is
within the aggregate amount of the unused Commitments of the Lenders.
The undersigned hereby confirms that the Proposed Competitive Bid
Borrowing is to be made available to it in accordance with Section 2.03(a)(v) of
the Credit Agreement.
Very truly yours,
TELECOMUNICACIONES DE PUERTO RICO, INC.
By ________________________________________
Title:
<PAGE> 81
EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Five-Year Credit Agreement dated as of March
2, 1999 (as amended or modified from time to time, the "Credit Agreement") among
Telecomunicaciones de Puerto Rico, Inc., a Puerto Rico corporation, as Borrower,
Puerto Rico Telephone Company, Inc. and Celulares Telefonica, Inc., as
Guarantors, the Lenders (as defined in the Credit Agreement), Citibank, N.A. as
agent for the Lenders (the "Agent"), Bank of America National Trust and Savings
Association, as syndication agent, and The Chase Manhattan Bank and Morgan
Guaranty Trust Company of New York, as documentation agents. Terms defined in
the Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule I hereto
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof (other than in respect of Competitive Bid Advances and Competitive Bid
Notes) equal to the percentage interest specified on Schedule 1 hereto of all
outstanding rights and obligations under the Credit Agreement (other than in
respect of Competitive Bid Advances and Competitive Bid Notes). After giving
effect to such sale and assignment, the Assignee's Commitment and the amount of
the Revolving Credit Advances owing to the Assignee will be as set forth on
Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Loan Party or the
performance or observance by any Loan Party of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iv) attaches the Revolving Credit Notes held by the Assignor and requests
that the Agent exchange such Revolving Credit Note or Notes for new Revolving
Credit Note or Notes payable to the order of the Assignee in an amount equal to
the Commitment assumed by the Assignee pursuant hereto or new Revolving Credit
Notes payable to the order of the Assignee in an amount equal to the Commitment
assumed by the Assignee pursuant hereto and the Assignor in an amount equal to
the Commitment retained by the Assignor under the Credit Agreement,
respectively, as specified on Schedule 1 hereto.
<PAGE> 82
C-2
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) attaches any
U.S. Internal Revenue Service forms required under Section 2.14 of the Credit
Agreement.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1 hereto.
5. Upon such acceptance and recording by the Agent, as of the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights, other than
rights of indemnification under Section 9.04 of the Credit Agreement or
otherwise relating to a time prior to the Effective Date hereof, and be released
from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement and
the Revolving Credit Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and facility
fees with respect thereto) to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Credit Agreement and the
Revolving Credit Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so
<PAGE> 83
C-3
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of
Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as
delivery of a manually executed counterpart of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
<PAGE> 84
C-4
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Assignee's Commitment: $__________
Aggregate outstanding principal amount of
Revolving Credit Advances assigned: $__________
Principal amount of Revolving Credit Note payable to Assignee: $__________
Principal amount of Revolving Credit Note payable to Assignor: $__________
Effective Date(1): _______________, ____
[NAME OF ASSIGNOR], as Assignor
By ________________________________
Title:
Dated: _______________, ____
[NAME OF ASSIGNEE], as Assignee
By ________________________________
Title:
Dated: _______________, ____
(1) This date should be no earlier than five Business Days after the
delivery of this Assignment and Acceptance to the Agent
<PAGE> 85
C-5
Domestic Lending Office:
[Address]
Eurodollar Lending Office:
[Address]
Accepted this
____ day of __________, ____
Citibank, N.A., as Agent
By ___________________________________
Title:
Approved this ___ day
of __________, ____
TELECOMUNICACIONES DE PUERTO RICO, INC.
By ___________________________________
Title:
<PAGE> 86
EXHIBIT F - FORM OF
OPINION OF COUNSEL
FOR THE LOAN PARTIES
__________ __, 1999
To each of the Lenders parties to the
Five-Year Credit Agreement dated as
of March 2, 1999 among
Telecomunicaciones de Puerto Rico,
Inc., Puerto Rico Telephone
Company, Inc., Celulares
Telefonica, Inc., said Lenders and
Citibank, N.A., as Agent for said
Lenders, and to Citibank, N.A., as
Agent
Telecomunicaciones de Puerto Rico, Inc.,
Puerto Rico Telephone Company, Inc.
and Celulares Telefonica, Inc.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(g)(iv) of the
Five-Year Credit Agreement, dated as of March 2, 1999 (the "Credit Agreement"),
among Telecomunicaciones de Puerto Rico, Inc. (the "Borrower"), Puerto Rico
Telephone Company, Inc. ("Wireless"), Celulares Telefonica, Inc. ("Wireline"),
the Lenders parties thereto, Citibank, N.A., as Agent for said Lenders, Bank of
America National Trust and Savings Association, as syndication agent, and The
Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, as
documentation agents. Terms defined in the Credit Agreement are used herein as
therein defined.
I am Counsel for the Borrower and I have acted as counsel for the
Borrower, Wireline and Wireless in connection with the preparation, execution
and delivery of the Credit Agreement.
In that connection, I, or attorneys under my direction, have examined:
<PAGE> 87
F-2
(1) The Credit Agreement.
(2) The documents furnished by the Borrower pursuant to Section 3.01 of the
Credit Agreement.
(3) The Articles of Incorporation or equivalent organizational document of
each of the Loan Parties and all amendments thereto (the "Charters").
(4) The by-laws of each of the Loan Parties and all amendments thereto (the
"By-laws").
(5) A certificate of the [Secretary of State] of Puerto Rico dated _______
__, 1999, attesting to the continued corporate existence and good
standing of the Borrower in that [State].
(6) A certificate of the [Secretary of State] of Puerto Rico, dated _______
__, 1999, attesting to the continued corporate existence and good
standing of Wireline in that [State].
(7) A certificate of the [Secretary of State] of Puerto Rico, dated
________, 1999, attesting to the continued corporate existence and good
standing of Wireless in that [State].
In addition, I, or attorneys under my direction, have examined the originals, or
copies certified to my satisfaction, of such other corporate records of each of
the Loan Parties, certificates of public officials and of officers of each of
the Loan Parties, and agreements, instruments and other documents, as I have
deemed necessary as a basis for the opinions expressed below. As to questions of
fact material to such opinions, I have, when relevant facts were not
independently established by me, relied upon certificates of the Loan Parties or
their respective officers or of public officials. I have assumed the due
execution and delivery, pursuant to due authorization, of the Credit Agreement
by the Initial Lenders and the Agent.
My opinions expressed below are limited to the law of the
State of New York, the law of the [state] of Puerto Rico and the Federal law of
the United States.
Based upon the foregoing and upon such investigation as I have
deemed necessary, I am of the following opinion:
1. The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the [State] of Puerto
Rico.
<PAGE> 88
F-3
2. Wireline is a corporation duly organized, validly existing and in good
standing under the laws of the [State] of Puerto Rico.
3. Wireless is a corporation duly organized, validly existing and in good
standing under the laws of the [State] of Puerto Rico.
4. The execution, delivery and performance by the Loan Parties of the
Credit Agreement and the Notes, and the consummation of the
transactions contemplated thereby, are within the Loan Parties'
corporate powers, have been duly authorized by all necessary corporate
action, and do not contravene (i) the Charter or the By-laws of any of
the Loan Parties, (ii) any law, rule or regulation applicable to any of
the Loan Parties, or (iii) to the best of my knowledge, after due
inquiry, any material contractual or material legal restriction
contained in any document to which any of the Loan Parties is a party
or relating to or affecting any of their properties. The Credit
Agreement and the Notes have been duly executed and delivered on behalf
of each of the Loan Parties party thereto.
5. No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or, to the
best of my knowledge, after due inquiry, any other third party is
required for the due execution, delivery and performance by the Loan
Parties of the Credit Agreement and the Notes.
6. Assuming the due execution and delivery of the Credit Agreement by the
Agent and the Lenders, the Credit Agreement is, and after giving effect
to the initial Borrowing, the Notes will be, legal, valid and binding
obligations of each of the Loan Parties enforceable against each of the
Loan Parties in accordance with their respective terms.
7. To the best of my knowledge, there are no pending or overtly threatened
actions or proceedings against any of the Loan Parties or any of their
respective Subsidiaries before any court, governmental agency or
arbitrator that purport to affect the legality, validity, binding
effect or enforceability of the Credit Agreement or any of the Notes or
the consummation of the transactions contemplated thereby or that are
likely to have a Materially Adverse Effect.
The opinions set forth above are subject to the following
qualifications:
(a) My opinion in paragraph 6 above as to enforceability is
subject to the effect of any applicable bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar law affecting
creditors' rights generally.
<PAGE> 89
(b) My opinion in paragraph 6 above as to enforceability is
subject to the effect of general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith
and fair dealing (regardless of whether considered in a proceeding in
equity or at law).
(c) I express no opinion as to (i) Section 2.15 of the Credit
Agreement insofar as it provides that any Lender purchasing a
participation from another Lender pursuant thereto may exercise set-off
or similar rights with respect to such participation, (ii) the
enforceability of the indemnification provisions set forth in Section
9.04 of the Credit Agreement to the extent enforcement thereof is
contrary to public policy regarding the exculpation of criminal
violations, intentional harm and acts of gross negligence or
recklessness, and (iii) the effect of the law of any jurisdiction other
than the State of New York wherein any Lender may be located or wherein
enforcement of the Credit Agreement or the Notes may be sought that
limits the rates of interest legally chargeable or collectible.
A copy of this opinion letter may be delivered by any of you to any
Person that becomes a Lender in accordance with the provisions of the Credit
Agreement. Any such Lender may rely on the opinions expressed above as if this
opinion letter were addressed and delivered to such Lender on the date hereof.
This opinion letter speaks only as of the date hereof. I expressly
disclaim any responsibility to advise you or any other Lender who is permitted
to rely on the opinions expressed herein as specified in the next preceding
paragraph of any development or circumstance of any kind including any change of
law or fact that may occur after the date of this opinion letter even though
such development, circumstance or change may affect the legal analysis, a legal
conclusion or any other matter set forth in or relating to this opinion letter.
Accordingly, any Lender relying on this opinion letter at any time should seek
advice of its counsel as to the proper application of this opinion letter at
such time.
Very truly yours,
<PAGE> 90
EXECUTION COPY
U.S. $500,000,000
FIVE-YEAR CREDIT AGREEMENT
Dated as of March 2, 1999
Among
TELECOMUNICACIONES DE PUERTO RICO, INC.
as Borrower,
PUERTO RICO TELEPHONE COMPANY, INC.
and
CELULARES TELEFONICA, INC.
as Guarantors,
THE INITIAL LENDERS NAMED HEREIN
as Initial Lenders,
CITIBANK, N.A.
as Administrative Agent,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
as Syndication Agent,
THE CHASE MANHATTAN BANK
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
as Documentation Agents
and
SALOMON SMITH BARNEY INC.
as Lead Arranger and Book Manager
<PAGE> 91
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Page
SECTION 1.01 Certain Defined Terms .................................... 1
SECTION 1.02 Computation of Time Periods............................... 17
SECTION 1.03 Accounting Terms.......................................... 17
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01 The Revolving Credit Advances............................. 17
SECTION 2.02 Making the Revolving Credit Advances...................... 17
SECTION 2.03 The Competitive Bid Advances.............................. 19
SECTION 2.04 Fees...................................................... 23
SECTION 2.05 Optional Termination or Reduction of the Commitments...... 23
SECTION 2.06 Repayment of Revolving Credit Advances.................... 24
SECTION 2.07 Interest.................................................. 24
SECTION 2.08 Interest Rate Determination............................... 25
SECTION 2.09 Optional Conversion of Revolving Credit Advances.......... 26
SECTION 2.10 Optional Prepayments of Revolving Credit Advances......... 26
SECTION 2.11 Increased Costs........................................... 27
SECTION 2.12 Illegality................................................ 28
SECTION 2.13 Payments and Computations................................. 28
SECTION 2.14 Taxes..................................................... 29
SECTION 2.15 Sharing of Payments, Etc.................................. 32
SECTION 2.16 Use of Proceeds........................................... 33
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01 Conditions Precedent to Effectiveness of Sections
2.01 and 2.03......................................................... 33
SECTION 3.02 Conditions Precedent to Each Revolving Credit Borrowing... 36
SECTION 3.03 Conditions Precedent to Each Competitive Bid Borrowing.... 36
SECTION 3.04 Determinations Under Section 3.01......................... 37
<PAGE> 92
ii
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Borrower............ 37
ARTICLE V
COVENANTS OF THE LOAN PARTIES
SECTION 5.01 Affirmative Covenants..................................... 39
SECTION 5.02 Negative Covenants........................................ 42
SECTION 5.03 Financial Covenants....................................... 45
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default......................................... 45
ARTICLE VII
GUARANTY
SECTION 7.01 Guaranty; Limitation of Liability......................... 49
SECTION 7.02 Guaranty Absolute......................................... 50
SECTION 7.03 Waiver.................................................... 51
SECTION 7.04 Continuing Guaranty; Assignments.......................... 51
SECTION 7.05 Subrogation............................................... 51
ARTICLE VIII
THE AGENT
SECTION 8.01 Authorization and Action ................................. 52
SECTION 8.02 Agent's Reliance, Etc..................................... 52
SECTION 8.03 Citibank and Affiliates................................... 53
SECTION 8.04 Lender Credit Decision.................................... 53
SECTION 8.05 Indemnification........................................... 53
<PAGE> 93
iii
SECTION 8.06 Successor Agent........................................... 54
SECTION 8.07 Other Agents.............................................. 54
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Amendments, Etc........................................... 55
SECTION 9.02 Notices, Etc.............................................. 56
SECTION 9.03 No Waiver; Remedies....................................... 56
SECTION 9.04 Costs and Expenses........................................ 56
SECTION 9.05 Right of Set-off.......................................... 58
SECTION 9.06 Binding Effect............................................ 58
SECTION 9.07 Assignments and Participations............................ 59
SECTION 9.08 Nondisclosure............................................. 62
SECTION 9.09 Governing Law............................................. 62
SECTION 9.10 Execution in Counterparts................................. 63
SECTION 9.11 Jurisdiction, Etc......................................... 63
SECTION 9.12 Waiver of Jury Trial...................................... 64
Schedules
Schedule I - List of Applicable Lending Offices
Schedule 3.01(b) - Material Adverse Changes
Schedule 3.01(c) - Disclosed Litigation
Schedule 5.02(a) - Existing Liens
Schedule 5.02(d) - Existing Subsidiary Debt
Exhibits
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Competitive Bid Note
Exhibit B-1 - Form of Notice of Revolving Credit Borrowing
<PAGE> 94
iv
Exhibit B-2 - Form of Notice of Competitive Bid Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Solvency Certificate
Exhibit E - Form of Opinion of New York Counsel for the Loan Parties
Exhibit F - Form of Opinion of Puerto Rico Counsel for the Loan
Parties
<PAGE> 1
Exhibit 10.18
EXECUTION COPY
LETTER AMENDMENT TO
FIVE-YEAR CREDIT AGREEMENT
Dated as of May 7, 1999
To the banks, financial institutions
and other institutional lenders
(collectively, the "Lenders")
parties to the Credit Agreement
referred to below and to Citibank,
N.A., as administrative agent (the
"Agent") for the Lenders
Ladies and Gentlemen:
We refer to the Five-Year Credit Agreement dated as of March
2, 1999 ("Credit Agreement") among the undersigned and you. Capitalized terms
not otherwise defined in this Letter Amendment have the same meanings as
specified in the Credit Agreement.
It is hereby agreed by you and us as follows:
The Credit Agreement is, effective as of the date of this
Letter Amendment, hereby amended as follows:
(a) The definition of "Guarantors" in the recital of parties
to the Credit Agreement is amended by deleting the parenthetical
"("Wireless" and, collectively with Wireline, the "Guarantors")" and
substituting therefor the parenthetical "("Wireless" and, collectively
with Wireline and each Significant Subsidiary (as hereinafter defined)
that shall become a guarantor hereunder in accordance with Section
5.01(j), the "Guarantors")".
(b) The definition of "EBITDA" in Section 1.01 is amended in
full to read as follows:
"EBITDA" means the sum, determined on a Consolidated
basis, of the Borrower's (i) net income (or net loss), (ii)
interest expense, (iii) income tax expense, (iv) depreciation
expense, (v) amortization expense, (vi) non-cash severance
charges in an aggregate amount not to exceed $120,000,000 in
calendar year 1999, $30,000,000 in calendar year 2001 and
$40,000,000 in calendar year 2002, and (vii) non-cash charges
related to a contribution to the Borrower's employee stock
ownership plan in an aggregate amount not to exceed
$26,100,000 in calendar year 1999.
<PAGE> 2
(c) The following definitions are added in appropriate
alphabetical order:
"Permitted Receivables Financing" means any
financing pursuant to which the Borrower or any Subsidiary of
the Borrower may sell, convey, or otherwise transfer to a
Receivables Subsidiary or any other Person (in the case of
transfer by a Receivables Subsidiary), or grant a security
interest in, any accounts receivable (and related assets) of
the Borrower or such Subsidiary, provided that such financing
shall be on customary market terms and shall be non-recourse
to the Borrower and its Subsidiaries (other than the
Receivables Subsidiary) except to a limited extent customary
for such transactions. The grant of a security interest in any
accounts receivable of the Borrower or any Subsidiary of the
Borrower (other than a Receivables Subsidiary) to secure Debt
under any credit facility shall not be deemed a Permitted
Receivables Financing.
"Receivables Subsidiary" means a bankruptcy-remote,
special-purpose wholly owned Subsidiary formed in connection
with a Permitted Receivables Financing.
"Significant Subsidiary" means at any time any
Subsidiary, other than a Receivables Subsidiary, the assets of
which, in the aggregate, exceed $30,000,000, determined in
accordance with GAAP.
(d) Section 5.01(e) is amended by deleting therefrom the
proviso in its entirety.
(e) A new Section 5.01(j) is added to read as follows:
(j) Certain Obligations Respecting Subsidiaries. The
Borrower will take such action, and will cause each of its
Significant Subsidiaries and any Significant Subsidiary formed
with the intent of merging with or into a Person that will be
a Significant Subsidiary subject to this provision to take
such action, from time to time as shall be necessary to ensure
that all Significant Subsidiaries of the Borrower are party
to, as Loan Parties, the Guaranty provided in Article VII
hereof. Without limiting the generality of the foregoing, in
the event that the Borrower or any of its Significant
Subsidiaries shall form or acquire any new Significant
Subsidiary, the Borrower or the respective Significant
Subsidiary will cause such new Significant Subsidiary to (i)
become a party hereto and to the Guaranty pursuant to a
written instrument in from and substance satisfactory to the
Agent, and (ii) deliver such proof of corporate action,
incumbency of officers, opinions of counsel and other
documents relating to the foregoing as is consistent with
those delivered by each Loan Party pursuant to Section 3.01
hereof, or as any Lender or the Agent shall have reasonably
requested.
-2-
<PAGE> 3
(f) Section 5.02(a) is amended by (i) deleting from the end of
clause (v) the word "and", (ii) replacing the period at the end of
clause (vi) with the word "; and" and (iii) adding a new clause (vii)
to read "(vii) Liens on property of a Receivables Subsidiary created in
connection with a Permitted Receivables Financing".
(g) Section 5.02(d) is amended by (i) deleting from the end of
clause (iv) the word "and", (ii) replacing the period at the end of
clause (v) with the word "; and" and (iii) adding a new clause (vi) to
read "(vi) Debt incurred by a Receivables Subsidiary created in
connection with a Permitted Receivables Financing".
(h) Section 5.02(d)(ii) is amended by deleting the phrase
"existing on the Effective Date" and substituting therefor the phrase
"which may be borrowed and outstanding from time to time under the
credit agreements existing on and as of the Effective Date".
(i) Section 6.01(c)(i) is amended by deleting the phrase
"Section 5.01(d), (e), (h), (i)(iii) and (i)(v), 5.02 or 5.03" and
substituting therefor the phrase "Section 5.01(d), (e), (h), (i)(iii),
(i)(v) and (j), 5.02 or 5.03".
(j) Schedule 5.02(d) is amended in full to read as set forth
on Schedule A to this Letter Amendment.
This Letter Amendment shall become effective as of the date
first above written when, and only when (a) the Agent shall have received
counterparts of this Letter Amendment executed by the undersigned and the
Required Lenders or, as to any of the Lenders, advice satisfactory to the Agent
that such Lender has executed this Letter Amendment and (b) the Borrower shall
have paid all invoiced fees and expenses of the Agent and the Lenders (including
the invoiced fees and expenses of counsel to the Agent). This Letter Amendment
is subject to the provisions of Section 9.01 of the Credit Agreement.
On and after the effectiveness of this Letter Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Credit Agreement, and each reference in
the Notes to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended by this Letter Amendment.
The Credit Agreement and the Notes, as specifically amended by
this Letter Amendment, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed. The execution, delivery and
effectiveness of this Letter Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of any Lender or the
Agent under the Credit Agreement nor constitute a waiver of any provision of the
Credit Agreement.
If you agree to the terms and provisions hereof, please
evidence such agreement by executing and returning at least two counterparts of
this Letter Amendment to Susan Hobart at Shearman & Sterling, 599 Lexington
Avenue, New York, New York 10022.
-3-
<PAGE> 4
This Letter Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Letter Amendment by telecopier shall be
effective as delivery of a manually executed counterpart of this Letter
Amendment.
-4-
<PAGE> 5
This Letter Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
Very truly yours,
TELECOMUNICACIONES DE PUERTO
RICO, INC., as Borrower
By _________________________________
Title:
PUERTO RICO TELEPHONE
COMPANY, INC., as Guarantor
By _________________________________
Title:
CELULARES TELEFONICA, INC.,
as Guarantor
By _________________________________
Title:
Agreed as of the date first above written:
____________________________________
[Type or print name of institution]
By _________________________________
Title:
<PAGE> 6
SCHEDULE A
1. U.S. $200,000,000 Credit Agreement dated as of March 2, 1999
among Telecomunicaciones de Puerto Rico, Inc, as Borrower, Puerto Rico Telephone
Company, Inc. and Celurares Telefonica, Inc., as Guarantors, the lenders parties
thereto, Banco Popular de Puerto Rico, as Managing Agent and Administrative
Agent, and ScotiaBank de Puerto Rico, as Co-Agent.
2. U.S. $1,000,000,000 364-Day Credit Agreement dated as of March 2,
1999 among Telecomunicaciones de Puerto Rico, Inc, as Borrower, Puerto Rico
Telephone Company, Inc. and Celurares Telefonica, Inc., as Guarantors, the
lenders parties thereto, Citibank, N.A., as Administrative Agent, Bank of
America National Trust and Savings Association, as Syndication Agent, The Chase
Manhattan Bank and Morgan Guaranty Trust Company of New York, as Documentation
Agents, and Salomon Smith Barney Inc., as Lead Arranger and Book Manager.
<PAGE> 1
EXHIBIT 10.19
CREDIT AGREEMENT
Dated as of March 2, 1999
TELECOMUNICACIONES DE PUERTO RICO, INC., a Puerto Rico corporation (the
"Borrower"), PUERTO RICO TELEPHONE COMPANY, INC., a Puerto Rico corporation
("PRTC"), and CELULARES TELEFONICA, INC., a Puerto Rico corporation ("CTI" and,
collectively with PRTC, the "Guarantors"), the banks, financial institutions and
other institutional lenders (the "Initial Lenders") listed on the signature
pages hereof, BANCO POPULAR DE PUERTO RICO ("Banco Popular"), a Puerto Rico
banking institution, as managing agent and administrative agent (in such
capacity, the "Administrative Agent") for the Lenders (as hereinafter defined),
and SCOTIABANK DE PUERTO RICO a Puerto Rico banking institution, as Co-Agent
(the "Co-Agent") agree as follows:
ARTICLE ONE
DEFINITIONS AND ACCOUNTING TERMS
1.01 SECTION .0. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Acquisition" means the acquisition by GTE Holdings (Puerto
Rico) from the Puerto Rico Telephone Authority of the Controlling
Interest, pursuant to the Purchase Documents.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at Banco
Popular with its office at 209 Munoz Rivera Avenue, Hato Rey, Puerto
Rico, Account No. 1970, Attention:
Corporate Banking.
"Advance" means a Revolving Credit Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 10% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
"Amended and Restated Stock Purchase Agreement" means the
Amended and Restated Stock Purchase Agreement dated as of July 21,
1998, as amended, among the Borrower, the Puerto Rico Telephone
Authority, PRTC, GTE Holdings (Puerto Rico), and GITI, relating to the
Acquisition.
"Annualized EBITDA" means, for any Person as of the last day
of the relevant fiscal quarter(s) of such Person, commencing on March
2, 1999, the product of (i) a
<PAGE> 2
fraction, the numerator of which is the sum of EBITDA of such Person
for each month (expressed as a 30-day period) through such fiscal
quarter, and the denominator of which is the number of months elapsed
during such period, and (ii) 12.
"Annualized EBITDA to Interest Ratio" of any Person on any
date means the ratio of: (a) Annualized EBITDA of such Person on such
date to (b) Annualized Interest payable on, and amortization of debt
discount in respect of, all Debt of such Person, provided that for
purposes of clause (b) of this definition, Debt shall not include the
obligations specified in clause (g) of the definition thereof set forth
below.
"Annualized Interest" means, for any Person as of the last day
of the relevant fiscal quarter(s) of such Person, commencing on March
2, 1999, the product of: (i) a fraction, the numerator of which is the
sum of interest expense on Debt of such Person actually paid or
scheduled to be paid during such fiscal quarter for each month
(expressed as a 30-day period) through such fiscal quarter, and the
denominator of which is the number of months elapsed during such
period, and (ii) 12.
"Applicable Lending Office" means, for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or of an
affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other office of such Lender (or of an
affiliate of such Lender) as such Lender may from time to time specify
to the Administrative Agent and the Borrower as the office by which its
Loans of such Type are to be made and maintained.
"Applicable LIBOR Margin" means, for any Interest Period, the
margin to be applied to LIBOR Rate Advances, to be equal to the rate
per annum set forth below opposite the respective Utilization Ratio
levels set forth below, each determined as of the first day of any such
Interest Period:
Utilization Ratio Applicable Margin
less than or equal to 50% of the Commitments: 0.925%
greater than 50% of the Commitments: 1.075%
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Base Rate" means, for any day, the simple average of the
rates of interest announced publicly on such day in the Wall Street
Journal by the principal commercial banks in New York, New York as
their prime commercial lending rate, which for purposes hereof is not
intended to be the lowest or best rate of interest charged by any
Lender to a customer, with each change in such rate to be effective for
purposes hereof on the day in which any such change is announced as
herein provided, whether or not such change is notified to the Borrower
by the Administrative Agent. The Base Rate will be computed on the
basis of a 360 day year for the actual number of days elapsed occurring
in the period for which such interest is payable.
2
<PAGE> 3
"Base Rate Advance" means a Revolving Credit Advance that
bears interest based upon the Base Rate as provided in Section
2.07(a)(i).
"Borrower" has the meaning specified in the recital of
parties.
"Borrower's Account" means the account of the Borrower
maintained by the Borrower at Banco Popular with its office at 209
Munoz Rivera Avenue, Hato Rey, Puerto Rico, Account No. 030-303664.
"Borrowing" means a Revolving Credit Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized by law or executive order to close in New York
City or San Juan, Puerto Rico, provided that, if the applicable
Business Day relates to any LIBOR Rate Advances, "Business Day" means a
day of the year on which banks are not required or authorized by law or
executive order to close in New York City or San Juan, Puerto Rico and
on which dealings are carried on in the London interbank market.
"Citibank Indebtedness" means those certain revolving credit
facilities in a maximum aggregate principal amount of up to
$1,000,000,000 extended to the Borrower pursuant to that certain
364-Day Credit Agreement dated as of March 2, 1999, among the Borrower,
Citibank, N.A., as administrative agent, the Lenders party thereto,
Bank of America National Trust and Savings Association, as syndication
agent, and The Chase Manhattan Bank and Morgan Guaranty Trust Company
of New York, as documentation agents, and those certain revolving
credit facilities in a maximum aggregate principal amount of up to
$500,000,000 extended to the Borrower pursuant to that certain
Five-Year Credit Agreement dated as of March 2, 1999 among the
Borrower, Citibank, N.A., as administrative agent, the Lenders party
thereto, Bank of America National Trust and Savings Association, as
syndication agent, and The Chase Manhattan Bank and Morgan Guaranty
Trust Company of New York, as documentation agents, to finance a
portion of the Special Dividend and for working capital and other
general corporate purposes of the Borrower.
"Commission" shall mean the Securities and Exchange Commission
or any governmental agency substituted therefor.
"Commitment" has the meaning specified in Section 2.01.
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Contribution Agreement" means that certain Contribution
Agreement dated as of March 2, 1999, between PRTC and CTI.
"Controlling Interest" means (a) ownership of at least 40%
plus one share of the Voting Stock of the Borrower and (b) the ability
to appoint a majority of the Board of Directors of the Borrower.
3
<PAGE> 4
"Convert", "Conversion" and "Converted" each refers to a
conversion of Revolving Credit Advances of one Type into Revolving
Credit Advances of the other Type pursuant to Section 2.07 or 2.08.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services
(other than trade payables incurred in the ordinary course of such
Person's business for which collection proceedings have not been
commenced, provided that trade payables for which collection
proceedings have commenced shall not be included in the term "Debt" so
long as the payment of such trade payables is being contested in good
faith and by proper proceedings and for which appropriate reserves are
being maintained), (c) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all
obligations of such Person created or arising under any conditional
sale or other similar title retention agreement with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under leases that have been, in
accordance with GAAP, recorded as capital leases, (f) all obligations
of such Person in respect of acceptances, letters of credit or similar
extensions of credit, (g) all net obligations of such Person in respect
of Hedge Agreements, (h) all Debt of others referred to in clauses (a)
through (g) above or clause (i) below guaranteed directly, or
indirectly through a Subsidiary, by such Person, or in effect
guaranteed directly, or indirectly through a Subsidiary, by such Person
through a written agreement either (1) to pay or purchase such Debt or
to advance or supply funds for the payment or purchase of such Debt or
(2) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such Debt or to assure the holder of such
Debt against loss and (i) all Debt referred to in clauses (a) through
(h) above secured by (or for which the holder of such Debt has an
existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights)
owned by such Person, even though such Person has not assumed or become
liable for the payment of such Debt.
"Debt to Annualized EBITDA Ratio" of any Person at any date
means the ratio of (a) Debt of the types that, in accordance with GAAP,
would be classified as indebtedness on a Consolidated balance sheet of
such Person on such date to (b) Annualized EBITDA of such Person for
the relevant period being referred to, provided that for purposes of
clause (a) of this definition, Debt shall not include (i) the
obligations specified in clause (g) of the definition thereof set forth
above, or (ii) with respect to the Borrower, any obligations which may
be assumed by the Borrower for guaranties of any indebtedness of the
Borrower's employee stock ownership plan up to a maximum aggregate
principal amount of $26,100,000.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Disclosed Litigation" has the meaning specified in Section
3.01(c).
4
<PAGE> 5
"EBITDA" of any Person as at any date, means the sum,
determined on a Consolidated basis, of (i) net income (or net loss),
(ii) interest expense, (iii) income tax expense, (iv) depreciation
expense, (v) amortization expense, (vi) non-cash severance charges in
an aggregate amount not to exceed $120,000,000 in calendar year 1999,
and (vii) non-cash charges relating to the contribution to an employee
stock ownership plan in an aggregate amount not to exceed $23,100,000
in calendar year 1999.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender that is a financial institution and is majority-owned by such
Lender or such Lender's holding company; (iii) a commercial bank
organized under the laws of the Commonwealth of Puerto Rico, the United
States, or any State thereof, and having total assets in excess of
$3,000,000,000; (iv) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof,
and having total assets in excess of $3,000,000,000; or (v) any other
Person approved by the Administrative Agent and the Borrower, such
approval not to be unreasonably withheld; provided, however, that
neither the Borrower nor any Affiliate of the Borrower shall qualify as
an Eligible Assignee.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, Environmental Permit or Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the
environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response,
remedial or other actions or damages and (b) by any governmental or
regulatory authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment,
decree or judicial or agency interpretation, policy or guidance
relating to pollution or protection of the environment, health, safety
or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal,
release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of the Loan Parties' controlled group, or under
common control with the Borrower, within the meaning of Section 414 of
the Internal Revenue Code.
5
<PAGE> 6
"ERISA Event" means (a) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has
been waived by the PBGC; (b) the application for a minimum funding
waiver with respect to a Plan; (c) the provision by the administrator
of any Plan of a notice of intent to terminate such Plan pursuant to
Section 4041(a)(2) of ERISA (including any such notice with respect to
a plan amendment referred to in Section 4041(e) of ERISA); (d) the
cessation of operations at a facility of any of the Loan Parties or any
ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA; (e) the withdrawal by any of the Loan Parties or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA;
(f) the imposition of a lien under Section 302(f) of ERISA with respect
to any Plan; (g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA; or
(h) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition described in Section 4042 of ERISA that is reasonably
expected to result in the termination of, or the appointment of a
trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Rate Reserve Percentage" for any Interest Period
for all LIBOR Rate Advances comprising part of the same Borrowing means
the reserve percentage applicable two Business Days before the first
day of such Interest Period under regulations issued from time to time
by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other
category of liabilities that includes deposits by reference to which
the interest rate on LIBOR Rate Advances is determined) having a term
equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"GAAP" means (a) in the case of the preparation of all
financial reporting requirements, generally accepted accounting
principles in the United States, as in effect from time to time, and
(b) in the case of the calculation, certification and compliance with
all financial tests and covenants, generally accepted accounting
principles in the United
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<PAGE> 7
States, as in effect on the date of the financial statements delivered
to each Lender in accordance with Section 4.01(e), in each case applied
on a consistent basis both as to classification of items and amounts.
"GITI" means GTE International Telecommunications
Incorporated, a Delaware corporation.
"GTE" means GTE Corporation, a New York corporation, or its
successor.
"GTE Holdings (Puerto Rico)" shall mean GTE Holdings (Puerto
Rico) LLC, a limited liability company organized under the laws of the
State of Delaware and a Wholly Owned Subsidiary of GITI.
"Guaranteed Obligations" has the meaning specified in Section
7.01.
"Guarantors" has the meaning specified in the recital of
parties to this Agreement.
"Guaranty" has the meaning specified in Section 7.01.
"Hazardous Materials" means (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"Initial Lenders" has the meaning specified in the recital of
parties to this Agreement.
"Interest Period" means, for each LIBOR Rate Advance
comprising part of the same Borrowing, the period commencing on the
date of such LIBOR Rate Advance or the date of the Conversion of any
Base Rate Advance into such LIBOR Rate Advance and ending on the last
day of the period selected by the Borrower pursuant to the provisions
below and, thereafter, with respect to LIBOR Rate Advances, each
subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The duration
of each such Interest Period shall be one, two or three months, as the
Borrower may, upon notice received by the Administrative Agent not
later than 11:00 A.M. (Atlantic Standard Time) on the third Business
Day prior to the first day of such Interest Period, select; provided,
however, that:
(i) the Borrower may not select any Interest Period
that ends after the Termination Date;
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<PAGE> 8
(ii) Interest Periods commencing on the same date for
LIBOR Rate Advances comprising part of the same Borrowing
shall be of the same duration;
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding
Business Day; and
(iv) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
"Internal Revenue Code" means the United States Internal
Revenue Code of 1986, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"Lenders" means the Initial Lenders and each Person that shall
become a party hereto pursuant to Section 9.07.
"LIBOR Rate" means, with respect to any LIBOR Rate Advance for
any Interest Period, the rate appearing on Page 3750 of the Telerate
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes
of providing quotations of interest rates applicable to dollar deposits
in the London interbank market) at approximately 11:00 A.M., Atlantic
Standard Time, two Business Days prior to the commencement of such
Interest Period, as the rate for dollar deposits with a maturity
comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBOR Rate" with
respect to such LIBOR Rate Advance for such Interest Period shall be
the average of the rates (rounded upward to the nearest whole multiple
of 1/16 of 1%) per annum at which dollar deposits approximately equal
in principal amount to the aggregate principal amount of such Advance
and for a maturity comparable to such Interest Period are quoted to the
Administrative Agent by at least three (3) major international
commercial banks in immediately available funds in the London interbank
market at approximately 11:00 A.M., Atlantic Standard Time, two
Business Days prior to the commencement of such Interest Period, for
delivery on the date of commencement of such Interest Period.
"LIBOR Rate Advance" means a Revolving Credit Advance that
bears interest based upon the LIBOR Rate as provided in Section
2.06(a)(ii).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind.
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<PAGE> 9
"Loan Party" means each of the Borrower and the Guarantors.
"Management Agreement" means, collectively, that certain
Management Agreement dated as of March 2, 1999, among the Borrower,
PRTC, and GTE Services Puerto Rico Corporation, and that certain US
Management Agreement dated as of March 2, 1999, among the Borrower,
PRTC and GTE Investments Incorporated, each as amended, forming part of
the Purchase Documents.
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), operations,
performance, Property or prospects of any Loan Party or any Loan Party
and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of the Borrower and its Subsidiaries
taken individually or as a whole, (b) the ability of any Loan Party to
perform its obligations hereunder or under the Notes, (c) the validity
or enforceability of this Agreement or the Notes, (d) the rights and
remedies of the Lenders and the Administrative Agent under this
Agreement or the Notes or (e) the timely payment of the principal of or
interest on the Advances or other amounts payable in connection
therewith.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of any Loan Party or any ERISA Affiliate and at least one
Person other than such Loan Party and the ERISA Affiliates or (b) was
so maintained and in respect of which any Loan Party or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated.
"Note" means a Revolving Credit Note.
"Notice of Revolving Credit Borrowing" has the meaning
specified in Section 2.02(a).
"Other Taxes" has the meaning specified in Section 2.13(b).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Liens" means, with respect to any Person, (a) Liens
for taxes, assessments and governmental charges and levies to the
extent not required to be paid under Section 5.01(b) hereof; (b)
pledges or deposits to secure obligations under workers' compensation
laws or similar legislation; (c) pledges or deposits to secure
performance in connection with bids, tenders, contracts (other than
contracts for the payment of money) or leases to which such Person is a
party; (d) deposits to secure public or statutory
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<PAGE> 10
obligations of such Person; (e) materialmen's, mechanics', carriers',
workers', repairmen's or other like Liens in the ordinary course of
business, or deposits to obtain the release of such Liens to the extent
such Liens, in the aggregate, would not have a Material Adverse Effect;
(f) deposits to secure surety and appeal bonds to which such Person is
a party; (g) other pledges or deposits for similar purposes in the
ordinary course of business; (h) Liens created by or resulting from any
litigation or legal proceeding which at the time is currently being
contested in good faith by appropriate proceedings; (i) leases made, or
existing on property acquired, in the ordinary course of business; (j)
landlord's Liens under leases to which such Person is a party; (k)
zoning restrictions, easements, licenses, and restrictions on the use
of real Property or minor irregularities in title thereto, which do not
materially impair the use of such Property in the operation of the
business of such Person or the value of such Property for the purpose
of such business; and (l) banker's liens, right of set off or analogous
rights granted or arising by operation of law to any deposits held by
or other indebtedness owing by any lender or any affiliate thereof to
or for the credit or account of such Person.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability company or
other entity, or a government or any political subdivision or agency
thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Property" means with respect to any Person, any right or
interest in or to property of any kind whatsoever, whether real,
personal (including, without limitation, cash) or mixed and whether
tangible or intangible of such Person.
"Puerto Rico Telephone Authority" means the Puerto Rico
Telephone Authority, a public corporation and government
instrumentality of the Commonwealth of Puerto Rico.
"Purchase Documents" means, collectively, the Amended and
Restated Stock Purchase Agreement and all documents executed thereunder
or pursuant thereto which constitute all of the agreements entered into
among the parties thereto relating to the Acquisition listed in
Schedule 1.01(i) hereto, including, but not limited to the Management
Agreement, the Share Option Agreement, the Payment Bond (Stock Purchase
Agreement), the Payment Bond (Option Agreement), the Guaranty (Stock
Purchase Agreement), the Guaranty (Option Agreement), the Guaranty
(Non-Competition Agreement), the Guaranty (Shareholders Agreement), the
Technology Transfer Agreement, and any and all documents, certificates,
etc., issued, executed or delivered in connection therewith.
"Quarterly Dates" means the last Business Day of March, June,
September and December of each year.
"Register" has the meaning specified in Section 9.07(d).
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"Required Lenders" means as at any time, Lenders having at
least 66% of the sum of (a) the aggregate unused amount, if any, of the
Commitments as at such time plus (b) the aggregate outstanding
principal amount of the Revolving Credit Advances at such time.
"Requisite Amount" has the meaning specified in Section
6.01(f).
"Revolving Credit Advance" means an advance by a Lender to the
Borrower as part of a Revolving Credit Borrowing and refers to a Base
Rate Advance or a LIBOR Rate Advance (each of which shall be a "Type"
of Revolving Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by each of
the Lenders pursuant to Section 2.01.
"Revolving Credit Note" means a promissory note of the
Borrower payable to the order of any Lender, in substantially the form
of Exhibit A-1 hereto, evidencing the aggregate indebtedness of the
Borrower to such Lender resulting from the Revolving Credit Advances
made by such Lender.
"Shareholders Agreement" means the Shareholders Agreement as
defined in the Amended and Restated Stock Purchase Agreement, as
amended from time to time.
"Share Option Agreement" means that certain Share Option
Agreement dated as of March 2, 1999, among the Borrower, GTE Holdings
(Puerto Rico), GITI, and the Puerto Rico Telephone Authority, forming
part of the Purchase Documents.
"Significant Subsidiary" means at any time any Subsidiary, the
assets of which, in the aggregate, exceed $30,000,000, determined in
accordance with GAAP.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Borrower or any ERISA Affiliate and no Person other
than the Loan Parties and the ERISA Affiliates or (b) was so maintained
and in respect of which any Loan Party or any ERISA Affiliate could
have liability under Section 4069 of ERISA in the event such plan has
been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the Property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person,
(b) the present fair salable value of the Property of such Person is
not less than the amount that will be required to pay the probable
liability of such Person on its Debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that
it will, incur Debts or liabilities beyond such Person's ability to pay
such Debts and liabilities as they mature and (d) such Person is not
engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's Property would
constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the
light of all
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<PAGE> 12
the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability after taking into account any indemnification pursuant to the
terms of the Amended and Restated Stock Purchase Agreement and any
other agreements entered into in connection therewith.
"Special Dividend" shall mean a one time special dividend
payment to effectuate the Acquisition by the Borrower to the Puerto
Rico Telephone Authority, which immediately prior to the Effective Date
will be the holder of record of 100% of the issued and outstanding
shares of capital stock of the Borrower.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b)
the interest in the capital or profits of such limited liability
company, partnership or joint venture or (c) the beneficial interest in
such trust or estate, is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Taxes" has the meaning specified in Section 2.13(a).
"Technology Transfer Agreement" means that certain Technology
Transfer Agreement dated as of March 2, 1999, among the Borrower, GTE
and GTE Investments Incorporated, forming part of the Purchase
Documents.
"Termination Date" means, the earlier of the date that is 364
days after the date of the initial Borrowing (but in no event later
than March 30, 2000) and the date of termination in whole of the
Commitments pursuant to Section 2.04 or 6.01.
"Utilization Ratio" shall mean, with respect to the
determination of the Applicable LIBOR Margin for any LIBOR Rate
Advance, as of any date, the ratio of (i) the aggregate principal
amount of all Revolving Credit Advances outstanding on such date, to
(ii) the aggregate Commitments on such date.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the
happening of such a contingency.
"Wholly Owned Subsidiary" means, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors qualifying shares) are directly or indirectly
owned or controlled by such Person or one or more Wholly Owned
Subsidiaries of such Person or by such Person and one or more Wholly
Owned Subsidiaries of such Person.
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1.02 SECTION .0. Computation of Time Periods. In this
Agreement in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each mean "to but excluding".
1.03 SECTION .0. Accounting Terms; Interest. All terms of an
accounting or financial nature not specifically defined herein shall be
construed in accordance with GAAP. All interest payable hereunder shall be
computed on the basis of a 360 day year and the actual number of days elapsed.
(a) SECTION .0. Construction. () Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"assets" and "Property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
(b) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
the Lenders hereunder shall (unless otherwise disclosed to the Lenders in
writing at the time of delivery thereof in the manner described in subsection
(b) below) be prepared, in accordance with generally accepted accounting
principles applied on a basis consistent with those used in the preparation of
the latest financial statements furnished to the Lenders hereunder. All
calculations made for the purposes of determining compliance with this Agreement
shall (except as otherwise expressly provided herein) be made by application of
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the latest annual or quarterly financial
statements furnished to the Lenders pursuant to Section 5.01(i) hereof unless
(i) the Borrower shall have objected to determining such compliance on such
basis at the time of delivery of such financial statements or (ii) the Required
Lenders shall so object in writing within 30 days after delivery of such
financial statements, in either of which events such calculations shall be made
on a basis consistent with those used in the preparation of the latest financial
statements as to which such objection shall not have been made.
(c) The Borrower shall deliver to the Lenders at the same
time as the delivery of any annual or quarterly financial statement under
Section 5.01(i) hereof (i) a description in reasonable detail of any material
variation between the application of accounting principles employed in the
preparation of such statement and the application of accounting
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<PAGE> 14
principles employed in the preparation of the next preceding annual or quarterly
financial statements as to which no objection has been made in accordance with
the last sentence of subsection (a) above and (ii) reasonable estimates of the
difference between such statements arising as a consequence thereof.
(d) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 5.03 hereof, the Borrower
will not, without the prior consent of the Required Lenders, change the last day
of its fiscal year from December 31 of each year, or the last days of the first
three fiscal quarters in each of its fiscal years from March, June and September
of each year, respectively.
(e) Revolving Credit Advances hereunder are distinguished
by "Type." The "Type" of a Revolving Credit Advance refers to whether such
Advance is a Base Rate Advance or LIBOR Rate Advance, each of which constitutes
a Type.
ARTICLE TWO
AMOUNTS AND TERMS OF THE ADVANCES
2.01 SECTION .0. The Revolving Credit Advances. Each Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
Revolving Credit Advances to the Borrower from time to time on any Business Day
during the period from the Effective Date until the Termination Date in an
aggregate amount not to exceed at any time outstanding the amount set forth
opposite such Lender's name on the signature pages hereof or, if such Lender has
entered into any Assignment and Acceptance, set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 9.07(d), as
such amount may be reduced pursuant to Section 2.04 (such Lender's
"Commitment"). Each Revolving Credit Borrowing shall be in an aggregate amount
of $1,000,000 or an integral multiple of $1,000,000 in excess thereof and shall
consist of Revolving Credit Advances of the same Type made on the same day by
the Lenders ratably according to their respective Commitments. Within the limits
of this Section 2.01, the Borrower may borrow under this Section 2.01, prepay
pursuant to Section 2.09, reborrow under this Section 2.01 and may Convert
Borrowings of one Type into Borrowings of another type (as provided in Section
2.08).
(a) SECTION .0. Making the Revolving Credit Advances. ()
Each Revolving Credit Borrowing shall be made on notice, given not later than
11:00 A.M. (Atlantic Standard Time) on the third Business Day prior to the date
of the proposed Revolving Credit Borrowing in the case of a Revolving Credit
Borrowing consisting of LIBOR Rate Advances, or the Business Day of the proposed
Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of Base Rate Advances, by the Borrower to the Administrative Agent,
which shall give to each Lender prompt notice thereof by telecopier or telex.
Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving Credit
Borrowing") shall be by telephone, confirmed immediately in writing, or
telecopier or telex in substantially the form of Exhibit B-1 hereto, specifying
therein the requested (i) date of such Revolving Credit Borrowing, (ii) Type of
Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount of
such Revolving Credit Borrowing, and (iv) in the case of a Revolving Credit
Borrowing
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consisting of LIBOR Rate Advances, initial Interest Period for each such
Revolving Credit Advance. Each Lender shall, before 12:00 noon (Atlantic
Standard Time) on the date of such Revolving Credit Borrowing, make available
for the account of its Applicable Lending Office to the Administrative Agent at
the Administrative Agent's Account, in same day funds, such Lender's ratable
portion of such Revolving Credit Borrowing. After the Administrative Agent's
receipt of such funds and upon fulfillment of the applicable conditions set
forth in Article III, the Administrative Agent will make such funds available to
the Borrower at the Borrower's Account.
(b) Anything in subsection (a) above to the contrary
notwithstanding, the Borrower may not select LIBOR Rate Advances for any
Revolving Credit Borrowing if the aggregate obligation of the Lenders to make
LIBOR Rate Advances shall then be suspended pursuant to Section 2.07 or 2.12.
(c) Each Notice of Revolving Credit Borrowing shall be
irrevocable and binding on the Borrower. In the case of any Revolving Credit
Borrowing that the related Notice of Revolving Credit Borrowing specifies is to
be comprised of LIBOR Rate Advances, the Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill on or before the date specified in such Notice of Revolving
Credit Borrowing for such Revolving Credit Borrowing the applicable conditions
set forth in Article III, including, without limitation, any loss (excluding
loss of anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund the Revolving Credit Advance to be made by such Lender as part of such
Revolving Credit Borrowing when such Revolving Credit Advance, as a result of
such failure, is not made on such date.
(d) Unless the Administrative Agent shall have received
notice from a Lender prior to the time of any Revolving Credit Borrowing that
such Lender will not make available to the Administrative Agent such Lender's
ratable portion of such Revolving Credit Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent on the date of such Revolving Credit Borrowing in accordance with
subsection (a) of this Section 2.02 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such ratable portion available to the Administrative Agent, such Lender and
the Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, the interest rate applicable at the time to Revolving Credit Advances
comprising such Revolving Credit Borrowing and (ii) in the case of such Lender,
the Federal Funds Rate. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Lender's
Revolving Credit Advance as part of such Revolving Credit Borrowing for purposes
of this Agreement and the Borrower shall be relieved of its obligations to repay
such amount under this Section 2.02(d).
(e) The failure of any Lender to make the Revolving
Credit Advance to be made by it as part of any Revolving Credit Borrowing shall
not relieve any other Lender of
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its obligation hereunder to make its Revolving Credit Advance on the date of
such Revolving Credit Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make the Revolving Credit Advance to be made by
such other Lender on the date of any Revolving Credit Borrowing.
2.02 SECTION .0. (a) Commitment Fee. The Borrower shall pay to
the Administrative Agent for account of each Lender a commitment fee on the
daily average unused amount of such Lender's Commitment, for the period from and
including the Effective Date, to but not including the Termination Date, at a
rate per annum equal to 0.175%. Accrued commitment fees shall be payable in
arrears on each Quarterly Date and on the Termination Date. All fees payable
under this Section 2.03(a) shall be computed based on a year of 360 days and the
actual number of days elapsed during the relevant period for which such fees are
being computed.
(b) Up-Front Fee. On the Effective Date, the Borrower
shall pay to the Administrative Agent for the ratable account of the Lenders an
up-front fee in an amount equal to 0.25% of the aggregate amount of the
Commitments.
(a) SECTION .0. Termination or Reduction of the
Commitments. () The Borrower shall have the right, upon at least three Business
Days' notice to the Administrative Agent, to terminate in whole or reduce
ratably in part the unused portions of the respective Commitments of the
Lenders, provided that each partial reduction shall be in the aggregate amount
of $5,000,000 or an integral multiple of $1,000,000 in excess thereof.
(b) The aggregate amount of the Commitments shall be
automatically reduced to zero on the Termination Date.
(c) The Commitments once terminated or reduced may
not be reinstated.
2.03 SECTION .0. Repayment of Revolving Credit Advances. The
Borrower shall repay to the Administrative Agent for the ratable account of the
Lenders on the Termination Date the aggregate principal amount of the Revolving
Credit Advances then outstanding.
(a) SECTION .0. Interest. () Scheduled Interest. The
Borrower shall pay interest on the unpaid principal amount of each Revolving
Credit Advance owing to each Lender from the date of such Advance until such
principal amount shall be paid in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such
Revolving Credit Advance is a Base Rate Advance, a rate per annum equal
at all times to the Base Rate in effect from time to time, payable in
arrears on each Quarterly Date, and on the date such Base Rate Advance
shall be Converted or paid in full.
(ii) LIBOR Rate Advances. During such periods as such
Revolving Credit Advance, as the case may be, is a LIBOR Rate Advance,
a rate per annum equal at all times during each Interest Period for
such Revolving Credit Advance to the sum of (x) the LIBOR Rate for such
Interest Period for such Revolving Credit
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Advance, plus (y) the Applicable LIBOR Margin in effect from time to
time, payable in arrears on the last day of such Interest Period, and
on the date such LIBOR Rate Advance shall be Converted, continued or
paid in full.
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default under Section 6.01, the Borrower shall pay
interest on (i) the unpaid principal amount of each Revolving Credit Advance
owing to each Lender, payable in arrears on the dates referred to in clause
(a)(i) or (a)(ii) above, at a rate per annum equal at all times to two (2)
percentage points above the rate per annum required to be paid on such Revolving
Credit Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the
fullest extent permitted by law, the amount of any interest, fee or other amount
payable hereunder that is not paid when due, from the date such amount shall be
due until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to two (2) percentage points above the rate per annum required to be paid
on Base Rate Advances pursuant to clause (a)(i) above.
(c) SECTION .0. Interest Rate Determination. () The
Administrative Agent shall give prompt notice to the Borrower and the Lenders of
the applicable interest rate determined by the Administrative Agent for purposes
of Section 2.06(a)(i) or (ii).
(d) If, with respect to any LIBOR Rate Advances, the
Required Lenders notify the Administrative Agent that the LIBOR Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Required Lenders of making, funding or maintaining their respective LIBOR Rate
Advances for such Interest Period, the Administrative Agent shall forthwith so
notify the Borrower and the Lenders, whereupon (i) each LIBOR Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to
make, or to Convert Revolving Credit Advances into, LIBOR Rate Advances shall be
suspended until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist.
(e) If the Borrower shall fail to select the duration of
any Interest Period for any LIBOR Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(f) On the date on which the aggregate unpaid principal
amount of LIBOR Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $1,000,000, such Advances shall
automatically Convert into Base Rate Advances.
(g) Upon the occurrence and during the continuance of any
Event of Default under Section 6.01, (i) each LIBOR Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make,
continue or to Convert Advances into, LIBOR Rate Advances shall be suspended.
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(h) If on any date the Administrative Agent is unable to
determine the LIBOR Rate for any LIBOR Rate Advances to be made on such date,
(i) the Administrative Agent shall forthwith notify the
Borrower and the Lenders that the interest rate cannot be
determined for such LIBOR Rate Advances,
(ii) with respect to LIBOR Rate Advances, each such
Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate
Advance (or if such Advance is then a Base Rate Advance, will
Continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make LIBOR Rate
Advances or to Convert Revolving Credit Advances into LIBOR
Rate Advances shall be suspended until the Administrative
Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
2.04 SECTION .0. Optional Conversion of Revolving Credit
Advances. The Borrower may on any Business Day, upon notice given to the
Administrative Agent not later than 11:00 A.M. (Atlantic Standard Time) on the
third Business Day prior to the date of the proposed Conversion and subject to
the provisions of Sections 2.08 and 2.12, Convert all Revolving Credit Advances
of one Type comprising the same Borrowing into Revolving Credit Advances of the
other Type; provided, however, that any Conversion of LIBOR Rate Advances into
Base Rate Advances shall be made only on the last day of an Interest Period for
such LIBOR Rate Advances and any Conversion of Base Rate Advances into LIBOR
Rate Advances shall be in an amount not less than $1,000,000. Each such notice
of a Conversion shall, within the restrictions specified above, specify (i) the
date of such Conversion, (ii) the Revolving Credit Advances to be Converted and
(iii) if such Conversion is into LIBOR Rate Advances, the duration of the
initial Interest Period for each such Advance. Each notice of Conversion shall
be irrevocable and binding on the Borrower.
2.05 SECTION .0. Prepayments of Revolving Credit Advances. The
Borrower may, upon written notice given to the Administrative Agent not later
than 11:00 A.M. (Atlantic Standard Time) for Base Rate Advances and upon at
least two Business Days' for LIBOR Rate Advances stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding principal amount of the Revolving Credit
Advances comprising part of the same Borrowing in whole or ratably in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid; provided, however, that (x) each partial prepayment shall be in
an aggregate principal amount of $1,000,000 or an integral multiple of
$1,000,000 in excess thereof and (y) in the event of any such prepayment of a
LIBOR Rate Advance, the Borrower shall be obligated to reimburse the Lenders in
respect thereof pursuant to Section 9.04(c).
(a) Increased Costs. () If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any written guideline or request from any
central bank or other governmental authority (whether or not having the force of
law), there shall be any increase in the cost to any Lender of agreeing to
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make or making, funding or maintaining LIBOR Rate Advances (excluding for
purposes of this Section 2.10 any such increased costs resulting from (i) Taxes
or Other Taxes (as to which Section 2.13 shall govern) and (ii) changes in the
basis of taxation of overall net income or overall gross income by the United
States or by the foreign jurisdiction or state under the laws of which such
Lender is organized or has its Applicable Lending Office or any political
subdivision thereof), then the Borrower shall from time to time, upon demand by
such Lender (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost (whether or not
such increased costs arise prior to the receipt of written notification from
such central bank or other governmental authority); provided that the Borrower
shall not be required to pay any such increased costs to the extent such
increased costs accrued prior to the date that is six months prior to such
notice. A certificate as to the amount of such increased cost, submitted to the
Borrower and the Administrative Agent by such Lender, shall be conclusive and
binding for all purposes, absent error in the calculation of such amount.
(b) If any Lender determines that compliance with any law
or regulation or any written guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender (excluding any reserves
included in the computation of the LIBOR Rate) and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of this type, then, upon demand by such
Lender (with a copy of such demand to the Administrative Agent), the Borrower
shall pay to the Administrative Agent for the account of such Lender, from time
to time as specified by such Lender, additional amounts sufficient to compensate
such Lender or such corporation (whether or not such amounts arise prior to the
receipt of written notification from such central bank or other governmental
authority) in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable (in the
proportion that such Lender's Commitment hereunder bears to all of such Lender's
commitments of this type) to the existence of such Lender's commitment to lend
hereunder; provided that the Borrower shall not be required to compensate such
Lender to the extent such amounts arose prior to the date that is six months
prior to such notice. A certificate as to such amounts submitted to the Borrower
and the Administrative Agent by such Lender shall be conclusive and binding for
all purposes, absent error in the calculation of such amounts.
(c) Any Lender claiming any additional amounts payable
pursuant to this Section 2.10 agrees to use reasonable efforts (subject to its
internal policy in that regard and legal and regulatory restrictions) to
minimize such additional amounts and to change, to the extent such Lender has at
such time additional lending offices in existence, its Applicable Lending Office
(provided that for the purposes of this Section 2.10(c) only, the term
"Applicable Lending Office" shall not include the lending office of any
affiliate of such Lender) if the making of such a change would avoid the need
for, or reduce the amount of, any additional amounts that may thereafter accrue
and would not, in the reasonable judgment of such Lender, be otherwise notably
disadvantageous to such Lender. The Borrower shall reimburse such Lender for
such Lender's reasonable expenses incurred in connection with such change or in
considering such a change in an amount not to exceed the Borrower's pro rata
share of such
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expenses based on such Lender's Commitment and Advances and the total lending
commitments and loans of such Lender to its similarly situated customers.
2.06 Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority having relevant jurisdiction asserts that it is unlawful, for any
Lender or its Applicable Office to perform its obligations hereunder to make
LIBOR Rate Advances or to fund or maintain LIBOR Rate Advances hereunder, (i)
each LIBOR Rate Advance made by such Lender will automatically, upon such
demand, Convert into a Base Rate Advance, as the case may be, and (ii) the
obligation of such Lender to make LIBOR Rate Advances or to Convert Revolving
Credit Advances into LIBOR Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
(a) Payments and Computations. () The Borrower shall make
each payment hereunder and under the Notes not later than 11:00 A.M. (Atlantic
Standard Time) on the day when due in U.S. dollars to the Administrative Agent
at the Administrative Agent's Account in same day funds. The Administrative
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of principal or interest or facility fees ratably (other than
amounts payable pursuant to Sections 2.11, 2.14 or 9.04(c)) to the Lenders for
the account of their respective Applicable Lending Offices, and like funds
relating to the payment of any other amount payable to any Lender for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 9.07(c), from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate,
LIBOR Rate and Federal Funds Rate and of the facility fees shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or facility fees are payable.
Each determination by the Administrative Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent error in the
calculation of such interest rate.
(c) Whenever any payment hereunder or under the Notes
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or facility fee,
as the case may be; provided, however, that, if such extension would cause
payment of interest on or principal of LIBOR Rate Advances to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day.
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(d) Unless the Administrative Agent shall have received
notice from the Borrower prior to the time on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
(e) Taxes. () Subject to the provisions of this Section
2.13, any and all payments by the Borrower hereunder or under the Notes shall be
made, in accordance with Section 2.12 free and clear of and without deduction
for any and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding in the case of
each Lender and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it in lieu of net income taxes (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities in
respect of payments hereunder or under the Notes being hereinafter referred to
as "Taxes"). Subject to subsections (e) and (f) below, if the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Lender or the Administrative Agent, (i) the
sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.13) such Lender or the Administrative Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law. Within 30 days after the
date of any payment of Taxes, the Borrower shall furnish to the Administrative
Agent, at its address referred to in Section 9.02, the original or a certified
copy of a receipt evidencing payment thereof.
(f) In addition, the Borrower agrees to pay any stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under the Notes or from the
execution, delivery or registration of, performing under, or otherwise with
respect to, this Agreement or the Notes as a result of the introduction of or
any change in or in the interpretation of any law or regulation after the
Effective Date (hereinafter referred to as "Other Taxes").
(g) Subject to subsection (d) below, the Borrower shall
indemnify each Lender and the Administrative Agent for the full amount of Taxes
or Other Taxes (to the extent not previously paid under subsection (a) or (b)
above) imposed on or paid by such Lender or the Administrative Agent (as the
case may be) and any liability (including penalties, interest and expenses but
excluding any taxes imposed by any jurisdiction on amounts payable under this
Section 2.13) arising therefrom or with respect thereto. This indemnification
shall be made within 30 days from the date such Lender or the Administrative
Agent (as the case may be) makes written demand therefor.
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(h) Notwithstanding anything else contained in this
Section 2.13, the Borrower shall only be required to pay additional sums with
respect to Taxes to a Lender (or the Administrative Agent, as the case may be)
pursuant to subsection (a), (b) or (c) above if and to the extent that the
obligation to pay such Taxes results from such Lender being subject to any Taxes
as a result of: (i) any amendment to the laws (or any regulations thereunder),
or any amendment to, or change in, an interpretation or application of any such
laws or regulations by any legislative body, court, governmental agency or
regulatory authority adopted or enacted after the date hereof (or in the case of
an entity that becomes a Lender after the date hereof, the date such entity
becomes a Lender), (ii) an amendment, modification or revocation of any existing
applicable tax treaty ratified, enacted or amended after the date hereof (or in
the case of an entity that becomes a Lender after the date hereof, the date such
entity becomes a Lender), or (iii) the ratification of a new tax treaty ratified
after the date hereof (or in the case of an entity that becomes a Lender after
the date hereof, the date such entity becomes a Lender).
(i) In the event that the Borrower makes an additional
payment under Section 2.13(a) or 2.13(c) for the account of any Lender and such
Lender, in its sole opinion, determines that it has finally and irrevocably
received or been granted a credit against, or relief or remission from, or
repayment of, any tax paid or payable by it in respect of or calculated with
reference to the deduction or withholding giving rise to such additional
payment, such Lender shall, to the extent that it determines that it can do so
without prejudice to the retention of the amount of such credit, relief,
remission or repayment, pay to the Borrower such amount as such Lender shall, in
its sole opinion, have determined is attributable to such deduction or
withholding and will leave such Lender (after such payment) in no worse position
than it would have been had the Borrower not been required to make such
deduction or withholding. Nothing contained herein shall (i) interfere with the
right of a Lender to arrange its tax affairs in whatever manner it thinks fit or
(ii) oblige any Lender to claim any tax credit or to disclose any information
relating to its tax affairs or any computations in respect thereof or (iii)
require any Lender to take or refrain from taking any action that would
prejudice its ability to benefit from any other credits, reliefs, remissions or
repayments to which it may be entitled. Each Lender and the Administrative Agent
shall reasonably cooperate with the Borrower at the Borrower's written request
and sole expense, in contesting any Taxes or Other Taxes the Borrower would bear
pursuant to this Section 2.13, provided however, that (i) no tax return of such
Lender or the Administrative Agent is or would be held open as a result of such
contest, (ii) neither such Lender nor the Administrative Agent is required to
reopen a tax year that has already closed and (iii) such Lender and the
Administrative Agent shall, in the sole opinion of such Lender and the
Administrative Agent , respectively, have determined that such contest will
leave such Lender and the Administrative Agent , respectively, in no worse
position than it would have been in had it not contested such Taxes or Other
Taxes. Nothing contained herein shall interfere with the right of a Lender or
the Administrative Agent to arrange its tax affairs in whatever manner it thinks
fit, if in the sole judgment of such Lender or the Administrative Agent , such
contest would be disadvantageous to such Lender or the Administrative Agent . In
pursuing a contest in the Lender's or the Administrative Agent 's name, such
Lender or the Administrative Agent will be represented by counsel of such
Lender's or the Administrative Agent 's choice, and will defend against, settle
or otherwise control the contest and will not relinquish control or decision
making over the contest.
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(j) Any Lender claiming any additional amounts payable
pursuant to this Section 2.13 agrees to use reasonable efforts (subject to its
internal policy in that regard and legal and regulatory restrictions) to
minimize such additional amounts and to change, to the extent such Lender has at
such time additional lending offices in existence, its Applicable Lending Office
(provided that for the purposes of this Section 2.13(f) only, the term
"Applicable Lending Office" shall not include the lending office of any
affiliate of such Lender) if the making of such change would avoid the need for,
or reduce the amount of, any additional amounts that may thereafter accrue and
would not, in the reasonable judgment of such Lender, be otherwise notably
disadvantageous to such Lender. The Borrower shall reimburse such Lender for
such Lender's reasonable expenses incurred in connection with such change or in
considering such a change in an amount not to exceed the Borrower's pro rata
share of such expenses based on such Lender's Commitment and Advances to the
Borrower and the total lending commitments and loans of such Lender to its
similarly situated customers.
2.07 Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Revolving Credit Advances owing to it
(other than pursuant to Section 2.10, 2.14, 9.01(b), 9.04(c) or 9.07) in excess
of its ratable share of payments on account of the Revolving Credit Advances
obtained by all the Lenders, such Lender shall forthwith purchase from the other
Lenders such participations in the Revolving Credit Advances owing to them as
shall be necessary to cause such purchasing Lender to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
excess payment is thereafter recovered from such purchasing Lender, such
purchase from each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of (i) the amount of such Lender's required repayment to (ii) the total amount
so recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrower agrees that any Lender so purchasing a participation from another
Lender by delivering payment pursuant to this Section 2.14 may, to the fullest
extent permitted by law, exercise all its rights of payment (including the right
of set-off) with respect to such participation as fully as if such Lender were
the direct creditor of the Borrower in the amount of such participation.
2.08 Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrower agrees that it shall use such proceeds) solely for
working capital and general corporate purposes of the Borrower and its
Subsidiaries, including, without limitation, to pay a portion of the Special
Dividend, provided that such proceeds shall not be used for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U issued
by the Board of Governors of the Federal Reserve System).
ARTICLE THREE
CONDITIONS TO EFFECTIVENESS AND LENDING
3.01 SECTION .0. Conditions Precedent to Effectiveness of
Sections 2.01 and 2.03. Sections 2.01 and 2.03 of this Agreement shall become
effective on and as of the first date (the "Effective Date") on which the
following conditions precedent have been satisfied:
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(a) The Acquisition shall have been consummated in
accordance with the terms of the Purchase Documents, without any waiver or
amendment that, in the reasonable judgment of the Lenders, could reasonably be
expected to materially adversely affect the ability of the Borrower or either
Guarantor to perform their respective obligations hereunder, and in material
compliance with all applicable laws.
(b) There shall have occurred no Material Adverse Change
since December 31, 1997 other than as disclosed in Schedule 3.01(b) hereto.
(c) There shall exist no action, suit, investigation,
litigation or proceeding affecting the Loan Parties or any of their respective
Subsidiaries pending or threatened before any court, governmental agency or
arbitrator that (i) could be reasonably likely to have a Material Adverse Effect
other than the matters described on Schedule 3.01(c) hereto (the "Disclosed
Litigation") or (ii) is initiated by any Person other than a Lender in its
capacity as a Lender that purports to affect the legality, validity or
enforceability of this Agreement or any Note or the consummation of the
transactions contemplated hereby, and there shall have been no Material Adverse
Change in the status, or financial effect on any Loan Party, of the Disclosed
Litigation from that described on Schedule 3.01(c) hereto.
(d) All governmental and third party consents and
approvals necessary to consummate the Acquisition (including, in the case of the
Federal Communications Commission approval, the grant of the Federal
Communications Commission Transfer Applications) and necessary in connection
with the execution, delivery and performance of this Agreement and the Notes
shall have been obtained (without the imposition of any conditions that could
reasonably be expected to materially adversely affect the ability of any Loan
Party to perform its obligations hereunder) and shall remain in effect, and no
law or regulation shall be applicable that restrains, prevents or imposes
adverse conditions upon the transactions contemplated hereby that could
reasonably be expected to materially adversely affect the ability of any Loan
Party to perform its obligations hereunder.
(e) The Borrower shall have notified each Lender and the
Administrative Agent in writing as to the proposed Effective Date.
(f) The Borrower shall have paid all invoiced fees and
expenses of the Administrative Agent and the Lenders (including the invoiced
fees and expenses of Martinez Odell & Calabria, counsel to the Administrative
Agent).
(g) On the Effective Date, the following statements shall
be true and the Administrative Agent shall have received for the account of each
Lender a certificate signed by a duly authorized officer of the Borrower, dated
the Effective Date, stating that:
(i) The representations and warranties contained in
Section 4.01 are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that
constitutes a Default.
(h) The Administrative Agent shall have received on or
before the Effective Date the following, each dated such day, in form and
substance satisfactory to the
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Administrative Agent and (except for the Revolving Credit Notes) in sufficient
copies for each Lender:
(i) The Revolving Credit Notes to the order of the
Lenders, respectively.
(ii) Certified copies of the resolutions of the Board of
Directors of each Loan Party approving the transactions
contemplated by this Agreement and the Notes and of all
documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement
and such Notes.
(iii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names and true
signatures of the officers of each Loan Party authorized to
sign this Agreement and the Notes and the other documents to
be delivered hereunder.
(iv) Certified copies of the Purchase Documents, duly
executed by the parties thereto, together with all agreements,
instruments and other documents delivered in connection
therewith.
(v) A certificate, in substantially the form of Exhibit D
hereto, attesting to the Solvency of each Loan Party after
giving effect to the Acquisition, the Special Dividend and the
Borrowings contemplated hereunder, and the Citibank
Indebtedness from the chief financial officer of each such
Loan Party.
(vi) Certified copies of the resolutions of the Board of
Directors (or committee thereof) of the Borrower and each
other Loan Party approving the Special Dividend as
contemplated by the Purchase Documents.
(vii) Certified copies of (A) all amendments to the
Purchase Documents and (B) each other document delivered
pursuant thereto, duly executed by the parties thereto,
together with all agreements, instruments and other documents
delivered in connection therewith.
(viii) Opinions, each dated the Effective Date, (A) of
O'Neill & Borges, special Puerto Rico counsel to the Loan
Parties, covering such matters as the Administrative Agent or
any Lender may reasonably request (and each Loan Party hereby
instructs such counsel to deliver such opinion to the Lenders
and the Administrative Agent); and (B) reliance opinions, each
dated the Effective Date, of Brown & Wood, Fiddler Gonzalez &
Rodriguez, Jose E. Arroyo, Esq., and Pietrantoni, Mendez &
Alvarez.
(ix) A certificate of a responsible financial officer
confirming that the Citibank Indebtedness has been fully
funded on the Effective Date in accordance with the terms of
the 364-Day Credit Agreement and the Five-Year Credit
Agreement (as described in the definition of Citibank
Indebtedness.)
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3.02 SECTION .0. Conditions Precedent to Each Revolving Credit
Borrowing. The obligation of each Lender to make a Revolving Credit Advance on
the occasion of each Revolving Credit Borrowing shall be subject to the
conditions precedent that the Effective Date and the Acquisition shall have
occurred and on the date of such Revolving Credit Borrowing the following
statements shall be true (and each of the giving of the applicable Notice of
Revolving Credit Borrowing and the acceptance by the Borrower of the proceeds of
such Revolving Credit Borrowing shall constitute a representation and warranty
by the Borrower that on the date of such Borrowing such statements are true):
(a) the representations and warranties contained in
Section 4.01 are correct in all material respects on and as of the date of such
Revolving Credit Borrowing, before and after giving effect to such Revolving
Credit Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date, and
(b) no event has occurred and is continuing, or would
result from such Revolving Credit Borrowing or from the application of the
proceeds therefrom, that constitutes a Default.
3.03 SECTION .0. Determinations Under Section 3.01. For
purposes of determining compliance with the conditions specified in Section
3.01, each Lender shall be deemed to have consented to, approved or accepted or
to be satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lenders unless
an officer of the Administrative Agent responsible for the transactions
contemplated by this Agreement shall have received notice from such Lender prior
to the date that the Borrower, by notice to the Lenders, designates as the
proposed Effective Date, specifying its objection thereto. The Administrative
Agent shall promptly notify the Lenders of the occurrence of the Effective Date.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES
4.01 SECTION .0. Representations and Warranties of the
Borrower. The Borrower represents and warrants as follows:
(a) (i) Each Loan Party is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (iii) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could (either
individually or in the aggregate) have a Material Adverse Effect.
(b) The execution, delivery and performance by each Loan
Party of this Agreement and the Notes executed by it and the consummation of the
transactions contemplated hereby, are within such Loan Party's corporate powers,
have been duly authorized
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by all necessary corporate action, and (i) do not contravene (A) such Loan
Party's charter or by-laws (or other equivalent organizational documents), or
(B) any law or any material contractual restriction binding on or affecting such
Loan Party or, to the knowledge of the chief financial officer of the Borrower,
any other contract the breach of which would limit the ability of any Loan Party
to perform its obligations under this Agreement or the Notes, and (ii) will not
result in the creation or imposition of any Lien upon any Property of the
Borrower or any of its Subsidiaries pursuant to the terms of any agreement or
instrument.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body or
any other third party is required for the due execution, delivery and
performance by any Loan Party of this Agreement or the Notes.
(d) This Agreement has been, and each of the Notes when
delivered hereunder will have been, duly executed and delivered by the Borrower.
This Agreement has been duly executed and delivered by each Guarantor. Assuming
that this Agreement has been duly executed by the Administrative Agent and each
of the Initial Lenders, this Agreement is, and each of the Notes when delivered
hereunder will be, the legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with their respective terms.
Assuming that this Agreement has been duly executed by the Administrative Agent
and each of the Initial Lenders, this Agreement is the legal, valid and binding
obligation of each Guarantor enforceable against each Guarantor in accordance
with its terms.
(e) The Consolidated balance sheet of the Borrower (or
its predecessor entities) and its Subsidiaries as at December 31, 1997, and the
related Consolidated statements of income and cash flows of the Borrower (or its
predecessor entities) and its Subsidiaries for the fiscal year then ended,
accompanied by an opinion of Deloitte & Touche LLP, independent public
accountants, copies of which have been furnished to each Lender, fairly present
the Consolidated financial condition of the Borrower (or its predecessor
entities) and its Subsidiaries as at such date and the Consolidated results of
the operations of the Borrower (or its predecessor entities) and its
Subsidiaries for the period ended on such date, all in accordance with generally
accepted accounting principles consistently applied. Except (i) as referred to
or reflected or provided for in the respective balance sheets referred to above;
(ii) for their respective obligations hereunder and under the Citibank
Indebtedness; (iii) as otherwise notified to the Administrative Agent in
writing; or (iv) as otherwise set forth in the Amended and Restated Stock
Purchase Agreement or the Disclosure Schedule delivered thereunder; none of such
respective entities has on the date hereof any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments.
(f) There is no pending or (to the knowledge of any Loan
Party) threatened action or proceeding, including, without limitation, any
Environmental Action, affecting any Loan Party or any of its Subsidiaries before
any court, governmental agency or arbitrator that is initiated by any Person
other than a Lender in its capacity as a Lender that purports to affect the
legality, validity or enforceability of this Agreement or any Note, or that, if
adversely determined could (either individually or in the aggregate) taking into
account rights of reimbursement and indemnification, have a Material Adverse
Effect.
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(g) No Loan Party is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.
(h) None of the Loan Parties is an "investment company",
or a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(i) Each of the Loan Parties has obtained all
environmental, health and safety permits, licenses and other authorizations
required under all Environmental Laws to carry on its business as now being or
as proposed to be conducted, except to the extent failure to have any such
permit, license or authorization would not (either individually or in the
aggregate) have a Material Adverse Effect. Each of such permits, licenses and
authorizations is in full force and effect and each of the Borrower and its
Subsidiaries is in compliance with the terms and conditions thereof, and is also
in compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply
therewith would not (either individually or in the aggregate) have a Material
Adverse Effect.
(j) The Borrower has provided to the Administrative Agent
for distribution to the Lenders copies of the Information Memorandum, dated
January 27, 1999, prepared by the Borrower for use in connection with the
syndication of the Citibank Indebtedness and the Borrower acknowledges that the
Lenders are relying on the information contained therein in connection with the
extension of credit contemplated by this Agreement. The information, including
without limitation all financial information of the Loan Parties and the
predecessor entities thereof (but not including the projected financial
information thereof), contained in such Information Memorandum (the
"Information") was, as of its date, complete and correct in all material
respects and did not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not materially misleading in light of the circumstances under which such
statements were made, and, in the case of the projected financial information of
the Loan Parties or any of them contained in such Information Memorandum, such
information was prepared by the Borrower in good faith based upon assumptions
believed by it to be reasonable. Nothing has come to the attention of the
Borrower that would lead it to believe that as of the date hereof, the
Information contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which such statements
were made, except as otherwise disclosed in this Agreement, including the
Schedules hereto or in the case of the projected financial information that the
assumptions on which such information was based were not reasonable.
(k) (i) The Special Dividend has been approved, declared
and, on the Effective Date, shall be paid, by and in accordance with all
necessary corporate action required by
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the General Corporations Law of Puerto Rico of 1995, as amended (the "GCL"), the
charter, by-laws and the resolutions of the Board of Directors of the Borrower
and of each of its Subsidiaries.
(ii) On the Effective Date, the Acquisition shall have
been consummated in all material respects in accordance with
the terms of the Purchase Documents.
(iii) On the Effective Date, (A) GTE Holdings (Puerto
Rico) shall have acquired valid title to shares of capital
stock of the Borrower comprising the Controlling Interest of
the Borrower, and (B) the Puerto Rico Telephone Authority
shall own shares of capital stock of the Borrower representing
not less than shares representing 43% minus one share of all
of the issued and outstanding capital stock of the Borrower.
(l) The Loan Parties have exercised all commercially
reasonable efforts to ensure Year 2000 compliance of its computer systems and
equipment so that the so called Year 2000 problem will not result in a Default
or a Material Adverse Effect.
(m) (i) The obligations of the Loan Parties hereunder and
under the Notes, and the obligations of the Loan Parties under the Citibank
Indebtedness are of equal priority (pari passu), and (ii) except for any rights
to set-off in favor of the agent(s) or the lenders under Section 9.05 of the
346-Day Credit Agreement and the Five-Year Credit Agreement (as described in the
definition of Citibank Indebtedness), no Lien over any Property of the Loan
Parties has been granted in favor of the lenders party to such agreements, as
security for the obligations of the Borrower and its Subsidiaries under the
Citibank Indebtedness.
(n) No Agency Relationship. The Borrower understands and
agrees that neither the Administrative Agent nor any Lender is the agent or
representative of the Borrower, and this Agreement shall not be construed to
make the Administrative Agent or any such Lender liable to any third parties for
any obligations of the Borrower or any of its Subsidiaries in connection with
the operation and administration of their respective businesses.
ARTICLE FIVE
COVENANTS OF THE LOAN PARTIES
5.01 SECTION .0. Affirmative Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, each Loan
Party will:
(a) Compliance with Laws, Etc. Comply, and cause each of
its Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA and Environmental Laws, except where the failure to so
comply would not have a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause
each of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all
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lawful claims that, if unpaid, might by law become a Lien upon its Property;
provided, however, that neither any Loan Party nor any of its Subsidiaries shall
be required to pay or discharge any such tax, assessment, charge or claim that
is being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien resulting
therefrom attaches to its Property and becomes enforceable against its other
creditors and the aggregate of such Liens would have a Material Adverse Effect.
(c) Maintenance of Insurance. Maintain, and cause each of
its Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which such Loan Party or such Subsidiary operates;
provided, however, that such Loan Party and its Subsidiaries may self-insure to
the extent consistent with prudent business practice.
(d) Preservation of Corporate Existence, Etc. Preserve
and maintain, and cause each of their respective Subsidiaries to preserve and
maintain, its corporate existence, rights (charter and statutory), licenses and
franchises; provided, however, that each Loan Party and its Subsidiaries may
consummate any transaction permitted under Section 5.02(b) and provided further
that neither any Loan Party nor any of its Subsidiaries shall be required to
preserve any license, right or franchise, if the senior management of such Loan
Party or of such Subsidiary shall determine that the preservation thereof is no
longer desirable in the conduct of the business of such Loan Party or the
Subsidiary, as the case may be, and that the loss thereof is not disadvantageous
in any material respect to such Loan Party or such Subsidiary.
(e) Visitation Rights. During normal business hours and
upon reasonable notice from time to time, permit the Administrative Agent or any
of the Lenders or any agents or representatives thereof, to examine and make
copies of and abstracts from the records and books of account of (excluding any
confidential information), and visit the properties of, such Loan Party and any
of its Subsidiaries, and to discuss the affairs, finances and accounts of such
Loan Party and any of its Subsidiaries with the appropriate representatives of
such Loan Party and together with the appropriate representatives of such Loan
Party's independent certified public accountants.
(f) Keeping of Books. Keep, and cause each of its
Subsidiaries to keep, proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of such Loan Party and each such Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, its
material Properties that are used or useful in the conduct of its business in
good working order and condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each
of its Subsidiaries to conduct, all transactions otherwise permitted under this
Agreement with any of their Affiliates, other than another Loan Party, (i) on
terms that are fair and reasonable and no less favorable to such Loan Party or
such Subsidiary than it would obtain in a comparable arm's-
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length transaction with a Person not an Affiliate, except where the failure to
do so, in the aggregate, would not have a Material Adverse Effect, (ii) as
required by the Federal Communications Commission's rules and regulations for
transactions among affiliates, or (iii) as contemplated by the Management
Agreement and the Technology Transfer Agreement.
(i) Reporting Requirements. Furnish to each of the
Lenders:
(i) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each
fiscal year of the Borrower, the Consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of such
quarter and the Consolidated statements of income and cash
flows of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending
with the end of such quarter, in each case together with
consolidating schedules pertaining thereto for the Borrower
and each of its Subsidiaries, duly certified (subject to
year-end audit adjustments) by the chief financial officer,
treasurer or controller of the Borrower as having been
prepared in accordance with generally accepted accounting
principles and certificates of the chief financial officer,
treasurer or controller of the Borrower as to compliance with
the terms of this Agreement and setting forth in reasonable
detail the calculations necessary to demonstrate compliance
with Section 5.03, provided that in the event of any change in
GAAP used in the preparation of such financial statements, the
Borrower shall also provide, if necessary for the
determination of compliance with Section 5.03, a statement of
reconciliation showing the calculations used for purposes of
Section 5.03;
(ii) as soon as available and in any event within 120
days after the end of each fiscal year of the Borrower, a copy
of the annual audited report for such year for the Borrower
and its Subsidiaries, containing the Consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of
such fiscal year and the Consolidated statements of income and
cash flows of the Borrower and its Subsidiaries for such
fiscal year, in each case together with consolidating
schedules pertaining thereto for the Borrower and each of its
Subsidiaries, in each case accompanied by an opinion
acceptable to the Required Lenders by Deloitte & Touche LLP or
other independent public accountants of nationally recognized
standing, provided that in the event of any change in GAAP
used in the preparation of such financial statements, the
Borrower shall also provide, if necessary for the
determination of compliance with Section 5.03, a statement of
reconciliation showing the calculations used for purposes of
Section 5.03;
(iii) promptly upon receipt thereof, copies of all
management letters and other material reports which are
submitted to the Board of Directors of the Borrower or any of
its Subsidiaries by their independent certified public
accountants in connection with any annual audit of the
Borrower and/or any such Subsidiary by such accountants;
(iv) as soon as possible and in any event within five
Business Days after the occurrence of each Default continuing
on the date of such statement, a
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statement of the chief financial officer, treasurer or
controller of the Borrower setting forth details of such
Default and the action that the Borrower has taken and
proposes to take with respect thereto;
(v) promptly after the sending or filing thereof, copies
of any quarterly and annual reports and proxy solicitations
that any Loan Party sends to any of its securityholders, and
copies of any reports, including any reports on Form 8-K that
such Loan Party files with the Commission (other than reports
on Form 8-K filed solely for the purpose of incorporating
exhibits into a registration statement previously filed with
the Securities and Exchange Commission);
(vi) prompt notice of all actions and proceedings before
any court, governmental agency or arbitrator affecting any
Loan Party or any of its Subsidiaries of the type described in
Section 3.01(c); and
(vii) such other information respecting any Loan Party or
any of its Subsidiaries as any Lender through the
Administrative Agent may from time to time reasonably request.
(viii) Further Assurances. The Borrower will execute,
acknowledge where appropriate, and deliver, and cause to be
executed, acknowledged where appropriate, and delivered, from
time to time, promptly at the request of the Administrative
Agent or any of the Lenders, all such instruments and
documents as in the reasonable opinion of the Administrative
Agent or such Lender are necessary or advisable to carry out
the intent and purpose of this Agreement and the Notes.
(ix) Performance of Agreements. The Borrower will take
all action and do all things which it is authorized by law or
contract to take and to do in order to perform and observe and
to cause the Loan Parties to perform and observe, all
covenants and agreements on its or their part to be performed
and observed under this Agreement, the Notes, and the
Contribution Agreement (which Contribution Agreement shall not
be amended without the consent of the Required Lenders).
(x) So long as any Commitments are available, or any
amounts under the Notes are outstanding hereunder, the
obligations of the Loan Parties hereunder and under the Notes
shall remain of equal priority (pari passu) with the
obligations of the Loan Parties under the Citibank
Indebtedness.
5.02 SECTION .0. Negative Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower will not:
(a) Liens, Etc. Create or suffer to exist, or permit any
of its Subsidiaries to create or suffer to exist, any Lien on or with respect to
any of its Properties, whether now owned or hereafter acquired, or assign for
security purposes (but not in connection with a bona fide sale thereof), or
permit any of its Subsidiaries to assign for security purposes (but not in
connection with a bona fide sale thereof), any right to receive income for any
purpose,
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including for the purpose of securing the Citibank Indebtedness; provided that
nothing in this Section 5.02 shall be construed to prevent or restrict the
following:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real property or
equipment acquired or held by the Borrower or any of its
Subsidiaries in the ordinary course of business to secure the
purchase price of such property or equipment or to secure Debt
incurred solely for the purpose of financing the acquisition
of such property or equipment, or Liens existing on such
property or equipment at the time of its acquisition or
conditional sales or other similar title retention agreements
with respect to property hereafter acquired or extensions,
renewals or replacements of any of the foregoing for the same
or a lesser amount, provided, however, that no such Lien shall
extend to or cover any properties of any character other than
the real property or equipment being acquired, and no such
extension, renewal or replacement shall extend to or cover any
properties not theretofore subject to the Lien being extended,
renewed or replaced,
(iii) the Liens existing on the Effective Date and
described on Schedule 5.02(a) hereto and other undisclosed
Liens existing on the Effective Date securing obligations in
aggregate amount not to exceed $10,000,000,
(iv) Liens on property of a Person existing at the time
such Person is merged into or consolidated with the Borrower
or any of its Subsidiaries; provided that any such Liens that
were created during the period immediately prior to such
merger, consolidation or acquisition were created in the
ordinary course of business of such Person and the Debt
secured by such Liens does not exceed the fair market value of
the assets (including intangible assets) of such Person so
merged into or consolidated with the Borrower or any of its
Subsidiaries,
(v) the replacement, extension or renewal of any Lien
permitted by clauses (iii) and (iv) above upon or in the same
property theretofore subject thereto or the replacement,
extension or renewal (without increase in the amount or
extension of the final maturity date) of the Debt secured
thereby; and
(vi) Liens not otherwise permitted pursuant to clause (i)
through (v) above securing obligations not to exceed at any
time outstanding the amount of $10,000,000.
(b) Mergers, Etc. Merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its Property or assets
(whether now owned or hereafter acquired) to, any Person, or permit any of its
Subsidiaries to do so, except that (i) any Subsidiary of the Borrower may merge
or consolidate with or into, or dispose of its Property or assets to, any other
Subsidiary of the Borrower, (ii) any Subsidiary of the Borrower may merge into
or dispose of its Property or assets to the Borrower, and (iii) the Borrower may
merge with any Subsidiary of
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GTE so long as the surviving corporation assumes to the reasonable satisfaction
of the Administrative Agent all obligations of the Borrower hereunder and under
the Notes and the Guarantors confirm in writing their guarantee obligations
hereunder upon the occurrence of and following such merger, and provided, in
each case, that no Default shall have occurred and be continuing at the time of
such proposed transaction or would result therefrom.
(c) Accounting Changes. Make or permit, or permit any of
its Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except (i) as required or permitted by generally accepted
accounting principles or (ii) where the effect of such change, together with all
other changes in accounting policies or reporting practices made pursuant to
this clause (ii) since the Effective Date, is immaterial to the Borrower and its
Subsidiaries taken as a whole.
(d) Subsidiary Debt. Permit any of its Subsidiaries to
create or suffer to exist, any Debt other than:
(i) Debt owed to the Borrower or to a wholly owned
Subsidiary of the Borrower (it being understood that such Debt
includes any Debt incurred (A) in connection with the
Acquisition and (B) under the Contribution Agreement,
(ii) Debt existing on the Effective Date and described on
Schedule 5.02(d) hereto (the "Existing Debt"), and any Debt
extending the maturity of, or refunding or refinancing, in
whole or in part, the Existing Debt, provided that the
principal amount of such Existing Debt shall not be increased
above the principal amount thereof outstanding immediately
prior to such extension, refunding or refinancing, and the
direct and contingent obligors therefor shall not be changed,
as a result of or in connection with such extension, refunding
or refinancing,
(iii) unsecured Debt incurred in the ordinary course of
business aggregating for each of the Guarantors not more than
$75,000,000 at any one time outstanding,
(iv) Debt in respect of operating leases, and
(v) endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
(e) Certain Obligations Respecting Subsidiaries.
(i) The Borrower will, and will cause each of its
Subsidiaries to, take such action from time to time as shall
be necessary to ensure that each of its Subsidiaries is a
Wholly Owned Subsidiary.
(ii) The Borrower will take such action, and will cause
each of its Significant Subsidiaries and any Significant
Subsidiary formed with the intent of merging with or into a
Person that will be a Significant Subsidiary subject to this
provision to take such action, from time to time as shall be
necessary to ensure
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that all Significant Subsidiaries of the Borrower are party
to, as Loan Parties, the Guaranty provided in Article VII
hereof. Without limiting the generality of the foregoing, in
the event that the Borrower or any of its Significant
Subsidiaries shall form or acquire any new Significant
Subsidiary, the Borrower or the respective Significant
Subsidiary will cause such new Significant Subsidiary to (A)
become a party hereto and to the Guaranty pursuant to a
written instrument in form and substance satisfactory to the
Administrative Agent, and (B) deliver such proof of corporate
action, incumbency of officers, opinions of counsel and other
documents relating to the foregoing as is consistent with
those delivered by each Loan Party pursuant to Section 6
hereof, or as any Lender or the Administrative Agent shall
have reasonably requested.
(f) Modifications of Certain Documents. The Borrower will
not, and shall cause its Subsidiaries not to, without the prior written consent
of the Administrative Agent and the Required Lenders, modify, amend or
supplement, or give any consent to any modification, amendment or supplement to
any of the Purchase Documents, the effect of which would be to waive, settle, or
compromise any material right of indemnification, guaranty of payment or
performance, or any material right to receive payment thereunder from any Person
granted to the Borrower.
5.03 SECTION .0. Financial Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower will:
(a) Debt to Annualized EBITDA Ratio. Maintain a Debt to
Annualized EBITDA Ratio, computed at the end of each fiscal quarter of the
Borrower commencing with the fiscal quarter ending September 30, 1999, of not
more than 4.0:1.0.
(b) Annualized EBITDA to Interest Ratio. Maintain an
Annualized EBITDA to Interest Ratio, computed at the end of each fiscal quarter
of the Borrower commencing with the fiscal quarter ending September 30, 1999, of
not less than 3.25:1.0.
ARTICLE SIX
EVENTS OF DEFAULT
6.01 SECTION .0. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any
Advance when the same becomes due and payable; or the Borrower shall fail to pay
any interest on any Advance within five Business Days after the same becomes due
and payable; or any fees or other amounts payable under this Agreement or any
Note are not paid within five (5) Business Days after the same becomes due and
payable; or
(b) Any representation or warranty made or deemed made by
the Borrower herein or by the Borrower (or any of its officers) in connection
with this Agreement shall prove to have been incorrect in any material respect
when made or deemed made; or
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(c) Any Loan Party shall fail to perform or observe any
term, covenant or agreement contained in Section 5.01(d), (e), (h), (i)(iv) or
(i)(vi), 5.02 or 5.03; or
(d) (i) any Loan Party shall fail to perform or observe
any term, covenant or agreement contained in Section 5.01(i) (other than clauses
(iv) and (vi) thereof) if such failure shall remain unremedied for five Business
Days after written notice thereof shall have been given to such Loan Party by
the Administrative Agent or any Lender or (ii) any Loan Party shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed if such failure shall remain
unremedied for thirty (30) days after written notice thereof shall have been
given to such Loan Party by the Administrative Agent or any Lender; or
(e) Article VII is breached by any Guarantor or shall
cease to be in full force and effect or any Guarantor shall so state in writing;
or
(f) The Borrower or any of its Subsidiaries shall fail to
pay any principal of or premium or interest on any Debt that is outstanding in a
principal or, in the case of Hedge Agreements, net amount of at least
$20,000,000 in the aggregate (but excluding Debt outstanding hereunder) of the
Borrower or such Subsidiary (as the case may be) (the "Requisite Amount"), when
the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the later of five Business Days and the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; or any such Debt
aggregating the Requisite Amount shall be declared due and payable in accordance
with its terms or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt aggregating the Requisite
Amount and shall continue after the applicable grace period, if any, specified
in such agreement or instrument, if the effect of such event or condition is to
accelerate the maturity of such Debt; or any such Debt aggregating the Requisite
Amount shall be required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased in
accordance with its terms, or any offer to prepay, redeem, purchase or defease
such Debt shall be required to be made in accordance with its terms, in each
case prior to the stated maturity thereof where the cause of such prepayment,
redemption, purchase or defeasance or offer therefor is the occurrence of an
event or condition that is premised on a material adverse deterioration of the
financial condition, results of operation or properties of the Borrower or any
of its Subsidiaries, provided that with respect to Debt aggregating the
Requisite Amount of the types described in clauses (h) or (i) of the definition
of "Debt" and to the extent such Debt relates to the obligations of any Person
other than the Borrower or any of its Subsidiaries, no Event of Default shall
occur so long as the payment of such Debt is being contested in good faith and
by proper proceedings and as to which appropriate reserves are being maintained;
or any event shall occur or condition shall exist under any agreement or
instrument relating to any Debt that is outstanding in a principal or, in the
case of Hedge Agreements, net amount, of at least $40,000,000 and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or permit
the acceleration of, the maturity of such Debt; or
(g) The Borrower or any of its Subsidiaries shall
generally not pay their respective debts as such debts become due, or shall
admit in writing its inability to pay its
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debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of 60
days, or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or the Borrower or its
Subsidiaries shall take any corporate action to authorize any of the actions set
forth in this subsection (f) under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors; or
(h) Any judgment or order for the payment of money in
excess of $30,000,000 shall be rendered against the Borrower or its Subsidiaries
and enforcement proceedings shall have been commenced by any creditor upon such
judgment or order for which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; provided,
however, that any such judgment or order shall not be an Event of Default under
this Section 6.01(g) if and for so long as (i) (A) the amount of such judgment
or order is covered by a valid and binding policy of insurance between the
defendant and the insurer or insurers covering payment thereof, (B) such insurer
shall be rated, or, if more than one insurer, at least 90% of such insurers as
measured by the amount of risk insured, shall be rated, at least "A" by A.M.
Best Borrower or its successor or its successors and (C) such insurer(s) has
been notified of, and has not disputed the claim made for payment of, the amount
of such judgment or order or (ii) (A) the amount of such judgment or order is
covered by a valid and binding indemnification agreement between the defendant
and an indemnitor, (B) such indemnitor shall have a rating for any class of its
non-credit enhanced long-term senior unsecured debt of not lower than BBB+ by
S&P or Baa3 by Moody's and (C) such indemnitor has been notified of, and has not
disputed the claim made for payment of, the amount of such judgment or order; or
(i) (i) After the Effective Date, GITI or any entity
controlling GITI shall cease for any reason to maintain, directly or indirectly,
the Controlling Interest; or (ii) any Person or two or more Persons (other than
GTE or its Subsidiaries or Bell Atlantic Corporation as successor to or parent
of GTE after the merger of GTE with Bell Atlantic Corporation or any of its
Subsidiaries) acting in concert shall have acquired beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of
GITI (or other securities convertible into such Voting Stock) representing more
than 50% of the combined voting power of all Voting Stock of GITI; or (iii) the
Borrower shall for any reason cease to own 100% of the Voting Stock of either
Guarantor; or
(j) Any Loan Party or its ERISA Affiliates shall incur,
or shall be reasonably likely to incur, liability that would have a Material
Adverse Effect as a result of one or more of the following: (i) the occurrence
of any ERISA Event; (ii) the partial or complete
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withdrawal of such Loan Party or its ERISA Affiliates from a Multiemployer Plan;
or (iii) the reorganization or termination of a Multiemployer Plan;
then, and in any such event, the Administrative Agent (i) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower, declare the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however, that in
the event of an actual or deemed entry of an order for relief with respect to
the Borrower under the Federal Bankruptcy Code, (A) the obligation of each
Lender to make Advances shall automatically be terminated and (B) the Notes, all
such interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower.
ARTICLE SEVEN
GUARANTY
(a) SECTION .0. Guaranty; Limitation of Liability. ()
Each Guarantor hereby unconditionally and irrevocably, jointly and severally
("in solidum") guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of each other Loan
Party now or hereafter existing under this Agreement or any Note, whether for
principal, interest, fees, expenses or otherwise (such obligations, to the
extent not paid by such Loan Party or specifically waived in accordance with
Section 9.01, being the "Guaranteed Obligations"), and agrees to pay any and all
expenses (including reasonable counsel fees and expenses) incurred by the
Administrative Agent or the Lenders in enforcing any rights under this Article
VII ("this Guaranty"). Without limiting the generality of the foregoing, each
Guarantor's liability shall extend to all amounts that constitute part of the
Guaranteed Obligations and would be owed by any Loan Party to the Administrative
Agent or any Lender under this Agreement or any Note but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Loan Party.
(b) (i)Each Guarantor and, by its acceptance of this
Guaranty, the Administrative Agent and each other Lender, hereby confirms that
it is the intention of all such parties that this Guaranty not constitute a
fraudulent transfer or fraudulent conveyance for purposes of the Bankruptcy Law,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar Federal, state or Commonwealth of Puerto Rico law to the extent
applicable to this Guaranty. To effectuate the foregoing intention, the
Administrative Agent, each other Lender and each Guarantor hereby irrevocably
agrees that, notwithstanding the fact that this is a joint and several Guaranty,
the obligations of each Guarantor under this Guaranty shall not exceed the
greater of (A) the benefit realized by such Guarantor from the proceeds of the
Advances made from time to time by the Borrower to such Guarantor and (B) the
maximum amount that will, after giving effect to such maximum amount and all
other probable
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contingent and fixed liabilities of such Guarantor that are relevant under
applicable law, and after giving effect to any collections from, rights to
receive contribution from, or payments made by or on behalf of the other
Guarantor in respect of the obligations of such other Guarantor under this
Guaranty, result in the obligations of such Guarantor under this Guaranty not
constituting a fraudulent transfer or fraudulent conveyance. For purposes
hereof, "Bankruptcy Law" means Title 11, United States Code, or any similar
Federal, state or Commonwealth of Puerto Rico law for the relief of debtors.
(ii) Each Guarantor agrees that in the event any payment
shall be required to be made to the Lenders under this
Guaranty, such Guarantor will contribute, to the maximum
extent permitted by law, such that the contribution will not
result in a fraudulent transfer or fraudulent conveyance, such
amounts to the other Guarantor so as to maximize the aggregate
amount paid to the Lenders under this Agreement and the Notes.
(iii) This is a guaranty of payment and not of
collection, and is the primary obligation of each of the
Guarantors; and the Administrative Agent or any Lender may,
subject to the terms and conditions hereof, enforce this
Guaranty against either Guarantor without any prior
enforcement of the Guaranteed Obligations against the Borrower
or the other Guarantor, and/or without any prior enforcement
of any other collateral security held by the Administrative
Agent or the Lenders as security for the payment and
performance of the Borrower's obligations to the
Administrative Agent and/or the Lenders.
7.02 SECTION .0. Guaranty Absolute. Each Guarantor guarantees
that the Guaranteed Obligations will be paid strictly in accordance with the
terms of this Agreement and the Notes, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Administrative Agent or the Lenders with respect thereto.
The obligations of each Guarantor under this Guaranty are independent of the
Guaranteed Obligations, and a separate action or actions may be brought and
prosecuted directly against such Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against the Borrower or the other
Guarantor or whether the Borrower or the other Guarantor is joined in any such
action or actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional irrespective of, and, to the maximum
extent permitted by law, each Guarantor hereby irrevocably waives, any defenses
it may now or hereafter have in any way relating to, any or all of the
following:
(a) any lack of validity or enforceability of this
Agreement, the Notes or any agreement or instrument relating hereto;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from this Agreement or
any Note, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to the Borrower or
otherwise;
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(c) any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed Obligations;
(d) any change, restructuring or termination of the
corporate structure or existence of the Borrower; or
(e) any other circumstance (including, without
limitation, any statute of limitations) or any existence of or reliance on any
representation by the Administrative Agent or any Lender that might otherwise
constitute a defense available to, or a discharge of, any Guarantor, the
Borrower or any other guarantor or surety other than payment when due.
This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by the Administrative Agent or any
Lender upon the insolvency, bankruptcy or reorganization of the Borrower or
either Guarantor or otherwise, all as though such payment had not been made.
(f) SECTION .0. Waiver. () Each Guarantor hereby waives
the right to require application (excusion de bienes) in respect of the Property
of the Borrower or the other Guarantor, promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that the Administrative Agent
or any Lender exhaust any right or take any action against the Borrower or any
other Person or any collateral. Each Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated herein
and that the waiver set forth in this Section 7.03 is knowingly made in
contemplation of such benefits. Each Guarantor hereby waives any right to revoke
this Guaranty, and acknowledges that this Guaranty is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in the future.
(g) So far as each of the Guarantors is concerned, the
Lenders or the Administrative Agent for the benefit of the Lenders, may, at any
time and from time to time, without the consent of or notice to the Guarantors,
and without impairing or releasing any of the obligations of the Guarantors
hereunder, upon or without any terms or conditions and in whole or in part:
(i) exercise or refrain from exercising any rights
against the Borrower or others (including, without limitation,
any other guarantor of payment of the Guaranteed Obligations)
or otherwise act or refrain from acting, whether under the
Credit Agreement or under rights and remedies that the Lenders
may now or hereafter have under any collateral given
thereunder or henceforth; and when making any demand hereunder
against either or both the Guarantors, the Lenders or the
Administrative Agent for the benefit of the Lenders, may, but
shall be under no obligation to, make a similar demand on any
other guarantor of payment of the Guaranteed Obligations, and
any failure by the Lenders or the Administrative Agent to make
any such demand or to collect any payments from any other
guarantor or any release of another guarantor of payment of
the Guaranteed Obligations shall not relieve the Guarantors of
their obligations and liabilities hereunder, and shall not
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release, impair or affect the rights and remedies, express or
implied, or as a matter of law, of the Lenders against the
Guarantors (for the purposes hereof, "demand" shall include
the commencement and continuation of any legal proceedings);
(ii) settle or compromise any of the Guaranteed
Obligations, any security therefor or any liability (including
any of those hereunder) incurred directly or indirectly in
respect thereof or hereof, and subordinate the payment of all
or any part thereof to the payment of any liability (whether
due or not) of the Borrower to creditors of the Borrower other
than the Lenders;
(iii) apply any sums by whomsoever paid or howsoever
realized to any liability or liabilities of the Borrower
hereunder to the Administrative Agent and/or the Lenders,
regardless of what liability or liabilities of the Borrower
remain unpaid; and
(iv) amend or otherwise modify, consent to or waive any
breach of, or any act, omission or Default under, this
Agreement and the Notes or any other agreements, instruments
or documents referred to therein or executed and delivered
pursuant thereto or in connection therewith, and this Guaranty
shall apply to the Guaranteed Obligations as set forth in each
of such documents as so amended and modified. Any such action
taken by the Administrative Agent or the Lenders shall not
impair or release any of the obligations of the Guarantor
hereunder.
7.03 SECTION .0. Continuing Guaranty; Assignments. This
Guaranty is a continuing guaranty and shall (a) remain in full force and effect
until the later of the cash payment in full of the Guaranteed Obligations and
all other amounts payable under this Guaranty and the Termination Date, (b) be
binding upon each Guarantor, its successors and assigns and (c) inure to the
benefit of and be enforceable by the Lenders, the Administrative Agent and their
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Lender may assign or otherwise transfer all or any
portion of its rights and obligations hereunder (including, without limitation,
all or any portion of its Commitment, the Advances owing to it and the Note or
Notes held by it) to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Lender
herein or otherwise, in each case as provided in Section 9.07.
7.04 SECTION .0. Subrogation. Neither Guarantor will exercise
any rights that it may now or hereafter acquire against the Borrower or any
other insider guarantor that arise from the existence, payment, performance or
enforcement of such Guarantor's obligations under this Guaranty, including,
without limitation, any right of subrogation, reimbursement, exoneration,
contribution or indemnification and any right to participate in any claim or
remedy of the Administrative Agent or any Lender against the Borrower, the other
Guarantor or any other insider guarantor or any collateral, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Borrower, the other Guarantor or any other insider guarantor, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security solely on account of such claim, remedy or right, unless and
until all of the Guaranteed
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Obligations and all other amounts payable under this Guaranty shall have been
paid in full in cash and the Termination Date shall have occurred. If any amount
shall be paid to either Guarantor in violation of the preceding sentence at any
time prior to the later of the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and the
Termination Date, such amount shall be held in trust for the benefit of the
Administrative Agent and the Lenders and shall forthwith be paid to the
Administrative Agent to be credited and applied to the Guaranteed Obligations
and all other amounts payable under this Guaranty, whether matured or unmatured,
in accordance with the terms of this Guaranty, or to be held as collateral for
any Guaranteed Obligations or other amounts payable under this Guaranty
thereafter arising. If (i) either Guarantor shall make payment to the
Administrative Agent or any Lender of all or any part of the Guaranteed
Obligations, (ii) all of the Guaranteed Obligations and all other amounts
payable under this Guaranty shall be paid in full in cash and (iii) the
Termination Date shall have occurred, the Administrative Agent and the Lenders
will, at such Guarantor's request and expense, execute and deliver to such
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to such Guarantor of
an interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.
ARTICLE EIGHT
THE ADMINISTRATIVE AGENT
8.01 SECTION .0. Appointment, Powers and Immunities. Each
Lender hereby irrevocably appoints and authorizes the Administrative Agent to
act as its agent hereunder with such powers as are specifically delegated to the
Administrative Agent by the terms of this Agreement, together with such other
powers as are reasonably incidental thereto. The Administrative Agent (which
term as used in this sentence and in Section 8.05 and the first sentence of
Section 8.06 hereof shall include reference to its affiliates and its own and
its affiliates' officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement ,
and shall not by reason of this Agreement be a trustee for any Lender; (b) shall
not be responsible to the Lenders for any recitals, statements, representations
or warranties contained in this Agreement, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any other document executed hereunder, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, any
Note or any other document referred to or provided for herein or therein or for
any failure by the Borrower or any other Person to perform any of its
obligations hereunder or thereunder; (c) shall not be required to initiate or
conduct any litigation or collection proceedings hereunder or under any other
document executed hereunder; and (d) shall not be responsible for any action
taken or omitted to be taken by it hereunder or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct. The Administrative Agent may employ agents and attorneys-in-fact and
shall not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a notice of the assignment or transfer thereof shall
have been filed with the Administrative Agent.
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8.02 SECTION .0. Reliance by Administrative Agent. The
Administrative Agent shall be entitled to rely upon any certification, notice or
other communication (including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it to be genuine and correct and
to have been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel, independent accountants and other
experts selected by the Administrative Agent. As to any matters not expressly
provided for by this Agreement or any other documents, the Administrative Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by the Required
Lenders or, if provided herein, in accordance with the instructions given by all
of the Lenders as is required in such circumstance, and such instructions of
such Lenders and any action taken or failure to act pursuant thereto shall be
binding on all of the Lenders.
8.03 SECTION .0. Defaults. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of a Default unless the
Administrative Agent has received notice from a Lender or any Loan Party
specifying such Default and stating that such notice is a "Notice of Default".
In the event that the Administrative Agent receives such a notice of the
occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders. The Administrative Agent shall (subject to Section 8.07
hereof) take such action with respect to such Default as shall be directed by
the Required Lenders, provided that, unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best interest of the
Lenders except to the extent that this Agreement expressly requires that such
action be taken, or not be taken, only with the consent or upon the
authorization of the Required Lenders, or all of the Lenders.
8.04 SECTION .0. Rights as a Lender. With respect to its
Commitments and the Advances made by it, the Administrative Agent (and any
successor acting as Administrative Agent) in its capacity as a Lender hereunder
shall have the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not acting as the Administrative Agent, and
the term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Administrative Agent in its individual capacity. Banco Popular (and
any successor acting as Administrative Agent) and its affiliates may (without
having to account therefor to any Lender) accept deposits from, lend money to,
make investments in and generally engage in any kind of banking, trust or other
business with the Loan Parties (and any of their Subsidiaries or Affiliates) as
if it were not acting as the Administrative Agent, and Banco Popular and its
affiliates may accept fees and other consideration from the Loan Parties for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
8.05 SECTION .0. Indemnification. The Lenders agree to
indemnify the Administrative Agent (to the extent not reimbursed under Section
9.04 hereof, but without limiting the obligations of the Borrower under said
Section 9.04, ratably in accordance with the aggregate principal amount of the
Advances held by the Lenders (or, if no Loans are at the time outstanding,
ratably in accordance with their respective Commitments), for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent (including
by any Lender) arising out of or by reason
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of any investigation in or in any way relating to or arising out of this
Agreement or any other documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses that the Borrower is obligated to pay under
Section 9.04 hereof, but excluding, unless a Default has occurred and is
continuing, normal administrative costs and expenses incident to the performance
of its agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified.
8.06 SECTION .0. Non-Reliance on Administrative Agent and
Other Lenders. Each Lender agrees that it has, independently and without
reliance on the Administrative Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and its Subsidiaries and decision to enter into this
Agreement and that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
under any other documents. The Administrative Agent shall not be required to
keep itself informed as to the performance or observance by any Loan Party of
this Agreement or any of the other documents or any other document referred to
or provided for herein or therein or to inspect the Properties or books of the
Borrower or any of its Subsidiaries. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or under the documents, the Administrative
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the affairs, financial condition or
business of the Borrower or any of its Subsidiaries (or any of their affiliates)
that may come into the possession of the Administrative Agent or any of its
Affiliates.
8.07 SECTION .0. Failure to Act. Except for action expressly
required of the Administrative Agent hereunder and under the other documents,
the Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 8.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
8.08 SECTION .0. Resignation or Removal of Administrative
Agent. Subject to the appointment and acceptance of a successor Administrative
Agent as provided below, the Administrative Agent may resign at any time by
giving notice thereof to the Lenders and the Borrower, and the Administrative
Agent may be removed at any time with or without cause by the Required Lenders.
Upon any such resignation or removal, the Required Lenders shall have the right
to appoint a successor Administrative Agent with the prior consent of the
Borrower (which consent shall not be unreasonably withheld); provided that no
such consent of the Borrower shall be required if an Event of Default has
occurred and is continuing and the Commitments have been terminated and/or the
Loans and other amounts payable by the Loan Parties hereunder have been declared
forthwith due and payable. If no successor Administrative Agent shall have been
so appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Administrative
Agent, then the
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retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, that shall be a bank with a combined capital and surplus
of at least $500,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. After any retiring Administrative Agent's resignation
or removal hereunder as Administrative Agent, the provisions of this Section 8
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Administrative Agent
hereunder.
8.09 SECTION .0. Agency Fee. The Borrower will pay to the
Administrative Agent an agency fee in the amount of $50,000, payable in full on
the Effective Date.
ARTICLE NINE
MISCELLANEOUS
(a) SECTION .0. Amendments, Etc. () Except as otherwise
expressly provided in this Agreement, any provision of this Agreement may be
amended, modified or supplemented only by an instrument in writing signed by the
Borrower, the Administrative Agent and the Required Lenders, or by the Borrower
and the Administrative Agent acting with the consent of the Required Lenders,
and any provision of this Agreement may be waived by the Required Lenders or by
the Administrative Agent acting with the consent of the Required Lenders;
provided that: (x) no modification, supplement or waiver shall, unless by an
instrument signed by all of the Lenders or by the Administrative Agent acting
with the consent of all of the Lenders: (i) increase, or extend the term of any
of the Commitments, or extend the time or waive any requirement for the
reduction or termination of any of the Commitments, (ii) reduce or terminate,
other than reductions or termination of Commitments made by the Borrower as
permitted in Section 2.02 hereof, the Commitment(s) of any Lender, (iii) extend
the date fixed for the payment of principal of or interest on any Revolving
Credit Advance, or any fee hereunder, (iv) reduce the amount of any such payment
of principal, (v) reduce the rate at which interest is payable thereon or any
fee is payable hereunder, (vi) alter the rights or obligations of the Borrower
to prepay Loans, (vii) alter the terms of this Section 9.01, (viii) modify the
definition of the term "Required Lenders", or modify in any other manner the
number or percentage of the Lenders required to make any determinations or waive
any rights hereunder or to modify any provision hereof, (ix) release any
Guarantor from any of its guarantee obligations under Article VII hereof or (x)
waive any of the conditions precedent set forth in Article III hereof; and (y)
any modification of any of the rights or obligations of the Administrative Agent
shall require the consent of the Administrative Agent.
(b) Each Lender grants (x) to the Administrative Agent
the right to purchase all (but not less than all) of such Lender's Commitments
and Advances owing to it and the Notes held by it and all of its rights and
obligations hereunder and under the other documents at a price equal to the
aggregate amount of outstanding Advances owed to such Lender (together with all
accrued and unpaid interest and fees owed to such Lender), and (y) to the
Borrower the right to cause an assignment of all (but not less than all) of such
Lender's Commitments and
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Advances owing to it and the Notes held by it and all of its rights and
obligations hereunder and under the other documents to Eligible Assignees, which
right may be exercised by the Administrative Agent or the Borrower, as the case
may be, if such Lender refuses to execute any amendment, waiver or consent which
requires the written consent of all the Lenders and to which Lenders owed at
least 90% of the aggregate unpaid principal amount of Revolving Credit Advances
or, if no such principal amount is then outstanding, Lenders having at least 90%
of the Commitments, the Administrative Agent and the Borrower have agreed. Each
Lender agrees that if the Administrative Agent or the Borrower, as the case may
be, exercises its option hereunder, it shall promptly execute and deliver all
agreements and documentation necessary to effectuate such assignment as set
forth in Section 9.07.
9.02 SECTION .0. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier
communication) and mailed, telecopied or delivered by hand or by courier, if to
the Borrower, at 1515 Roosevelt Avenue, 12th Floor, Guaynabo, Puerto Rico or PO
Box 360998, San Juan, Puerto Rico 00936-0998, Attention: Luis E. Caldero (fax
no. (787)782-3006); if to PRTC, at 1515 Roosevelt Avenue, 12th Floor, Guaynabo,
Puerto Rico or PO Box 360998, San Juan, Puerto Rico 00936-0998, Attention:
Armando Melendez (fax no. (787)282-0958); if to CTI, at 1515 Roosevelt Avenue,
12th Floor, Guaynabo, Puerto Rico or PO Box 360998, San Juan, Puerto Rico
00936-0998, Attention: Jorge R. Menendez- Chiques (fax no. 787(783-4636); if to
any Initial Lender, at its applicable Lending Office specified opposite its name
on Schedule I hereto; if to any other Lender, at its applicable Lending Office
specified in the Assignment and Acceptance pursuant to which it became a Lender;
and if to the Administrative Agent, at its address at 209 Munoz Rivera Avenue,
Hato Rey, Puerto Rico, Attention: Manager, Structured Finance Division; or, as
to any Loan Party or the Administrative Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Administrative Agent. All such notices
and communications shall, when mailed or telecopied, be effective when deposited
in the first class mails or, in the case of international delivery, mails or
couriers that deliver within two Business Days, or telecopied, provided that
notices and communications to the Administrative Agent pursuant to Article II,
III or VIII shall not be effective until received by the Administrative Agent,
and provided, further, that notices and communications to any Person required to
be provided hereunder within five Business Days shall only be made by hand or
via telecopy or courier. Delivery by telecopier of an executed counterpart of
any amendment or waiver of any provision of this Agreement or the Notes or of
any Exhibit hereto to be executed and delivered hereunder shall be effective as
delivery of a manually executed counterpart thereof.
9.03 SECTION .0. No Waiver; Remedies. No failure on the part
of any Lender or the Administrative Agent to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
(a) SECTION .0. Costs and Expenses. () The Borrower
agrees to pay on demand all reasonable out-of-pocket costs and expenses of the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification and
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<PAGE> 47
amendment of this Agreement, the Notes and the other documents to be delivered
hereunder, including, without limitation, (A) all due diligence, syndication
(including printing, distribution and bank meetings), transportation, computer,
duplication, appraisal, audit and insurance expenses and (B) the reasonable fees
and expenses of Martinez Odell & Calabria, counsel for the Administrative Agent
with respect thereto and with respect to advising the Administrative Agent as to
its rights and responsibilities under this Agreement. Such expenses shall be
paid by the Borrower, regardless of whether the transactions contemplated by
this Agreement are consummated. The Borrower further agrees to pay on demand all
costs and expenses of the Administrative Agent and the Lenders, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other documents to be
delivered hereunder, including, without limitation, reasonable fees and expenses
of counsel for the Administrative Agent and each Lender in connection with the
enforcement of rights under this Section 9.04(a).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent and each Lender and each of their Affiliates and their
officers, directors, employees, agents and advisors (each, an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and expenses of
counsel) that may be incurred by or asserted or awarded against any Indemnified
Party, in each case arising out of or in connection with or by reason of, or in
connection with the preparation for a defense of, any investigation, litigation
or proceeding arising out of, related to or in connection with (i) the Notes,
this Agreement, any of the transactions contemplated herein or the actual or
proposed use of the proceeds of the Advances or (ii) the actual or alleged
presence of Hazardous Materials on any property of the Borrower or any of their
respective Subsidiaries or any Environmental Action relating in any way to the
Borrower or any of their respective Subsidiaries, in each case whether or not
such investigation, litigation or proceeding is brought by any Loan Party, its
directors, shareholders or creditors or an Indemnified Party or any other Person
or any Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claim, damage, loss, liability or expense (A) is found by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct, (B) arises from disputes among two or more Lenders (but not
including any such dispute that involves a Lender to the extent such Lender is
acting in any different capacity (i.e., Administrative Agent) under the Credit
Agreement or the Notes or to the extent that it involves the Administrative
Agent's syndication activities) or (C) arises from or relates to a breach by
such Indemnified Party of its obligations under this Agreement. The Borrower
also agrees not to assert any claim against the Administrative Agent, any
Lender, any of their Affiliates, or any of their respective directors, officers,
employees, attorneys and agents, on any theory of liability, for special,
indirect, consequential or punitive damages arising out of or otherwise relating
to the Notes, this Agreement, any of the transactions contemplated herein or the
actual or proposed use of the proceeds of the Advances.
(c) If any payment of principal of, or Conversion of, any
LIBOR Rate Advance is made by the Borrower (or pursuant to Section 9.01(b)) to
or for the account of a Lender other than on the last day of the Interest Period
for such Advance, as a result of a payment, prepayment or Conversion pursuant to
this Agreement or acceleration of the maturity
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<PAGE> 48
of the Notes pursuant to Section 6.01, the Borrower shall, upon demand by such
Lender (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment or Conversion, including, without
limitation, any loss (excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in Sections 2.11, 2.14 and 9.04 shall survive the payment in
full of principal, interest and all other amounts payable hereunder and under
the Notes.
9.04 SECTION .0. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 by the Required
Lenders to authorize the Administrative Agent to declare the Notes due and
payable pursuant to the provisions of Section 6.01 and notice to the Borrower as
required under Section 6.01, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender or such Affiliate to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement and the Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Lender and its Affiliates under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) that such Lender and its Affiliates may
have.
9.05 SECTION .0. Binding Effect. This Agreement shall become
effective (other than Sections 2.01 and 2.03, which shall only become effective
upon satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrower and the Administrative Agent and when
the Administrative Agent shall have been notified by each Initial Lender that
such Initial Lender has executed it and thereafter shall be binding upon and
inure to the benefit of the Borrower, the Guarantors, the Administrative Agent
and each Lender and their respective successors and assigns, except that neither
the Borrower nor the Guarantors shall have the right to assign their rights
hereunder or any interest herein without the prior written consent of all of the
Lenders.
(a) SECTION .0. Assignments and Participations. () Each
Lender may, with the consent of the Administrative Agent (except as provided in
clause (g) below) and the Borrower (such consent not to be unreasonably
withheld) and, if demanded by the Borrower pursuant to Section 9.01(b) or
following a request for a payment to or on behalf of such Lender under Section
2.10 or Section 2.13 or following a notice given by such Lender pursuant to
Section 2.11, upon at least ten Business Days' notice to such Lender and the
Administrative Agent, will, assign to one or more Persons all or a portion of
its rights and obligations under this
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<PAGE> 49
Agreement (including, without limitation, all or a portion of its Commitment,
the Revolving Credit Advances owing to it and the Revolving Credit Note or Notes
held by it); provided, that the Borrower may make demand with respect to a
Lender that has given notice pursuant to Section 2.11 only if the Borrower makes
such demand of all Lenders similarly situated that have given such notice;
provided, further, that (i) each such assignment shall be of a constant, and not
a varying, percentage of all rights and obligations under this Agreement and the
Revolving Credit Notes, (ii) except in the case of an assignment to a Person
that, immediately prior to such assignment, was a Lender, or an assignment of
all of a Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, (iii) each such assignment
shall be to an Eligible Assignee, (iv) each such assignment made as a result of
a demand by the Borrower shall be arranged by the Borrower after consultation
with the Administrative Agent and shall be either an assignment of all of the
rights and obligations of the assigning Lender under this Agreement or an
assignment of a portion of such rights and obligations made concurrently with
another such assignment or other such assignments that together cover all of the
rights and obligations of the assigning Lender under this Agreement, (v) no
Lender shall be obligated to make any such assignment as a result of a demand by
the Borrower unless and until such Lender shall have received one or more
payments from either the Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal and all other amounts payable to such Lender
under this Agreement, (vi) in the case of Banco Popular only, Banco Popular
shall retain at least forty percent (40%) of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Revolving Credit Advances owing to it and the Revolving Credit
Note or Notes held by it at the time of such assignment, (vii) no Lender shall
at any time have more than two (2) assignees that were not Initial Lenders, and
(viii) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Revolving Credit Notes subject to
such assignment and a processing and recordation fee of $2,500 (which shall be
paid by Persons other than the Borrower unless such assignment is made as a
result of a demand by the Borrower). Upon such execution, delivery, acceptance
and recording, from and after the effective date specified in each Assignment
and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder and (y) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights other than rights of
indemnification under Section 9.04 or otherwise relating to a time prior to the
effective date of such Assignment and Acceptance and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and
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Acceptance, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; (ii)
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Loan Party or the
performance or observance by any Loan Party of any of its obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Administrative
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers and discretion under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers and discretion as are reasonably incidental thereto; and (vii) such
assignee agrees that it will perform in accordance with their terms all of the
obligations that by the terms of this Agreement are required to be performed by
it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender, an assignee representing that it is an Eligible Assignee
and the Borrower, together with the Revolving Credit Note or Notes subject to
such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrower. Within five Business Days after its receipt of such notice, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent in exchange for the surrendered Revolving Credit Note a new Note to the
order of such Eligible Assignee in an amount equal to the Commitment assumed by
it pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Commitment hereunder a new Revolving Credit Note to the order of the
assigning Lender in an amount equal to the Commitment retained by it hereunder.
Such new Revolving Credit Note or Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Revolving
Credit Note or Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A-1
hereto.
(d) The Administrative Agent shall maintain at its address
referred to in Section 9.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The
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Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Each Lender may sell participations to one or more
banks or other entities (other than the Borrower or any of its Affiliates) in or
to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it and the Notes held by it); provided, however, that (i) such Lender's
obligations under this Agreement (including, without limitation, its Commitment
to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
(v) no participant under any such participation shall have any right to approve
any amendment or waiver of any provision of this Agreement or any Note, or any
consent to any departure by the Borrower therefrom, except that a Lender may
agree with a participant as to the manner in which the Lender shall exercise the
Lender's rights to approve any amendment, waiver or consent to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, or postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation.
(f) Any Lender may at any time, without the consent of
the Administrative Agent or the Borrower, create a security interest in all or
any portion of its rights under this Agreement (including, without limitation,
the Advances owing to it and the Note or Notes held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System, provided, however, that no such assignment shall
have the effect of increasing the costs payable by the Borrower.
(g) Any Lender may at any time, without the consent of,
but with notice to the Administrative Agent, assign all or part of its rights or
obligations under this Agreement to any Affiliate of such Lender, provided,
however, that no such assignment shall have the effect of increasing the costs
payable by the Borrower.
9.06 SECTION .0. Nondisclosure. None of the Administrative
Agent or any Lender shall disclose without the prior consent of the Borrower
(other than to the Administrative Agent or another Lender, their respective
directors, employees, auditors, affiliates or counsel who shall agree to be
bound by the terms of this provision) any information with respect to the Loan
Parties or any Subsidiary thereof contained in financial statements, projections
or reports provided to the Administrative Agent or any Lender by, or on behalf
of, the Loan Parties or any Subsidiary, provided that the Administrative Agent
or any Lender may disclose any such information (a) as has become generally
available to the public in a manner, or through actions, which do not violate
the terms of this Section 9.08, (b) as may be required or appropriate in any
report, statement or testimony submitted to any municipal, state, Commonwealth
of Puerto Rico or federal regulatory body having or claiming to have
jurisdiction over any Lender or to the Federal Reserve Board or the Federal
Deposit Insurance Corporation or similar organizations
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(whether in the United States or elsewhere) or their successors, (c) as may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, (d) in order to comply with any law, order, regulation or
ruling applicable to the Administrative Agent or any Lender and (e) to a
prospective co-lender or participant in the amounts outstanding hereunder or
under the Advances, provided, however, that such prospective co-lender or
participant executes an agreement containing provisions substantially identical
to those contained in this Section 9.08 and which shall by its terms inure to
the benefit of the Borrower and provided, further, that to the extent
practicable, the Administrative Agent and each Lender shall use reasonable best
efforts to provide prior written notice of such disclosure to the Borrower.
9.07 SECTION .0. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Puerto Rico.
9.08 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
9.09 Submission to Jurisdiction; Service of Process and Venue.
(a) Each of the Loan Parties hereby agrees that any suit,
action or proceeding with respect to this Agreement or the Notes or any other
document executed hereunder to which it is a party or any judgment entered by
any court in respect thereof may be brought in the United States District Court
for the District of Puerto Rico, in the Court of First Instance of Puerto Rico
sitting in San Juan, as the party commencing such suit, action or proceeding may
elect in its sole discretion; and each party hereto hereby irrevocably submits
to the non-exclusive jurisdiction of such court for the purpose of any such
suit, action, proceeding or judgment. Each party hereto further submits, for the
purpose of any such suit, action, proceeding or judgment brought or rendered
against it, to the appropriate courts of the jurisdiction of its domicile.
(b) Each of the Loan Parties hereby irrevocably consents to
the service of process in any suit, action or proceeding in such courts by the
mailing thereof by the Administrative Agent or any Lender by registered or
certified mail, postage prepaid, at its address set forth beneath its signature
hereto. Nothing herein shall in any way be deemed to limit the ability of the
Administrative Agent or any Lender to serve any such writs, process or summonses
in any other manner permitted by applicable law or to obtain jurisdiction over
the Loan Parties in such other jurisdictions, and in such manner, as may be
permitted by applicable law.
(c) Each of the Loan Parties hereby irrevocably waives any
objection that it may now or hereafter have to the laying of the venue of any
suit, action or proceeding arising out of or relating to this Agreement, the
Notes or any document executed hereunder brought in any such court and hereby
further irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
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9.10 Waiver of Jury Trial. Each of the Loan Parties, the
Administrative Agent and the Lenders hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
9.11 Interest Rate Limitation. Notwithstanding anything herein
to the contrary, if at any time the interest rate applicable to any Advance,
together with all fees, charges and other amount which are treated as interest
on such Advance under applicable law (collectively the "Charges"), shall exceed
the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Advance in
accordance with applicable law, the rate of interest payable in respect of such
Advance hereunder, together with all charges payable in respect thereof, shall
be limited to the Maximum Rate and, to the extent lawful, the interest and
charges that would have been payable in respect of such Advance but were not
payable as a result of the operation of this Section shall be accumulated and
the interest and charges payable to such Lender in respect of other Advances or
periods shall be increased (but not above the Maximum Rate therefor) until such
cumulated amount, together with interest thereon at the Federal Funds Rate to
the date of repayment, shall have been received by such Lender.
9.12 Exhibits and Schedules Incorporated. The Exhibits and
Schedules annexed hereto are hereby incorporated by reference herein as part of
this Agreement with the same effect as if set forth in the body hereof.
9.13 Construction of Documents. The parties hereto acknowledge
that they were represented by counsel in connection with the negotiation and
drafting of this Agreement and the Notes and that this Agreement and such Notes
shall not be subject to the principle of construing their meaning against the
party which drafted the same.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TELECOMUNICACIONES DE PUERTO RICO, INC.
as Borrower
By:
Name:
Title:
PUERTO RICO TELEPHONE COMPANY, INC.
as Guarantor
By:
Name:
Title:
CELULARES TELEFONICA, INC.
as Guarantor
By:
Name:
Title:
BANCO POPULAR DE PUERTO RICO,
as Managing Agent and Administrative Agent
By:
Name:
Title:
SCOTIABANK DE PUERTO RICO
as Co-Agent
By:
Name:
Title:
54
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The Lenders
COMMITMENT: $80,000,000 BANCO POPULAR DE PUERTO RICO
By:
Raul H. Cacho
Vice President
Applicable Lending Office(s): 209 Munoz Rivera Avenue
Hato Rey, Puerto Rico
Attention: Structured Finance Division
Telecopier: (787) 756-3909
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The Lenders
COMMITMENT: $20,000,000 BANCO POPULAR NORTH AMERICA
By:
Joseph C. Lo Monaco
Vice President
Applicable Lending Office(s): 7th West
51st Street - 2nd Floor
New York, NY 10019
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The Lenders
COMMITMENT: $25,000,000 BANCO BILBAO VIZCAYA PUERTO RICO
By:_______________________________________
Eugenio Rogero
Executive Vice President
By: ______________________________________
Manuel Moreno
Executive Vice President
Applicable Lending Office(s): 254 Munoz Rivera Ave.
Torre BBV
Hato Rey, San Juan, P.R.
Attention: Fernando Vinas
Telecopier: (787) 766-6963
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The Lenders
COMMITMENT: $75,000,000 SCOTIABANK DE PUERTO RICO
By:
Rene A. Lopez
Vice President
Applicable Lending Office(s): Scotiabank de Puerto Rico
273 Ponce de Leon Ave.
Mezzanine Floor
Hato Rey, San Juan, P.R. 00918
Attention: Rene A. Lopez
Telecopier: (787) 766-7909
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Co-Agent
COMMITMENT: $75,000,000 SCOTIABANK DE PUERTO RICO
By:
Rene A. Lopez
Vice President
Applicable Lending Office(s): Scotiabank de Puerto Rico
273 Ponce de Leon Ave.
Mezzanine Floor
Hato Rey, San Juan, P.R. 00918
Attention: Rene A. Lopez
Telecopier: (787) 766-7909
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Schedule 1 - List of
Applicable Lending Offices
1. BANCO POPULAR DE PUERTO RICO:
209 MUNOZ RIVERA AVENUE
HATO REY, PUERTO RICO 00918
2. BANCO POPULAR NORTH AMERICA:
7th WEST
51st STREET - 2nd FLOOR
NEW YORK, NY 10019
3. BANCO BILBAO VIZCAYA PUERTO RICO:
254 MUNOZ RIVERA AVENUE
TORRE BBV
HATO REY, SAN JUAN, P.R. 00918
4. SCOTIABANK DE PUERTO RICO:
273 PONCE DE LEON AVENUE
MEZZANINE FLOOR
HATO REY, SAN JUAN, P.R. 00918
<PAGE> 61
Schedule 3.01(b) -
Material Adverse Changes
<PAGE> 62
Schedule 3.01(c) -
Disclosed Litigation
<PAGE> 63
Schedule 5.02(a) -
Existing Liens
<PAGE> 64
Schedule 5.02(d) -
Existing Subsidiary Debt
<PAGE> 65
EXHIBIT A-1 - FORM OF
REVOLVING CREDIT
PROMISSORY NOTE
$___________ Dated: _________, 199_
FOR VALUE RECEIVED, the undersigned, TELECOMUNICACIONES DE
PUERTO RICO, INC., a Puerto Rico corporation (the "Borrower"), HEREBY PROMISES
TO PAY to the order of _________________________ (the "Lender") for the account
of its Applicable Lending Office on the Termination Date (each as defined in the
Credit Agreement referred to below) the principal sum of U.S. $ amount of
Lender's Commitment in figures or, if less, the aggregate amount of the
Revolving Credit Advances made by the Lender to the Borrower pursuant to the
Credit Agreement dated as of March 2, 1999 among the Borrower, Puerto Rico
Telephone Company, Inc. and Celulares Telefonica, Inc., as Guarantors, the
Lender and certain other lenders parties thereto, Banco Popular de Puerto Rico
("Banco Popular"), as managing agent and administrative agent (the
"Administrative Agent") and Scotiabank de Puerto Rico, as co-agent (the
"Co-Agent") (as amended or modified from time to time, the "Credit Agreement";
the terms defined therein being used herein as therein defined), outstanding on
the Termination Date.
The Borrower promises to pay interest on the unpaid principal amount of
each Revolving Credit Advance from the date of such Advance until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Banco Popular, as Administrative Agent, at
___________________________, in same day funds. Each Revolving Credit Advance
owing to the Lender by the Borrower pursuant to the Credit Agreement, and all
payments made on account of principal thereof, shall be recorded by the Lender
and, prior to any transfer hereof, endorsed on the grid attached hereto which is
part of this Promissory Note.
This Promissory Note is one of the Revolving Credit Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of Revolving Credit
Advances by the Lender to the Borrower from time to time in an aggregate amount
not to exceed at any time outstanding the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Revolving
Credit Advance being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms and conditions therein specified.
TELECOMUNICACIONES DE PUERTO RICO, INC.
By:
Name:
Title:
<PAGE> 66
ADVANCES AND PAYMENTS OF PRINCIPAL
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<PAGE> 67
EXHIBIT A-2 - OMITTED
<PAGE> 68
EXHIBIT B-1 - FORM OF NOTICE OF
REVOLVING CREDIT BORROWING
Banco Popular de Puerto Rico, as Administrative Agent
for the Lenders parties
to the Credit Agreement
referred to below
Date
Attention: _______________
Ladies and Gentlemen:
The undersigned, Telecomunicaciones de Puerto Rico, Inc., refers to the
Credit Agreement, dated as of March 2, 1999 (as amended or modified from time to
time, the "Credit Agreement", the terms defined therein being used herein as
therein defined), among the undersigned, Puerto Rico Telephone Company, Inc. and
Celulares Telefonica, Inc., as Guarantors, certain Lenders parties thereto,
Banco Popular de Puerto Rico ("Banco Popular"), as managing agent and
administrative agent (the "Administrative Agent") for the Lenders, and
Scotiabank de Puerto Rico ("Scotiabank"), as Co-Agent for the Lenders, and
hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit
Agreement that the undersigned hereby requests a Revolving Credit Borrowing
under the Credit Agreement, and in that connection sets forth below the
information relating to such Revolving Credit Borrowing (the "Proposed Revolving
Credit Borrowing") as required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Revolving Credit
Borrowing is _______________, 199_.
(ii) The Type of Advances comprising the Proposed Revolving
Credit Borrowing is Base Rate Advances LIBOR Rate Advances.
(iii) The aggregate amount of the Proposed Revolving Credit
Borrowing is $_______________.
(iv) The initial Interest Period for each LIBOR Rate Advance
made as part of the Proposed Revolving Credit Borrowing is _____
months.
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Revolving
Credit Borrowing:
(A) the representations and warranties contained in Section
4.01 of the Credit Agreement are correct, before and after giving
effect to the Proposed Revolving Credit Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date; and
<PAGE> 69
(B) no event has occurred and is continuing, or would result from such
Proposed Revolving Credit Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
Very truly yours,
TELECOMUNICACIONES DE PUERTO RICO, INC.
By:
Title:
<PAGE> 70
EXHIBIT B-2 - OMITTED
<PAGE> 71
EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of March 2, 1999 (as
amended or modified from time to time, the "Credit Agreement") among
Telecomunicaciones de Puerto Rico, Inc., a Puerto Rico corporation, as Borrower,
Puerto Rico Telephone Company, Inc. and Celulares Telefonica, Inc., as
Guarantors, the Lenders (as defined in the Credit Agreement), Banco Popular de
Puerto Rico as managing agent and administrative agent for the Lenders (the
"Administrative Agent") and Scotiabank de Puerto Rico ("Scotiabank"), as
Co-Agent for the Lenders (the "Co-Agent"). Terms defined in the Credit Agreement
are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule I hereto
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 hereto of all
outstanding rights and obligations under the Credit Agreement. After giving
effect to such sale and assignment, the Assignee's Commitment and the amount of
the Revolving Credit Advances owing to the Assignee will be as set forth on
Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Loan Party or the
performance or observance by any Loan Party of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iv) attaches the Revolving Credit Notes held by the Assignor and requests
that the Administrative Agent exchange such Revolving Credit Note or Notes for
new Revolving Credit Note or Notes payable to the order of the Assignee in an
amount equal to the Commitment assumed by the Assignee pursuant hereto or new
Revolving Credit Notes payable to the order of the Assignee in an amount equal
to the Commitment assumed by the Assignee pursuant hereto and the Assignor in an
amount equal to the Commitment retained by the Assignor under the Credit
Agreement, respectively, as specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such
<PAGE> 72
action as agent on its behalf and to exercise such powers and discretion under
the Credit Agreement as are delegated to the Administrative Agent by the terms
thereof, together with such powers and discretion as are reasonably incidental
thereto; and (v) agrees that it will perform in accordance with their terms all
of the obligations that by the terms of the Credit Agreement are required to be
performed by it as a Lender.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent. The effective date for this Assignment and Acceptance (the
"Effective Date") shall be the date of acceptance hereof by the Administrative
Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights, other
than rights of indemnification under Section 9.04 of the Credit Agreement or
otherwise relating to a time prior to the Effective Date hereof, and be released
from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent, from
and after the Effective Date, the Administrative Agent shall make all payments
under the Credit Agreement and the Revolving Credit Notes in respect of the
interest assigned hereby (including, without limitation, all payments of
principal, interest and facility fees with respect thereto) to the Assignee. The
Assignor and Assignee shall make all appropriate adjustments in payments under
the Credit Agreement and the Revolving Credit Notes for periods prior to the
Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Puerto Rico.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule
1 to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.
2
<PAGE> 73
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Assignee's Commitment:
$_________
Aggregate outstanding principal amount of
Revolving Credit Advances assigned: $ __________
Principal amount of Revolving Credit Note payable to Assignee: $ __________
Principal amount of Revolving Credit Note payable to Assignor: $ __________
Effective Date: _______________, ____
NAME OF ASSIGNOR, as Assignor
By
Title:
Dated: _______________, ____
NAME OF ASSIGNEE, as Assignee
By
Title:
Dated: _______________, ____
Domestic Lending Office:
Address
Eurodollar Lending Office:
Address
Accepted this
____ day of __________, ____
_____________
(1) This date should be no earlier than five Business Days after the delivery
of this Assignment and Acceptance to the Agent.
<PAGE> 74
BANCO POPULAR DE PUERTO RICO
as Administrative Agent
By:
Title: ________________________
Approved this ___ day
of __________, ____
TELECOMUNICACIONES DE PUERTO RICO, INC.
By:
Title: ________________________
ii
<PAGE> 75
EXHIBIT D - FORM OF
SOLVENCY CERTIFICATE
<PAGE> 76
U.S. $200,000,000
CREDIT AGREEMENT
Dated as of March 2, 1999
Among
TELECOMUNICACIONES DE PUERTO RICO, INC.
as Borrower,
PUERTO RICO TELEPHONE COMPANY, INC.
and
CELULARES TELEFONICA, INC.
as Guarantors,
BANCO POPULAR DE PUERTO RICO
as Managing Agent and Administrative Agent,
SCOTIABANK DE PUERTO RICO
As Co-Agent,
and
BANCO POPULAR DE PUERTO RICO
SCOTIABANK DE PUERTO RICO
BANCO BILBAO VIZCAYA PUERTO RICO
BANCO POPULAR NORTH AMERICA
as Initial Lenders
<PAGE> 77
TABLE OF CONTENTS
Page #
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms 1
SECTION 1.02. Computation of Time Periods 13
SECTION 1.03. Accounting Terms; Interest 14
SECTION 1.04. Construction 14
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances 15
SECTION 2.02. Making the Revolving Credit Advances 15
SECTION 2.03. Commitment Fee 17
SECTION 2.04. Termination or Reduction of the Commitments 17
SECTION 2.05. Repayment of Revolving Credit Advances 17
SECTION 2.06. Interest 17
SECTION 2.07. Interest Rate Determination 18
SECTION 2.08. Optional Conversion of Revolving Credit Advances 19
SECTION 2.09. Prepayments of Revolving Credit Advances 20
SECTION 2.10. Increased Costs 20
SECTION 2.11. Illegality 21
SECTION 2.12. Payments and Computations 21
SECTION 2.13. Taxes 22
SECTION 2.14. Sharing of Payments, Etc 25
SECTION 2.15. Use of Proceeds 25
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections
2.01 and 2.03 25
SECTION 3.02. Conditions Precedent to Each Revolving Credit
Borrowing 28
SECTION 3.03. Determinations Under Section 3.01 28
<PAGE> 78
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower 28
ARTICLE V
COVENANTS OF THE LOAN PARTIES
SECTION 5.01. Affirmative Covenants 32
SECTION 5.02. Negative Covenants 35
SECTION 5.03. Financial Covenants 38
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default 38
ARTICLE VII
GUARANTY
SECTION 7.01. Guaranty; Limitation of Liability 41
SECTION 7.02. Guaranty Absolute 42
SECTION 7.03. Waiver 43
SECTION 7.04. Continuing Guaranty; Assignments 45
SECTION 7.05. Subrogation 45
ARTICLE VIII
THE ADMINISTRATIVE AGENT
SECTION 8.01. Appointment, Powers and Immunities 46
SECTION 8.02. Reliance by Administrative Agent 46
SECTION 8.03. Defaults 46
SECTION 8.04. Rights as a Lender 47
SECTION 8.05. Indemnification 47
SECTION 8.06. Non-Reliance on Administrative Agent and Other Lenders 47
SECTION 8.07. Failure to Act 48
SECTION 8.08. Resignation or Removal of Administrative Agent 48
SECTION 8.09. Agency Fee 49
4
<PAGE> 79
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Amendments, Etc 49
SECTION 9.02. Notices, Etc 50
SECTION 9.03. No Waiver; Remedies 50
SECTION 9.04. Costs and Expenses 50
SECTION 9.05. Right of Set-off 52
SECTION 9.06. Binding Effect 52
SECTION 9.07. Assignments and Participations 52
SECTION 9.08. Nondisclosure 56
SECTION 9.09. Governing Law 56
SECTION 9.10. Execution in Counterparts 56
SECTION 9.11. Submission to Jurisdiction; Service of Process and Venue 56
SECTION 9.12. Waiver of Jury Trial 57
SECTION 9.13. Interest Rate Limitation 57
SECTION 9.14. Exhibits and Schedules Incorporated 58
SECTION 9.15 Construction of Documents 58
5
<PAGE> 80
Schedules
Schedule I - List of Applicable Lending Offices
Schedule 3.01(b) - Material Adverse Changes
Schedule 3.01(c) - Disclosed Litigation
Schedule 5.02(a) - Existing Liens
Schedule 5.02(d) - Existing Subsidiary Debt
Exhibits
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - OMITTED
Exhibit B-1 - Form of Notice of Revolving Credit Borrowing
Exhibit B-2 - OMITTED
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Solvency Certificate
6
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT (this "First Amendment") dated as of May 9, 1999 to the Credit
Agreement dated as of March 2, 1999 (the "Credit Agreement") among
TELECOMUNICACIONES DE PUERTO RICO, INC., a Puerto Rico corporation (the
"Borrower"), PUERTO RICO TELEPHONE COMPANY, INC., a Puerto Rico corporation
("PRTC"), and CELULARES TELEFONICA, INC., a Puerto Rico corporation ("CTI" and
collectively with PRTC, the "Guarantors"), the banks, financial institutions and
other institutional lenders (the "Initial Lenders") listed on the signature
pages hereof, BANCO POPULAR DE PUERTO RICO ("Banco Popular"), a Puerto Rico
banking institution, as managing agent and administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, and SCOTIABANK DE PUERTO
RICO, a Puerto Rico banking institution, as Co-Agent (the "Co-Agent").
WITNESSETH
WHEREAS, reference is made to the Credit Agreement, pursuant to which
the Initial Lenders made available to the Borrower certain revolving credit
facilities in a maximum aggregate principal amount of up to $200,000,000; and
WHEREAS, the Borrower and the Guarantors wish to amend certain of the
terms and conditions of the Credit Agreement as set forth herein, and, to that
end, the Initial Lenders have agreed to amend certain of the terms of the Credit
Agreement, subject to the terms and conditions herein set forth.
NOW THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, the terms
used in this Agreement shall have the same meanings ascribed to them in the
Credit Agreement, as amended by this First Amendment.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction
of the conditions to effectiveness specified in Section 4 hereof, the Credit
Agreement is hereby amended as follows:
(a) Amendment to Section 1.01 of the Credit Agreement. Section
1.01 of the Credit Agreement is hereby amended as follows:
(i) The definition of the term "Citibank
Indebtedness" is hereby amended to read in its entirety as
follows:
"Citibank Indebtedness" means those certain revolving
credit facilities in a maximum aggregate principal amount of
up to $1,000,000,000 extended to the Borrower pursuant to that
certain 364-Day Credit Agreement dated as of March 2,
1
<PAGE> 2
1999, among the Borrower, PRTC and CTI, as guarantors,
Citibank N.A., as administrative agent, the Lenders party
thereto, Bank of America National Trust and Savings
Association, as syndication agent, and The Chase Manhattan
Bank and Morgan Guaranty Trust Company of New York, as
documentation agents, and those certain revolving credit
facilities in a maximum aggregate principal amount of up to
$500,000,000 extended to the Borrower pursuant to that certain
Five-Year Credit Agreement dated as of March 2, 1999 among the
Borrower, PRTC and CTI, as guarantors, Citibank N.A., as
administrative agent, the Lenders party thereto, Bank of
America National Trust and Savings Association, as syndication
agent, and The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, as documentation agents, to finance a
portion of the Special Dividend and for working capital and
other general corporate purposes of the Borrower."
(b) Amendment to Section 5.02(d)(ii) of the Credit Agreement.
(i) Section 5.02 (d)(ii) of the Credit Agreement is
hereby amended to read in its entirety as follows:
"(ii) Debt which may be borrowed and outstanding from
time under credit facilities existing on and as of the
Effective Date and described on Schedule 5.02(d) hereto (the
"Existing Debt"), and any Debt extending the maturity of, or
refunding or refinancing, in whole or in part, the Existing
Debt, provided that the principal amount of such Existing Debt
shall not be increased above the principal amount thereof
outstanding immediately prior to such extension, refunding or
refinancing, and the direct and contingent obligors therefor
shall not be changed, as a result of or in connection with
such extension, refunding or refinancing".
(c) Amendment to Schedule 5.02(d) to the Credit Agreement.
(i) Schedule 5.02(d) to the Credit Agreement is
hereby amended to read in its entirety as follows:
"Schedule 5.02(d)
Existing Subsidiary Debt
Citibank Indebtedness."
SECTION 4. CONDITIONS TO EFFECTIVENESS. The amendments and
modifications set forth in Section 3 hereof shall become effective as of May 9,
1999 (the "Effective Date"), notwithstanding its actual date of execution by the
parties, upon the satisfaction of each of the following conditions to
effectiveness:
(a) The Administrative Agent shall have received this First Amendment
duly executed and delivered by the Borrower, the Guarantors and the Required
Lenders or, as to any
2
<PAGE> 3
of the Lenders, advice satisfactory to the Administrative Agent that such Lender
has executed this Amendment.
(b) The Borrower shall have paid all invoiced fees and expenses of the
Administrative Agent and the Lenders (including the invoiced fees and expenses
of counsel to the Administrative Agent).
(c) The following statements shall be true and shall be deemed to have
been represented by the Borrower as being true on the date hereof:
(i) The representations and warranties contained in Article IV
of the Credit Agreement are true and correct on and as of the Closing
Date and on and as of the date hereof; and
(ii) The covenants contained in Article V of the Credit
Agreement have been fully complied with in all material respects on and
as of the Closing Date and on and as of the date hereof; and
(iii) No event has occurred and is continuing, or would result
from the making of the amendments effectuated hereunder or the other
transactions contemplated hereby, which constitutes an Event of Default
or would constitute an Event of Default but for the giving of notice or
the lapse of time or both.
SECTION 5. MISCELLANEOUS.
(a) On and after the Effective Date, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes to the
"Credit Agreement", "thereunder", "thereof" or words of like import referring to
the Credit Agreement, shall mean and be a reference to the Credit Agreement, as
amended by this First Amendment.
(b) The Credit Agreement and the Notes, as specifically amended by this
Amendment, are and shall continue to be in full force and effect and are hereby
in all respects ratified and confirmed. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any provision of the Credit Agreement, and shall not
operate as nor constitute or be deemed to constitute a novation of the
obligations of the parties thereto for any purpose.
(c) This First Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this First Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this First Amendment.
SECTION 6. GOVERNING LAW. This Agreement and the Notes shall be
governed by, and construed with, the laws of the Commonwealth of Puerto Rico.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TELECOMUNICACIONES DE PUERTO RICO, INC.
as Borrower
By: _______________________________
Name:
Title:
PUERTO RICO TELEPHONE COMPANY, INC.
as Guarantor
By: _______________________________
Name:
Title:
CELULARES TELEFONICA, INC.
as Guarantor
By: _______________________________
Name:
Title:
BANCO POPULAR DE PUERTO RICO,
as Managing Agent and Administrative Agent
By: _______________________________
Name:
Title:
SCOTIABANK DE PUERTO RICO
as Co-Agent
By: _______________________________
Name:
Title:
4
<PAGE> 5
The Lenders
COMMITMENT: $80,000,000 BANCO POPULAR DE PUERTO RICO
By: _______________________________
Name:
Title:
Applicable Lending Office(s): 209 Munoz Rivera Avenue
Hato Rey, Puerto Rico
Attention: Structured Finance Division
Telecopier: (787) 756-3909
5
<PAGE> 6
The Lenders
COMMITMENT: $20,000,000 BANCO POPULAR NORTH AMERICA
By: _______________________________
Name:
Title:
Applicable Lending Office(s): 7th West
51st Street - 2nd Floor
New York, NY 10019
6
<PAGE> 7
The Lenders
COMMITMENT: $25,000,000 BANCO BILBAO VIZCAYA PUERTO RICO
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
Applicable Lending Office(s): 254 Munoz Rivera Ave.
Torre BBV
Hato Rey, San Juan, P.R.
Attention: Fernando Vinas
Telecopier: (787) 766-6963
7
<PAGE> 8
The Lenders
COMMITMENT: $75,000,000 SCOTIABANK DE PUERTO RICO
By: _______________________________
Name:
Title:
Applicable Lending Office(s): Scotiabank de Puerto Rico
273 Ponce de Leon Ave.
Mezzanine Floor
Hato Rey, San Juan, P.R. 00918
Attention: Rene A. Lopez
Telecopier: (787) 766-7909
8
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
UP TO $300,000,000 AGGREGATE PRINCIPAL AMOUNT OF
6.15% SENIOR NOTES DUE 2002
FOR ANY AND ALL OUTSTANDING UNREGISTERED
6.15% SENIOR NOTES DUE 2002
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
PURSUANT TO THE PROSPECTUS, DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS EXTENDED. TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1999.
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed and submitted to the Exchange Agent as follows:
The Bank of New York
101 Barclay Street
Floor 7E
New York, New York 10286
Attention: Enrique Lopez
Reorganization Department
Facsimile Transmission:
(212) 815-4699
Confirm by Telephone or For Information:
(212) 815-2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (212)
815-2742 OR FACSIMILE AT (212) 815-4699.
<PAGE> 2
The undersigned acknowledges receipt of the Prospectus, dated ,
1999 (the "Prospectus") of Telecomunicaciones de Puerto Rico, Inc., a
corporation organized under the laws of the Commonwealth of Puerto Rico (the
"Company"), and this Letter of Transmittal (this "Letter"), which together
constitute the offer to exchange (the "Exchange Offer") an aggregate principal
amount of up to $300,000,000 6.15% Senior Notes due 2002 (the "Exchange Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for an equal principal amount of its outstanding unregistered 6.15% Senior Notes
due 2002 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. The Exchange Note will accrue interest at the rate set
forth on the cover page of the Prospectus, from the last date on which interest
was paid on the Old Notes surrendered in exchange therefor. Interest on the
Exchange Notes is payable semi-annually on May 15 and November 15 of each year
commencing November 15, 1999, and accruing from May 20, 1999, the date of issue
of the Old Notes, subject to the terms of the Senior Notes indenture.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date to which the Exchange Offer is extended. The
Company shall notify the Exchange Agent of any extension by oral or written
notice and will make a public announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
This Letter is to be completed by a holder of Old Notes either if a tender
of Old Notes is to be made by book-entry transfer to the account maintained by
the Exchange Agent at The Depository Trust Company's Book-Entry Transfer
Facility (the "Book-Entry Transfer Facility") or if Old Notes are to be
forwarded herewith pursuant to the procedure set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" section of the Prospectus. Holders
of Old Notes whose certificates are not immediately available, or who are unable
to deliver their certificates or confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
(a "Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures of Old Notes" section of the Prospectus.
See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
The undersigned has supplied the appropriate information and completed the
appropriate boxes below and signed this Letter to indicate the action the
undersigned desires to take with respect to the Exchange Offer.
If Old Notes are being tendered in certificated form, list below the Old
Notes to which this Letter relates. If the space provided below is inadequate,
the certificate numbers and principal amount of Old Notes should be listed on a
separate signed schedule affixed hereto.
2
<PAGE> 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3 4 5
- -----------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) NOTE MATURITY AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER* % DATE OLD NOTE(S) TENDERED**
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes represented by
the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in denominations of principal
amount of $1,000 and any integral multiple thereof. See Instruction 1.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------
Account Number Transaction Code Number
----------------- -------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution Which Guaranteed Delivery
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number Transaction Code Number
----------------- -------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
----------------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE> 4
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Old Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, that neither the holder of such Old Notes nor
any such other person is engaged in, or intends to engage in, a distribution of
such Exchange Notes, or has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, and that neither the
holder of such Old Notes nor any such other person is an "affiliate" of the
Company, as defined in Rule 405 under the Securities Act.
The undersigned also acknowledges that this Exchange Offer is being made
based upon the Company's understanding of an interpretation by the staff of the
Commission as set forth in no-action letters issued to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989) (the "Exxon Capital Letter"), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) (the "Morgan Stanley Letter") and
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993) (the
"Shearman & Sterling Letter"), that the Exchange Notes issued in exchange for
the Old Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer who
acquired such Old Notes directly from the Company for resale pursuant to Rule
144A under the Securities Act or any other available exemption under the
Securities Act or (ii) any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, a distribution of such Exchange Notes and have no arrangement with
any person to participate in the distribution of such Exchange Notes. If a
holder of Old Notes is engaged in or intends to engage in a distribution of the
Exchange Notes or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder cannot rely on the applicable interpretations of the staff of
the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may withdrawn only in accordance with
the procedures set forth in "The Exchange Offer -- Withdrawal of Tenders of Old
Notes" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please credit the Exchange Notes to the account indicated
above maintained at the Book-Entry Transfer Facility. The undersigned
understands that any Old Notes tendered in certificated form will not be
exchanged for Exchange Notes in certificated from, but rather will be exchanged
for Exchange Notes in the form of a beneficial interest in the global note
representing the Exchange Notes by a credit of the Exchange Notes to an account
maintained at the Book-Entry Transfer Facility. Accordingly, any holder
tendering Old Notes in certificated form must complete the box entitled "Special
Issuance
4
<PAGE> 5
Instructions" to specify the account at the Book-Entry Transfer Facility that
should be credited with the Exchange Notes to be received in exchange. Please
deliver any substitute certificates representing Old Notes not exchanged in the
name of the undersigned, unless otherwise indicated herein in the box entitled
"Special Issuance Instructions" below, to the undersigned at the address shown
above in the box entitled "Description of Old Notes," unless otherwise indicated
under the box entitled "Special Delivery Instructions" below.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
5
<PAGE> 6
- ------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------
To be completed ONLY if certificates for Old Notes are being tendered for
exchange, if certificates for Old Notes not exchanged are to be issued in the
name of and sent to someone other than the person(s) whose signature(s)
appear(s) on this Letter above or if Old Notes delivered by book-entry
transfer which are not accepted for exchange are to be returned by credit to
an account maintained at the Book-Entry Transfer Facility other than the
account indicated above.
Credit Old Notes in certificated form accepted for exchange and
unexchanged Old Notes delivered by book-entry transfer to the Book-Entry
Transfer Facility Account set forth below.
-----------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
Issue substitute certificates representing Old Notes not exchanged to:
Name(s):
-----------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
Address:
-------------------------------------------------
-----------------------------------------------------------
(INCLUDING ZIP CODE)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged are to
be sent to someone other than the person(s) whose signature(s) appears(s) on
this Letter above or to such person(s) at an address other than shown in the
box entitled "Description of Old Notes" on this Letter above.
Mail substitute certificates for Old Notes to:
Name(s):
-----------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
Address:
-------------------------------------------------
-----------------------------------------------------------
(INCLUDING ZIP CODE)
- ------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE OLD NOTES OR A
BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF
GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX ABOVE.
6
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
Dated:
- ---------------------, 1999
- -------------------------------------------------------------------------------x
- -------------------------------------------------------------------------------x
(SIGNATURE(S) OF OWNER) (DATE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the Certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by:
an Eligible Institution:
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME AND FIRM)
Dated: , 1999
-------------------------
7
<PAGE> 8
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: THE BANK OF NEW YORK
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX TIN
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING --------------------------------------
BELOW SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
---------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2
INTERNAL REVENUE SERVICE AWAITING TIN [ ]
------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) THE NUMBER SHOWN ON
THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER TO
BE ISSUED TO ME), (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE I HAVE NOT
BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I AM SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING, AND (3) ANY OTHER
INFORMATION PROVIDED ON THIS FORM IS TRUE AND CORRECT.
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER SIGNATURE -------------------------------------------------------------------------
(TIN) AND CERTIFICATION
DATE
-------------------------------------------
YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR
TAX RETURN AND YOU HAVE NOT BEEN NOTIFIED BY THE IRS THAT YOU ARE NO LONGER SUBJECT TO
BACKUP WITHHOLDING.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
31% of all payments of interest made to me will be withheld until I provide a
properly certified taxpayer identification number.
Signature
- ---------------------------------------------------------------
Date
- ------------------------------------
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF TELECOMUNICACIONES DE PUERTO RICO,
INC.
OFFER TO EXCHANGE
UP TO $300,000,000 6.15% SENIOR NOTES DUE 2002
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
6.15% SENIOR NOTES DUE 2002
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" section of the Prospectus.
Certificates for all physically tendered Old Notes, or Book-Entry Confirmation,
as the case may be, as well as a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other documents required by this
Letter, must be received by the Exchange Agent at the address set forth herein
on or prior to the Expiration Date, or the tendering holder must comply with the
guaranteed delivery procedures set forth below. Old Notes tendered hereby must
be in a principal amount of US $1,000 and any integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery Procedures of Old Notes" section
of the Prospectus. Pursuant to such procedures, (i) such tender must be made
through an Eligible Institution (as defined below), (ii) on or prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes, the certificate number or numbers and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within three business days after the Expiration Date, this Letter of
Transmittal (or facsimile hereof), together with the certificates for all
physically tendered Old Notes (in proper form for transfer) or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent and
(iii) such properly completed and executed Letter of Transmittal (or facsimile
hereof) and all documents required thereby, and the certificates for all
physically tendered Old Notes (in proper form for transfer) or Book-Entry
Confirmation, as the case may be, are received by the Exchange Agent within
three business days after the Expiration Date. Any holder who wishes to tender
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Old Notes prior to 5:00 p.m., New York City time, on the
Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders. The delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that registered mail,
properly insured, with return receipt requested, be used. Instead of delivery by
mail, it is recommended that holders use an overnight or hand delivery service.
In all such cases arrangements should be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes -- Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box in this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
9
<PAGE> 10
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the Exchange Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted hereby
or separate bond powers are required. Signatures on such certificates must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of
any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF
A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC., BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES OR BY AN "ELIGIBLE
GUARANTOR" INSTITUTION WITHIN THE MEANING OF RULE 17Ad-15 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED
THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" IN THIS LETTER OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
account at the Book-Entry Transfer Facility to which the Exchange Notes issued
pursuant to the Exchange Offer are to be credited, if different from the account
number appearing below the box entitled "Description of Old Notes." Old Notes
tendered in certificated form will not be exchanged for Exchange Notes in
certificated form, but rather will be exchanged for Exchange Notes in the form
of a beneficial interest in the global note representing the Exchange Notes by a
credit of the Exchange Notes to an account maintained at the Book-Entry Transfer
Facility. Accordingly, any holder tendering Old Notes in certificated form must
indicate in the box entitled "Special Issuance Instructions" to specify the
account at the Book-Entry Transfer Facility that should be credited with the
Exchange Notes to be received in exchange. Any substitute certificates
representing Old Notes not exchanged will be delivered in the name of the
undersigned at the address shown above in the box entitled "Description of Old
Notes," unless otherwise indicated herein in the appropriate box.
5. U.S. BACKUP TAX WITHHOLDING AND INTERNAL REVENUE SERVICE FORM W-9
Under U.S. Federal income tax law, a holder that is a United States person
whose tendered Old Notes are accepted for exchange is required to provide the
Exchange Agent with such holder's correct taxpayer identification number ("TIN")
on Substitute Form W-9, which is attached hereto. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service may subject the
holder or other payee to a $50 penalty. In addition, payments to such holders or
other payees with respect to Old Notes exchanged pursuant to the Exchange Offer
may be subject to 31%
10
<PAGE> 11
backup withholding. Certain holders (including, among others, corporations and
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as exempt from those
backup withholding and reporting requirements, such holder must submit IRS Form
W-8 to the payor, signed under penalties of perjury and must attest to that
individual's foreign status.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments (including exchanged amounts) made prior to the
time a properly certified TIN is provided to the Exchange Agent.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Old Notes or of the last transferee appearing on the transfers attached to, or
endorsed on, the Old Notes. If the Old Notes are in more than one name or are
not in the name of the actual owner, consult the enclosed "Instructions for the
Requester of Form W-9" for additional guidance on which number to report.
6. TRANSFER TAXES.
The Company shall bear all expenses, including any transfer taxes, incurred
in connection with the Exchange Offer.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes, nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11
<PAGE> 12
Instructions for the [IRS LOGO]
Requester of Form W-9
(Rev. November 1998)
REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
AND CERTIFICATION
Section references are to the Internal Revenue Code, unless otherwise noted.
- --------------------------------------------------------------------------------
These instructions supplement the instructions on the Form W-9 (Rev. December
1996) for the requester.
CHANGE TO NOTE
ELECTRONIC SUBMISSION OF FORMS W-9. Requesters may establish a system for
payees to submit Forms W-9 electronically, including by fax. A requester is
anyone required to provide a taxpayer identification number (TIN) to the
requester. Generally, the electronic system must --
- - Ensure the information received is the information sent, and document all
occasions of user access that result in the submission.
- - Make it reasonably certain the person accessing the system and submitting the
form is the person identified on Form W-9.
- - Provide you with the same information as the paper Form W-9.
- - Require as the final entry in the submission an electronic signature by the
payee whose name is on Form W-9 that authenticates and verifies the submission.
- - Be able to supply a hard copy of the electronic Form W-9 if the Internal
Revenue Service requests it.
NOTE: For Forms W-9 that are not required to be signed, the electronic system
need not provide for an electronic signature or a perjury statement.
Additional requirements may apply. See Announcement 98-27, 1998-15 I.R.B.
30.
INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (TIN)
Form W-9 (or an acceptable substitute) is used by persons required to file
information returns with the IRS to get the payee's (or other person's) correct
TIN. For individuals, the TIN is generally a social security number (SSN).
However, in some cases, individuals who become U.S. resident aliens for tax
purposes are not eligible to obtain an SSN. This includes certain resident
aliens who must receive information returns but who cannot obtain an SSN.
These individuals must apply for an ITIN on FORM W-7, Application for IRS
Individual Taxpayer Identification Number, unless they have an application
pending for an SSN. Individuals who have an ITIN must provide it on Form W-9.
SUBSTITUTE FORM W-9
You may develop and use your own Form W-9 (a substitute Form W-9) if its content
is substantially similar to the IRS's official Form W-9 and it satisfies certain
certification requirements.
You may incorporate a substitute Form W-9 into other business forms you
customarily use, such as account signature cards, provided the certifications
that (1) the payee's TIN is correct and (2) the payee is not subject to backup
withholding due to failure to report interest and dividend income, shown on the
official Form W-9, are clearly set forth. You MAY NOT:
1. Use a substitute Form W-9 that requires the payee, by signing, to agree
to provisions unrelated to the required certifications or
2. Imply that a payee may be subject to backup withholding unless the payee
agrees to provisions on the substitute form that are unrelated to the required
certifications.
A substitute Form W-9 that contains a SEPARATE SIGNATURE LINE just for the
certifications satisfies the requirement that the certifications be clearly set
forth.
If a SINGLE SIGNATURE LINE is used for the required certifications and other
provisions, the certifications must be highlighted, boxed, printed in bold-face
type, or presented in some other manner that causes the language to stand out
from all other information contained on the substitute form. Additionally, the
following statement must be presented in the same manner as in the preceding
sentence and must appear immediately above the single signature line: "The
Internal Revenue Service does not require your consent to any provision of this
document other than the certifications required to avoid backup withholding."
If you use a substitute form, the instructions do not have to be furnished
to the payee. The payee only needs to be instructed orally or in writing to
strike out the language of the certification that relates to payee
underreporting. However, you are encouraged to provide instructions relevant to
the account, especially if the payee requests them.
TIN APPLIED FOR
For interest and dividend payments and certain payments with respect to readily
tradable instruments, if the payee returns a properly completed Form W-9 with
"Applied For" written in Part I (i.e., an "awaiting TIN" certificate), the payee
must give you a TIN within 60 calendar days to avoid backup withholding. You may
use one of the following rules to backup withhold during this 60-day period.
NOTE: The 60-day exemption from backup withholding does not apply to any
payment other than interest, dividends, and certain payments made with respect
to readily tradable instruments. Therefore, any other payment, such as
nonemployee compensation, is subject to backup withholding even if the payee has
applied for and is awaiting a TIN.
RESERVE RULE. If a payee withdraws more than $500 at one time during the 60-day
period, you must backup withhold on any reportable payments made during the
period, unless the payee reserves 31% of all reportable payments made to the
account during the period.
ALTERNATIVE RULE (OPTION 1). You must backup withhold on any reportable
payments if the payee makes a withdrawal from the account after the close of 7
business days after you receive the awaiting-TIN certificate. Treat as
reportable payments all cash withdrawals in an amount up to the reportable
payments made from the day after you receive the awaiting-TIN certificate to the
day of withdrawal.
ALTERNATIVE RULE (OPTION 2). You must backup withhold on any reportable
payments made to the payee's account, regardless of whether the payee makes any
withdrawals. Backup withholding under this option must begin no later than 7
business days after you receive the awaiting-TIN certificate.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Even if the payee does not provide a TIN in the manner required, you are NOT
REQUIRED to backup withhold on any payments you make if the payee is:
1. An organization exempt from tax under section 501(a), any IRA, or a
custodial account under section 403(b)(7) if the account satisfies the
requirements of section 401(f)(2).
2. The United States or any of its agencies or instrumentalities.
3. A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
<PAGE> 13
4. A foreign government or any of its political subdivisions, agencies, or
instrumentalities.
5. An international organization or any of its agencies or
instrumentalities.
Other payees that MAY BE EXEMPT from backup withholding include:
6. A corporation.
7. A foreign central bank of issue.
8. A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
9. A futures commission merchant registered with the Commodity Futures
Trading Commission.
10. A real estate investment trust.
11. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
12. A common trust fund operated by a bank under section 584(a).
13. A financial institution.
14. A middleman known in the investment community as a nominee or who is
listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
15. A trust exempt from tax under section 664 or described in section 4947.
INTEREST AND DIVIDEND PAYMENTS. All listed payees are exempt except the payee in
item 9.
BROKER TRANSACTIONS. All payees listed in items 1 through 13 are exempt. A
person registered under the Investment Advisors Act of 1940 who regularly acts
as a broker is also exempt.
PAYMENTS REPORTABLE UNDER SECTIONS 6041 AND 6041A. These payments are generally
exempt from backup withholding only if made to payees listed in items 1 through
7. However, the following payments made to a CORPORATION and reportable on Form
1099-MISC are not exempt from withholding:
- - Medical and health care payments.
- - Attorneys' fees.
- - Payments for services paid by a Federal executive agency.
GROSS PROCEEDS; ATTORNEYS. Reportable gross proceeds paid to attorneys
(under section 6045(f) even if the attorney is a corporation, are not exempt
from backup withholding.
BARTER EXCHANGE TRANSACTIONS AND PATRONAGE DIVIDENDS. Only payees listed in
items 1 through 5 are exempt from backup withholding on these payments.
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
Payments that are not subject to information reporting also are not subject to
backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.
DIVIDENDS AND PATRONAGE DIVIDENDS that generally are exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) distributions made by an ESOP.
INTEREST PAYMENTS that generally are exempt from backup withholding include:
- - Payments of interest on obligations issued by individuals. However, if you pay
$600 or more of interest IN THE COURSE OF YOUR TRADE OR BUSINESS to a payee, you
must report the payment. Backup withholding applies to the reportable payment if
the payee has not provided a TIN or has provided an incorrect TIN.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
OTHER TYPES OF PAYMENTS that generally are exempt from backup withholding
include:
- - Wages.
- - Distributions from a pension, annuity, profit-sharing or stock bonus plan, any
IRA, or an owner-employee plan.
- - Certain surrenders of life insurance contracts.
- - Gambling winnings if withholding is required under section 3402(q). However,
if withholding is not required under section 3402(q), backup withholding applies
if the payee fails to furnish a TIN.
- - Real estate transactions reportable under section 6045(e).
- - Cancelled debts reportable under section 6050P.
- - Distributions from a medical savings account and long-term care benefits.
- - Fish purchases for cash reportable under section 6050R.
JOINT FOREIGN PAYEES
If the first payee listed on an account gives you FORM W-8, Certificate of
Foreign Status, (or Form W-8BEN) or a similar statement signed under penalties
of perjury, backup withholding applies unless:
1. Every joint payee provides the statement regarding foreign status or
2. Any one of the joint payees who has not established foreign status gives
you a TIN.
If any one of the joint payees who has not established foreign status gives you
a TIN, that number is the TIN that must be used for purposes of backup
withholding and information reporting.
NAMES AND TINS TO USE
FOR INFORMATION REPORTING
Show the full name and address as provided on Form W-9 on the information return
filed with the IRS and on the copy furnished to the payee. If you made payments
to more than one payee or the account is in more than one name, enter on the
first name line ONLY the name of the payee whose TIN is shown on the information
return. Show the names of any other individual payees in the area below the
first name line, if desired.
SOLE PROPRIETORS. You must show the individual's name on the first name line. On
the second name line, you may enter the business name or "doing business as
(DBA)" if provided. You MAY NOT enter only the business name. For the TIN, you
may enter either the individual's SSN or the employer identification number
(EIN) of the business. However, the IRS prefers that you show the SSN.
ADDITIONAL INFORMATION
For more information on backup withholding, get PUB. 1679, A Guide to Backup
Withholding, or PUB. 1281, Backup Withholding on Missing and Incorrect
Name/TINs.
NOTICES FROM THE IRS
The IRS will send you a notice if the payee's name and TIN on the information
return you filed do not match the IRS's records. You may have to send a "B"
notice to the payee to solicit another TIN. See Pubs. 1679 and 1281 for copies
of the two types of "B" notices.
<PAGE> 1
EXHIBIT 99.2
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
UP TO $400,000,000 AGGREGATE PRINCIPAL AMOUNT OF
6.65% SENIOR NOTES DUE 2006
FOR ANY AND ALL OUTSTANDING UNREGISTERED
6.65% SENIOR NOTES DUE 2006
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
PURSUANT TO THE PROSPECTUS, DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS EXTENDED. TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1999.
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed and submitted to the Exchange Agent as follows:
The Bank of New York
101 Barclay Street
Floor 7E
New York, New York 10286
Attention: Enrique Lopez
Reorganization Department
Facsimile Transmission:
(212) 815-4699
Confirm by Telephone or For Information:
(212) 815-2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (212)
815-2742 OR FACSIMILE AT (212) 815-4699.
<PAGE> 2
The undersigned acknowledges receipt of the Prospectus, dated ,
1999 (the "Prospectus") of Telecomunicaciones de Puerto Rico, Inc., a
corporation organized under the laws of the Commonwealth of Puerto Rico (the
"Company"), and this Letter of Transmittal (this "Letter"), which together
constitute the offer to exchange (the "Exchange Offer") an aggregate principal
amount of up to $400,000,000 6.65% Senior Notes due 2006 (the "Exchange Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for an equal principal amount of its outstanding unregistered 6.65% Senior Notes
due 2006 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. The Exchange Note will accrue interest at the rate set
forth on the cover page of the Prospectus, from the last date on which interest
was paid on the Old Notes surrendered in exchange therefor. Interest on the
Exchange Notes is payable semi-annually on May 15 and November 15 of each year
commencing November 15, 1999, and accruing from May 20, 1999, the date of issue
of the Old Notes, subject to the terms of the Senior Notes indenture.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date to which the Exchange Offer is extended. The
Company shall notify the Exchange Agent of any extension by oral or written
notice and will make a public announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
This Letter is to be completed by a holder of Old Notes either if a tender
of Old Notes is to be made by book-entry transfer to the account maintained by
the Exchange Agent at The Depository Trust Company's Book-Entry Transfer
Facility (the "Book-Entry Transfer Facility") or if Old Notes are to be
forwarded herewith pursuant to the procedure set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" section of the Prospectus. Holders
of Old Notes whose certificates are not immediately available, or who are unable
to deliver their certificates or confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
(a "Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures of Old Notes" section of the Prospectus.
See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
The undersigned has supplied the appropriate information and completed the
appropriate boxes below and signed this Letter to indicate the action the
undersigned desires to take with respect to the Exchange Offer.
If Old Notes are being tendered in certificated form, list below the Old
Notes to which this Letter relates. If the space provided below is inadequate,
the certificate numbers and principal amount of Old Notes should be listed on a
separate signed schedule affixed hereto.
2
<PAGE> 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3 4 5
- -----------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) NOTE MATURITY AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER* % DATE OLD NOTE(S) TENDERED**
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes represented by
the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in denominations of principal
amount of $1,000 and any integral multiple thereof. See Instruction 1.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------
Account Number
------------------------------- Transaction Code Number
----------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
--------------------------------------------
Window Ticket Number (if any)
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Institution Which Guaranteed Delivery
------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:
------------------------------- Transaction Code Number:
-------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
----------------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE> 4
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Old Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, that neither the holder of such Old Notes nor
any such other person is engaged in, or intends to engage in, a distribution of
such Exchange Notes, or has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, and that neither the
holder of such Old Notes nor any such other person is an "affiliate" of the
Company, as defined in Rule 405 under the Securities Act.
The undersigned also acknowledges that this Exchange Offer is being made
based upon the Company's understanding of an interpretation by the staff of the
Commission as set forth in no-action letters issued to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989) (the "Exxon Capital Letter"), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) (the "Morgan Stanley Letter") and
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993) (the
"Shearman & Sterling Letter"), that the Exchange Notes issued in exchange for
the Old Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer who
acquired such Old Notes directly from the Company for resale pursuant to Rule
144A under the Securities Act or any other available exemption under the
Securities Act or (ii) any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, a distribution of such Exchange Notes and have no arrangement with
any person to participate in the distribution of such Exchange Notes. If a
holder of Old Notes is engaged in or intends to engage in a distribution of the
Exchange Notes or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder cannot rely on the applicable interpretations of the staff of
the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may withdrawn only in accordance with
the procedures set forth in "The Exchange Offer -- Withdrawal of Tenders of Old
Notes" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please credit the Exchange Notes to the account indicated
above maintained at the Book-Entry Transfer Facility. The undersigned
understands that any Old Notes tendered in certificated form will not be
exchanged for Exchange Notes in certificated from, but rather will be exchanged
for Exchange Notes in the form of a beneficial interest in the global note
representing the Exchange Notes by a credit of the Exchange Notes to an account
maintained at the Book-Entry Transfer Facility. Accordingly, any holder
tendering Old Notes in certificated form must complete the box entitled "Special
Issuance
4
<PAGE> 5
Instructions" to specify the account at the Book-Entry Transfer Facility that
should be credited with the Exchange Notes to be received in exchange. Please
deliver any substitute certificates representing Old Notes not exchanged in the
name of the undersigned, unless otherwise indicated herein in the box entitled
"Special Issuance Instructions" below, to the undersigned at the address shown
above in the box entitled "Description of Old Notes," unless otherwise indicated
under the box entitled "Special Delivery Instructions" below.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
5
<PAGE> 6
- ------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------
To be completed ONLY if certificates for Old Notes are being tendered for
exchange, if certificates for Old Notes not exchanged are to be issued in the
name of and sent to someone other than the person(s) whose signature(s)
appear(s) on this Letter above or if Old Notes delivered by book-entry
transfer which are not accepted for exchange are to be returned by credit to
an account maintained at the Book-Entry Transfer Facility other than the
account indicated above.
Credit Old Notes in certificated form accepted for exchange and
unexchanged Old Notes delivered by book-entry transfer to the Book-Entry
Transfer Facility Account set forth below.
-----------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
Issue substitute certificates representing Old Notes not exchanged to:
Name(s):
-----------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
Address:
-------------------------------------------------
-----------------------------------------------------------
(INCLUDING ZIP CODE)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged are to
be sent to someone other than the person(s) whose signature(s) appears(s) on
this Letter above or to such person(s) at an address other than shown in the
box entitled "Description of Old Notes" on this Letter above.
Mail substitute certificates for Old Notes to:
Name(s):
-----------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
Address:
-------------------------------------------------
-----------------------------------------------------------
(INCLUDING ZIP CODE)
- ------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE OLD NOTES OR A
BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF
GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX ABOVE.
6
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
Dated:
- ---------------------, 1999
- -------------------------------------------------------------------------------x
- -------------------------------------------------------------------------------x
(SIGNATURE(S) OF OWNER) (DATE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the Certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by:
an Eligible Institution:
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME AND FIRM)
Dated: , 1999
----------------------------
7
<PAGE> 8
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: THE BANK OF NEW YORK
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX TIN
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING --------------------------------------
BELOW SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
---------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2
INTERNAL REVENUE SERVICE AWAITING TIN [ ]
------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) THE NUMBER SHOWN ON
THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER TO
BE ISSUED TO ME), (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE I HAVE NOT
BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I AM SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING, AND (3) ANY OTHER
INFORMATION PROVIDED ON THIS FORM IS TRUE AND CORRECT.
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER SIGNATURE -------------------------------------------------------------------------
(TIN) AND CERTIFICATION
DATE
-------------------------------------------
YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR
TAX RETURN AND YOU HAVE NOT BEEN NOTIFIED BY THE IRS THAT YOU ARE NO LONGER SUBJECT TO
BACKUP WITHHOLDING.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
31% of all payments of interest made to me will be withheld until I provide a
properly certified taxpayer identification number.
Signature
- --------------------------------------------------------------- Date
- ------------------------------------
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF TELECOMUNICACIONES DE PUERTO RICO,
INC.
OFFER TO EXCHANGE
UP TO $400,000,000 6.65% SENIOR NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
6.65% SENIOR NOTES DUE 2006
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" section of the Prospectus.
Certificates for all physically tendered Old Notes, or Book-Entry Confirmation,
as the case may be, as well as a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other documents required by this
Letter, must be received by the Exchange Agent at the address set forth herein
on or prior to the Expiration Date, or the tendering holder must comply with the
guaranteed delivery procedures set forth below. Old Notes tendered hereby must
be in a principal amount of US $1,000 and any integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery Procedures of Old Notes" section
of the Prospectus. Pursuant to such procedures, (i) such tender must be made
through an Eligible Institution (as defined below), (ii) on or prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes, the certificate number or numbers and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within three business days after the Expiration Date, this Letter of
Transmittal (or facsimile hereof), together with the certificates for all
physically tendered Old Notes (in proper form for transfer) or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent and
(iii) such properly completed and executed Letter of Transmittal (or facsimile
hereof) and all documents required thereby, and the certificates for all
physically tendered Old Notes (in proper form for transfer) or Book-Entry
Confirmation, as the case may be, are received by the Exchange Agent within
three business days after the Expiration Date. Any holder who wishes to tender
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Old Notes prior to 5:00 p.m., New York City time, on the
Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders. The delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that registered mail,
properly insured, with return receipt requested, be used. Instead of delivery by
mail, it is recommended that holders use an overnight or hand delivery service.
In all such cases arrangements should be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes -- Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box in this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
9
<PAGE> 10
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the Exchange Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted hereby
or separate bond powers are required. Signatures on such certificates must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of
any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF
A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC., BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES OR BY AN "ELIGIBLE
GUARANTOR" INSTITUTION WITHIN THE MEANING OF RULE 17AD-15 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED
THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" IN THIS LETTER OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
account at the Book-Entry Transfer Facility to which the Exchange Notes issued
pursuant to the Exchange Offer are to be credited, if different from the account
number appearing below the box entitled "Description of Old Notes." Old Notes
tendered in certificated form will not be exchanged for Exchange Notes in
certificated form, but rather will be exchanged for Exchange Notes in the form
of a beneficial interest in the global note representing the Exchange Notes by a
credit of the Exchange Notes to an account maintained at the Book-Entry Transfer
Facility. Accordingly, any holder tendering Old Notes in certificated form must
indicate in the box entitled "Special Issuance Instructions" to specify the
account at the Book-Entry Transfer Facility that should be credited with the
Exchange Notes to be received in exchange. Any substitute certificates
representing Old Notes not exchanged will be delivered in the name of the
undersigned at the address shown above in the box entitled "Description of Old
Notes," unless otherwise indicated herein in the appropriate box.
5. U.S. BACKUP TAX WITHHOLDING AND INTERNAL REVENUE SERVICE FORM W-9
Under U.S. Federal income tax law, a holder that is a United States person
whose tendered Old Notes are accepted for exchange is required to provide the
Exchange Agent with such holder's correct taxpayer identification number ("TIN")
on Substitute Form W-9, which is attached hereto. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service may subject the
holder or other payee to a $50 penalty. In addition, payments to such holders or
other payees with respect to Old Notes exchanged pursuant to the Exchange Offer
may be subject to 31%
10
<PAGE> 11
backup withholding. Certain holders (including, among others, corporations and
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as exempt from those
backup withholding and reporting requirements, such holder must submit IRS Form
W-8 to the payor, signed under penalties of perjury and must attest to that
individual's foreign status.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments (including exchanged amounts) made prior to the
time a properly certified TIN is provided to the Exchange Agent.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Old Notes or of the last transferee appearing on the transfers attached to, or
endorsed on, the Old Notes. If the Old Notes are in more than one name or are
not in the name of the actual owner, consult the enclosed "Instructions for the
Requester of Form W-9" for additional guidance on which number to report.
6. TRANSFER TAXES.
The Company shall bear all expenses, including any transfer taxes, incurred
in connection with the Exchange Offer.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes, nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11
<PAGE> 12
Instructions for the [IRS LOGO]
Requester of Form W-9
(Rev. November 1998)
REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
AND CERTIFICATION
Section references are to the Internal Revenue Code, unless otherwise noted.
- --------------------------------------------------------------------------------
These instructions supplement the instructions on the Form W-9 (Rev. December
1996) for the requester.
CHANGE TO NOTE
ELECTRONIC SUBMISSION OF FORMS W-9. Requesters may establish a system for
payees to submit Forms W-9 electronically, including by fax. A requester is
anyone required to provide a taxpayer identification number (TIN) to the
requester. Generally, the electronic system must --
- - Ensure the information received is the information sent, and document all
occasions of user access that result in the submission.
- - Make it reasonably certain the person accessing the system and submitting the
form is the person identified on Form W-9.
- - Provide you with the same information as the paper Form W-9.
- - Require as the final entry in the submission an electronic signature by the
payee whose name is on Form W-9 that authenticates and verifies the submission.
- - Be able to supply a hard copy of the electronic Form W-9 if the Internal
Revenue Service requests it.
NOTE: For Forms W-9 that are not required to be signed, the electronic system
need not provide for an electronic signature or a perjury statement.
Additional requirements may apply. See Announcement 98-27, 1998-15 I.R.B.
30.
INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (TIN)
Form W-9 (or an acceptable substitute) is used by persons required to file
information returns with the IRS to get the payee's (or other person's) correct
TIN. For individuals, the TIN is generally a social security number (SSN).
However, in some cases, individuals who become U.S. resident aliens for tax
purposes are not eligible to obtain an SSN. This includes certain resident
aliens who must receive information returns but who cannot obtain an SSN.
These individuals must apply for an ITIN on FORM W-7, Application for IRS
Individual Taxpayer Identification Number, unless they have an application
pending for an SSN. Individuals who have an ITIN must provide it on Form W-9.
SUBSTITUTE FORM W-9
You may develop and use your own Form W-9 (a substitute Form W-9) if its content
is substantially similar to the IRS's official Form W-9 and it satisfies certain
certification requirements.
You may incorporate a substitute Form W-9 into other business forms you
customarily use, such as account signature cards, provided the certifications
that (1) the payee's TIN is correct and (2) the payee is not subject to backup
withholding due to failure to report interest and dividend income, shown on the
official Form W-9, are clearly set forth. You MAY NOT:
1. Use a substitute Form W-9 that requires the payee, by signing, to agree
to provisions unrelated to the required certifications or
2. Imply that a payee may be subject to backup withholding unless the payee
agrees to provisions on the substitute form that are unrelated to the required
certifications.
A substitute Form W-9 that contains a SEPARATE SIGNATURE LINE just for the
certifications satisfies the requirement that the certifications be clearly set
forth.
If a SINGLE SIGNATURE LINE is used for the required certifications and other
provisions, the certifications must be highlighted, boxed, printed in bold-face
type, or presented in some other manner that causes the language to stand out
from all other information contained on the substitute form. Additionally, the
following statement must be presented in the same manner as in the preceding
sentence and must appear immediately above the single signature line: "The
Internal Revenue Service does not require your consent to any provision of this
document other than the certifications required to avoid backup withholding."
If you use a substitute form, the instructions do not have to be furnished
to the payee. The payee only needs to be instructed orally or in writing to
strike out the language of the certification that relates to payee
underreporting. However, you are encouraged to provide instructions relevant to
the account, especially if the payee requests them.
TIN APPLIED FOR
For interest and dividend payments and certain payments with respect to readily
tradable instruments, if the payee returns a properly completed Form W-9 with
"Applied For" written in Part I (i.e., an "awaiting TIN" certificate), the payee
must give you a TIN within 60 calendar days to avoid backup withholding. You may
use one of the following rules to backup withhold during this 60-day period.
NOTE: The 60-day exemption from backup withholding does not apply to any
payment other than interest, dividends, and certain payments made with respect
to readily tradable instruments. Therefore, any other payment, such as
nonemployee compensation, is subject to backup withholding even if the payee has
applied for and is awaiting a TIN.
RESERVE RULE. If a payee withdraws more than $500 at one time during the 60-day
period, you must backup withhold on any reportable payments made during the
period, unless the payee reserves 31% of all reportable payments made to the
account during the period.
ALTERNATIVE RULE (OPTION 1). You must backup withhold on any reportable
payments if the payee makes a withdrawal from the account after the close of 7
business days after you receive the awaiting-TIN certificate. Treat as
reportable payments all cash withdrawals in an amount up to the reportable
payments made from the day after you receive the awaiting-TIN certificate to the
day of withdrawal.
ALTERNATIVE RULE (OPTION 2). You must backup withhold on any reportable
payments made to the payee's account, regardless of whether the payee makes any
withdrawals. Backup withholding under this option must begin no later than 7
business days after you receive the awaiting-TIN certificate.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Even if the payee does not provide a TIN in the manner required, you are NOT
REQUIRED to backup withhold on any payments you make if the payee is:
1. An organization exempt from tax under section 501(a), any IRA, or a
custodial account under section 403(b)(7) if the account satisfies the
requirements of section 401(f)(2).
2. The United States or any of its agencies or instrumentalities.
3. A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
<PAGE> 13
4. A foreign government or any of its political subdivisions, agencies, or
instrumentalities.
5. An international organization or any of its agencies or
instrumentalities.
Other payees that MAY BE EXEMPT from backup withholding include:
6. A corporation.
7. A foreign central bank of issue.
8. A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
9. A futures commission merchant registered with the Commodity Futures
Trading Commission.
10. A real estate investment trust.
11. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
12. A common trust fund operated by a bank under section 584(a).
13. A financial institution.
14. A middleman known in the investment community as a nominee or who is
listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
15. A trust exempt from tax under section 664 or described in section 4947.
INTEREST AND DIVIDEND PAYMENTS. All listed payees are exempt except the payee in
item 9.
BROKER TRANSACTIONS. All payees listed in items 1 through 13 are exempt. A
person registered under the Investment Advisors Act of 1940 who regularly acts
as a broker is also exempt.
PAYMENTS REPORTABLE UNDER SECTIONS 6041 AND 6041A. These payments are generally
exempt from backup withholding only if made to payees listed in items 1 through
7. However, the following payments made to a CORPORATION and reportable on Form
1099-MISC are not exempt from withholding:
- - Medical and health care payments.
- - Attorneys' fees.
- - Payments for services paid by a Federal executive agency.
GROSS PROCEEDS; ATTORNEYS. Reportable gross proceeds paid to attorneys
(under section 6045(f) even if the attorney is a corporation, are not exempt
from backup withholding.
BARTER EXCHANGE TRANSACTIONS AND PATRONAGE DIVIDENDS. Only payees listed in
items 1 through 5 are exempt from backup withholding on these payments.
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
Payments that are not subject to information reporting also are not subject to
backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.
DIVIDENDS AND PATRONAGE DIVIDENDS that generally are exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) distributions made by an ESOP.
INTEREST PAYMENTS that generally are exempt from backup withholding include:
- - Payments of interest on obligations issued by individuals. However, if you pay
$600 or more of interest IN THE COURSE OF YOUR TRADE OR BUSINESS to a payee, you
must report the payment. Backup withholding applies to the reportable payment if
the payee has not provided a TIN or has provided an incorrect TIN.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
OTHER TYPES OF PAYMENTS that generally are exempt from backup withholding
include:
- - Wages.
- - Distributions from a pension, annuity, profit-sharing or stock bonus plan, any
IRA, or an owner-employee plan.
- - Certain surrenders of life insurance contracts.
- - Gambling winnings if withholding is required under section 3402(q). However,
if withholding is not required under section 3402(q), backup withholding applies
if the payee fails to furnish a TIN.
- - Real estate transactions reportable under section 6045(e).
- - Cancelled debts reportable under section 6050P.
- - Distributions from a medical savings account and long-term care benefits.
- - Fish purchases for cash reportable under section 6050R.
JOINT FOREIGN PAYEES
If the first payee listed on an account gives you FORM W-8, Certificate of
Foreign Status, (or Form W-8BEN) or a similar statement signed under penalties
of perjury, backup withholding applies unless:
1. Every joint payee provides the statement regarding foreign status or
2. Any one of the joint payees who has not established foreign status gives
you a TIN.
If any one of the joint payees who has not established foreign status gives you
a TIN, that number is the TIN that must be used for purposes of backup
withholding and information reporting.
NAMES AND TINS TO USE
FOR INFORMATION REPORTING
Show the full name and address as provided on Form W-9 on the information return
filed with the IRS and on the copy furnished to the payee. If you made payments
to more than one payee or the account is in more than one name, enter on the
first name line ONLY the name of the payee whose TIN is shown on the information
return. Show the names of any other individual payees in the area below the
first name line, if desired.
SOLE PROPRIETORS. You must show the individual's name on the first name line. On
the second name line, you may enter the business name or "doing business as
(DBA)" if provided. You MAY NOT enter only the business name. For the TIN, you
may enter either the individual's SSN or the employer identification number
(EIN) of the business. However, the IRS prefers that you show the SSN.
ADDITIONAL INFORMATION
For more information on backup withholding, get PUB. 1679, A Guide to Backup
Withholding, or PUB. 1281, Backup Withholding on Missing and Incorrect
Name/TINs.
NOTICES FROM THE IRS
The IRS will send you a notice if the payee's name and TIN on the information
return you filed do not match the IRS's records. You may have to send a "B"
notice to the payee to solicit another TIN. See Pubs. 1679 and 1281 for copies
of the two types of "B" notices.
<PAGE> 1
EXHIBIT 99.3
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
UP TO $300,000,000 AGGREGATE PRINCIPAL AMOUNT OF
6.80% SENIOR NOTES DUE 2009
FOR ANY AND ALL OUTSTANDING UNREGISTERED
6.80% SENIOR NOTES DUE 2009
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
PURSUANT TO THE PROSPECTUS, DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS EXTENDED. TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON ,
1999.
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed and submitted to the Exchange Agent as follows:
The Bank of New York
101 Barclay Street
Floor 7E
New York, New York 10286
Attention: Enrique Lopez
Reorganization Department
Facsimile Transmission:
(212) 815-4699
Confirm by Telephone or For Information:
(212) 815-2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (212)
815-2742 OR FACSIMILE AT (212) 815-4699.
<PAGE> 2
The undersigned acknowledges receipt of the Prospectus, dated ,
1999 (the "Prospectus") of Telecomunicaciones de Puerto Rico, Inc., a
corporation organized under the laws of the Commonwealth of Puerto Rico (the
"Company"), and this Letter of Transmittal (this "Letter"), which together
constitute the offer to exchange (the "Exchange Offer") an aggregate principal
amount of up to $300,000,000 6.80% Senior Notes due 2009 (the "Exchange Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for an equal principal amount of its outstanding unregistered 6.80% Senior Notes
due 2009 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. The Exchange Note will accrue interest at the rate set
forth on the cover page of the Prospectus, from the last date on which interest
was paid on the Old Notes surrendered in exchange therefor. Interest on the
Exchange Notes is payable semi-annually on May 15 and November 15 of each year
commencing November 15, 1999, and accruing from May 20, 1999, the date of issue
of the Old Notes, subject to the terms of the Senior Notes indenture.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date to which the Exchange Offer is extended. The
Company shall notify the Exchange Agent of any extension by oral or written
notice and will make a public announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
This Letter is to be completed by a holder of Old Notes either if a tender
of Old Notes is to be made by book-entry transfer to the account maintained by
the Exchange Agent at The Depository Trust Company's Book-Entry Transfer
Facility (the "Book-Entry Transfer Facility") or if Old Notes are to be
forwarded herewith pursuant to the procedure set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" section of the Prospectus. Holders
of Old Notes whose certificates are not immediately available, or who are unable
to deliver their certificates or confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
(a "Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures of Old Notes" section of the Prospectus.
See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
The undersigned has supplied the appropriate information and completed the
appropriate boxes below and signed this Letter to indicate the action the
undersigned desires to take with respect to the Exchange Offer.
If Old Notes are being tendered in certificated form, list below the Old
Notes to which this Letter relates. If the space provided below is inadequate,
the certificate numbers and principal amount of Old Notes should be listed on a
separate signed schedule affixed hereto.
2
<PAGE> 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3 4 5
- -----------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) NOTE MATURITY AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER* % DATE OLD NOTE(S) TENDERED**
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes represented by
the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in denominations of principal
amount of $1,000 and any integral multiple thereof. See Instruction 1.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
Account Number________________ Transaction Code Number________________
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) ___________________________________________
Window Ticket Number (if any) _____________________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution Which Guaranteed Delivery _____________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:_________________ Transaction Code Number:_______________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE> 4
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Old Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, that neither the holder of such Old Notes nor
any such other person is engaged in, or intends to engage in, a distribution of
such Exchange Notes, or has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, and that neither the
holder of such Old Notes nor any such other person is an "affiliate" of the
Company, as defined in Rule 405 under the Securities Act.
The undersigned also acknowledges that this Exchange Offer is being made
based upon the Company's understanding of an interpretation by the staff of the
Commission as set forth in no-action letters issued to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989) (the "Exxon Capital Letter"), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) (the "Morgan Stanley Letter") and
Shearman & Sterling, SEC No-Action Letter (available July 2, 1993) (the
"Shearman & Sterling Letter"), that the Exchange Notes issued in exchange for
the Old Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer who
acquired such Old Notes directly from the Company for resale pursuant to Rule
144A under the Securities Act or any other available exemption under the
Securities Act or (ii) any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, a distribution of such Exchange Notes and have no arrangement with
any person to participate in the distribution of such Exchange Notes. If a
holder of Old Notes is engaged in or intends to engage in a distribution of the
Exchange Notes or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder cannot rely on the applicable interpretations of the staff of
the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may withdrawn only in accordance with
the procedures set forth in "The Exchange Offer -- Withdrawal of Tenders of Old
Notes" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please credit the Exchange Notes to the account indicated
above maintained at the Book-Entry Transfer Facility. The undersigned
understands that any Old Notes tendered in certificated form will not be
exchanged for Exchange Notes in certificated from, but rather will be exchanged
for Exchange Notes in the form of a beneficial interest in the global note
representing the Exchange Notes by a credit of the Exchange Notes to an account
maintained at the Book-Entry Transfer Facility. Accordingly, any holder
tendering Old Notes in certificated form must complete the box entitled "Special
Issuance
4
<PAGE> 5
Instructions" to specify the account at the Book-Entry Transfer Facility that
should be credited with the Exchange Notes to be received in exchange. Please
deliver any substitute certificates representing Old Notes not exchanged in the
name of the undersigned, unless otherwise indicated herein in the box entitled
"Special Issuance Instructions" below, to the undersigned at the address shown
above in the box entitled "Description of Old Notes," unless otherwise indicated
under the box entitled "Special Delivery Instructions" below.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
5
<PAGE> 6
- ------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------
To be completed ONLY if certificates for Old Notes are being tendered for
exchange, if certificates for Old Notes not exchanged are to be issued in the
name of and sent to someone other than the person(s) whose signature(s)
appear(s) on this Letter above or if Old Notes delivered by book-entry
transfer which are not accepted for exchange are to be returned by credit to
an account maintained at the Book-Entry Transfer Facility other than the
account indicated above.
Credit Old Notes in certificated form accepted for exchange and
unexchanged Old Notes delivered by book-entry transfer to the Book-Entry
Transfer Facility Account set forth below.
-----------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
Issue substitute certificates representing Old Notes not exchanged to:
Name(s): ---------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
------------------------------------------------------------------------------
Address: ---------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- -------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged are to
be sent to someone other than the person(s) whose signature(s) appears(s) on
this Letter above or to such person(s) at an address other than shown in the
box entitled "Description of Old Notes" on this Letter above.
Mail substitute certificates for Old Notes to:
Name(s): ---------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
------------------------------------------------------------------------------
Address: ---------------------------------------------------------------------
------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
- -------------------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE OLD NOTES OR A
BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF
GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX ABOVE.
6
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
Dated:
- ---------------------, 1999
- ------------------------------------------------------------------------------x
- ------------------------------------------------------------------------------x
(SIGNATURE(S) OF OWNER) (DATE)
Area Code and Telephone Number:-----------------------------------------------
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the Certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):-----------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity ----------------------------------------------------------------------
Address: ----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by:
an Eligible Institution:
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME AND FIRM)
Dated:___________________, 1999
7
<PAGE> 8
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: THE BANK OF NEW YORK
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX TIN
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING --------------------------------------
BELOW SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
---------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2
INTERNAL REVENUE SERVICE AWAITING TIN [ ]
------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) THE NUMBER SHOWN ON
THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER TO
BE ISSUED TO ME), (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE I HAVE NOT
BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I AM SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING, AND (3) ANY OTHER
INFORMATION PROVIDED ON THIS FORM IS TRUE AND CORRECT.
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER SIGNATURE -------------------------------------------------------------------------
(TIN) AND CERTIFICATION
DATE -------------------------------------------
YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR
TAX RETURN AND YOU HAVE NOT BEEN NOTIFIED BY THE IRS THAT YOU ARE NO LONGER SUBJECT TO
BACKUP WITHHOLDING.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
31% of all payments of interest made to me will be withheld until I provide a
properly certified taxpayer identification number.
Signature ------------------------------ Date -----------------------------
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF TELECOMUNICACIONES DE PUERTO RICO,
INC.
OFFER TO EXCHANGE
UP TO $300,000,000 6.80% SENIOR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
6.80% SENIOR NOTES DUE 2009
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" section of the Prospectus.
Certificates for all physically tendered Old Notes, or Book-Entry Confirmation,
as the case may be, as well as a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other documents required by this
Letter, must be received by the Exchange Agent at the address set forth herein
on or prior to the Expiration Date, or the tendering holder must comply with the
guaranteed delivery procedures set forth below. Old Notes tendered hereby must
be in a principal amount of US $1,000 and any integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery Procedures of Old Notes" section
of the Prospectus. Pursuant to such procedures, (i) such tender must be made
through an Eligible Institution (as defined below), (ii) on or prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes, the certificate number or numbers and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within three business days after the Expiration Date, this Letter of
Transmittal (or facsimile hereof), together with the certificates for all
physically tendered Old Notes (in proper form for transfer) or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent and
(iii) such properly completed and executed Letter of Transmittal (or facsimile
hereof) and all documents required thereby, and the certificates for all
physically tendered Old Notes (in proper form for transfer) or Book-Entry
Confirmation, as the case may be, are received by the Exchange Agent within
three business days after the Expiration Date. Any holder who wishes to tender
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Old Notes prior to 5:00 p.m., New York City time, on the
Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders. The delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that registered mail,
properly insured, with return receipt requested, be used. Instead of delivery by
mail, it is recommended that holders use an overnight or hand delivery service.
In all such cases arrangements should be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes -- Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box in this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
9
<PAGE> 10
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the Exchange Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted hereby
or separate bond powers are required. Signatures on such certificates must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of
any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER OF
A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC., BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES OR BY AN "ELIGIBLE
GUARANTOR" INSTITUTION WITHIN THE MEANING OF RULE 17AD-15 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED
THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" IN THIS LETTER OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
account at the Book-Entry Transfer Facility to which the Exchange Notes issued
pursuant to the Exchange Offer are to be credited, if different from the account
number appearing below the box entitled "Description of Old Notes." Old Notes
tendered in certificated form will not be exchanged for Exchange Notes in
certificated form, but rather will be exchanged for Exchange Notes in the form
of a beneficial interest in the global note representing the Exchange Notes by a
credit of the Exchange Notes to an account maintained at the Book-Entry Transfer
Facility. Accordingly, any holder tendering Old Notes in certificated form must
indicate in the box entitled "Special Issuance Instructions" to specify the
account at the Book-Entry Transfer Facility that should be credited with the
Exchange Notes to be received in exchange. Any substitute certificates
representing Old Notes not exchanged will be delivered in the name of the
undersigned at the address shown above in the box entitled "Description of Old
Notes," unless otherwise indicated herein in the appropriate box.
5. U.S. BACKUP TAX WITHHOLDING AND INTERNAL REVENUE SERVICE FORM W-9
Under U.S. Federal income tax law, a holder that is a United States person
whose tendered Old Notes are accepted for exchange is required to provide the
Exchange Agent with such holder's correct taxpayer identification number ("TIN")
on Substitute Form W-9, which is attached hereto. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service may subject the
holder or other payee to a $50 penalty. In addition, payments to such holders or
other payees with respect to Old Notes exchanged pursuant to the Exchange Offer
may be subject to 31%
10
<PAGE> 11
backup withholding. Certain holders (including, among others, corporations and
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as exempt from those
backup withholding and reporting requirements, such holder must submit IRS Form
W-8 to the payor, signed under penalties of perjury and must attest to that
individual's foreign status.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments (including exchanged amounts) made prior to the
time a properly certified TIN is provided to the Exchange Agent.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Old Notes or of the last transferee appearing on the transfers attached to, or
endorsed on, the Old Notes. If the Old Notes are in more than one name or are
not in the name of the actual owner, consult the enclosed "Instructions for the
Requester of Form W-9" for additional guidance on which number to report.
6. TRANSFER TAXES.
The Company shall bear all expenses, including any transfer taxes, incurred
in connection with the Exchange Offer.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes, nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11
<PAGE> 12
Instructions for the [IRS LOGO]
Requester of Form W-9
(Rev. November 1998)
REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
AND CERTIFICATION
Section references are to the Internal Revenue Code, unless otherwise noted.
- --------------------------------------------------------------------------------
These instructions supplement the instructions on the Form W-9 (Rev. December
1996) for the requester.
CHANGE TO NOTE
ELECTRONIC SUBMISSION OF FORMS W-9. Requesters may establish a system for
payees to submit Forms W-9 electronically, including by fax. A requester is
anyone required to provide a taxpayer identification number (TIN) to the
requester. Generally, the electronic system must --
- - Ensure the information received is the information sent, and document all
occasions of user access that result in the submission.
- - Make it reasonably certain the person accessing the system and submitting the
form is the person identified on Form W-9.
- - Provide you with the same information as the paper Form W-9.
- - Require as the final entry in the submission an electronic signature by the
payee whose name is on Form W-9 that authenticates and verifies the submission.
- - Be able to supply a hard copy of the electronic Form W-9 if the Internal
Revenue Service requests it.
NOTE: For Forms W-9 that are not required to be signed, the electronic system
need not provide for an electronic signature or a perjury statement.
Additional requirements may apply. See Announcement 98-27, 1998-15 I.R.B.
30.
INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (TIN)
Form W-9 (or an acceptable substitute) is used by persons required to file
information returns with the IRS to get the payee's (or other person's) correct
TIN. For individuals, the TIN is generally a social security number (SSN).
However, in some cases, individuals who become U.S. resident aliens for tax
purposes are not eligible to obtain an SSN. This includes certain resident
aliens who must receive information returns but who cannot obtain an SSN.
These individuals must apply for an ITIN on FORM W-7, Application for IRS
Individual Taxpayer Identification Number, unless they have an application
pending for an SSN. Individuals who have an ITIN must provide it on Form W-9.
SUBSTITUTE FORM W-9
You may develop and use your own Form W-9 (a substitute Form W-9) if its content
is substantially similar to the IRS's official Form W-9 and it satisfies certain
certification requirements.
You may incorporate a substitute Form W-9 into other business forms you
customarily use, such as account signature cards, provided the certifications
that (1) the payee's TIN is correct and (2) the payee is not subject to backup
withholding due to failure to report interest and dividend income, shown on the
official Form W-9, are clearly set forth. You MAY NOT:
1. Use a substitute Form W-9 that requires the payee, by signing, to agree
to provisions unrelated to the required certifications or
2. Imply that a payee may be subject to backup withholding unless the payee
agrees to provisions on the substitute form that are unrelated to the required
certifications.
A substitute Form W-9 that contains a SEPARATE SIGNATURE LINE just for the
certifications satisfies the requirement that the certifications be clearly set
forth.
If a SINGLE SIGNATURE LINE is used for the required certifications and other
provisions, the certifications must be highlighted, boxed, printed in bold-face
type, or presented in some other manner that causes the language to stand out
from all other information contained on the substitute form. Additionally, the
following statement must be presented in the same manner as in the preceding
sentence and must appear immediately above the single signature line: "The
Internal Revenue Service does not require your consent to any provision of this
document other than the certifications required to avoid backup withholding."
If you use a substitute form, the instructions do not have to be furnished
to the payee. The payee only needs to be instructed orally or in writing to
strike out the language of the certification that relates to payee
underreporting. However, you are encouraged to provide instructions relevant to
the account, especially if the payee requests them.
TIN APPLIED FOR
For interest and dividend payments and certain payments with respect to readily
tradable instruments, if the payee returns a properly completed Form W-9 with
"Applied For" written in Part I (i.e., an "awaiting TIN" certificate), the payee
must give you a TIN within 60 calendar days to avoid backup withholding. You may
use one of the following rules to backup withhold during this 60-day period.
NOTE: The 60-day exemption from backup withholding does not apply to any
payment other than interest, dividends, and certain payments made with respect
to readily tradable instruments. Therefore, any other payment, such as
nonemployee compensation, is subject to backup withholding even if the payee has
applied for and is awaiting a TIN.
RESERVE RULE. If a payee withdraws more than $500 at one time during the 60-day
period, you must backup withhold on any reportable payments made during the
period, unless the payee reserves 31% of all reportable payments made to the
account during the period.
ALTERNATIVE RULE (OPTION 1). You must backup withhold on any reportable
payments if the payee makes a withdrawal from the account after the close of 7
business days after you receive the awaiting-TIN certificate. Treat as
reportable payments all cash withdrawals in an amount up to the reportable
payments made from the day after you receive the awaiting-TIN certificate to the
day of withdrawal.
ALTERNATIVE RULE (OPTION 2). You must backup withhold on any reportable
payments made to the payee's account, regardless of whether the payee makes any
withdrawals. Backup withholding under this option must begin no later than 7
business days after you receive the awaiting-TIN certificate.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Even if the payee does not provide a TIN in the manner required, you are NOT
REQUIRED to backup withhold on any payments you make if the payee is:
1. An organization exempt from tax under section 501(a), any IRA, or a
custodial account under section 403(b)(7) if the account satisfies the
requirements of section 401(f)(2).
2. The United States or any of its agencies or instrumentalities.
3. A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
<PAGE> 13
4. A foreign government or any of its political subdivisions, agencies, or
instrumentalities.
5. An international organization or any of its agencies or
instrumentalities.
Other payees that MAY BE EXEMPT from backup withholding include:
6. A corporation.
7. A foreign central bank of issue.
8. A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
9. A futures commission merchant registered with the Commodity Futures
Trading Commission.
10. A real estate investment trust.
11. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
12. A common trust fund operated by a bank under section 584(a).
13. A financial institution.
14. A middleman known in the investment community as a nominee or who is
listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
15. A trust exempt from tax under section 664 or described in section 4947.
INTEREST AND DIVIDEND PAYMENTS. All listed payees are exempt except the payee in
item 9.
BROKER TRANSACTIONS. All payees listed in items 1 through 13 are exempt. A
person registered under the Investment Advisors Act of 1940 who regularly acts
as a broker is also exempt.
PAYMENTS REPORTABLE UNDER SECTIONS 6041 AND 6041A. These payments are generally
exempt from backup withholding only if made to payees listed in items 1 through
7. However, the following payments made to a CORPORATION and reportable on Form
1099-MISC are not exempt from withholding:
- - Medical and health care payments.
- - Attorneys' fees.
- - Payments for services paid by a Federal executive agency.
GROSS PROCEEDS; ATTORNEYS. Reportable gross proceeds paid to attorneys
(under section 6045(f) even if the attorney is a corporation, are not exempt
from backup withholding.
BARTER EXCHANGE TRANSACTIONS AND PATRONAGE DIVIDENDS. Only payees listed in
items 1 through 5 are exempt from backup withholding on these payments.
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
Payments that are not subject to information reporting also are not subject to
backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.
DIVIDENDS AND PATRONAGE DIVIDENDS that generally are exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) distributions made by an ESOP.
INTEREST PAYMENTS that generally are exempt from backup withholding include:
- - Payments of interest on obligations issued by individuals. However, if you pay
$600 or more of interest IN THE COURSE OF YOUR TRADE OR BUSINESS to a payee, you
must report the payment. Backup withholding applies to the reportable payment if
the payee has not provided a TIN or has provided an incorrect TIN.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
OTHER TYPES OF PAYMENTS that generally are exempt from backup withholding
include:
- - Wages.
- - Distributions from a pension, annuity, profit-sharing or stock bonus plan, any
IRA, or an owner-employee plan.
- - Certain surrenders of life insurance contracts.
- - Gambling winnings if withholding is required under section 3402(q). However,
if withholding is not required under section 3402(q), backup withholding applies
if the payee fails to furnish a TIN.
- - Real estate transactions reportable under section 6045(e).
- - Cancelled debts reportable under section 6050P.
- - Distributions from a medical savings account and long-term care benefits.
- - Fish purchases for cash reportable under section 6050R.
JOINT FOREIGN PAYEES
If the first payee listed on an account gives you FORM W-8, Certificate of
Foreign Status, (or Form W-8BEN) or a similar statement signed under penalties
of perjury, backup withholding applies unless:
1. Every joint payee provides the statement regarding foreign status or
2. Any one of the joint payees who has not established foreign status gives
you a TIN.
If any one of the joint payees who has not established foreign status gives you
a TIN, that number is the TIN that must be used for purposes of backup
withholding and information reporting.
NAMES AND TINS TO USE
FOR INFORMATION REPORTING
Show the full name and address as provided on Form W-9 on the information return
filed with the IRS and on the copy furnished to the payee. If you made payments
to more than one payee or the account is in more than one name, enter on the
first name line ONLY the name of the payee whose TIN is shown on the information
return. Show the names of any other individual payees in the area below the
first name line, if desired.
SOLE PROPRIETORS. You must show the individual's name on the first name line. On
the second name line, you may enter the business name or "doing business as
(DBA)" if provided. You MAY NOT enter only the business name. For the TIN, you
may enter either the individual's SSN or the employer identification number
(EIN) of the business. However, the IRS prefers that you show the SSN.
ADDITIONAL INFORMATION
For more information on backup withholding, get PUB. 1679, A Guide to Backup
Withholding, or PUB. 1281, Backup Withholding on Missing and Incorrect
Name/TINs.
NOTICES FROM THE IRS
The IRS will send you a notice if the payee's name and TIN on the information
return you filed do not match the IRS's records. You may have to send a "B"
notice to the payee to solicit another TIN. See Pubs. 1679 and 1281 for copies
of the two types of "B" notices.
<PAGE> 1
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY FOR TENDERS OF
$300,000,000 6.15% SENIOR NOTES DUE 2002
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
GUARANTEED BY
PUERTO RICO TELEPHONE COMPANY, INC.
AND
CELULARES TELEFONICA, INC.
This form or one substantially equivalent hereto must be used to accept the
exchange offer of Telecomunicaciones de Puerto Rico, Inc. (the "Company") made
pursuant to the Prospectus, dated , 1999 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates for
6.15% Senior Notes due 2002 (the "Old Notes") are not immediately available or
if the procedure for book-entry transfer cannot be completed on a timely basis
or time will not permit all required documents to reach The Bank of New York
(the "Exchange Agent") prior to 5:00 P.M., New York City time, on ,
1999 (the "Expiration Date") of the exchange offer. Such form may be delivered
or transmitted by facsimile transmission, mail or hand delivery to the Exchange
Agent as set forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender Old Notes pursuant to the exchange offer, a
completed, signed and dated Letter of Transmittal (or facsimile thereof) must
also be received by the Exchange Agent prior to 5:00 P.M., New York City time,
on the Expiration Date. Capitalized terms used and not defined herein have the
meanings assigned to them in the Prospectus.
DELIVERY TO THE BANK OF NEW YORK, EXCHANGE AGENT
By mail, overnight delivery or hand:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Enrique Lopez
Reorganization Department
Facsimile Transmission:
212-815-4699
Confirm by Telephone or For Information:
212-815-2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed
Delivery Procedures of Old Notes" section of the Prospectus.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2
- ----------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) INTEREST RATE AND PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) MATURITY DATE TENDERED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------
------------------------------------
------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PLEASE SIGN AND COMPLETE
- -----------------------------------------
<S> <C>
Signatures of Registered Holder(s)
or Authorized Signatory: ---------------- Date: ---------------------, 1999
- -----------------------------------------
- ----------------------------------------- Address: --------------------------------
- ----------------------------------------- -----------------------------------------
Name(s) of Registered Holder(s): -------- Area Code and
- ----------------------------------------- Telephone No.:---------------------------
- -----------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
Please print name(s) and address(es)
<TABLE>
<S> <C>
Name(s): ------------------------------------------------------------
------------------------------------------------------------
Capacity: ------------------------------------------------------------
Address(es): ------------------------------------------------------------
------------------------------------------------------------
</TABLE>
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the
United States or any "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees
to deliver to the Exchange Agent, at its address set forth above, the
certificates representing all tendered Old Notes, in proper form for transfer,
or a book-entry confirmation, together with a properly completed and duly
executed letter of transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three business days after the date of execution of this
Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of firm:
----------------------------
------------------------------------------
(AUTHORIZED SIGNATURE)
Address: Name:
---------------------------------- -------------------------------------
(PLEASE PRINT)
Title:
- ------------------------------------------ ------------------------------------
(INCLUDING ZIP CODE)
Area Code and Tel. No.
-------------------- Dated: ---------------------, 1999
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99.5
NOTICE OF GUARANTEED DELIVERY FOR TENDERS OF
$400,000,000 6.65% SENIOR NOTES DUE 2006
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
GUARANTEED BY
PUERTO RICO TELEPHONE COMPANY, INC.
AND
CELULARES TELEFONICA, INC.
This form or one substantially equivalent hereto must be used to accept the
exchange offer of Telecomunicaciones de Puerto Rico, Inc. (the "Company") made
pursuant to the Prospectus, dated , 1999 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates for
6.65% Senior Notes due 2006 (the "Old Notes") are not immediately available or
if the procedure for book-entry transfer cannot be completed on a timely basis
or time will not permit all required documents to reach The Bank of New York
(the "Exchange Agent") prior to 5:00 P.M., New York City time, on ,
1999 (the "Expiration Date") of the exchange offer. Such form may be delivered
or transmitted by facsimile transmission, mail or hand delivery to the Exchange
Agent as set forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender Old Notes pursuant to the exchange offer, a
completed, signed and dated Letter of Transmittal (or facsimile thereof) must
also be received by the Exchange Agent prior to 5:00 P.M., New York City time,
on the Expiration Date. Capitalized terms used and not defined herein have the
meanings assigned to them in the Prospectus.
DELIVERY TO THE BANK OF NEW YORK, EXCHANGE AGENT
By mail, overnight delivery or hand:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Enrique Lopez
Reorganization Department
Facsimile Transmission:
212-815-4699
Confirm by Telephone or For Information:
212-815-2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed
Delivery Procedures of Old Notes" section of the Prospectus.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2
- ----------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) INTEREST RATE AND PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) MATURITY DATE TENDERED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------
------------------------------------
------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
- ----------------------------------------------------------------------------------------------------
<S> <C>
Signatures of Registered Holder(s)
or Authorized Signatory: ---------------- Date: ---------------------, 1999
- -----------------------------------------
- ----------------------------------------- Address:
Name(s) of Registered Holder(s): -------- -----------------------------------------
- ----------------------------------------- Area Code and
- ----------------------------------------- Telephone No.: --------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
Please print name(s) and address(es)
<TABLE>
<S> <C>
Name(s): ------------------------------------------------------------
------------------------------------------------------------
Capacity: ------------------------------------------------------------
Address(es): ------------------------------------------------------------
------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED
2
<PAGE> 3
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the
United States or any "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees
to deliver to the Exchange Agent, at its address set forth above, the
certificates representing all tendered Old Notes, in proper form for transfer,
or a book-entry confirmation, together with a properly completed and duly
executed letter of transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three business days after the date of execution of this
Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of firm:-----------------------------
------------------------------------------
(AUTHORIZED SIGNATURE)
Address:---------------------------------- Name:
------------------------------------------
(PLEASE PRINT)
Title:
- ------------------------------------------ ------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Tel. No. ------------------- Dated: ---------------------, 1999
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
3
<PAGE> 1
EXHIBIT 99.6
NOTICE OF GUARANTEED DELIVERY FOR TENDERS OF
$300,000,000 6.80% SENIOR NOTES DUE 2009
OF
TELECOMUNICACIONES DE PUERTO RICO, INC.
GUARANTEED BY
PUERTO RICO TELEPHONE COMPANY, INC.
AND
CELULARES TELEFONICA, INC.
This form or one substantially equivalent hereto must be used to accept the
exchange offer of Telecomunicaciones de Puerto Rico, Inc. (the "Company") made
pursuant to the Prospectus, dated , 1999 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates for
6.80% Senior Notes due 2009 (the "Old Notes") are not immediately available or
if the procedure for book-entry transfer cannot be completed on a timely basis
or time will not permit all required documents to reach The Bank of New York
(the "Exchange Agent") prior to 5:00 P.M., New York City time, on ,
1999 (the "Expiration Date") of the exchange offer. Such form may be delivered
or transmitted by facsimile transmission, mail or hand delivery to the Exchange
Agent as set forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender Old Notes pursuant to the exchange offer, a
completed, signed and dated Letter of Transmittal (or facsimile thereof) must
also be received by the Exchange Agent prior to 5:00 P.M., New York City time,
on the Expiration Date. Capitalized terms used and not defined herein have the
meanings assigned to them in the Prospectus.
DELIVERY TO THE BANK OF NEW YORK, EXCHANGE AGENT
By mail, overnight delivery or hand:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Enrique Lopez
Reorganization Department
Facsimile Transmission:
212-815-4699
Confirm by Telephone or For Information:
212-815-2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed
Delivery Procedures of Old Notes" section of the Prospectus.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2
- ----------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) INTEREST RATE AND PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) MATURITY DATE TENDERED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------
------------------------------------
------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
- ----------------------------------------------------------------------------------------------------
<S> <C>
Signatures of Registered Holder(s)
or Authorized Signatory: --------------------- Date: ----------------------, 1999
- ---------------------------------------------- Address:
- ---------------------------------------------- --------------------------------------
Name(s) of Registered Holder(s):-------------- Area Code and
Telephone No.: -------------------------------
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
Please print name(s) and address(es)
<TABLE>
<S> <C>
Name(s): ------------------------------------------------------------
------------------------------------------------------------
Capacity: ------------------------------------------------------------
Address(es): ------------------------------------------------------------
------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED
2
<PAGE> 3
- -------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
- -------------------------------------------------------------------------------
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office or correspondent in the
United States or any "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees
to deliver to the Exchange Agent, at its address set forth above, the
certificates representing all tendered Old Notes, in proper form for transfer,
or a book-entry confirmation, together with a properly completed and duly
executed letter of transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three business days after the date of execution of this
Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of firm: ----------------------------
------------------------------------------
(AUTHORIZED SIGNATURE)
Address: --------------------------------- Name:
------------------------------------------
(PLEASE PRINT)
Title:
- ------------------------------------------ ------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Tel. No. -------------------
Dated: ---------------------, 1999
</TABLE>
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
- -------------------------------------------------------------------------------
3
