<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM F-4/S-4*
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
NUEVO GRUPO IUSACELL, S.A. DE C.V. BELL ATLANTIC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
NEW IUSACELL GROUP, INC. NOT APPLICABLE
(Translation of Registrant's Name into English)
MEXICO DELAWARE
(State or other Jurisdiction of Incorporation or Organization)
481
(Primary Standard Industrial Classification Code Number)
NOT APPLICABLE 23-2259884
(I.R.S. Employer Identification Number)
PROLONGACION PASEO DE LA REFORMA 1236
COLONIA SANTA FE 1095 AVENUE OF THE AMERICAS
DELEGACION CUAJIMALPA NEW YORK, NEW YORK 10036
05348 MEXICO, D.F., MEXICO (212) 395-2121
(525) 109-4400
(Address and Telephone Number of Registrant's Principal Executive Offices)
CT CORPORATION SYSTEM PHILLIP M. HUSTON, JR.
1633 BROADWAY, NEW YORK, NEW YORK 10019 COUNSEL AND CORPORATE SECRETARY (ACTING)
(212) 479-8220 BELL ATLANTIC CORPORATION
1095 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 395-2121
(Name, Address, including Zip Code and Telephone Number, including Area Code, of Agent for
Service of Process)
</TABLE>
------------------------
With copies to:
SARA P. HANKS, ESQ.
CLIFFORD CHANCE ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
------------------------
Approximate date of commencement of proposed exchange and sale of the
securities to the public: As soon as practicable after the Registration
Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. []
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) PRICE(1) FEE(1)
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14 1/4% Senior Notes Due 2006... $350,000,000 100% $350,000,000 $92,400.00
principal amount
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Put Option of 14 1/4% Senior
Notes Due 2006................ N/A N/A N/A N/A
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</TABLE>
(1) Estimated in accordance with Rule 457(f) under the Securities Act for
purposes of computing the registration fee.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- - ---------------
* This registration statement constitutes a filing on Form F-4 for the exchange
notes and on Form S-4 for the put option.
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<PAGE> 2
PROSPECTUS
[IUSACELL DIGITAL LOGO]
NUEVO GRUPO IUSACELL, S.A. DE C.V.
EXCHANGE OFFER FOR
$350,000,000 14 1/4% SENIOR NOTES DUE 2006
------------------------
We are offering to exchange our 14 1/4% senior notes due 2006, which we refer to
as the exchange notes, for all of our outstanding 14 1/4% senior notes due 2006,
which we refer to as the old notes. An aggregate principal amount of
$350,000,000 of the old notes are outstanding.
TERMS OF THE EXCHANGE OFFER:
- This exchange offer expires at 5:00 p.m., New York City time, on ,
2000, unless extended.
- You will receive one exchange note for each old note that you tender.
- You may withdraw your tender of the old notes at any time prior to the
expiration date.
TERMS OF THE EXCHANGE NOTES:
- The terms of the exchange notes are substantially identical to those of
the old notes, except that you can freely trade the exchange notes.
- The exchange notes will mature on December 1, 2006.
- Interest on the exchange notes will be payable semi-annually in arrears
on each June 1 and December 1.
- The exchange notes are unsecured senior indebtedness and will rank
equally with all of our other unsecured senior indebtedness.
- Under certain limited circumstances involving a change in our control,
holders of the exchange notes may have the right to require us and one of
our principal shareholders, Bell Atlantic Corporation, to purchase the
exchange notes at a price of 101% of their principal amount plus accrued
interest.
------------------------
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2000
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS OFFERING
MEMORANDUM. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. WE ARE NOT, AND THE INITIAL PURCHASERS OF THE NOTES ARE NOT, MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS OFFERING
MEMORANDUM.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information......................... i
Incorporation of Information by Reference................... ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Forward-Looking Statements.................................. 15
The Exchange Offer.......................................... 16
Use of Proceeds............................................. 22
Capitalization.............................................. 23
Exchange Rates.............................................. 24
Selected Consolidated Financial and Operating Information... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
Business.................................................... 65
Enforceability of Civil Liabilities......................... 100
Management.................................................. 101
Principal Shareholders...................................... 109
Certain Transactions........................................ 111
Description of Notes........................................ 114
United States Taxation...................................... 155
Mexican Taxation............................................ 159
Book Entry; Delivery and Form............................... 161
Plan of Distribution........................................ 163
Legal Matters............................................... 163
Independent Accountants..................................... 163
Expert...................................................... 164
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
Nuevo Grupo Iusacell, S.A. de C.V. ("New Iusacell"), Bell Atlantic
Corporation ("Bell Atlantic") and Grupo Iusacell, S.A. de C.V. ("Old Iusacell")
file annual, quarterly and special reports, proxy statements and other
information with the SEC as may be applicable from time to time. You may read
and copy any document filed by New Iusacell, Bell Atlantic and Old Iusacell at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. In addition, Bell Atlantic's SEC filings are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. In addition, because both New Iusacell's American Depositary
Receipts and Bell Atlantic's common stock are listed on the New York Stock
Exchange, reports and other information concerning New Iusacell and Bell
Atlantic can also be inspected at the office of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
i
<PAGE> 4
INCORPORATION OF INFORMATION BY REFERENCE
The Commission allows us to "incorporate by reference" information into
this prospectus, which means that we can disclose important information to you
by referring you to another document filed separately with the Commission. We
are incorporating information into this prospectus relating to Bell Atlantic
Corporation, one of our principal shareholders, because under certain
circumstances, Bell Atlantic may be required to repurchase the notes described
in this prospectus from their holders. Because Bell Atlantic's obligations under
the notes can be considered to be a security, it is a co-registrant with us on
the registration statement of which this prospectus is a part.
The information incorporated by reference is considered a part of this
prospectus, unless it is superseded by information included in this prospectus,
and information that Bell Atlantic files later with the Commission will
automatically update and replace this information. This prospectus incorporates
by reference the documents listed below:
<TABLE>
<S> <C>
DOCUMENT INCORPORATED BY REFERENCE DATE OF FILING
Annual Report on Form 10-K March 30, 1999
Quarterly Report on Form 10-Q May 12, 1999
Quarterly Report on Form 10-Q August 11, 1999
Quarterly Report on Form 10-Q November 10, 1999
Current Report on Form 8-K April 23, 1999
Current Report on Form 8-K April 28, 1999
Current Report on Form 8-K May 10, 1999
Current Report on Form 8-K July 22, 1999
Current Report on Form 8-K August 26, 1999
Current Report on Form 8-K September 13, 1999
Current Report on Form 8-K September 22, 1999
Current Report on Form 8-K October 7, 1999
Current Report on Form 8-K October 21, 1999
Current Report on Form 8-K November 17, 1999
Current Report on Form 8-K November 23, 1999
Current Report on Form 8-K December 22, 1999
Current Report on Form 8-K December 28, 1999
Current Report on Form 8-K January 25, 2000
Current Report on Form 8-K February 15, 2000
Joint Proxy Statement and Prospectus (File No. 333-76171) April 13, 1999
</TABLE>
We also incorporate by reference all documents subsequently filed by Bell
Atlantic pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering is completed.
Bell Atlantic will provide copies of the documents incorporated into this
prospectus by reference without charge to each person to whom this prospectus is
delivered upon the request of such person to Director -- Reporting and
Consolidation, Bell Atlantic Corporation, 1717 Arch Street, 47th Floor,
Philadelphia, Pennsylvania, 19103, telephone: (215) 963-6360. In order to ensure
timely delivery of the documents, any request should be made five days before
, which is when this exchange offer expires.
If we summarize certain sections of the documents incorporated in this
prospectus by reference in this prospectus, we do not mean to imply that any
sections of documents that we do not summarize are of any less importance, and
such summaries are qualified in their entirety by the full text of the documents
incorporated in this prospectus by reference.
ii
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in our securities. You should read the entire
prospectus carefully.
In this prospectus, where we refer to New Iusacell, we mean Nuevo Grupo
Iusacell, S.A. de C.V.; where we refer to Old Iusacell, we mean Grupo Iusacell,
S.A. de C.V., a subsidiary of New Iusacell; and, where we refer to Iusacell, we
mean New Iusacell, Old Iusacell and their subsidiaries. We also sometimes use
general or Mexican telecommunications industry terms, which are explained in
Annex A -- Glossary of Telecommunications Terms.
IUSACELL
We are the second largest wireless telecommunications provider in Mexico
with more than one million cellular customers. We own and operate concessions
for a range of frequencies in the 800 MHz band used to provide cellular wireless
services in four contiguous regions in central Mexico, including Mexico City,
one of the world's most populous cities.
- Our cellular concessions cover regions representing approximately 67
million inhabitants, or 69% of Mexico's total population.
- Our cellular network makes services available in areas where
approximately 53 million people live, representing 79% of the inhabitants
of the regions where we provide cellular wireless services and 55% of
Mexico's total population.
Since August 1999, we have been offering digital coverage and services in all
areas where we provide cellular wireless services.
For the nine months ended September 30, 1999, our revenues and EBITDA,
which we define as operating profit or loss plus depreciation and amortization,
were Ps.$2,908.5 million (U.S.$311.0 million) and Ps.1,003.3 million (U.S.$107.3
million), respectively. For the twelve month period ended September 30, 1999,
our revenues and EBITDA were Ps.3,731.8 million (U.S.$399.0 million) and
Ps.1,234.1 million (U.S.$132.0 million), respectively.
Since February 1997, we have been under the management control of
subsidiaries of Bell Atlantic Corporation. Bell Atlantic has invested
approximately U.S.$1.2 billion since 1993 for its 40.4% economic and voting
interest in our equity. Today, Bell Atlantic personnel seconded to Iusacell and
Bell Atlantic consultants are integrally involved in defining and implementing
our long-term strategy and in managing day-to-day operations. Since Bell
Atlantic took control of our management in February 1997, our cellular
subscriber base has grown from approximately 245,000 to 1,132,205 subscribers at
September 30, 1999.
In addition to our core mobile wireless services, we also provide a wide
range of other telecommunications services, including long distance, paging,
wireless local telephony and data transmission.
------------------
Our principal executive offices are located at Prolongacion Paseo de la
Reforma 1236, Colonia Santa Fe, Delegacion Cuajimalpa, 05348, Mexico, D.F. Our
telephone number is (525) 109-4400. Our internet website address is
http://www.iusacell.com.mx. Information contained in this website is not part of
this offering memorandum.
1
<PAGE> 6
REORGANIZATION OF IUSACELL
In August 1999 we completed a reorganization of Iusacell. The
reorganization included U.S.$132.5 million in borrowings from our principal
shareholders between August 1998 and March 1999 that were immediately converted
into equity, an offer to exchange the shares of Old Iusacell for shares of New
Iusacell, primary equity offerings that raised U.S.$33.7 million in net proceeds
for New Iusacell and a U.S.$106.5 million secondary offering by our principal
shareholders. This reorganization:
- more than doubled the number of Iusacell's publicly held shares,
- improved Iusacell's financial condition,
- provided funds for our capital expenditure program,
- provided funds to acquire two PCS concessions in northern Mexico, and
- created additional structural flexibility to obtain debt financing for
Iusacell's capital expenditure program.
2
<PAGE> 7
THE EXCHANGE OFFER
The exchange offer applies to the U.S.$350,000,000 aggregate principal
amount of old notes. The form and terms of the exchange notes are the same as
the form and terms of the old notes except that the offer and sale of the
exchange notes have been registered under the Securities Act and the exchange
notes will therefore not bear legends restricting their transfer. The exchange
notes will be entitled to the benefits of the indenture pursuant to which the
old notes were issued. The old notes and the exchange notes are sometimes
referred to collectively in this prospectus as the "notes." See "Description of
the Notes."
THE EXCHANGE OFFER......... U.S.$1,000 principal amount of exchange notes in
exchange for U.S.$1,000 principal amounts of old
notes. As of the date hereof, old notes
representing U.S.$350,000,000 aggregate principal
amount are outstanding.
RESALE OF THE EXCHANGE
NOTES...................... Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in
interpretive letters issued to third parties
unrelated to us, we believe that the exchange notes
may be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions of
the Securities Act, if you are not our affiliate
and you are acquiring the exchange notes issued in
the exchange offer in the normal course of
business.
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 its market-making activities or
other trading activities, must acknowledge that it
will deliver a prospectus in connection with any
resale of these exchange notes. See "Plan of
Distribution."
REGISTRATION RIGHTS
AGREEMENTS................. Iusacell sold the old notes on December 16, 1999 in
a private placement. In connection with that sale,
we executed a registration rights agreement for the
benefit of the purchasers under which we agreed to
effect this exchange offer. See "The Exchange Offer
-- Purpose and Effect."
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m., New
York City time, , 2000, or such later date
and time to which it is extended. We will return
any old notes not accepted for exchange for any
reason without expense to you as promptly as
practicable after the expiration or termination of
the exchange offer.
WITHDRAWAL................. You may withdraw your tender of old notes pursuant
to the exchange offer at any time prior to 5:00
p.m., New York City time, on the expiration date.
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to certain customary
conditions, some of which we may waive. See "The
Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING
OLD NOTES.................. If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal,
or a copy of it in accordance with the letter's
instructions, and mail or otherwise deliver the
letter of transmittal, or the copy, together with
the old notes and any other
3
<PAGE> 8
required documentation, to The Bank of New York,
the exchange agent, at the address contained in
this prospectus.
If you hold old notes through the Depository Trust
Company and wish to accept the exchange offer you
must do so pursuant to The Depository Trust
Company's Automated Tender Offer Program, by which
each tendering participant will agree to be bound
by the letter of transmittal. By executing or
agreeing to be bound by the letter of transmittal,
you will represent to us that, among other things,
- you are acquiring the exchange notes acquired
pursuant to the exchange offer in the ordinary
course of your business,
- neither you nor anyone else receiving the notes
from you intend to engage in a distribution of
the exchange notes,
- neither you nor anyone else receiving the notes
from you has an arrangement or understanding with
any person to participate in the distribution of
the exchange notes,
- neither you nor anyone else receiving the notes
from you is an affiliate of Iusacell, and
- If you are a broker-dealer, and you acquired the
old notes for your own account as a result of
market-making or other trading activities you
will deliver a copy of this prospectus in
connection with any resale of exchange notes.
Pursuant to the registration rights agreement, we
must file a registration statement for a continuous
offering in respect of the old notes if existing
interpretations by the Securities and Exchange
Commission are changed such that the exchange notes
received by you in the exchange offer are not or
would not be, upon receipt, transferable by
non-affiliates or "holders who are not Iusacell
affiliates" without restriction under the
Securities Act. See "The Exchange Offer -- Purpose
and Effect."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF EXCHANGE
NOTES.................... We will accept for exchange any and all old notes
which you properly tender prior to 5:00 p.m., New
York City time, on the expiration date. We will
issue the exchange notes promptly following the
expiration date. See "The Exchange Offer -- Terms
of the Exchange Offer."
EXCHANGE AGENT............. The Bank of New York is serving as exchange agent
for the exchange offer. It can be reached by
telephone at (212) 815-2742 for more information.
UNITED STATES TAX
CONSIDERATIONS........... The exchange pursuant to the exchange offer will
not be a taxable event for U.S. federal income tax
purposes. See "Taxation -- United States --
Exchange Offer."
EFFECT OF NOT TENDERING.... If you choose not to tender your old notes or they
are not accepted, the existing transfer
restrictions will continue to apply. After the
completion of the exchange offer, we will have no
further obligation with respect to the registration
of the old notes under the Securities Act.
4
<PAGE> 9
TERMS OF NOTES
Except with respect to restrictions on transfer, the exchange notes have
terms and conditions identical in all material respects to those of the old
notes. Accordingly, the following description of the notes applies equally to
the old notes and the exchange notes.
Issuer........................ Nuevo Grupo Iusacell, S.A. de C.V.
Securities Offered............ U.S.$350.0 million principal amount of 14 1/4%
Senior Notes due December 1, 2006.
Maturity...................... December 1, 2006.
Interest Rate and Payment
Dates......................... Interest on the notes will be payable
semi-annually in arrears on each June 1 and
December 1, at a rate of 14 1/4% per annum.
Security Account.............. Concurrently with the closing of the offering
of the old notes, which was completed in
December 1999, we deposited approximately
U.S.$133.5 million with The Bank of New York,
which is acting as security agent, in a
security account. These funds, together with
the proceeds from the investment of these funds
in U.S. government securities, will be
sufficient to pay when due the interest on the
notes through December 1, 2002.
Optional Redemption........... At any time and from time to time prior to
December 1, 2002, we can redeem in the
aggregate up to 35% of the original principal
amount of the notes with the proceeds of one or
more public equity offerings at a redemption
price of 114.25% of the principal amount to be
redeemed, plus accrued interest, if any, to the
redemption date, provided that at least 65% of
the original aggregate principal amount of the
notes remains outstanding after each such
redemption. See "Description of
Notes -- Optional Redemption."
Redemption for Tax Reasons.... We may redeem the notes at 100% of their
principal amount, plus accrued and unpaid
interest, and additional amounts, if any, if
Mexican tax law is changed and those changes
result in us being required to pay a Mexican
withholding tax on interest payments at a rate
equal to or greater than 15% per annum. See
"Description of Notes -- Redemption for Tax
Reasons."
Change of Control............. If a change of control of New Iusacell occurs,
we must give holders of the notes the
opportunity to sell their notes to us at a
purchase price of 101% of their principal
amount, plus accrued interest. The term "change
of control" is defined in the "Description of
Notes -- Change of Control" section of this
offering memorandum. We may not have funds
available to finance this obligation.
Under some circumstances involving a change of
control of New Iusacell and a combination of
New Iusacell with one or more of the Cellular
A-Band properties in northern Mexico, holders
of notes may have the right to require us and
Bell Atlantic to purchase the notes at a price
of 101% of their principal amount, plus accrued
interest.
5
<PAGE> 10
Ranking....................... The notes will be unsecured senior indebtedness
of New Iusacell, and will rank equal in right
of payment with all of New Iusacell's existing
and future senior unsecured indebtedness and
will rank senior in right of payment to all of
New Iusacell's subordinated indebtedness.
However, the notes will be effectively
subordinated to any of New Iusacell's secured
indebtedness (to the extent of the value of the
assets securing that indebtedness) and to any
indebtedness of New Iusacell's subsidiaries.
As of September 30, 1999, after giving pro
forma effect to the offering described in this
offering memorandum and the application of the
proceeds as well as the final drawdown of the
Eximbank Facilities in October 1999 and an
initial amortization payment in November 1999:
- we would have had no indebtedness other
than our indebtedness under these notes.
- our subsidiaries would have had
approximately Ps.4,522.0 million
(U.S.$483.5 million) of indebtedness
outstanding, including trade notes
payable.
Additional Amounts............ We will make all payments of principal and
interest in respect of the notes free and clear
of any taxes or other governmental charges of
whatever nature imposed by any Mexican
authority. In the event that any Mexican tax
withholding or deduction is required, we will
pay additional amounts, subject to certain
exceptions, so that holders of the notes will
receive the amounts that they would have
received if Mexican withholding or deduction
had not been required.
Certain Covenants............. The indenture that governs the terms of the
notes contains covenants which, among other
things, limits:
- the incurrence of additional
indebtedness by our company and our
subsidiaries and the issuance of
preferred stock by our subsidiaries;
- the payment of dividends on capital
stock of New Iusacell and the purchase,
redemption or other acquisition or
retirement of capital stock or
subordinated indebtedness of our company
and our subsidiaries;
- the making of investments;
- certain transactions with affiliates;
- the incurrence of liens and the entering
into of sale/leaseback transactions;
- the sale of assets;
- the sale or issuance of capital stock of
subsidiaries; and
- some consolidations and mergers.
Some of our subsidiaries (including our PCS
subsidiary) are not subject to these covenants.
All of these limitations and prohibitions are
subject to a number of important
qualifications. For a description of these
limitations and qualifications, see
"Description of the Notes -- Certain
Covenants."
6
<PAGE> 11
RISK FACTORS
You should carefully consider the following risk factors, as well as other
information presented in this prospectus. To the extent information relates to
the Mexican government or Mexican macroeconomic data, we have extracted that
information from official publications of the Mexican government and have not
independently verified it.
RISK FACTORS RELATING TO THE NOTES
WE ARE A HOLDING COMPANY AND WILL DEPEND ON OUR SUBSIDIARIES TO MAKE PAYMENTS OF
INTEREST AND PRINCIPAL ON THE NOTES
We are a holding company with no significant assets other than the stock of
our subsidiaries. In order to pay interest on the notes after December 1, 2002
and to pay principal of the notes, we will rely on income from dividends and
other cash flow from our subsidiaries. Because we are a holding company, the
claims of all holders of our subsidiaries' debt rank senior to the claims of
holders of the notes offered under this prospectus. At September 30, 1999, our
subsidiaries' pro forma total indebtedness, including trade notes payable, was
Ps.4,522.0 million (U.S.$483.5 million) and may increase in the future. See
"Capitalization."
Our current debt agreements prevent our subsidiaries from paying dividends
to us or otherwise making cash available to us until at least May 2004. In
addition, substantially all of our subsidiaries' assets are pledged to secure
their obligations under their existing debt instruments. Dividends and cash flow
from our subsidiaries are therefore severely restricted by the outstanding debt
of our subsidiaries and the restrictive covenants that govern that debt.
Our ability to pay interest and principal on the notes after the funds in
the security account are used to pay interest through December 2002 and before
May 2004 will depend on our ability to either (i) raise equity or debt capital
at New Iusacell level, or (ii) generate sufficient cash flow at the subsidiary
level and make dividend payments to New Iusacell after eliminating the covenants
restricting such dividend payments through the prepayment of the Eximbank
Facilities described below.
After the expiration of the restrictive covenants that prevent our
subsidiaries from paying dividends to New Iusacell, our ability to pay interest
and principal on the notes will depend on our ability to generate sufficient
cash flow and/or to access equity or debt financing. We cannot assure you that
we will be able to raise equity or debt capital or that our subsidiaries will
generate sufficient cash flow to pay dividends to enable us to make payments of
interest on and principal of the notes.
Furthermore, the ability of our subsidiaries to pay dividends is subject to
Mexican legal requirements, which provide that a Mexican corporation may declare
and pay dividends only out of the profits reflected in its financial statements,
if such payment is approved by its stockholders and after the creation of
required legal reserves and the absorption or satisfaction of losses suffered in
previous fiscal years. Claims of creditors of our subsidiaries, including trade
creditors, and bank and other lenders, will generally have priority over claims
of New Iusacell to the assets and cash flows of our subsidiaries.
Additionally, in the event we engage in business activities at the holding
company level and incur associated liabilities, or otherwise incur liabilities
at the holding company level, we may not have the resources available to satisfy
those liabilities for the same reasons discussed above. In the event we incur
such liabilities, we could be required to turn to the capital markets or our
principal shareholders in order to help us satisfy those liabilities. At that
time, we may not have access to equity or debt financing. In addition, our
principal shareholders are under no obligation to provide financial resources to
us and there can be no assurance that they would do so. A material unsatisfied
liability at the holding company level could lead to our bankruptcy or otherwise
make it difficult or impossible for us to comply with our obligations under the
notes.
7
<PAGE> 12
THE NOTES WILL BE SUBORDINATE TO CERTAIN MEXICAN STATUTORY PREFERENCES
Under Mexican law, our obligations under the notes are subordinated to
statutory preferences such as claims for salaries, wages, labor claims, social
security taxes, and other taxes.
WE ARE SUBJECT TO RESTRICTIVE COVENANTS
The terms of the notes, of our subsidiaries' existing debt and of debt that
we may incur in the future, will impose significant operating and financial
restrictions. These restrictions will affect, and in many respects significantly
limit or prohibit our ability and the ability of our subsidiaries to, among
other things,
- borrow money,
- pay dividends on stock,
- make investments,
- use assets as security in other transactions, and
- sell certain assets or merge with or into other companies.
If we do not comply with these restrictions, we could be in default even if
we can currently pay our debt. If there were a default, holders of the relevant
debt could demand immediate payment of the aggregate amount of that debt. This
could lead to our bankruptcy or reorganization for the benefit of our creditors
or to our inability to pay interest or principal on the notes.
THERE IS NO ACTIVE TRADING MARKET FOR OUR NOTES
The notes are new securities which may not be widely distributed and for
which there is currently no active trading market. If the notes are traded after
their initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities, general economic conditions and our financial condition. We cannot
assure you as to the development or liquidity of any trading market for the
notes.
TRADING IN THE NOTES MAY BE AFFECTED BY DEVELOPMENTS IN OTHER MARKETS
Securities of Mexican companies have been influenced, to varying degrees,
by economic and market conditions in other countries. Although economic
conditions are different in each country, investors' reactions to developments
in one country may have effects on securities in other countries, including
Mexico. Continued volatility in the Asian, Latin American, Russian or other
emerging capital markets, as well as changes in the United States economy, may
lead to increased volatility of the Mexican or other securities markets and may
impact the price of our notes. We cannot assure you that events outside of
Mexico will not affect the price of our notes.
WE MAY NOT BE ABLE TO REPURCHASE ALL OF THE NOTES SHOULD THERE BE A CHANGE OF
CONTROL OFFER
If there is a Change of Control, as defined under "Description of
Notes -- Change of Control," for any reason, we would have the obligation to
offer to repurchase the notes at 101% of their principal amount, plus accrued
interest. Moreover, our subsidiaries will also be required to offer to repay a
substantial amount of their outstanding debt upon a change of control. The
obligations of our subsidiaries will rank senior to our obligation to repurchase
these notes. Since our principal subsidiaries are currently prevented by their
debt instruments from paying dividends to us and making loans to us, our ability
to repurchase notes would depend upon our ability to issue debt and/or equity.
We may be unable to access the debt and/or equity markets at the required time
because of a weaker credit profile, unfavorable market conditions or other
factors, in which case we would not have sufficient funds to repurchase the
notes. See "Description of the Notes -- Change of Control."
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BELL ATLANTIC IS NOT REQUIRED TO OFFER TO REPURCHASE THE NOTES UNDER ALL
CIRCUMSTANCES INVOLVING A "CHANGE OF CONTROL"
Bell Atlantic has agreed to make an offer to repurchase the notes under
certain circumstances involving both our acquisition of any one or more of the
four Cellular A-Band properties in northern Mexico (collectively, the "Northern
Region Properties") and a Change of Control, as defined under "Description of
Notes -- Change of Control." Bell Atlantic does not have any obligation to
repurchase the notes in connection with any potential acquisition of Grupo
Portatel, S.A. de C.V., the Cellular A-Band provider in southern Mexico.
There are significant limitations on Bell Atlantic's repurchase
obligations. For example, Bell Atlantic would not be required to offer to
repurchase the notes:
- if there is no Change of Control with respect to a business combination
involving the Northern Region Properties or if a Change of Control occurs
otherwise than in connection with our acquisition of the Northern Region
Properties,
- if any Change of Control in connection with acquiring the Northern Region
Properties occurs after June 1, 2003,
- if we maintain certain credit characteristics for a short time following
any Change of Control compared to just before the Change of Control, even
if our credit characteristics have already deteriorated after the date
the notes are issued, our credit characteristics deteriorate before we
have complied with our obligation to repurchase notes, or we default in
our obligation to repurchase the notes, or
- if any transaction is structured in a way that does not fall within the
covenant.
In these situations and other situations not covered by Bell Atlantic's
agreement described under "Description of Notes -- Change of Control," Bell
Atlantic would not be required to repurchase the notes even if we did not or
could not comply with our obligation to repurchase the notes, and even if we
acquire or become affiliated with the Northern Region Properties.
YOUR INTEREST IN THE PLEDGED SECURITIES IN THE SECURITY ACCOUNT MAY BE SUBJECT
TO BANKRUPTCY RISKS
The trustee's rights to foreclose on the security account and sell the
securities held in the security account as described under "Description of
Notes -- Terms of Notes," which we refer to as the pledged securities, upon the
occurrence of an event of default under the notes may be significantly impaired
by applicable bankruptcy law. If a bankruptcy proceeding were commenced by or
against us, applicable law may prohibit creditors from foreclosing on or
otherwise disposing of any of our secured debt until a bankruptcy court
determined the preference and priority of our secured debt and approved of the
foreclosure or disposal. We cannot assure you that a bankruptcy court would
approve the trustee's right to foreclose on the security account.
RISK FACTORS RELATING TO IUSACELL
WE MAY BE UNABLE TO SERVICE OUR DEBT, ACCESS CREDIT OR PURSUE BUSINESS
OPPORTUNITIES BECAUSE OUR SUBSIDIARIES ARE HIGHLY LEVERAGED AND HAVE
INSUFFICIENT CASH FLOW
Historically, our cash generated from operating activities has not been
sufficient to meet our debt service, working capital and capital expenditure
requirements. We have relied on the capital markets for new equity and debt
financing, vendor financing and borrowings and equity contributions from Bell
Atlantic and the Peralta Group to meet such funding needs.
As of September 30, 1999, our total consolidated indebtedness, including
trade notes payable, was Ps.4,413.4 million (U.S.$471.9 million), or
approximately 45.0% of our total capitalization. After giving effect to the
offer described in this offering memorandum, our December 1999 offering of
14 1/4% senior notes and other pro forma adjustments, our total consolidated
indebtedness, including trade notes payable,
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at September 30, 1999 would have been Ps.7,795.2 million (U.S.$833.5 million).
See "Capitalization." Although we had net income of Ps.619.3 million (U.S.$66.2
million) for the nine months ended September 30, 1999, we experienced net losses
for each of the five years up to and including the period ended December 31,
1998. Our positive net income in the first nine months of 1999 was driven
primarily by the benefits of foreign exchange gains attributable to the
appreciation of the Peso against the U.S. dollar during the first nine months of
1999, and monetary gains resulting from the effects of inflation on our net
monetary liability position during each of the first three quarters of 1999.
For the year ended December 31, 1998, our earnings were insufficient to
cover our fixed charges by Ps.2,224.0 million (U.S.$237.8 million). We had no
fixed charge coverage deficiency for the nine month period ended September 30,
1999. For this purpose, earnings are calculated as income or loss before taxes
plus (i) integral financing cost, including amortization of capitalized
interest, (ii) the interest portion of annual rent expense, and (iii) losses
from the less than 50%-owned affiliates. Fixed charges include the expensed and
capitalized portions of integral financing cost.
The degree to which we are leveraged and the covenants with which we have
to comply due to various financings may adversely affect our ability to finance
future operations, to finance necessary capital expenditures, to service our
indebtedness, to compete effectively against better capitalized competitors and
to withstand downturns in our business or the Mexican economy generally. Our
high level of indebtedness could limit our ability to pursue business
opportunities that may be in our interest and that of our securityholders. See
"-- If we do not obtain significant capital from outside sources we will not be
able to continue to build out our wireless infrastructure and pursue long
distance opportunities and may lose the opportunity to generate revenues" and
"Capitalization."
WE MAY LOSE MONEY BECAUSE OF CURRENCY DEVALUATIONS
While our sales are almost entirely denominated in Pesos, the vast majority
of our obligations, and all of our long-term debt, are denominated in U.S.
dollars. As a result, we are exposed to Peso devaluation risk. The Peso has
devalued substantially against the U.S. dollar in the past and may devalue
significantly in the future. For example, the noon buying rate rose from
Ps.3.4662 per U.S.$1.00 on December 19, 1994 to Ps.5.0000 per U.S.$1.00 on
December 31, 1994 and Ps.7.7400 per U.S.$1.00 on December 31, 1995, representing
a 123.3% devaluation of the Peso relative to the U.S. dollar. In 1998, the Peso
devalued 22.7% relative to the U.S. dollar to Ps.9.9010 per U.S.$1.00 on
December 31, 1998.
We do not currently have in place hedging arrangements with respect to this
risk, although we expect to use forward-rate contracts to hedge up to 50% of the
principal and interest payments of our U.S. dollar denominated debt coming due
over the next 18 months, or approximately U.S.$83.0 million. Further declines in
the value of the Peso relative to the U.S. dollar could adversely affect our
ability to meet U.S. dollar-denominated obligations, including the notes. In
addition, any further devaluation of the Peso may negatively affect the value of
a Mexican company's securities, such as ours. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Devaluation and
Inflation" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
WE FACE INCREASING COMPETITION WHICH MAY REDUCE OUR OPERATING MARGINS
We face significant competition in our core cellular services business from
Telcel in each region in which we operate. As a wholly owned subsidiary of
Telmex, Telcel has significantly greater internal financial and other resources
than those available to us, nationwide cellular and PCS concessions, a
nationwide cellular network, and an ability to use Telmex's installed
telecommunications systems. Competition is substantial and we, like Telcel, bear
significant promotional expenses, including the provision of cellular telephones
to contract subscribers free of charge or at a substantial discount. In
addition, competition from Telcel has not always enabled us to implement price
increases to keep pace with inflation and sometimes has forced price rollbacks
and reductions.
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We face increasing competition from other companies providing comparable
mobile wireless services utilizing emerging technologies, including PCS services
in the 1.9 GHz frequency band, enhanced specialized mobile radio services and
satellite telephony. We also face increasing competition in providing long
distance, paging, wireless local telephony and data transmission services. The
Mexican government may grant additional concessions to other companies to
provide services similar to or the same as those that we provide.
Besides Telmex, some other competitors may also have greater financial and
other resources than those available to us, which may limit our ability to
compete effectively. See "-- If we are not able to obtain concessions for
spectrum and government approvals, develop new technologies and hire and retain
qualified personnel, we will be unable to implement new services and may lose
business to our competitors" and "Business -- Competition."
IF WE DO NOT OBTAIN SIGNIFICANT CAPITAL FROM OUTSIDE SOURCES, WE WILL NOT BE
ABLE TO CONTINUE TO BUILD OUT OUR WIRELESS INFRASTRUCTURE AND PURSUE LONG
DISTANCE OPPORTUNITIES AND MAY LOSE THE OPPORTUNITY TO GENERATE REVENUES
In order to implement our operating strategy through 2001, we will have to
incur significant capital expenditures. We expect capital expenditures for 1999,
2000 and 2001, not including capital expenditures to build out our PCS network
in northern Mexico, to total approximately U.S.$475.0 million, of which
approximately U.S.$132.8 million has already been invested during the first nine
months of 1999 and an approximately U.S.$44.2 million is expected to be invested
during the fourth quarter of 1999. For an explanation of the items included in
capital expenditures, see "Notes to the Selected Consolidated Financial and
Operating Information -- Footnote (6)." We expect capital expenditures to build
out our PCS network in northern Mexico will not exceed U.S.$55.0 million through
2001.
As we make additional investments in our cellular network and pursue long
distance opportunities, we will need additional external funding in mid-2000 and
beyond. We will also need additional external funding in 1999 and/or 2000 in
order to acquire, build out and operate PCS networks in northern Mexico. The
terms of our concessions may, in the future, also require us to make other
significant network investments for which additional funds would be required. We
cannot assure you that we will be able to obtain additional funds, including
funds from Bell Atlantic and/or the Peralta Group and also including vendor
financing, on acceptable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
IF WE ARE NOT ABLE TO OBTAIN CONCESSIONS FOR SPECTRUM AND GOVERNMENT APPROVALS,
DEVELOP NEW TECHNOLOGIES AND HIRE AND RETAIN QUALIFIED PERSONNEL, WE WILL BE
UNABLE TO IMPLEMENT NEW SERVICES AND MAY LOSE BUSINESS TO OUR COMPETITORS
Our ability to expand long distance and paging services and to implement
PCS and wireless local telephony services in accordance with our plans will
depend on a number of factors over which we have limited or no control. These
factors include, among others, our ability to acquire concessions for spectrum
at commercially acceptable prices, raise sufficient capital, obtain required
governmental approvals, negotiate reasonable interconnection agreements, obtain
rights of way for fiber optic cables, successfully deploy technologies, secure
leases for base stations, hire and retain additional qualified personnel and
develop an adequate customer base. Any of these factors could delay, impede or
reduce the scope of the implementation of new services and result in a material
adverse effect on our existing business, financial condition and results of
operations.
THE TECHNOLOGY WE USE MAY BE MADE OBSOLETE BY THE TECHNOLOGY USED BY OUR
COMPETITORS
All companies in the global telecommunications industry must adapt to rapid
and significant changes in technology. The technology that we have selected in
our wireless business may be challenged by competition from new or improved
digital technologies supporting wireless service or other services in the near
future. Technological changes may adversely affect our competitive position,
require substantial new
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capital expenditures and/or require write-downs of obsolete technology. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Non-recurring Charges -- Project 450 Non-Cash Writedown" and
"Business -- Network and Equipment -- Cellular Services."
WE MAY NOT HAVE ENOUGH MANAGEMENT RESOURCES TO BE ABLE TO EXPAND AS WE WISH
We plan to continue to access additional opportunities in the wireless
business in Mexico. In May 1998, we won auctions for concessions for a range of
frequencies in the 1.9 GHz band to provide PCS services in two regions in
northern Mexico. We will have to devote substantial management resources to take
advantage of new opportunities and business ventures. In so doing, we will have
to attract and retain qualified management personnel in pace with our rate of
growth. If we are unable to attract and retain qualified management personnel,
we could experience a material adverse effect on our existing business,
financial condition and results of operations. See "Business -- Business
Strategy."
CELLULAR FRAUD INCREASES OUR EXPENSES
The fraudulent use of cellular telecommunications networks imposes a
significant cost upon cellular service providers who must bear the cost of
services provided to fraudulent users. We suffer losses of revenue as a result
of fraudulent use, and also suffer cash costs due to our obligation to reimburse
carriers for the cost of services provided to some fraudulent users. These cash
costs approximated Ps.69.1 million (U.S.$7.4 million) and Ps.19.6 million
(U.S.$2.1 million) in 1998 and in the nine months ended September 30, 1999,
respectively.
Although technology has been developed to combat the fraudulent use of
telecommunications networks, this technology does not eliminate fraudulent use
entirely. We must make significant expenditures periodically to acquire and use
anti-fraud technology. For 1998, our costs for detecting and preventing fraud
were approximately Ps.34.3 million (U.S.$3.7 million). For the nine months ended
September 30, 1999, we incurred approximately Ps.1.1 million (U.S.$0.1 million)
in fraud detection and prevention. Because we implemented extensive fraud
detection and prevention technology in 1998, we expect to spend only
approximately Ps.3.6 million (U.S.$0.4 million) and Ps.7.5 million (U.S.$0.8
million) in 1999 and 2000, respectively for fraud detection and prevention.
However, we cannot assure you that the anti-fraud technology that we have
purchased will continue to be effective in detecting and preventing fraud. If
our anti-fraud technology becomes obsolete, we will once again have to make
significant expenditures to acquire and use anti-fraud technology.
YEAR 2000 ISSUES MAY CONTINUE TO DISRUPT OUR BUSINESS
We completed all required modifications or replacements (including
modification or replacements of mission critical systems and internal network
elements) in accordance with our Year 2000 enterprise-wide compliance program by
the end of October 1999. Since January 1, 2000, we have not experienced any
interruption or failure of normal business and service functions or operations
which have had a material adverse effect on our business or financial condition.
However, our Year 2000 compliance program is largely dependent on third party
vendors and interconnecting carriers and we cannot assure you that all third
parties will implement timely corrective measures necessary on their part to
prevent future disruption of services. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Compliance."
OUR STRATEGY TO EXPAND OUR WIRELESS FOOTPRINT IN MEXICO LEADS US TO CONSIDER
SIGNIFICANT ACQUISITIONS WITHIN MEXICO FROM TIME TO TIME THAT MAY ADVERSELY
AFFECT OUR BUSINESS, RESULTS AND FINANCIAL CONDITION.
One of our business strategies is to provide our customers with access to
reliable and high-quality wireless service throughout Mexico. Providing access
in regions where we do not own concessions through roaming agreements does not
afford us optimal control over coverage, quality and pricing. As a result, from
time to time we explore possibilities to expand our wireless footprint in
Mexico.
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For example, Bell Atlantic was recently engaged in discussions regarding a
transaction in which we would have acquired the four Northern Region Properties
as well as discussions regarding a separate transaction in which we would
acquire Portatel. Although the most recent discussions with respect to the
Northern Region Properties have been terminated, we could discuss a combination
with respect to these properties with the same or different parties in the
future. The discussions with Portatel have not continued although they have not
been formally terminated. We cannot predict at this time when or whether any
acquisition will occur.
Although we believe that these transactions would significantly strengthen
our competitive position, at the same time they pose a number of significant
risks and uncertainties for us and for the holders of the notes, including,
without limitation, that they could involve the incurrence of significant
amounts of additional debt or other liabilities; the acquisition of substantial
amounts of pre-existing debt that would be structurally senior to the debt under
the notes; the acquisition of significant operational, financial, legal, labor
or other liabilities or risks, or significant financial needs, of which we may
not be aware and that we may not discover until after the acquisition has been
consummated; and the increase in our capital expenditure requirements. Any of
these risks could result in a material adverse change in our financial condition
and/or ability to service debt, including debt under the notes.
Because we cannot foresee all of the risks that one or more of these
acquisitions might involve, should they occur, it is not possible for us to
describe all these risks. As a result, holders of our securities must be
prepared to accept any deterioration in our prospects, business, financial
condition, results of operations or cash flow stemming from one or more of these
acquisitions.
In addition, an acquisition of the Northern Region Properties could result
in a change of control, so that Bell Atlantic would no longer control or manage
us. If a change of control were to occur from an acquisition of the Northern
Region Properties or any other transaction, Bell Atlantic would no longer be in
a position to determine our policies and strategy, manage our operations or
provide the technical and financial support that we have historically relied on.
It is not possible for us to describe the strategy that would be followed by
Iusacell following a change of control.
RISK FACTORS RELATING TO OUR SHAREHOLDERS
We have two principal groups of shareholders. The first, Bell Atlantic,
comprises various subsidiaries of Bell Atlantic Corporation. The second, the
Peralta Group, encompasses Mr. Carlos Peralta and a group of individuals and
companies related to or controlled by him.
WE DEPEND ON BELL ATLANTIC PERSONNEL; IF BELL ATLANTIC RECALLED THEM, WE WOULD
HAVE INSUFFICIENT QUALIFIED EMPLOYEES
Our Chief Executive Officer, Chief Technology Officer and General Counsel
are employees of Bell Atlantic whose services are provided on a consulting or
secondment basis. We also use the services of a number of Bell Atlantic
employees on a consulting basis, primarily in the areas of network operations,
information systems, marketing and customer care operations. So long as Bell
Atlantic controls Iusacell, these or other seconded employees and consultants
are expected to continue to provide services to us. If these employees were not
made available to us by Bell Atlantic, our results of operations and financial
condition could be materially adversely affected. See "Management" and "Certain
Transactions."
ALLEGATIONS RELATING TO CARLOS PERALTA MAY PREVENT US FROM OBTAINING OR
RETAINING GOVERNMENT CONCESSIONS AND MAY CAUSE OUR CUSTOMERS TO PERCEIVE US
NEGATIVELY
Mr. Carlos Peralta, a member of the Peralta Group of shareholders, is
currently a director of New Iusacell. In 1996, Mr. Peralta stated that he had
transferred funds to bank accounts controlled by the brother of the then
President of Mexico. Press accounts have speculated that those payments were
payments for governmental favors and the Swiss Government has seized the money,
alleging that it was connected to money laundering. Apparently prompted by Mr.
Peralta's disclosure, the Mexican tax authorities initiated tax audits of Old
Iusacell, some of its subsidiaries and Mr. Peralta. In 1997,
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Mr. Peralta was indicted on charges of tax evasion. Mr. Peralta was subsequently
acquitted of all related charges. The tax audits of Old Iusacell were completed
in early 1999. In May 1999, Mexican tax authorities assessed Old Iusacell a
Ps.22.0 million (U.S.$2.4 million) penalty for purported incorrect deductions of
certain interest expense for income tax purposes, which we have already paid.
Our business activities have required and will continue to require licenses
and approvals from the Mexican government. It is possible that Mr. Peralta's
public statements and indictment and the Mexican government's inquiries could
impact our ability to obtain concessions, licenses and approvals for business
opportunities in the future or to obtain the renewal of existing concessions,
licenses and approvals. Various press reports speculated that Mr. Peralta's
public statements contributed to the delay in Old Iusacell and the Mexican
Telecommunications and Transportation Ministry (Secretaria de Comunicaciones y
Transportes), commonly referred to as the SCT, reaching agreement regarding
local wireless service in the 450 MHz frequency band. See "Business -- Other
Services -- Local Telephony." Additionally, the publicity surrounding Mr.
Peralta's statements or indictment may have a negative impact on consumer
perceptions of Iusacell and may adversely affect our business, financial
condition and results of operations.
RISK FACTORS RELATING TO DOING BUSINESS IN MEXICO
THE MEXICAN GOVERNMENT MAY IMPOSE ADDITIONAL CONDITIONS ON OUR CONCESSIONS OR
MAY TAKE THEM AWAY
We provide our services pursuant to concessions granted by the Mexican
government. Our activities are subject to significant government regulation and
supervision. The concessions may be subject to additional conditions or may not
be renewed when they expire. The Mexican government also reserves the right to
revoke, temporarily seize or expropriate concessions or assets related to a
concession for reasons of public interest or order such as war, national
disaster or significant public disturbances. Moreover, the Mexican government
may grant additional concessions to potential competitors to provide services
similar to those that we provide. Any of these developments or other government
action could have a material adverse effect on the value of Iusacell's
concessions and on our financial condition and results of operations. See
"Business -- Government Regulation."
OUR FINANCIAL STATEMENTS MAY NOT GIVE YOU THE SAME INFORMATION AS FINANCIAL
STATEMENTS PREPARED UNDER U.S. ACCOUNTING RULES
Mexican companies listed on the Mexican Stock Exchange, including New
Iusacell, must prepare their financial statements in accordance with Mexican
generally accepted accounting principles, referred to as Mexican GAAP. Mexican
GAAP differs in significant respects from United States generally accepted
accounting principles, referred to as U.S. GAAP, including the treatment of
minority interest, deferred income taxes, employee profit sharing,
capitalization of pre-operating costs, interest rate collars, gains from the
exchange of non-monetary assets and the provisioning for the consolidation of
facilities. In particular, all such Mexican companies must incorporate the
effects of inflation directly in their accounting records and in published
financial statements. The effects of inflation accounting under Mexican GAAP are
not eliminated in the reconciliation to U.S. GAAP. For this and other reasons,
the presentation of Mexican financial statements and reported earnings may
differ from that of companies in other countries. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 20 to
the Audited Consolidated Financial Statements.
IF THE MEXICAN GOVERNMENT IMPOSES EXCHANGE CONTROLS, WE MAY NOT BE ABLE TO MAKE
INTEREST AND PRINCIPAL PAYMENTS IN U.S. DOLLARS
In the past, the Mexican economy has experienced balance of payment
deficits and shortages in foreign exchange reserves. While the Mexican
government does not currently restrict the ability of Mexican or foreign persons
or entities to convert Pesos to foreign currencies generally, and U.S. dollars
in particular, it has done so in the past and could do so again in the future.
We cannot assure you that the Mexican government will not institute a
restrictive exchange control policy in the future. Any such restrictive exchange
control policy could prevent or restrict access to U.S. dollars or other foreign
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currencies to purchase imported goods and to meet our U.S. dollar obligations,
such as the principal and interest under the notes.
PAYMENT OF JUDGMENTS ENTERED AGAINST US WILL BE IN PESOS, WHICH MAY EXPOSE YOU
TO EXCHANGE RATE RISKS
If a proceeding to enforce our obligations under the notes is brought in
Mexico, Mexican law permits us to pay a resulting judgment in Pesos. Under the
Mexican Monetary Law, an obligation payable in Mexico in a currency other than
Pesos may be satisfied in Pesos at the exchange rate in effect on the date when
payment is made.
If a Mexican court declares us to be bankrupt or in suspension of payments,
our obligations under the notes
- would be converted into Pesos at the exchange rate prevailing at the time
of the court's declaration and payment would occur at the time claims of
creditors are satisfied, and
- would not be adjusted to take into account depreciation of the Peso
against the United States dollar occurring after the court's declaration.
FORWARD-LOOKING STATEMENTS
This offering memorandum contains projections of some financial data and
discloses plans and objectives for the future. This forward-looking information,
as defined in the United States Private Securities Litigation Reform Act of
1995, reflects our views regarding future events and financial performance.
Actual events and results could differ materially from those projected in the
forward-looking statements as a result of the risk factors described above, as
well as factors discussed below.
The words "believe," "expect," "anticipate," "intend" and "plan" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which in any
event speak only as of their dates. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The risk factors described above, and
many other factors, could cause actual events and results to differ materially
from historical results or those anticipated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected. We do not undertake to update our
forward-looking statements or risk factors to reflect future events or
circumstances.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
We sold the old notes on December 16, 1999, in a private placement. In
connection with that placement, we granted the initial purchasers registration
rights, which require that we file a registration statement under the Securities
Act with respect to the exchange notes. Upon the effectiveness of that
registration statement, we are required to offer you the opportunity to exchange
your old notes for a like principal amount of exchange notes, which will be
issued without a restrictive legend and may be reoffered and resold by you (if
you are not our affiliate) without registration under the Securities Act.
Upon the completion of the exchange offer, our obligations with respect to
the registration of the old notes and the exchange notes will terminate. A copy
of the Registration Rights Agreement governing these registration rights has
been filed as an exhibit to the registration statement of which this prospectus
is a part. Following the completion of the exchange offer, holders of old notes
not tendered will not have any further registration rights and those old notes
will continue to be subject to restrictions on transfer. Accordingly, the
liquidity of the market for the old notes could be adversely affected upon
completion of the exchange offer.
HOW TO DETERMINE WHETHER YOU ARE ELIGIBLE TO PARTICIPATE IN THE EXCHANGE OFFER
In order to participate in the exchange offer, you must represent to us,
among other things, that:
- the exchange notes acquired by you pursuant to the exchange offer are
being obtained in the ordinary course of your business or the business of
the person receiving the exchange notes, whether or not such person is
the holder of the old notes;
- neither you nor any person who receives the notes from you is engaging
in or intends to engage in a distribution of the exchange notes;
- neither you nor any person who receives the notes from you has an
arrangement or understanding with any person to participate in the
distribution of the exchange notes;
- neither you nor any person who receives the notes from you is our
affiliate; and
- if you are a broker-dealer and you acquired the old notes for your own
account as a result of market-making or other trading activities, you
will deliver a copy of this prospectus in connection with any resale of
exchange notes.
Based on an interpretation by the staff of the Securities and Exchange
Commission set forth in interpretive letters issued to third parties unrelated
to us, we believe that, with the exceptions set forth below, exchange notes
issued pursuant to the exchange offer in exchange for old notes may be offered
for resale, resold and otherwise transferred by you, whether or not you are the
holder (other than our affiliates) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that:
- the exchange notes are acquired in the ordinary course of your business,
and
- neither you nor any person who receives the notes from you has an
arrangement or understanding with any person to participate in the
distribution of such exchange notes.
If you tender your old notes in the exchange offer for the purpose of
participating in a distribution of the exchange notes you cannot rely on this
interpretation by the staff of the Securities and Exchange Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act. If you are a broker-dealer and receive exchange notes for your
own account in exchange for old notes, where you acquired your old notes as a
result of market-making activities or other trading activities, you must
acknowledge that you will deliver a prospectus in connection with any resale of
the exchange notes. See "Plan of Distribution".
16
<PAGE> 21
Pursuant to the Registration Rights Agreement, we are required to file a
registration statement for a continuous offering pursuant to Rule 415 under the
Securities Act in respect of the old notes if existing interpretations by the
staff of the Securities and Exchange Commission are changed such that the
exchange notes received by you in the exchange offer are not, or would not be,
upon receipt, transferable by you (other than you or one of your affiliates)
without restriction under the Securities Act.
Following the completion of the exchange offer, if you do not tender your
old notes you will not have any further registration rights and those old notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for your old notes could be adversely affected upon
completion of the exchange offer if you do not participate in the exchange
offer.
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 5:00 p.m., New York City time, on ,
2000. We will issue U.S.$1,000 principal amounts of exchange notes in exchange
for each U.S.$1,000 principal amounts of outstanding old notes, pursuant to the
exchange offer.
The form and terms of the exchange notes are identical to the form and
terms of the old notes except that the offer and sale of the exchange notes have
been registered under the Securities Act and they will not bear legends
restricting their transfer. The exchange notes will evidence the same debt as
the old notes and will be issued pursuant to, and entitled to the benefits of,
the indenture pursuant to which the old notes were issued.
As of the date of this prospectus, old notes representing U.S.$350,000,000
aggregate principal amounts at maturity were outstanding. This prospectus,
together with the letter of transmittal, is being sent to you and to others
believed to have beneficial interest in the old notes. We intend to conduct the
exchange offer in accordance with the applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations of the Securities and
Exchange Commission promulgated under that act.
We will be deemed to have accepted validly tendered old notes when, as, and
if we have given oral or written notice thereof to The Bank of New York, the
exchange agent. The Bank of New York will act as agent for the tendering holders
for the purposes of receiving the exchange notes from us. If any tendered old
notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted old notes will be returned, without expense, to you as promptly as
practicable after , 2000.
If you tender old notes in the exchange offer, you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with the exchange offer. See "-- Fees
and Expenses."
CONDITIONS
The exchange offer is not conditioned upon any minimum principal amount of
the old notes being tendered for exchange. However, the exchange offer is
conditioned upon the declaration by the Securities and Exchange Commission of
the effectiveness of the registration statement of which this prospectus
constitutes a part.
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on ,
2000 unless we extend the exchange offer, in which case the expiration date will
be the latest date and time to which the exchange offer is extended. In order to
extend the exchange offer, we will notify The Bank of New York and each
participant that holds a book-entry interest in an old notes of any extension
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. We reserve
17
<PAGE> 22
the rights to delay accepting any old notes or to extend the exchange offer, by
giving oral or written notice of such delay, or extension to The Bank of New
York.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender old notes in the exchange offer.
Except as set forth under "-- Book Entry Transfer," to tender old notes in the
exchange offer you must complete, sign and date the letter of transmittal, have
the signatures thereon guaranteed if required by the letter of transmittal, and
mail or otherwise deliver the letter of transmittal to The Bank of New York
prior to the expiration date. In addition, either:
- certificates for such old notes must be received by The Bank of New York
along with the letter of transmittal, or
- a timely confirmation of a book-entry transfer of such old notes, if
that procedure is available, into The Bank of New York's account at The
Depository Trust Company, Euroclear and/or Clearstream pursuant to the
procedure for book-entry transfer described below, prior to the
expiration date, or
- you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by The Bank of New York at the address set forth
under "-- Exchange Agent" prior to the expiration date.
Any tender by you that is not withdrawn before the expiration date will
constitute an agreement between you and us in accordance with the terms and
subject to the conditions set forth herein and in the letter of transmittal.
The method of delivery of old notes and the letter of transmittal and all
other required documents to The Bank of New York is at your election and risk.
Instead of delivery by mail, it is recommended that you use an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
delivery to The Bank of New York before the expiration date. No letter of
transmittal or old notes should be sent to us. You may request your respective
brokers, dealers, commercial banks, trust companies, or nominees to effect these
transactions for you.
If you are a beneficial owner whose old notes are registered in the name of
a broker, dealer, commercial bank, trust company, or other nominee and you wish
to tender you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If a beneficial owner wishes to
tender on the registered holder's behalf, the beneficial owner must, prior to
completing and executing the letter of transmittal and delivering the old notes,
either make appropriate arrangements to register ownership of the old notes in
its name or obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time.
Signatures on the letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal, or
- for the account of an Eligible Institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by an eligible
guarantor institution that is a member of or participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program, the Stock Exchange Medallion Program, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
If the letter of transmittal is signed by a person other than the
registered holder of any old notes, the old notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered
18
<PAGE> 23
holder as that registered holder's name appears on the old notes, with the
signature thereon guaranteed by an Eligible Institution. 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, persons should indicate
this when signing, and evidence satisfactory to us of their authority to so act
must be submitted with the letter of transmittal unless we waive this
requirement.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered old notes will be determined by
us, 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 our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right 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 (including 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 such time as we shall determine, in our sole
discretion. Although we intend to notify holders of defects or irregularities
with respect to tenders of old notes, neither we, The Bank of New York, 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 such defects or
irregularities have been cured or waived. Any old notes received by The Bank of
New York that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by The Bank of New
York to the tendering holder, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion to purchase or
make offers for any old notes that remain outstanding after the expiration date
or, as set forth under "The Exchange Offer -- Conditions," to terminate the
exchange offer and, to the extent permitted by applicable law, purchase old
notes in the open market, privately negotiated transactions, or otherwise. The
terms of any such purchases or offers could differ from the terms of the
exchange offer.
BOOK-ENTRY TRANSFER
The Bank of New York will make a request to establish an account with
respect to the old notes at The Depository Trust Company, Euroclear and/or
Clearstream for purposes of the exchange offer within two business days after
the date of this prospectus. Any financial institution that is a participant in
The Depository Trust Company, Euroclear and/or Clearstream's systems may make
book-entry delivery of old notes being tendered by causing The Depository Trust
Company, Euroclear and/or Clearstream to transfer such old notes into The Bank
of new York's account at The Depository Trust Company, Euroclear and/or
Clearstream in accordance with their procedures for transfer. However, although
delivery of old notes may be effected through book-entry transfer at The
Depository Trust Company, Euroclear and/or Clearstream, the letter of
transmittal or copy thereof, with any required signature guarantees and any
other required documents, must, in any case other than as set forth in the
following paragraph, be transmitted to and received by The Bank of New York at
the address set forth under "-- Exchange Agent" on or prior to the expiration
date or the guaranteed delivery procedures described below must be complied
with.
The Depository Trust Company's Automated Tender Offer Program ("ATOP") is
the only method of processing exchange offers through The Depository Trust
Company. To accept the exchange offer through ATOP, you must send electronic
instructions to The Depository Trust Company through The Depository Trust
Company's communication system in place of sending a signed, hard copy of the
letter of transmittal. The Depository Trust Company is obligated to communicate
those electronic instructions to The Bank of New York. To tender old notes
through ATOP, the electronic instructions sent to The Depository Trust Company
and transmitted by The Depository Trust Company to The Bank of New York must
contain the character by which you acknowledge your receipt of and agree to be
bound by the letter of transmittal.
19
<PAGE> 24
GUARANTEED DELIVERY PROCEDURES
If you desire to tender your old notes and the old notes are not
immediately available, or time will not permit you to get your old notes or the
required documents to The Bank of New York before the expiration date, or the
procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if:
- the tender is made through an Eligible Institution,
- prior to the expiration date, The Bank of New York receives from such
Eligible Institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by telegram, facsimile
transmission, mail or hand delivery), setting forth your name and
address and the amount of old notes you are tendering, stating that the
tender is being made thereby and guaranteeing that within four New York
Stock Exchange trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered old
notes, in proper form for transfer, or a confirmation of a book-entry
transfer, as the case may be and other documents required by the letter
of transmittal will be deposited by the Eligible Institution with The
Bank of New York, and
- the certificates for all physically tendered old notes, in proper form
for transfer, or a confirmation of a book-entry transfer, as the case
may be, and all other documents required by the letter of transmittal,
are received by The Bank of New York within four New York Stock Exchange
trading days after the date of execution of the notice of guaranteed
delivery.
WITHDRAWAL RIGHTS
You may withdraw your tender at any time prior to 5:00 p.m., New York City
time, on the expiration date.
For your withdrawal of a tender of old notes to be effective, your written
or electronic ATOP transmission notice of withdrawal (for The Depository Trust
Company participants) must be received by The Bank of New York at its address
set forth herein prior to 5:00 p.m., New York City time, on the expiration date.
Any such notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor");
- identify the old notes to be withdrawn (including the certificate number
or numbers and principal amount of such old notes);
- be signed by you in the same manner as the original signature on the
letter of transmittal by which your old notes were tendered (including
any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the trustee register the transfer of such
old notes into the name of the person withdrawing the tender; and
- specify the name in which any such old notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by us. Our determination will be
final and binding on all parties. Any old notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the exchange offer.
We will return any old notes which have been tendered for exchange but which are
not exchanged for any reason 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 under "-- Procedures for Tendering" at any time
on or prior to the expiration date.
20
<PAGE> 25
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the exchange
offer. Questions, requests for assistance and requests for additional copies of
this prospectus or of the letter of transmittal should be directed to The Bank
of New York addressed as follows:
For information or
Confirmation by Telephone:
(212) 815-2742
<TABLE>
<S> <C> <C>
By Registered or Certified By Facsimile Transmission: By Hand or Overnight Delivery:
Mail: (212) 815-6339
Attention: Enrique Lopez The Bank of New York
The Bank of New York 101 Barclay Street
101 Barclay Street New York, New York 10286
New York, New York 10286 Attention: Securities
Attention: Enrique Lopez Processing Window
Corporate Trust Operations, 7E Ground Level Reorganization, 7E
ATTENTION: ENRIQUE LOPEZ
</TABLE>
FEES AND EXPENSES
We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail. Additional solicitations may be made in person or by telephone by our
officers and employees.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be U.S.$400,000,
which includes fees and expenses of The Bank of New York, accounting, legal,
printing, and related fees and expenses.
TRANSFER TAXES
If you tender your old notes you will not be obligated to pay any transfer
taxes in connection therewith, except that if you instruct us to register
exchange notes in the name of, or request that old notes not tendered or not
accepted in the exchange offer be returned to, a person other than yourself, you
will be responsible for the payment of any applicable transfer tax thereon.
21
<PAGE> 26
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer described in this
prospectus.
22
<PAGE> 27
CAPITALIZATION
The following table sets forth the capitalization of New Iusacell as of
September 30, 1999, and as adjusted to give effect to this exchange offer
(assuming full participation), the private offering of the old notes completed
in December 1999 and the application of the proceeds therefrom, the final
drawdown of the Eximbank Facilities in October 1999, an initial debt
amortization payment in November 1999 and the payment of an accounts payable
balance to Lucent Technologies. This table should be read in conjunction with
"Use of Proceeds," "Selected Consolidated Financial and Operating Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------------------------------------
In thousands of constant September 30, ACTUAL ADJUSTED ACTUAL ADJUSTED
1999 Pesos and U.S. dollars(1) ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash and marketable securities(2)......................... Ps. 137,824 Ps. 2,829,365 U.S.$ 14,737 U.S.$ 302,541
============ ============== ============== ==============
Short-term debt:(3)
Senior credit facility(4)............................... Ps. 210,420 Ps. 210,420 U.S.$ 22,500 U.S.$ 22,500
Eximbank Facilities(5).................................. 106,969 67,719 11,438 7,241
Handset facilities...................................... 118,462 118,462 12,667 12,667
Vendor facility......................................... 33,789 33,789 3,613 3,613
------------ -------------- -------------- --------------
Total short-term debt................................. 469,640 430,390 50,218 46,021
------------ -------------- -------------- --------------
Long-term debt:(3)
Senior credit facility(4)............................... 1,893,780 1,893,780 202,500 202,500
10% series B notes due 2004............................. 1,402,800 1,402,800 150,000 150,000
Eximbank Facilities(5).................................. 634,730 782,613 67,871 83,684
Handset facilities...................................... 12,466 12,466 1,333 1,333
Notes offered hereby.................................... -- 3,273,200 -- 350,000
------------ -------------- -------------- --------------
Total long-term debt.................................. 3,943,776 7,364,859 421,704 787,517
------------ -------------- -------------- --------------
Total debt............................................ 4,413,416 7,795,249 471,922 833,538
------------ -------------- -------------- --------------
Stockholders' equity:
Contributed capital..................................... 4,755,485 4,755,485 508,500 508,500
Earned capital.......................................... 619,322 619,322 66,223 66,223
Minority interest....................................... 28,472 28,472 3,044 3,044
------------ -------------- -------------- --------------
Total stockholders' equity............................ 5,403,279 5,403,279 577,767 577,767
------------ -------------- -------------- --------------
Total capitalization.............................. Ps.9,816,695 Ps. 13,198,528 U.S.$1,049,689 U.S.$1,411,305
============ ============== ============== ==============
</TABLE>
- - ---------------
(1) Peso amounts were converted to U.S. dollars at the noon buying rate of
Ps.9.3520 per U.S.$1.00 on September 30, 1999. Such conversions should not
be construed as representations that the Peso amounts actually represent
such U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated, or at all. See "Risk Factors -- Risk Factors Relating to
Iusacell -- We may lose money because of currency devaluations" and "-- Risk
Factors Relating to Doing Business in Mexico -- We may not be able to make
interest and principal payments in U.S. dollars, which will expose you to
currency risk and inconvenience."
(2) Adjusted columns reflect incremental aggregate cash of Ps.2,691.5 million
and U.S.$287.8 million, respectively, reflecting Ps.3,273.2 million
(U.S.$350.0 million) of proceeds from the private offering of the old notes
completed in December, 1999 and application of the proceeds thereof, less
Ps.100.9 million (U.S.$10.8 million) of debt issuance costs plus net cash of
Ps.109.4 million (U.S.$11.7 million) resulting from a drawdown of the
Eximbank Facilities of Ps.176.8 million (U.S.$18.9 million) less an initial
amortization payment of Ps.67.3 million (U.S.$7.2 million) and the payment
of an accounts payable to Lucent in the amount of Ps.589.2 million
(U.S.$63.0 million). Adjusted columns also include approximately U.S.$133.5
million of net proceeds from this offering that will be held in escrow to
meet the first six interest payments on the notes.
(3) All of Iusacell's short- and long-term debt is denominated in U.S. dollars.
(4) The senior credit facility consists of a five-year senior secured term
facility in the principal amount of U.S.$125.0 million and a five-year
senior secured revolving credit facility in the principal amount of
U.S.$100.0 million which was fully drawn by July 24, 1998 and which was
subsequently converted to a term loan. Quarterly amortizations commence
April 2000.
(5) In March 1998, Old Iusacell obtained a bridge loan facility from UBS AG,
formerly known as Swiss Bank Corporation. The U.S.$75.0 million outstanding
under this bridge loan facility was refinanced on July 15, 1999 by term loan
facilities, a portion of which are guaranteed by the United States
Export-Import Bank. U.S.$79.3 million was drawn on such term loan facilities
on such date. Old Iusacell subsequently drew down an additional U.S.$18.9
million under these facilities on October 15, 1999 and made an initial
semi-annual amortization payment of $7.2 million under the guaranteed
portion of the facility in early November 1999.
23
<PAGE> 28
EXCHANGE RATES
The following table sets forth, for the periods indicated, the period-end,
average, high and low noon buying rates, in each case for the purchase of U.S.
dollars, all expressed in nominal Pesos per U.S. dollar. The noon buying rate at
February 17, 2000 was Ps.9.398 per U.S.$1.00.
<TABLE>
<CAPTION>
NOON BUYING RATE(1)
------------------------------------------------
PERIOD END AVERAGE(2) HIGH LOW
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1994.................... Ps.5.000 Ps.3.479 Ps.5.750 Ps.3.105
Year ended December 31, 1995.................... 7.740 6.526 8.050 5.270
Year ended December 31, 1996.................... 7.881 7.635 8.045 7.325
Year ended December 31, 1997.................... 8.070 7.917 8.410 7.717
Year ended December 31, 1998.................... 9.901 9.152 10.630 8.040
Nine months ended September 30, 1999............ 9.352 9.382 9.515 9.288
Year ended December 31, 1999.................... 9.480 9.563 9.533 9.308
</TABLE>
- - ---------------
(1) Source: Federal Reserve Bank of New York.
(2) Average of month-end rates.
At September 30, 1999, our total debt outstanding, including trade notes
payable, which amounted to Ps.4,413.4 million (U.S.$471.9 million), was
dollar-denominated and unhedged against foreign exchange risk. Devaluation of
the Peso in relation to the U.S. dollar will adversely affect our ability to
meet our U.S. dollar-denominated obligations, including the notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Devaluation and Inflation" and "-- Liquidity and Capital
Resources -- Liquidity."
In the past, the Mexican economy has suffered balance of payment deficits
and shortages in foreign exchange reserves. While the Mexican government does
not currently restrict the ability of Mexican or foreign persons or entities to
convert Pesos to U.S. dollars, it has done so in the past and may do so in the
future. Any such restrictive exchange control policy could adversely affect our
ability to make payments in U.S. dollars, and could also have a material adverse
effect on our financial condition and results of operations. See "Risk
Factors -- Risk Factors Relating to Doing Business in Mexico -- We may not be
able to make interest and principal payments in U.S. dollars, which will expose
you to currency risk and inconvenience."
24
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following tables present selected consolidated financial information of
Iusacell. This information has been derived from and should be read in
conjunction with:
- the audited consolidated financial statements of Iusacell as of December
31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and
1996, and
- the unaudited consolidated financial statements of Iusacell as of and for
the nine months ended September 30, 1999 and 1998.
Prior to August 10, 1999, when Iusacell completed a corporate
restructuring, New Iusacell had nominal assets and liabilities and no operations
and contingent liabilities. For accounting purposes, New Iusacell is the
successor business to Old Iusacell. New Iusacell currently owns 99.5% of the
capital stock of Old Iusacell and plans to acquire substantially all of the
remaining 0.5% in an exchange offer of its ADSs for Old Iusacell ADSs.
The consolidated financial statements appear elsewhere in this prospectus.
The audited consolidated financial statements have been audited by
PricewaterhouseCoopers, independent public accountants. The unaudited
consolidated financial statements have been the subject of a limited review by
PricewaterhouseCoopers. A limited review is substantially less in scope than an
audit in accordance with generally accepted auditing standards.
The financial statements have been prepared in accordance with Mexican
GAAP, which differs in significant respects from U.S. GAAP. Pursuant to Mexican
GAAP, the financial statements and the selected financial data presented below
have been prepared in accordance with Bulletin B-10 of the Mexican Institute of
Public Accountants, which provides for the recognition of certain effects of
inflation.
Bulletin B-10 requires Iusacell to restate non-monetary assets using the
NCPI, but without exceeding their net realizable value. Until December 31, 1996,
Bulletin B-10 required Iusacell to restate non-monetary assets at current
replacement cost. Bulletin B-10 also requires Iusacell to restate non-monetary
liabilities and the components of shareholders' equity using the NCPI and to
record gains or losses in purchasing power from holding monetary liabilities or
assets.
In addition, Bulletin B-10 requires restatement of all financial statements
to constant Pesos as of the date of the most recent balance sheet presented.
Accordingly, all data in the financial statements and in the selected financial
data set forth below have been restated in constant Pesos as of September 30,
1999. The effect of these inflation accounting principles has not been reversed
in the reconciliation to U.S. GAAP. Note 20 to the audited consolidated
financial statements contains a reconciliation of Iusacell's net income and
stockholders' equity to U.S. GAAP. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- U.S. GAAP Reconciliation."
25
<PAGE> 30
The U.S. dollar amounts provided below are translations from the Peso
amounts, solely for the convenience of the reader, at the noon buying rate for
September 30, 1999 of Ps.9.3520 to U.S.$1.00. These translations should not be
construed as representations that the Peso amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollars at the rate indicated as
of any of the dates mentioned in this prospectus, or at all.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
In thousands of constant September 30, -------------------------------------------------------------------------------------------
1999 Pesos and U.S. dollars except per 1994 1995 1996 1997 1998 1998
share amounts and subscriber data(1) ------------ ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
MEXICAN GAAP:
Revenues:
Services....................... Ps.2,835,758 Ps. 2,286,846 Ps.2,072,472 Ps. 2,009,313 Ps. 2,688,655 U.S.$ 287,495
Telephone equipment sales and other... 386,859 407,474 334,286 413,227 412,001 44,055
------------ ------------- ------------ ------------- ------------- -------------
Total...................... 3,222,617 2,694,320 2,406,758 2,422,540 3,100,656 331,550
Cost of sales:
Cost of services............... 824,122 838,416 759,818 669,559 841,354 89,965
Cost of telephone equipment and
other........................ 190,208 226,162 186,369 262,304 220,447 23,572
------------ ------------- ------------ ------------- ------------- -------------
Total...................... 1,014,330 1,064,578 946,187 931,863 1,061,801 113,537
Gross profit................... 2,208,287 1,629,742 1,460,571 1,490,677 2,038,855 218,013
Operating expenses............. 1,371,926 1,190,046 1,053,025 968,473 1,183,165 126,515
Depreciation and amortization... 825,616 948,059 855,889 757,726 872,658 93,312
Project 450 non-cash writedown... -- -- -- -- 1,077,473 115,213
Operating profit (loss)........ 10,745 (508,363) (448,343) (235,522) (1,094,441) (117,027)
Other income, net.............. -- -- -- -- 145,676 15,577
Integral financing cost (gain):
Interest expense, net........ 288,821 245,256 397,887 323,181 245,200 26,219
Foreign exchange (gain) loss, net... 742,703 998,209 (87,932) 63,105 918,227 98,185
Gain on net monetary position... (70,738) (709,985) (493,053) (381,156) (745,336) (79,698)
------------ ------------- ------------ ------------- ------------- -------------
Total...................... 960,786 533,480 (183,098) 5,130 418,091 44,706
Equity participation in net income of
associated companies......... 4,387 (55,409) 1,866 205,326 27,290 2,918
Provision for equipment
impairment(2)................ -- -- -- 1,208,352 -- --
Loss before asset tax, employee profit
sharing, minority interest,
extraordinary item and discontinued
operations................... (945,654) (1,097,252) (263,379) (1,243,678) (1,339,566) (143,238)
Provision for asset tax........ 45,954 41,185 49,827 59,031 70,496 7,538
Employee profit sharing........ 917 2,946 -- -- -- --
------------ ------------- ------------ ------------- ------------- -------------
Total...................... 46,871 44,131 49,827 59,031 70,496 7,538
Loss before minority interest,
extraordinary item and discontinued
operations................... (992,525) (1,141,383) (313,206) (1,302,709) (1,410,062) (150,776)
Minority interest.............. 64 52,420 4,500 270 6,198 663
------------ ------------- ------------ ------------- ------------- -------------
Loss before extraordinary item and
discontinued operations...... (992,461) (1,088,963) (308,706) (1,302,439) (1,403,864) (150,113)
Extraordinary item(3).......... -- -- (205,537) -- -- --
Loss from discontinued
operations(4)................ (20,248) (2,165)
------------ ------------- ------------ ------------- ------------- -------------
Net loss....................... Ps. (992,461) Ps.(1,088,963) Ps. (514,243) Ps.(1,302,439) Ps.(1,424,112) U.S.$(152,278)
============ ============= ============ ============= ============= =============
Net loss per share............. Ps. (1.05) Ps. (1.12) Ps. (0.52) Ps. (1.22) Ps. (1.27) U.S.$ (0.14)
U.S. GAAP:(5)
Total revenues................. Ps.3,222,618 Ps. 2,694,320 Ps.2,518,460 Ps. 2,535,174 Ps. 3,120,443 U.S.$ 333,666
Operating profit (loss)........ 10,745 (508,363) (712,282) (1,615,305) (926,082) (99,025)
Net loss....................... (969,821) (514,215) (183,684) (884,166) (1,414,792) (151,282)
Basic and diluted loss per share(6)... (1.03) (0.52) (0.21) (0.82) (1.26) (0.13)
</TABLE>
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Footnotes begin on page 30.
26
<PAGE> 31
<TABLE>
<CAPTION>
In thousands of constant AS OF AND FOR THE YEAR ENDED DECEMBER 31,
September 30, 1999 Pesos and -----------------------------------------------
U.S. dollars except per share 1994 1995 1996
amounts and subscriber data(1) ------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
MEXICAN GAAP:
Working capital................ Ps. (540,068) Ps.(2,044,741) Ps.(2,307,150)
Property and equipment, net.... 6,336,256 6,067,482 4,682,065
Total assets................... 11,166,344 10,313,682 8,438,606
Total debt..................... 2,045,850 2,349,834 1,988,543
Stockholders' equity........... 7,946,300 6,211,723 4,719,559
U.S. GAAP:(5)
Working capital................ Ps. -- Ps. 2,366,916 Ps.(2,474,949)
Property and equipment, net.... 6,336,258 6,067,482 4,682,065
Total assets................... 11,131,435 11,231,501 9,375,937
Total debt..................... 2,045,850 2,349,834 1,988,543
Stockholders' equity........... 7,691,758 5,253,614 4,281,545
OTHER FINANCIAL DATA:
MEXICAN GAAP:
Ratio of earnings to fixed
charges(7).................... -- -- --
OPERATING DATA:
POPs........................... 61,464,945 63,447,714 64,730,493
Subscribers(8)
Contract...................... 194,723 208,802 159,144
Prepay........................ -- 1,399 73,762
------------- ------------- -------------
Total....................... 194,723 210,201 232,906
Gross subscriber additions..... 117,539 103,733 172,519
Average subscribers(9)......... 161,042 202,462 221,554
Penetration(10)................ 0.32% 0.33% 0.36%
Average monthly contract
churn(11)..................... 2.67% 3.62% 4.28%
Average monthly MOUs per
subscriber(12)................ 179 140 118
Nominal average monthly revenue
per subscriber(13)............ Ps. 595 Ps. 464 Ps. 492
Nominal cost to acquire a new
subscriber(14)................ Ps. 5,717 Ps. 6,143 Ps. 6,076
<CAPTION>
In thousands of constant AS OF AND FOR THE YEAR ENDED DECEMBER 31,
September 30, 1999 Pesos and ---------------------------------------------------
U.S. dollars except per share 1997 1998 1998
amounts and subscriber data(1) ------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
MEXICAN GAAP:
Working capital................ Ps. (339,180) Ps.(1,319,275) U.S.$(141,069)
Property and equipment, net.... 3,925,390 5,827,104 623,086
Total assets................... 8,691,774 10,899,176 1,165,438
Total debt..................... 2,892,616 4,889,004 522,776
Stockholders' equity........... 4,333,837 4,025,136 430,404
U.S. GAAP:(5)
Working capital................ Ps. (546,724) Ps.(1,482,751) U.S.$(158,549)
Property and equipment, net.... 3,925,390 5,644,039 603,511
Total assets................... 9,555,384 11,336,466 1,212,197
Total debt..................... 2,892,616 4,900,790 524,037
Stockholders' equity........... 4,287,183 4,027,474 430,654
OTHER FINANCIAL DATA:
MEXICAN GAAP:
Ratio of earnings to fixed
charges(7).................... -- -- --
OPERATING DATA:
POPs........................... 66,014,273 67,298,053
Subscribers(8)
Contract...................... 199,964 277,014
Prepay........................ 200,159 478,361
------------- -------------
Total....................... 400,123 755,375
Gross subscriber additions..... 406,353 747,720
Average subscribers(9)......... 387,765 742,601
Penetration(10)................ 0.61% 1.12%
Average monthly contract
churn(11)..................... 2.94% 2.58%
Average monthly MOUs per
subscriber(12)................ 105 87
Nominal average monthly revenue
per subscriber(13)............ Ps. 464 Ps. 361 U.S.$ 39
Nominal cost to acquire a new
subscriber(14)................ Ps. 5,326 Ps. 3,477 U.S.$ 372
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
In thousands of constant September 30, 1999 Pesos and U.S. dollars, 1998 1999 1999
except per share amounts and subscriber data(1) ------------- ------------- ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
MEXICAN GAAP:
Revenues:
Services....................................................... Ps. 1,954,419 Ps. 2,626,137 U.S.$280,810
Telephone equipment sales and other............................ 322,965 282,369 30,193
------------- ------------- ------------
Total...................................................... 2,277,384 2,908,506 311,003
Cost of sales:
Cost of services............................................. 591,172 778,668 83,262
Cost of telephone equipment and other........................ 174,991 163,129 17,443
------------- ------------- ------------
Total...................................................... 766,163 941,797 100,705
Gross profit................................................... 1,511,221 1,966,709 210,298
Operating expenses............................................. 886,412 963,442 103,020
Depreciation and amortization.................................. 615,617 967,396 103,443
Project 450 non-cash writedown................................. 986,396 -- --
Operating profit (loss)........................................ (977,204) 35,871 3,835
Integral financing cost (gain):
Interest expense, net........................................ 198,070 162,751 17,403
Foreign exchange (gain) loss, net............................ 1,011,283 (325,293) (34,783)
Gain on net monetary position................................ (432,489) (519,605) (55,561)
------------- ------------- ------------
Total...................................................... 776,864 (682,147) (72,941)
Equity participation in net income of associated companies..... 20,252 2,587 277
Income (loss) before asset tax and minority interest........... (1,733,816) 720,605 77,053
Provision for asset tax........................................ 38,271 111,609 11,934
Employee profit sharing.................................... -- 373 40
Income (loss) before minority interest..................... (1,772,087) 608,623 65,079
Minority interest.............................................. 3,339 10,699 1,144
------------- ------------- ------------
Net income (loss).............................................. Ps.(1,768,748) Ps. 619,322 U.S.$ 66,223
============= ============= ============
U.S. GAAP:(5)
Total revenues................................................. Ps. 2,277,384 Ps. 2,908,506 U.S.$311,004
Operating (loss) profit........................................ (802,207) 35,871 3,836
Net (loss) profit.............................................. (1,615,534) 582,578 62,294
Basic and diluted (loss) profit per share(6)................... (1.47) 0.46 0.05
</TABLE>
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Footnotes begin on page 30.
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<PAGE> 33
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
In thousands of constant September 30, 1999 Pesos and U.S. dollars, 1998 1999 1999
except per share amounts and subscriber data(1) ------------- ------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
MEXICAN GAAP:
Working capital................................................ Ps.(1,040,326) Ps. (999,004) U.S.$ (106,822)
Property and equipment, net.................................... 5,154,715 6,488,285 693,786
Total assets................................................... 10,028,689 11,941,781 1,276,923
Total debt..................................................... 5,023,500 4,377,893 468,124
Stockholders' equity........................................... 3,348,921 5,403,279 577,767
U.S. GAAP:(5)
Working capital................................................ Ps. (647,122) Ps.(1,188,967) U.S.$ (127,135)
Property and equipment, net.................................... 5,154,715 6,488,285 693,786
Total assets................................................... 10,629,659 12,572,695 1,344,386
Total debt..................................................... 5,023,500 4,379,740 468,321
Stockholders' equity........................................... 3,506,066 5,354,090 572,507
OTHER FINANCIAL DATA:
MEXICAN GAAP:
Ratio of earnings to fixed charges(7).......................... -- 2.49x 2.49x
OPERATING DATA:
Subscribers(8)
Contract....................................................... 256,075 342,666
Prepay....................................................... 371,781 789,539
------------- -------------
Total...................................................... 627,856 1,132,205
Gross subscriber additions..................................... 289,555 470,643
Average subscribers(9)......................................... 645,781 1,100,576
Average monthly contract churn(11)............................. 2.58% 2.44%
Average monthly MOUs per subscriber(12)........................ 89 77
Nominal average monthly revenue per subscriber(13)............. Ps. 371 Ps. 339 U.S.$ 36
Nominal cost to acquire a new subscriber(14)................... Ps. 3,389 Ps. 3,624 U.S.$ 388
</TABLE>
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Footnotes begin on page 30.
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<PAGE> 34
NOTES TO THE SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(1) According to Mexican GAAP, financial data for all periods in the financial
statements included in this prospectus, unless otherwise indicated, have
been restated in constant September 30, 1999 Pesos. Restatement into
September 30, 1999 Pesos is made by multiplying the relevant nominal Peso
amount by the inflation index for the period between the end of the period
to which such nominal Peso amount relates and September 30, 1999. The
inflation indices used in this prospectus are 2.9242 for 1994 figures,
1.9243 for 1995 figures, 1.5068 for 1996 figures, 1.3021 for 1997 figures,
1.1609 for September 1998 figures and 1.0978 for December 1998 figures.
These indices represent the estimates used by Old Iusacell when it prepared
and released to the public its third quarter 1999 financial statements.
Peso amounts in the selected consolidated financial statements were
converted to U.S. dollars at the exchange rate of Ps.9.3520 per U.S.$1.00
reported by the Federal Reserve Bank of New York as its noon buying rate
for Pesos on September 30, 1999. Such conversions should not be construed
as representations that the Peso amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollars at the rate
indicated for such date, or at all.
In determining Peso amounts of U.S. dollar-denominated obligations at
September 30, 1999 in its financial statements under Mexican GAAP, however,
Iusacell applied the exchange rate published by the Banco de Mexico, which
on September 30, 1999 was Ps.9.3483 per U.S.$1.00. The difference between
the noon buying rate and the Banco de Mexico exchange rates causes certain
inconsistencies between references to U.S. dollar amounts in this
prospectus and the actual U.S. dollar amounts. For example, Iusacell's
actual total debt, excluding trade notes payable, at September 30, 1999 was
U.S.$468.3 million. In preparing Iusacell's September 30, 1999 financial
statements, we multiplied this amount by 9.3483 to arrive at the Ps.4,377.9
million in total debt, excluding trade notes payable. However, for purposes
of this prospectus, we converted this Peso amount to U.S. dollars using the
rate of Ps.9.3520, which yields a U.S. dollar-denominated total debt,
excluding trade notes payable, of U.S.$468.1 million.
The combined effect of the restatement of the financial data in September
30, 1999 constant Pesos and the convenience translation of Peso amounts
into U.S. dollars discussed above means that the amount shown for certain
balance sheet items in U.S. dollars is not equal to the actual amounts
outstanding. For example, as of December 31, 1998, after the restatement in
September 30, 1999 constant Pesos and the convenience translation, total
debt outstanding, excluding trade notes payable, is U.S.$522.8 million. The
actual amount of total debt outstanding, excluding trade notes payable, was
U.S.$450.0 million. This impact explains any inconsistency between our
December 31, 1998 consolidated financial information and references to U.S.
dollar amounts in other sections of this prospectus.
(2) Iusacell's financial statements for the year ended December 31, 1997 have
been restated to reflect a reassessment of the accounting for the
impairment charge related to the analog communications network. The
impairment, which had previously been recorded directly against
stockholders' equity has now been recorded as an expense under Mexican GAAP
in the restated financial statements. For U.S. GAAP purposes, the
impairment charge relating to the analog communications equipment was
initially recorded as an operating expense. See Note 22 to the Audited
Consolidated Financial Statements.
(3) For 1996, the extraordinary item represents restructuring expenses
associated with the reorganization and change in management control of
Iusacell, the write-off of obsolete network equipment and an additional
reserve for doubtful accounts. For U.S. GAAP purposes, these costs are
recorded as operating expenses.
(4) In December 1998, Iusacell discontinued the operations of its subsidiary,
Cellular Solutions de Mexico, S.A. de C.V., a company engaged in the
selling of accessories for cellular handsets. Cellular Solutions de Mexico
transferred all its existing inventories as of December 31, 1998 to another
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<PAGE> 35
subsidiary of Iusacell and terminated all its employees during January and
February 1999. See Note 19 to the Audited Consolidated Financial
Statements. Under U.S. GAAP the loss from discontinued operations is
recorded as an operating expense.
(5) See Note 20 to the Audited Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- U.S. GAAP Reconciliation" for a discussion of differences
between U.S. GAAP and Mexican GAAP.
(6) Diluted earnings (loss) per share for the years ended December 31, 1998 and
1997 is equal to basic (loss) per share. Any unutilized drawdowns and
conversions under the subordinated convertible facility with Bell Atlantic
and the authorized but unissued shares subject to the management employee
stock purchase plan are excluded from the computation of diluted earnings
(loss) per share because to include them would have been antidilutive for
the periods presented because the loss per share for such periods would
have been reduced. For the years ended December 31, 1998 and 1997, the
number of potentially dilutive shares that were excluded from the
computation of diluted earnings (loss) per share for any unutilized
drawdowns and conversions under the facility with Bell Atlantic were
69,285,714 and 214,285,714 shares, respectively, and for the authorized but
unissued shares subject to the management employee stock purchase plan were
70,004 and 262,666 shares, respectively. For the nine-month period ended
September 30, 1999, the number of potentially dilutive shares that were
excluded from the computation of diluted loss per share, for the authorized
but unissued shares subject to the management employee share purchase plan,
was 70,004 shares.
Diluted earnings (loss) per share for the years ended December 31, 1996,
1995 and 1994, and for the nine-month period ended September 30, 1999 and
for the nine months ended September 30, 1999 and 1998 is equal to basic
earnings (loss) per share as Iusacell did not have any potentially dilutive
securities.
(7) The ratio of earnings to fixed charges covers continuing operations. For
this purpose earnings are calculated as income or loss before taxes plus
(i) integral financing cost, including amortization of capitalized
interest, (ii) the interest portion of annual rent expense, and (iii)
losses from the less than 50%-owned affiliates. Fixed charges include the
expensed and capitalized portions of integral financing cost. Earnings were
inadequate to cover fixed charges in 1994, 1995, 1996, 1997 and 1998. The
fixed charge coverage deficiency for the years ended December 31, 1994,
1995, 1996, 1997 and 1998 amounted to Ps.1,694.2 million (U.S.$181.2
million), Ps.1,997.2 million (U.S.$213.6 million), Ps.453.9 million
(U.S.$48.5 million), Ps.1,304.1 million (U.S.$139.4 million) and Ps.2,224.0
million (U.S.$237.8 million). The fixed charge coverage deficiency for the
nine month period ended September 30, 1998 amounted to Ps.2,691.8 million
(U.S.$287.8 million). There was no fixed charge coverage deficiency for the
nine month period ended September 30, 1999.
(8) Subscribers refers to Iusacell's cellular subscribers in its cellular
operating regions at the end of the respective periods. A prepay customer
is included as a subscriber if, at the end of the period, the customer's
telephone number has not yet been deactivated. See "Business -- Cellular
Services -- Prepay Customers."
(9) Average subscribers represents the rolling monthly average number of
subscribers for the respective periods.
(10) Penetration represents the end of period subscribers divided by the end of
period POPs in Iusacell's cellular operating regions, expressed as a
percentage.
(11) Effective January 1, 1998, Iusacell changed the methodology by which it
determines average monthly contract churn for a given period. Average
monthly contract churn for a given period is now calculated by dividing the
sum of all contract subscribers disconnected during such period by the sum
of the beginning-of-month contract subscribers for each of the months in
such period, expressed as a percentage. Only 1997 average monthly contract
churn information, which was 2.88% under the old methodology, has been
restated under the new methodology. The average monthly contract churn
31
<PAGE> 36
data for 1994 through 1996 are presented under the old methodology, which
calculates average monthly contract churn for a given period by dividing,
for each month in that period, the total number of contract subscribers
disconnected in such month by the number of contract subscribers at the
beginning of such month and dividing the sum of the resulting quotients for
all months in such period by the number of months in such period.
(12) Effective January 1, 1998, Iusacell changed the methodology by which it
determines average monthly MOUs (minutes of use) per subscriber. Average
monthly MOUs per subscriber for a given period are now calculated by
dividing total MOUs in the period by the sum of the monthly average
subscribers for each of the months in such period. Only 1997 average
monthly MOUs per subscriber information, which was 98 under the old
methodology, has been restated under the new methodology. The average
monthly MOUs per subscriber data for 1994 through 1996 are presented under
the old methodology, which calculates average monthly MOUs per subscriber
for a given period by dividing the total minutes of use for the respective
period by the number of average subscribers for the respective period and
dividing the result by the number of months in such period.
(13) Effective January 1, 1998, Iusacell changed the methodology by which it
determines nominal average monthly cellular revenue per subscriber (ARPU).
ARPU for a given period is now calculated by dividing the sum of the
monthly cellular revenue and other cellular revenues for each of the months
in the period by the sum of the monthly average cellular subscribers for
each of the months in such period. Only 1997 ARPU information, which was
Ps.451 under the old methodology, has been restated under the new
methodology. The ARPU for 1994 through 1996 is presented under the old
methodology, which calculates ARPU for a given period by dividing the total
cellular service revenue for the respective period by the average number of
subscribers for the respective period and dividing the quotient by the
number of months in such period.
(14) Nominal cost to acquire a new subscriber represents sales, marketing and
advertising costs, plus the costs of cellular phones Iusacell gives to its
contract customers, for the respective period (in nominal Pesos) divided by
the gross customer additions for such period.
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<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements included elsewhere in this prospectus.
Unless otherwise indicated, all financial information in this prospectus is
presented in constant Pesos as of September 30, 1999. The U.S. dollar
translations provided in this prospectus are, unless otherwise indicated,
calculated at the exchange rate at September 30, 1999 reported by the Federal
Reserve Bank of New York as its noon buying rate for Pesos, which was Ps.9.3520
per U.S.$1.00. Sums may not add due to rounding.
RECENT DEVELOPMENTS
On October 18, 1999 Bell Atlantic, one of our principal shareholders,
confirmed that it was engaged in discussions with a third party that involved a
possible combination or alliance of our business with one or more of the
Cellular A-Band properties in northern Mexico that we do not operate. On
November 19, 1999, Bell Atlantic publicly announced that these discussions had
been terminated.
GENERAL
The following discussion and analysis is intended to help you understand
and assess the significant changes and trends in the historical results of
operations and financial condition of Iusacell and its subsidiaries and factors
affecting Iusacell's financial resources. You should read this section in
conjunction with the Consolidated Financial Statements and their notes appearing
elsewhere in this prospectus.
The Consolidated Financial Statements have been prepared in accordance with
Mexican GAAP, which differs in significant respects from U.S. GAAP. Note 20 to
the Audited Consolidated Financial Statements provides a description of the
principal differences between Mexican GAAP and U.S. GAAP as they relate to
Iusacell. Note 20 to the Audited Consolidated Financial Statements also provides
a reconciliation to U.S. GAAP of Iusacell's net loss for the years ended
December 31, 1996, 1997 and 1998 and of stockholders' equity as of December 31,
1997 and 1998.
As a Mexican company, Iusacell maintains its financial records in Pesos.
Pursuant to Bulletin B-10, "Recognition of the Effects of Inflation on Financial
Information," and Bulletin B-12, "Statement of Changes in Financial Position,"
issued by the Mexican Institute of Public Accountants, Iusacell's financial
statements are reported in period-end Pesos to adjust for the interperiod
effects of inflation. The presentation of financial information in period-end,
or constant, currency units is intended to eliminate the distorting effect of
inflation on the financial statements and to permit comparisons across
comparable periods in comparable monetary units. Bulletin B-10 requires Iusacell
to restate non-monetary assets, non-monetary liabilities and the components of
stockholders' equity using the NCPI. The effects of these inflation accounting
principles have not been eliminated in the reconciliation to U.S. GAAP. See Note
20 to the Audited Consolidated Financial Statements.
Except where otherwise indicated, financial data for all periods in the
Consolidated Financial Statements and throughout this prospectus have been
restated in constant Pesos as of September 30, 1999, in accordance with the
fifth amendment to Bulletin B-10. References in this prospectus to "real"
amounts are to inflation-adjusted Pesos and references to "nominal" amounts are
to unadjusted historical Pesos. In calendar years 1996, 1997 and 1998 and in the
first nine months of 1999, the rates of inflation in Mexico, as measured by
changes in the NCPI, were 27.7%, 15.7%, 18.6% and 9.8%, respectively. The
inflation indices used are 1.5068 for 1996 figures, 1.3021 for 1997 figures,
1.1609 for September 1998 figures and 1.0978 for December 1998 figures. These
indices represent the estimates used by Iusacell when it prepared and released
to the public its third quarter 1999 financial statements.
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<PAGE> 38
In reporting under Mexican GAAP and in accordance with Bulletin B-10,
Iusacell is required to quantify all financial effects of operating and
financing the business under inflationary conditions. For presentation purposes,
"integral financing cost (gain)" refers to the combined financial effects of:
- net interest expense or interest income,
- net foreign exchange gains or losses, and
- net gains or losses on monetary position.
Net foreign exchange gains or losses reflect the impact of changes in
foreign exchange rates on monetary assets and liabilities denominated in
currencies other than Pesos. A foreign exchange loss arises if a liability is
denominated in a foreign currency which appreciates relative to the Peso between
the time the liability is incurred and the date it is repaid, as the
appreciation of the foreign currency results in an increase in the amount of
Pesos which must be exchanged to repay the specified amount of the foreign
currency liability. The gain or loss on monetary position refers to the gains
and losses realized from holding net monetary assets or liabilities and reflects
the impact of inflation on monetary assets and liabilities. For example, a gain
on monetary position results from holding net monetary liabilities in Pesos
during periods of inflation, as the purchasing power of the Peso declines over
time.
DEVALUATION AND INFLATION
On December 20, 1994, the Mexican government responded to exchange rate
pressures by increasing the upper limit of the then existing free market
Peso/U.S. dollar exchange rate band by 15% and, two days later, by eliminating
the band to allow the Peso to fluctuate freely against the U.S. dollar. This
resulted in a major devaluation of the Peso relative to the U.S. dollar. Where
the noon buying rate had been Ps.3.4662 to U.S.$1.00 on December 19, 1994, by
December 31, 1994 the noon buying rate had fallen to Ps.5.0000 to U.S.$1.00,
representing a 44.3% devaluation. The Peso continued to decline against the U.S.
dollar during 1995, closing at a noon buying rate of Ps.7.7400 to U.S.$1.00 on
December 31, 1995, which represented a 54.8% devaluation relative to the U.S.
dollar for the year.
The Mexican economy began to recover in 1996 and 1997, as exchange rates
stabilized, inflation decreased and gross domestic product grew by 5.1% and
7.0%, respectively. The noon buying rates were Ps.7.8810 to U.S.$1.00 and
Ps.8.0700 to U.S.$1.00 on December 31, 1996 and 1997, respectively. However, the
financial crises in the emerging markets that began in late 1997, together with
the weakness in the price of oil, which is a significant source of revenue for
the Mexican government, contributed to renewed weakness in the Peso. For the
first nine months of 1998, the Peso devalued 26.8% relative to the U.S. dollar
to Ps.10.1960 per U.S. dollar on September 30, 1998, but strengthened in the
fourth quarter of 1998 and continued to strengthen in the first nine months of
1999. For the twelve months of 1998, the Peso devalued 22.7% relative to the
U.S. dollar to Ps.9.9010 per U.S. dollar on December 31, 1998. On September 30,
1999, the noon buying rate was Ps.9.3520 per U.S. dollar.
Peso devaluations have contributed to sharp increases in inflation.
Inflation, which had been 7.1% in 1994, increased to 52.0% and 27.7% in 1995 and
1996, respectively. After a reduction to 15.7% in 1997, inflation was 18.6% for
the year 1998. In the first nine months of 1999, inflation was 9.8%, or
approximately 13.1% on an annualized basis.
In the past, these economic conditions have negatively affected Iusacell's
results of operating and financial condition and may do so in the future. See
"-- Other Material Trends and Contingencies -- Negative Economic Conditions."
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<PAGE> 39
IMPACT ON IUSACELL'S RESULTS OF OPERATIONS
The general economic conditions in Mexico resulting from the devaluation of
the Peso and the resulting inflation have had, and may have, an overall negative
impact on Iusacell's results of operations primarily as a result of the
following factors:
- Peso devaluations result in a significant decrease in the purchasing
power of Mexican consumers, resulting in a decrease in the demand for
cellular telephony.
- Due to competitive market conditions and the overall state of the Mexican
economy, Iusacell is not always able to increase its prices in line with
the significant inflation in the economy. It was not able to do so in
1995, 1996 and the period from the fourth quarter of 1997 through the
third quarter of 1998.
- The significant inflation experienced in 1995 led to an upward
restatement of Iusacell's assets and, therefore, resulted in a
substantial increase in depreciation and amortization expense, which had
an adverse impact on Iusacell's earnings for that year. In 1996, while
there was still significant inflation, depreciation and amortization
expense decreased as the result of a substantial reduction in capital
expenditures and the reduction in the Peso-carrying value of
dollar-acquired non-monetary assets as at the end of 1995 in accordance
with the rules of the Mexican Stock Exchange. Depreciation and
amortization also decreased in 1997 as capital expenditures did not
substantially increase until the second half of the year and as a result
of the reduction in the carrying value of dollar-acquired non-monetary
assets as at the end of 1996 in accordance with the rules of the Mexican
Stock Exchange as the rate of inflation exceeded that of devaluation.
Beginning in 1998, the restatement of the valuation of assets using a
foreign exchange rate is no longer permitted under Mexican GAAP.
- The significant devaluation of the Peso as compared to the U.S. dollar in
1995 resulted in the recording of a net foreign exchange loss given
Iusacell's net U.S. dollar liability position. In 1996, Iusacell recorded
a gain because of the appreciation of the Peso against the U.S. dollar
during a significant portion of the year. In 1997, Iusacell experienced a
minimal foreign exchange loss due to the relative stability of the Peso
throughout the year. During the first nine months of 1998 Iusacell,
recorded exchange losses because of the effect of the 26.8% devaluation
of the Peso in that period on its net U.S. dollar liability position.
Iusacell recorded exchange gains in the fourth quarter of 1998, although
these were insufficient to offset the cumulative exchange losses through
September 30, 1998. Iusacell recorded a substantial exchange gain in the
first nine months of 1999 as the Peso continued to strengthen.
- A portion of Iusacell's costs and expenses (e.g., some depreciation and
amortization and all interest expense) is denominated in, or indexed to,
U.S. dollars, while almost all of Iusacell's revenues are denominated in
Pesos. In a period of Peso devaluation, this relationship causes a
negative impact on Iusacell's margins.
IMPACT ON IUSACELL'S FINANCIAL CONDITION
The general economic conditions in Mexico resulting from the devaluation of
the Peso and the resulting inflation have had, and may have, an overall negative
impact on Iusacell's financial condition as a result of the following factors:
- Substantially all of Iusacell's indebtedness is denominated in U.S.
dollars. As a result, the Peso-carrying amount of such debt increases to
reflect the additional Pesos required to meet such foreign currency
liabilities.
- Prior to 1998, whenever the inflation rate exceeded the devaluation rate,
as was the case in 1996, the carrying value of Iusacell's assets
purchased in foreign currencies would be reduced. This was because,
assuming the foreign currency value of a given asset remained unchanged
between periods, the value of such asset for the prior period was
restated upwards using the inflation rate, while the
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<PAGE> 40
valuation of such asset for the current period was restated using a
foreign exchange rate which increased at a lower rate. Beginning in 1998,
the restatement of the valuation of assets using a foreign exchange rate
is no longer permitted under Mexican GAAP.
INCREASE IN PREPAY SUBSCRIBER BASE
In June 1996, Iusacell introduced its Control Plus prepay program in
response to economic conditions in Mexico and to a prepay cellular card program
offered by Telcel. In September 1997, Iusacell introduced in Region 9 its
next-generation, automated VIVA prepay program which had, by March 1999, almost
completely replaced Control Plus in all of Iusacell's cellular markets. In
October 1999, Iusacell introduced a "one single rate" plan for prepay customers.
One single rate prepay customers pay a single per minute rate for local,
national long distance and long distance service to the United States and
Canada.
The Control Plus and VIVA programs have been extremely popular, with prepay
customers increasing from an insignificant percentage of Iusacell's subscriber
base at June 30, 1996 (14,675 subscribers) to 31.7% at December 31, 1996 (73,762
subscribers), 50.0% at December 31, 1997 (200,159 subscribers), 63.3% at
December 31, 1998 (478,361 subscribers) and 69.7% at September 30, 1999 (789,539
subscribers). Prepay customers comprised 75.6%, 78.3% and 82.6% of Iusacell's
net subscriber additions in 1997, 1998 and the first nine months of 1999,
respectively. Iusacell expects that prepay customers will continue to comprise
the substantial majority of new subscriber additions. As a result, Iusacell
expects that the percentage of its customers who subscribe to cellular service
on a prepay basis will continue to increase.
The percentage of total service revenues derived from prepay customers was
3.7% in 1996, 14.1% in 1997, 17.3% in 1998 and 16.9% in the first nine months of
1999.
In 1996, Iusacell experienced a 23.8% reduction in the number of contract
customers, who generate higher average revenue per subscriber than do prepay
customers. Many of these contract customers migrated to Iusacell's prepay
program, resulting in lower revenues from these customers. In 1997, 1998 and the
first nine months of 1999, Iusacell experienced a 25.6%, 38.5% and 23.7%
increase in the aggregate number of contract customers, respectively, compared
to the beginning period number, with limited migration by contract customers to
prepay programs. Although the current rate of growth is expected to decline as
the product customer base grows, Iusacell anticipates further growth in the
number of contract subscribers, including both customers converting from analog
to digital service and new digital cellular customers. See "-- Digitalization."
Prepay customers, on average, have substantially lower minutes of use than
contract customers and do not pay monthly fees and, as a result, generate
substantially lower average monthly revenues per subscriber -- even though
prepay plans involve higher outgoing call per minute airtime charges than the
average contract plan. Consequently, as the percentage of prepay customers to
Iusacell's total subscribers continues to increase, Iusacell expects that
average minutes of use per customer and average monthly revenues per customer
will continue to decrease. Iusacell expects the decrease to moderate with the
implementation of the CPP modality. See "-- Other Material Trends and
Contingencies -- Regulatory Developments."
In November 1998, Iusacell extended the life of its VIVA prepay cards from
a maximum of 135 days to a maximum of 180 days to allow greater flexibility in
their use. In April 1999, in anticipation of the advent of the CPP modality and
for competitive reasons, Iusacell extended the life of its VIVA prepay cards to
a maximum of 365 days and, in October 1999, the life of VIVA prepay cards was
extended to 545 days. After the balance of a prepay card becomes zero, the VIVA
customer currently has 365 days to activate a new card before losing his phone
number. During this 365-day period, the VIVA customer will be an "incoming calls
only" customer, able to receive incoming local calls, but not able to make
outgoing calls. Iusacell is considering indefinitely extending the period of
time for some "incoming calls only" customers who have experienced significant
incoming call traffic. See "Business -- Cellular Services -- Prepay Customers."
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<PAGE> 41
Extending the life of VIVA prepay cards defers the turnover of prepay
customers. The November 1998 extension, by deferring prepay turnover for 45
additional days, contributed to the strong growth in subscriber net additions,
particularly prepay net additions, during the fourth quarter of 1998. Likewise,
the April 1999 and October 1999 extensions, by deferring prepay turnover,
reduced reported turnover in prepay and overall subscriber net additions in the
second and third quarters of 1999 and will also reduce reported turnover in the
fourth quarter of 1999 and the first quarter of 2000. Any further extension of
VIVA card life for "incoming calls only" customers will also reduce reported
turnover for prepay and overall subscriber net additions for the extension
period.
In late March 1999, Iusacell implemented marketing initiatives focused on
increasing usage by and revenues derived from prepay customers. These
initiatives included an approximate 6% price increase, the implementation of a
Ps.59 or Ps.79 activation fee for a customer activating a telephone number with
a Ps.250 or Ps.150 prepay card, the increase in the minimum denomination of the
prepay card with which a customer can activate prepay service from Ps.100 to
Ps.150, the adjustment of commissions to encourage distributors to activate
customers with prepay cards of higher denominations and the sending of
electronic reminders to customers to replenish their cards. Together with the
continuing efforts to increase the number of distribution points for prepay
cards in order to facilitate and encourage their replenishment, these
initiatives appear to have had their intended results. Iusacell has fewer, but
higher revenue generating new prepay customers. Prepay subscriber net additions
for the second quarter of 1999 were higher than those of the first quarter of
1999. However, prepay subscriber net additions for the second quarter of 1999
were substantially lower when adjusted for the effect of the April 1999
extension of life of the VIVA prepay cards. In the third quarter of 1999,
Iusacell implemented initiatives to reinvigorate its new prepay customer
activations. These initiatives resulted in higher prepay subscriber net
additions for the third quarter of 1999 than those of the first or second
quarter of 1999.
DIGITALIZATION
In December 1997, Iusacell entered into an agreement with subsidiaries of
Lucent Technologies, Inc. to swap out its existing analog network for a Lucent
analog network overlaid with a Lucent CDMA digital network. Because Iusacell
received a trade-in credit from Lucent for the book value of the swapped-out
network equipment, under Mexican GAAP and U.S. GAAP Iusacell will not be
required to write off the value of any of such swapped-out assets.
Digital and dual-mode (i.e., digital-analog) handsets are substantially
more expensive than analog handsets, although the prices for all types of
handsets have declined over time. As a result, Iusacell expects that the
subsidies it provides for handsets will be higher than they would have been had
Iusacell remained an exclusively analog service provider as Iusacell migrates a
portion of its analog customers to digital service and subscribes new digital
customers. These new digital customers will initially be almost all contract
subscribers, because Iusacell has only just begun to commercialize a digital
prepay service, which, due to more costly handsets, is significantly more
expensive to activate than analog prepaid service.
Iusacell believes that digitalization will increase subscriber usage.
Iusacell's experience has been that the average new digital customer uses his or
her cellular telephone more than the average analog customer and that analog
customers that migrate to digital service tend to increase their usage upon
migration.
Digital contract subscribers increased from 12,181 at September 30, 1998 to
163,171 at September 30, 1999. Iusacell intends to migrate substantially all
remaining analog contract customers to digital service by the end of 2000.
Iusacell's digital contract customers in the aggregate generate approximately
50% of its total cellular traffic.
The rapid growth in digital subscribers and traffic over the last twelve
months strained Iusacell's digital capacity and deteriorated Iusacell's digital
service quality in the third quarter of 1999. As a result, and in anticipation
of further digital migration, Iusacell decided to accelerate its capital
expenditure program to expand digital capacity and improve digital service
quality. See "-- Liquidity and Capital Resources -- Capital Expenditures."
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LOCAL TELEPHONY IN THE 450 MHZ FREQUENCY BAND
In November 1994, Iusacell sought government approval of its technical and
economic plans for the commercial launch of fixed local wireless service in the
450 MHz frequency band on a national level. The SCT never approved such plans.
In June 1997, however, the SCT and Iusacell reached agreement on a process by
which Iusacell could obtain one or more regional concessions to provide such
service. See "Business -- Other Services -- Local, Public and Rural Telephony."
The price for such concessions was to be derived from the prices of the winning
bids in the auctions for 450 MHz and 1.9 GHz (PCS) frequency bands, which
concluded in May 1998.
Based on the results of these auctions, Iusacell anticipates that it would
be required to pay approximately U.S.$2.25 million for concessions in Regions 4,
5, 6, 7 and 9, where it has a right of first refusal to acquire such
concessions. However, the exact price, payment terms and coverage/build-out
requirements relating to the concessions, which may be substantial, have not yet
been formally defined by the SCT and the Mexican Federal Telecommunications
Commission (Comision Federal de Telecomunicaciones), which is commonly referred
to as COFETEL. Consequently, Iusacell has not yet determined whether to proceed
with its 450 MHz fixed local wireless project. However, given the capabilities
of the CDMA technology that it is implementing, Iusacell is exploring
alternatives for providing local telephony services, including fixed or limited
zone wireless local telephony services in the 800 MHz frequency band in Regions
5, 6, 7 and 9 and in the 1.9 GHz PCS frequency band in Regions 1 and 4. Iusacell
expects to make its decision on the overall strategy for providing local
telephony services during the first quarter of 2000.
In September 1998, Iusacell determined that, because of many factors,
including the impact of changing technology since the initiation of the 450 MHz
fixed local wireless project in 1994, an impairment of its investment in 450 MHz
TDMA technology had occurred. As a result, Iusacell recorded a non-cash
writedown of 100% of the development and pre-operating expenses for the project
and 90% of the fixed assets deployed in the project. The writedown in 1998
amounted to Ps.1,077.5 million (U.S.$115.2 million). Iusacell also determined
that certain of the 450 MHz project assets, representing about 10% of their book
value, are redeployable in the mobile wireless network. See "-- Non-recurring
Charges -- Project 450 Non-Cash Writedown."
Iusacell was party to certain agreements regarding the supply and servicing
of infrastructure equipment and handsets for its 450 MHz local wireless service.
These agreements terminated in 1997, and there could be substantial costs
arising from the termination of these agreements in addition to the non-cash
losses described above. In addition, Iusacell could be required to write off
some or all of a U.S.$15.0 million advance made in 1994 to a vendor in respect
of network infrastructure that was never ordered to the extent such advance is
not refunded to Iusacell. Finally, Iusacell could be required to purchase
approximately U.S.$2.1 million in handsets that were ordered, manufactured and
delivered, but not yet paid for, and is involved in litigation with another
handset vendor in connection with a purported agreement to purchase 60,000
handsets that Iusacell never executed. See "Business -- Legal Proceedings."
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NON-RECURRING CHARGES
During the three year period ended December 31, 1998, Iusacell recorded
various non-recurring charges as summarized in the following table.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------- MEXICAN GAAP
1996 1997 1998 TREATMENT
---------- ------------ ------------ ---------------------
(IN THOUSANDS OF PESOS)
<S> <C> <C> <C> <C>
RESTRUCTURING CHARGES
Employee severance........... Ps.130,252 Ps. -- Ps. --
Fixed assets obsolescence
reserve................... 49,723 -- --
Provision for consolidation
of facilities............. 17,866 -- --
Change in estimate of
allowance for doubtful
accounts.................. 7,696 -- --
---------- ------------ ------------
Total restructuring
charges................. Ps.205,537 Ps. -- Ps. -- Extraordinary item
IMPAIRMENT OF ANALOG
COMMUNICATIONS EQUIPMENT..... -- 1,208,352 -- Non-operating expense
PROJECT 450 WRITEDOWN.......... -- -- 1,077,473 Operating expense
---------- ------------ ------------
TOTAL NON-RECURRING CHARGES.... Ps.205,537 Ps.1,208,352 Ps.1,077,473
========== ============ ============
</TABLE>
Under U.S. GAAP, all of the above non-recurring charges were recorded as
operating expenses during the respective periods, except that the restructuring
charge related to the provision for consolidation of facilities was not
considered an expense for U.S. GAAP purposes. The following is a description of
each of the non-recurring charges.
RESTRUCTURING CHARGES
In connection with the reorganization of Iusacell during 1996, Iusacell
raised an accrual for a restructuring charge of Ps.205.5 million (U.S.$22.0
million). This charge, because of its characteristics of being non-recurring and
unusual, was classified as an extraordinary item in the consolidated statement
of income under Mexican GAAP. The accrual for the restructuring charge was fully
utilized by December 31, 1997.
IMPAIRMENT OF ANALOG COMMUNICATIONS EQUIPMENT
During 1997, based on certain changes in circumstances surrounding
Iusacell's analog communications equipment, Iusacell determined that the
carrying value of such equipment was impaired. See "-- Year Ended December 31,
1998 Compared to Year Ended December 31, 1997 -- Provision for Equipment
Impairment." Consequently, Iusacell recorded an impairment loss of Ps.1,208.4
million (U.S.$129.2 million) to reduce the value of its analog communications
equipment to fair value, amounting to Ps.3,170.4 million (U.S.$339.0 million).
The book value of the analog communications equipment as of December 31, 1997
and 1998 and September 30, 1999 was Ps.3,170.4 million (U.S.$339.0 million),
Ps.3,554.3 million (U.S.$380.1 million) and Ps.0.0 million (U.S.$0.0 million),
respectively. The equipment no longer provides cellular service to Iusacell's
customers because of the conversion to Lucent equipment completed in August
1999.
PROJECT 450 NON-CASH WRITEDOWN
During 1998, Iusacell determined that, because of many factors, including
the impact of changing technology since the initiation of the 450 MHz project in
1994, an impairment of its investment in the project assets had occurred.
Consequently, Iusacell recorded an impairment charge of Ps.1,077.5 million
(U.S.$115.2 million) to write down the 450 MHz assets to fair value, amounting
to Ps.56.5 million (U.S.$6.0 million). Even though there was a limited market
for the 450 MHz network equipment,
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<PAGE> 44
Iusacell's operations group determined that certain of these assets,
representing about 10% of the related fixed assets, could be redeployed in the
mobile wireless network and such assets continue to be depreciated. A full
provision for impairment was recorded for all other assets associated with the
project. The book value of the 450 MHz project fixed assets as of December 31,
1998 and September 30, 1999 is Ps.44.6 million (U.S.$4.8 million) and Ps.40.1
million (U.S.$4.3 million), respectively. See "-- Local Telephony in the 450 MHz
Frequency Band."
YEAR 2000 COMPLIANCE
The Year 2000 problem relates to computers, software and other equipment
that include programming code in which calendar year data is abbreviated to only
two digits. As a result of this design decision, some of these systems could
fail to operate or fail to produce correct results if "00" is interpreted to
mean 1900, rather than 2000.
Iusacell completed all required modifications or replacements (including
modification or replacement of mission critical systems and internal network
elements) in accordance with its Year 2000 enterprise-wide compliance program by
the end of October 1999.
From the inception of the Year 2000 project through September 30, 1999,
Iusacell has incurred pretax expenses of approximately Ps.39.8 million (U.S.$4.3
million). Based on internal and external studies, Iusacell estimated that total
costs through early 2000 to resolve its Year 2000 problem would be as high as
U.S.$16.9 million: U.S.$9.2 million for inventory, assessment, initial planning
and the primary remediation and replacement program. Funding for Year 2000
activities came primarily from cash flow from operations.
Iusacell's transition to the Year 2000 was accomplished with no
interruption in service and with no billing problems. Iusacell did not
experience any failures in its mission critical systems. Four minor systems
failures were corrected within the first few days of 2000. No contingency plans
were deployed.
However, Iusacell's Year 2000 compliance program depends largely on third
party vendors and interconnecting carriers. Iusacell cannot provide any
assurance that all significant third parties implemented corrective measures
necessary on their part to prevent disruption of services or to ensure correct
billing and payments in the future. In the event that problems do arise as a
result of Year 2000 issues with third party vendors, Iusacell will, in most
cases, be able to implement contingency plans to minimize or eliminate potential
billing and service disruptions.
OTHER MATERIAL TRENDS AND CONTINGENCIES
Iusacell's financial condition and results of operations could also be
materially affected by the following events and developments:
NEGATIVE ECONOMIC CONDITIONS
The financial crises in emerging markets that began in late 1997, together
with the weakness through the first quarter of 1999 in the price of oil, which
is a significant source of revenue for the Mexican government, contributed to
renewed weakness in the Peso in the first three quarters of 1998, although the
Peso strengthened significantly in the fourth quarter of 1998 and the first nine
months of 1999. The Mexican government responded to revenue shortfalls from the
oil sector with new cutbacks in federal spending. Press reports during the
second and third quarters of 1998 also suggested that consumer spending, which
had been recovering, may have suffered a temporary setback.
Although the exact correlation between general government and consumer
spending and wireless telephony purchases and usage in Mexico is unknown, these
economic conditions may negatively affect subscriber growth rates and the
willingness of consumers to use their phones, thereby negatively affecting
revenues. In addition, the weakness in the Peso resulted in significant foreign
exchange losses for Iusacell in the first nine months of 1998. However, in the
fourth quarter of 1998 and the first nine months of 1999, Iusacell had
significant foreign exchange gains as the Peso strengthened against the U.S.
dollar.
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These economic conditions, which also contributed to an increase in
domestic interest rates in the second half of 1998 and an upward surge of
inflation in early 1999, may also negatively impact the availability and cost of
funds. See "Risk Factors -- Risk Factors Relating to Doing Business in Mexico --
If Mexico experiences any more political or economic crises, we may lose money."
PRICE INCREASES AND ROLLBACKS
Iusacell has attempted, and continues to attempt, to exercise price
leadership in the Mexican cellular market, with a strategy of having its prices
keep pace with inflation if economic and competitive conditions permit. During
the first half of 1997, this strategy was effectively implemented through
weighted average price increases of 14.8% in April 1997 for the per minute
airtime price on its contract and prepay plans, and 8.3% in May 1997 for the
fixed monthly charge on all its contract plans. See "Business --
Marketing -- Pricing." In October 1997, however, Iusacell initiated pricing
discounts of between 25% and 50% for the cost of incoming cellular calls, in
response to pricing actions by Telcel and as a means of boosting traffic volumes
and, ultimately, average revenue per subscriber. Moreover, in October 1997
Iusacell adjusted airtime prices downward by 4.6% on a weighted average basis
and in November 1997 further decreased airtime charges on one of its low-end
contract plans by 1.0%, in each case in order to maintain competitiveness.
In late March 1998, Iusacell raised airtime prices approximately 7.9% on
average for contract plans and 13.6% for prepay customers. Because of market and
competitive conditions, however, this increase was partially rolled back in
early May 1998 for both contract and prepay customers and, in late May 1998, the
remainder of the price increase for contract plans was reversed. As a result,
however, a 9.9% airtime price increase for prepay customers remained.
In August 1998, Iusacell filed with the COFETEL to register tariffs that
would increase analog contract plan airtime prices in Region 9 by approximately
3% on a weighted average basis. Competitive conditions caused this price
increase not to be implemented. However, in October 1998, Iusacell raised
airtime prices for its contract plans by approximately 8% on a weighted average
basis. In late March 1999, Iusacell raised airtime prices on its contract plans
by approximately 12% on a weighted average basis and approximately 6% for prepay
customers. These price increases remained in place as the competition followed
our lead.
Iusacell's revenues will be adversely affected to the extent that price
increases cannot keep pace with inflation.
NEW COMPETITION
As a direct result of the spectrum auctions organized by the COFETEL which
concluded in May 1998, Iusacell is now facing additional mobile wireless
competition operating in the 1.9 GHz (PCS) spectrum in its cellular territories
and, in 2000, expects to face additional local telephony competition operating
in the 3.4-3.7 GHz (Wireless Local Loop) spectrum. The specific consequences for
Iusacell of this new competition are difficult to predict. The experience of
other countries suggests that, although overall demand for wireless telephony
services will increase, prices will experience downward pressure, especially at
the time of market entry by the new competitors.
REGULATORY DEVELOPMENTS
The Mexican authorities resolved several critical regulatory issues in 1998
and will likely continue to resolve additional important regulatory issues
during the remainder of 1999 and 2000 which may have a material effect on
Iusacell's financial condition and results of operations.
Local Interconnection. On November 27, 1998, the COFETEL issued a
resolution which established the per minute interconnection rate for telephone
calls made from wireless customers to wireline customers at Ps.0.2573 per full
minute payable on a per second basis, which will be indexed on a monthly basis
for inflation as of October 1, 1998. In accordance with a September 1997
agreement with Telmex, this tariff
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was applied retroactively to June 1, 1997. Iusacell had been paying an
interconnection fee of Ps.0.31 per minute or fraction of a minute. As a result
of the retroactive application of this interconnection tariff, Iusacell received
a benefit of Ps.32.0 million (U.S.$3.4 million) in 1998.
The COFETEL declined to provide for any amount of reciprocity in the
interconnection fee payable by Telmex to wireless operators for interconnection
services that Iusacell provides Telmex for calls made by wireline customers to
mobile wireless customers. As a result, Iusacell booked a net Ps.31.9 million
(U.S.$3.4 million) revenue reduction for the fourth quarter of 1998 and, in
early January 1999, filed for an administrative reconsideration of the local
interconnection ruling seeking, among other things, full interconnection
reciprocity for calls made by wireless customers to wireline customers.
Calling Party Pays. On November 27, 1998, the COFETEL also ruled that the
calling party pays modality would be implemented by May 1, 1999 as an option for
the wireless customer. CPP is a cellular telephony payment scheme similar to the
existing wireline payment scheme, where the wireline or fixed wireless party
that places a call to a cellular telephone, and not the cellular subscriber
receiving the call, will be billed for interconnection access, and the recipient
will not be billed for the airtime charges corresponding to that call. The
COFETEL established the CPP interconnection tariff at Ps.1.80 per minute or
fraction of a minute, which was to be indexed on a monthly basis for inflation
as of October 1, 1998, for calls from Telmex wireline customers to mobile
wireless customers. CPP would only apply to local calls and the mobile party
pays modality would continue to apply to incoming long distance and incoming
calls to a roamer.
In early January 1999, Telmex filed an injunction which suspended
temporarily the scheduled implementation of CPP. This preliminary injunction was
set aside by the Mexican courts in February 1999. Telmex then filed for a review
of the order setting aside the preliminary injunction. This motion has not yet
been decided.
In early January 1999, Iusacell filed with COFETEL for an administrative
reconsideration of the CPP ruling, seeking, among other things:
- an increase in the CPP interconnection tariff to in excess of Ps.2.00 per
minute, and
- interconnection reciprocity for any and all incoming calls from wireline
telephones to subscribers maintaining the mobile party pays modality.
In April 1999, Telmex and the Cellular A-Band carriers completed
negotiating a new mobile wireless - Telmex local wireline interconnection
agreement with the approval of COFETEL. The calling party pays modality was
implemented on May 1, 1999. All mobile wireless customers were automatically
converted to CPP, with the right to revert to the mobile party pays modality.
The interconnection rate was frozen for six months at Ps.1.90 per minute or
fraction of a minute. Had the indexing established by the November 27, 1998
COFETEL resolution been applied, the rate for May 1999 would have been Ps.1.97
per minute or fraction of a minute. The price which Telmex may charge its
customers was frozen for six months at Ps.2.50 per minute or fraction of a
minute, plus Telmex's applicable per call local charge. This CPP interconnection
tariff and the Telmex surcharge were extended for another six-month period
through April 2000 at the same rates. Had the indexing established by the
November 27, 1998 COFETEL resolution been applied, the rate for November 1999
would have been Ps.2.17 per minute or fraction of a minute.
Telmex greeted the May 1, 1999 implementation of CPP with an advertising
campaign critical of the high costs to wireline customers, whom they urged to
block CPP calls. But after a moderate decline in traffic during the first two
weeks of May 1999, Iusacell experienced a gradual increase in traffic over the
last two weeks of May 1999, slightly exceeding pre-CPP traffic levels by the end
of the month. In the first five months of CPP operations, Iusacell believes that
its call traffic increased by more than 8% due to CPP, with an increase in the
percentage of total calls that were incoming calls. Recently, Telmex reversed
its opposition to CPP, publicly announcing support for CPP.
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The overwhelming majority of Iusacell's cellular customers have chosen not
to opt out of the CPP modality. Iusacell expects that the implementation of the
CPP modality will accelerate subscriber growth and increase subscriber usage
throughout the Mexican wireless market. Iusacell believes that, when other
countries have implemented CPP, they generally have experienced substantial
increases in usage by wireless telephone customers.
In the event that CPP causes a surge in cellular traffic, Iusacell will
likely experience improved revenue growth, but it may also need to incur
substantial additional capital expenditures to augment its capacity in order to
handle this greater traffic. See "-- Liquidity and Capital Resources -- Capital
Expenditures."
Long Distance Interconnection. In a separate resolution issued on November
27, 1998, the COFETEL also established the interconnection tariff between long
distance and local wireline carriers at Ps.0.2573 per full minute payable on a
per second basis, which will be indexed on a monthly basis for inflation as of
October 1, 1998. With respect to international long distance calls, the COFETEL
eliminated the requirement that a Mexican long distance company pay 58% of the
incoming international settlement rate to the local telephone carrier
terminating a call.
Long Distance Concession. In December 1997, the COFETEL authorized a
modification of Iusacell's concession to provide long distance services,
modifying coverage requirements and permitting the use of microwave and other
non-fiber technologies for transmission purposes. Together with fiber-swapping
agreements reached by Iusacell with two of its competitors, the modified
concession permits a more efficient, more technologically flexible long distance
network and eliminates more than U.S.$200 million in Iusacell capital
expenditure requirements over the next three years. In late 1999 or 2000, the
SCT and COFETEL may also determine how much, through what means and over how
much time long distance concessionaires, including Iusatel, will pay for the
special projects implemented by Telmex prior to January 1997 to permit
competition in long distance telephony, including the numbering and signaling
plans and expenditures to facilitate interconnection. In May 1997, the COFETEL
issued a ruling mandating that the total amount reimbursable to Telmex for such
special projects was U.S.$422 million. Several long distance concessionaires
objected to the ruling, and the COFETEL is reviewing its ruling in light of
these objections.
During the third quarter of 1998, Telmex and Alestra, S. de R.L., which is
commercially known as Alestra and in which AT&T is a shareholder, attempted to
reach a negotiated settlement of several issues related to long distance,
including the amount and reimbursement mechanism for such special projects. No
definitive agreement has been reached to date on such special projects and, if
such an agreement is reached, the impact on the financial condition and
operations of Iusacell cannot yet be estimated.
Quality Standards. In October 1999, Iusacell entered into an agreement
with the COFETEL to maintain certain cellular quality standards measured in
terms of connection time, dropped calls and ineffective attempts. Iusacell
currently meets these quality standards. Failure to maintain these quality
standards may result in refund obligations to subscribers and other governmental
sanctions. If Iusacell's call traffic grows at faster than expected levels,
Iusacell may need to further accelerate its capital expenditure program in order
to augment its capacity and thereby remain in compliance with the agreed quality
standards. See "-- Liquidity and Capital Resources -- Capital Expenditures."
43
<PAGE> 48
RESULTS OF OPERATIONS
The following table presents for the periods indicated the percentage
relationships which certain items bear to revenues:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------- --------------------
1996 1997 1998 1998 1999
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Cellular service revenues...................... 70.2% 74.1% 74.6% 73.2% 83.3%
Other service revenues......................... 15.9 8.8 12.1 12.6 7.0
----- ----- ----- ----- -----
Total service revenues...................... 86.1 82.9 86.7 85.8 90.3
Telephone equipment and other revenues......... 13.9 17.1 13.3 14.2 9.7
----- ----- ----- ----- -----
Total revenues.............................. 100.0 100.0 100.0 100.0 100.0
Cost of sales:
Cost of services............................... 31.6 27.6 27.1 26.0 26.8
Cost of telephone equipment and other.......... 7.7 10.8 7.1 7.7 5.6
----- ----- ----- ----- -----
Total....................................... 39.3 38.4 34.2 33.7 32.4
Gross profit..................................... 60.7 61.5 65.8 66.3 67.6
Operating expenses............................... 43.8 40.0 38.2 38.9 33.1
Depreciation & amortization...................... 35.6 31.3 28.1 27.0 33.3
Project 450 non-cash writedown................... -- -- 34.8 43.3 --
----- ----- ----- ----- -----
Operating income (loss).......................... (18.7) (9.8) (35.3) (42.9) 1.2
Other income, net................................ -- -- 4.7 -- --
Integral financing cost (gain):
Interest expense, net.......................... 16.5 13.3 7.9 8.7 5.6
Foreign exchange (gain) loss, net.............. (3.7) 2.6 29.6 44.4 (11.2)
Gain on net monetary position.................. (20.5) (15.7) (24.0) (19.0) (17.9)
----- ----- ----- ----- -----
Total....................................... (7.7) 0.2 13.5 34.1 (23.5)
Equity participation in net income (loss) of
associated companies........................... 0.1 8.5 0.9 0.9 0.1
Provision for equipment impairment............... -- (49.9) -- -- --
Income (loss) from continuing operations before
asset tax, employee profit sharing, minority
interest and extraordinary item................ (10.9) (51.4) (43.2) (76.1) 24.8
Provision for asset tax and employee profit
sharing........................................ 2.1 2.4 2.3 1.7 3.8
Minority interest................................ (0.2) -- (0.2) 0.1 0.4
Extraordinary item............................... 8.5 -- -- -- --
Loss from discontinued operation................. -- -- (0.7) -- --
----- ----- ----- ----- -----
Net income (loss)................................ (21.3)% (53.8)% (46.0)% (77.7)% 21.4%
----- ----- ----- ------ -----
----- ----- ----- ------ -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES
Total revenues consist of cellular service revenues, revenues from other
services and telephone equipment and other revenues. Iusacell's service revenues
are principally derived from the provision of cellular telephone service in
Mexico. Other service revenues consist of revenues from the provision of
telecommunication services in Mexico other than cellular. Telephone equipment
and other revenues consist primarily of revenues from sales of cellular
telephone equipment and accessories, as well as revenues attributable to
out-roaming. Revenues attributable to out-roaming are passed through to the
applicable host operator. See "Business -- Cellular Services -- Roaming."
44
<PAGE> 49
The following table presents the source of Iusacell's revenues for the nine
months ended September 30, 1999 ("Interim 1999") and the nine months ended
September 30, 1998 ("Interim 1998").
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
1998 1999 CHANGE
---------------- ---------------- ------
PS. % PS. % %
------- ----- ------- ----- ------
(IN MILLIONS OF PESOS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Cellular service revenues....................... 1,668.3 73.3 2,422.9 83.3 45.2
Other service revenues.......................... 286.1 12.6 203.2 7.0 (29.0)
------- ----- ------- ----- -----
Total service revenues........................ 1,954.4 85.9 2,626.1 90.3 34.4
Telephone equipment and other revenues.......... 323.0 14.1 282.4 9.7 (12.6)
------- ----- ------- ----- -----
Total revenues................................ 2,277.4 100.0 2,908.5 100.0 27.7
======= ===== ======= ===== =====
</TABLE>
Cellular Services. The table below presents cellular service revenues by
source for Interim 1999 and Interim 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
1998(1) 1999(1)
-------------------- --------------------
PS. % PS. %
--------- ------- --------- -------
(IN MILLIONS OF PESOS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Airtime(2)............................................... 628.4 37.7 916.6 37.7
Monthly fees............................................. 793.4 47.6 1,004.4 41.5
Long distance............................................ 121.9 7.3 295.8 12.2
Value-added services(3).................................. 70.8 4.2 152.5 6.3
In-roaming(4)............................................ 46.9 2.8 52.3 2.2
Activation fees and other................................ 6.9 0.4 1.3 0.1
------- ----- ------- -----
Total cellular service revenues.......................... 1,668.3 100.0 2,422.9 100.0
======= ===== ======= =====
</TABLE>
- - ---------------
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, local telephony or data transmission services
or from long distance services unrelated to cellular service.
(2) Airtime includes amounts billed to other carriers for incoming minutes under
CPP starting May 1, 1999. Incoming and outgoing airtime is charged on a
per-minute basis for both peak (Monday to Friday, 8:00 a.m. to 10:00 p.m.)
and non-peak airtime.
(3) Includes fees for value-added services, such as call waiting, call transfer,
emergency service, secretarial service and conference calling, and revenues
from activation bonds, insurance-related charges payable by subscribers,
rural and public telephony and Iusacell's cellular magazine. Does not
include charges for related airtime. Customers using value-added services
such as news, weather, sports and entertainment reports are charged only for
airtime. These revenues are therefore included in airtime.
(4) See "Business -- Cellular Service -- Roaming" for a discussion of the
differences between in-roaming and out-roaming and the revenues associated
with these services. In-roaming revenues are reflected in total service
revenues and are paid to Iusacell by operators from other regions.
Out-roaming revenues are reflected in telephone equipment and other revenues
and are passed through to the applicable host operator.
Cellular service revenues increased by 45.2% to Ps.2,422.9 million
(U.S.$259.1 million) in Interim 1999 from Ps.1,668.3 million (U.S.$178.4
million) in Interim 1998 and represented 83.3% and 73.3% of total revenues in
Interim 1999 and Interim 1998, respectively. Revenues increased primarily as a
result of growth in the subscriber base and price increases. The number of
contract subscribers increased 33.8% and the number of prepay subscribers
increased 112.4% at September 30, 1999 as compared to September 30, 1998. See
"-- Increase in Prepay Subscriber Base." The benefit of the increase in
subscriber base was
45
<PAGE> 50
offset in part by a 13.5% decrease in average monthly MOUs and a 8.6% decrease
in nominal average monthly cellular revenue per subscriber in Interim 1999 as
compared to Interim 1998.
Monthly fees from contract customers increased 26.6% to Ps.1,004.4 million
(U.S.$107.4 million) in Interim 1999 from Ps.793.4 million (U.S.$84.8 million)
in Interim 1998 because of the increase in contract subscribers and the 12%
price increase at the end of the first quarter of 1999. Airtime revenues also
increased 45.9% to Ps.916.6 million (U.S.$98.0 million) in Interim 1999 from
Ps.628.4 million (U.S.$67.2 million) in Interim 1998 because of higher usage
resulting from the increase in the subscriber base, accelerated migration by
analog customers to digital service and the addition of revenues from CPP
starting May 1, 1999. Long distance cellular revenues increased 142.7% to
Ps.295.8 million (U.S.$31.6 million) in Interim 1999 from Ps.121.9 million
(U.S.$13.0 million) in Interim 1998 mainly because of additional business
customers and an increase in usage by such customers and additional revenues
from international incoming traffic. See "-- Digitalization."
Average monthly MOUs for Interim 1999 (excluding incoming calls only prepay
customers) were 77, a decrease of 13.5% compared to the monthly average of 89
MOUs in Interim 1998. This decline in MOUs was largely due to the significant
increase in the number of Iusacell's prepay customers, who generate
substantially lower average MOUs than contract customers. In addition, Iusacell
has experienced a general trend toward lower MOUs as Iusacell's expanded
customer base now includes subscribers who tend to generate fewer MOUs.
Nominal average monthly cellular revenue per subscriber declined 8.6% to
Ps.339 in Interim 1999 (excluding incoming calls only prepay customers) from
Ps.371 in Interim 1998. The reasons for this decline are primarily the same as
those noted to explain the decline of monthly MOUs.
Iusacell had 1,132,205 and 627,856 cellular subscribers at September 30,
1999 and 1998, respectively. Prepay subscribers increased by 112.4% from 371,781
subscribers, or 59.2% of total subscribers, at September 30, 1998 to 789,539
subscribers, or 69.7% of total subscribers, at September 30, 1999. A prepay
customer is included as a customer if, at the end of the period, such customer's
telephone number remains activated. See "Business -- Cellular Services -- Prepay
Customers." Contract subscribers increased by 33.8% from 256,075 to 342,666
between the same dates. Digital contract subscribers increased from 12,181 at
September 30, 1998 to 163,171 at September 30, 1999.
Contract subscriber churn declined to an average monthly level of 2.44% for
Interim 1999 from 2.58% for Interim 1998. This decline reflects improved
customer service and the implementation of special programs specifically
designed to enhance customer retention and loyalty.
Other Services. Other service revenues decreased by 29.0% to Ps.203.2
million (U.S.$21.7 million) in Interim 1999 from Ps.286.1 million (U.S.$30.6
million) in Interim 1998, and represented 7.0% and 12.6% of total revenues in
Interim 1999 and Interim 1998, respectively. This decrease was principally due
to lower sales of non-cellular products and services.
Telephone Equipment and Other. Telephone equipment and other revenues
decreased 12.6% to Ps.282.4 million (U.S.$30.2 million) in Interim 1999 from
Ps.323.0 million (U.S.$34.5 million) in Interim 1998. This decrease was
primarily due to lower out-roaming revenues and lower telephone equipment
revenues as fewer handsets were sold to prepay customers.
COST OF SALES
Iusacell's cost of sales includes cost of services, cost of telephone
equipment and other costs. Total cost of sales increased 22.9% to Ps.941.8
million (U.S.$100.7 million) in Interim 1999 from Ps.766.2 million (U.S.$81.9
million) in Interim 1998. As a percentage of total revenues, cost of sales
decreased marginally to 32.4% in Interim 1999 from 33.7% in Interim 1998.
Cost of Services. Cost of services includes taxes and fees on revenues
payable to the Mexican government, interconnection costs, technical costs such
as maintenance, repair costs, lease expenses, salaries and electricity, expensed
handset costs and accessories costs. Cost of services increased 31.7% to
46
<PAGE> 51
Ps.778.7 million (U.S.$83.3 million) in Interim 1999 from Ps.591.2 million
(U.S.$63.2 million) in Interim 1998. This increase was mainly due to the
increase in revenues and additional fixed costs for leased circuits. As a
percentage of service revenues, cost of services increased from 26.0% for
Interim 1998 to 26.8% for Interim 1999 primarily because of the additional fixed
costs for leased circuits.
Cost of Telephone Equipment and Other. Cost of telephone equipment and
other costs decreased by 6.8% to Ps.163.1 million (U.S.$17.4 million) in Interim
1999 from Ps.175.0 million (U.S.$18.7 million) in Interim 1998 primarily due to
a lower average cost of handsets. As a percentage of telephone equipment and
other revenues, costs decreased to 5.6% in Interim 1999 from 7.7% in Interim
1998. The cost of a cellular handset given to a contract customer is amortized
over 18 months, the average length of Iusacell's cellular contract, instead of
being expensed in the period in which the customer received the telephone. If
these handset costs had been expensed instead of amortized, Iusacell's cost of
telephone equipment and other costs would have increased by Ps.82.4 million
(U.S.$8.8 million) and Ps.238.1 million (U.S.$25.5 million) in Interim 1999 and
Interim 1998, respectively.
OPERATING EXPENSES
Operating expenses increased 8.7% to Ps.963.4 million (U.S.$103.0 million),
which included a reduction of approximately Ps.59.7 million (U.S.$6.4 million)
in marketing expenses related to the funds provided in connection with the
swapout of the analog telecommunications network, in Interim 1999 from Ps.886.4
million (U.S.$94.8 million) in Interim 1998. As a percentage of total revenues,
operating expenses decreased to 33.1% in Interim 1999 from 38.9% in Interim
1998. Sales and advertising expenses increased by 6.2% from Ps.584.6 million
(U.S.$62.5 million) in Interim 1998 to Ps.621.1 million (U.S.$66.4 million) in
Interim 1999, primarily because of higher sales volume, larger distributor
commissions and more extensive advertising. General and administrative expenses
increased by 13.4% to Ps.342.3 million (U.S.$36.6 million) in Interim 1999 from
Ps.301.8 million (U.S.$32.3 million) in Interim 1998 because of increased
consulting fees for Year 2000 related compliance programs and higher fees
related to legal matters.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses decreased by 39.6% to Ps.967.4
million (U.S.$103.4 million) in Interim 1999 from Ps.1,602.0 million (U.S.$171.3
million) in Interim 1998. Excluding the Project 450 non-cash writedown,
depreciation and amortization in Interim 1998 would have been Ps.615.6 million
(U.S.$65.8 million). Consequently, on a normalized basis, depreciation and
amortization expenses increased 27.7% in Interim 1999 from Interim 1998,
primarily due to the substantial increases in network investment as a result of
capital expenditures in 1998 and 1999.
OPERATING INCOME
Iusacell recorded operating income of Ps.35.9 million (U.S.$3.8 million),
including the Ps.59.7 million (U.S.$6.4 million) marketing expense benefit from
the swapout of assets noted above, in Interim 1999 as compared to an operating
loss of Ps.977.2 million (U.S.$104.5 million) in Interim 1998.
The operating loss during Interim 1998 was primarily due to Iusacell's 450
project writedown. Excluding the Project 450 writedown, Iusacell would have had
operating income of Ps.9.2 million (U.S.$1.0 million).
INTEGRAL FINANCING GAIN
Iusacell recorded an integral financing gain of Ps.682.1 million (U.S.$72.9
million) in Interim 1999 compared to a cost of Ps.776.9 million (U.S.$83.1
million) in Interim 1998. This difference was principally due to a foreign
exchange gain of Ps.325.3 million (U.S.$34.8 million) in Interim 1999 as
compared to a foreign exchange loss of Ps.1,011.3 million (U.S.$108.1 million)
in Interim 1998. The Interim 1999 foreign exchange gain resulted from the effect
on Iusacell's U.S. dollar liability position of a 5.9% appreciation of the Peso
relative to the U.S. dollar in Interim 1999, while the foreign exchange loss
47
<PAGE> 52
in Interim 1998 resulted from the effect on Iusacell's U.S. dollar liability
position of a 25.3% devaluation of the Peso relative to the U.S. dollar in
Interim 1998. Monetary gain increased by 20.1% to Ps.519.6 million (U.S.$55.6
million) in Interim 1999 from Ps.432.5 million (U.S.$46.2 million) in Interim
1998 primarily due to a higher net monetary liability position and
period-over-period inflation of 16.1%. Net interest expense decreased by 17.8%
from Ps.198.1 million (U.S.$21.2 million) in Interim 1998 to Ps.162.8 million
(U.S.$17.4 million) in Interim 1999 primarily due to increased capitalized
interest related to the investment in CDMA digital equipment during Interim
1999.
NET INCOME
As a result of the factors described above and Iusacell's equity
participation in the net income of its associated companies, Iusacell's net
income was Ps.619.3 million (U.S.$66.2 million) in Interim 1999 as compared to a
net loss of Ps.1,768.7 million (U.S.$189.1 million) in Interim 1998. Excluding
the Project 450 writedown, Iusacell would have had a net loss of Ps.782.4
million (U.S.$83.7 million) in interim 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
The following table presents the source of Iusacell's revenues for the
years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998
-------------------- -------------------- %
PS. % PS. % CHANGE
--------- ------- --------- ------- ------
(IN MILLIONS OF PESOS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Cellular service revenues....................... 1,795.3 74.1 2,313.7 74.6 28.9
Other service revenues.......................... 213.9 8.8 375.0 12.1 75.3
------- ----- ------- ----- ----
Total service revenues........................ 2,009.2 82.9 2,688.7 86.7 33.8
Telephone equipment and other revenues.......... 413.3 17.1 412.0 13.3 (0.3)
------- ----- ------- ----- ----
Total revenues................................ 2,422.5 100.0 3,100.7 100.0 28.0
======= ===== ======= ===== ====
</TABLE>
Cellular Services. The table below presents cellular service revenues by
source for the years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997(1) 1998(1)
-------------------- --------------------
PS. % PS. %
--------- ------- --------- -------
(IN MILLIONS OF PESOS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Airtime(2)............................................... 672.0 37.4 830.0 35.9
Monthly fees............................................. 800.5 44.6 1,055.0 45.6
Long distance............................................ 158.7 8.8 193.8 8.4
Value-added services(3).................................. 93.1 5.2 165.4 7.1
In-roaming(4)............................................ 69.4 3.9 61.9 2.7
Activation fees and other................................ 1.6 0.1 7.6 0.3
------- ----- ------- -----
Total cellular service revenues................ 1,795.3 100.0 2,313.7 100.0
======= ===== ======= =====
</TABLE>
- - ---------------
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, local telephony or data transmission services
or from long distance services unrelated to cellular service.
(2) Incoming and outgoing airtime is charged on a per-minute basis for both peak
(Monday to Friday, 8:00 a.m. to 10:00 p.m.) and non-peak airtime.
48
<PAGE> 53
(3) Includes fees for value-added services, such as call waiting, call transfer,
emergency service, secretarial service and conference calling, and revenues
from activation bonds, insurance-related charges payable by subscribers,
rural and public telephony and Iusacell's cellular magazine. Does not
include charges for related airtime. Customers using value-added services
such as news, weather, sports and entertainment reports are charged only for
airtime. These revenues are therefore included in airtime.
(4) See "Business -- Cellular Services -- Roaming" for a discussion of the
differences between in-roaming and out-roaming and the revenues associated
with these services. In-roaming revenues are reflected in total service
revenues and are paid to Iusacell by operators from other regions. Out-
roaming revenues are reflected in telephone equipment and other revenues and
are passed through to the applicable host operator.
Cellular service revenues increased by 28.9% to Ps.2,313.7 million
(U.S.$247.4 million) in 1998 from Ps.1,795.3 million (U.S.$192.0 million) in
1997 and represented 74.6% and 74.1% of total revenues in 1998 and 1997,
respectively. Revenues increased primarily as a result of a larger subscriber
base. The number of contract subscribers increased 38.5% and the number of
prepay subscribers increased 139.0% at December 31, 1998 as compared to December
31, 1997. The benefit of the increase in subscriber base was offset in part by a
17.1% decrease in average monthly MOUs and a 22.2% decrease in nominal average
monthly cellular revenue per subscriber in 1998 as compared to 1997.
Monthly fees from contract customers increased 31.8% to Ps.1,055.0 million
(U.S.$112.8 million) in 1998 from Ps.800.5 million (U.S.$85.6 million) in 1997
because of the increase in contract subscribers. Airtime revenues also increased
23.5% to Ps.830.0 million (U.S.$88.8 million) in 1998 from Ps.672.0 million
(U.S.$71.9 million) in 1997 mainly because of higher usage resulting from the
increase in the subscriber base. Long distance cellular revenues increased 22.1%
to Ps.193.8 million (U.S.$20.7 million) in 1998 from Ps.158.7 million (U.S.$17.0
million) in 1997 mainly because of additional high volume customers and an
increase in usage by all customers.
Average monthly MOUs for 1998 were 87, a decrease of 17.1% compared to the
monthly average of 105 MOUs in 1997. This decline in MOUs was largely due to the
significant increase in the number of Iusacell's prepay customers, who generate
substantially lower average MOUs than contract customers. In addition, Iusacell
has experienced a trend toward lower MOUs as Iusacell's expanded customer base
now includes subscribers who tend to generate fewer MOUs.
Nominal average monthly cellular revenue per subscriber declined 22.2% to
Ps.361 in 1998 from Ps.464 in 1997. This decline was primarily due to the same
reasons noted to explain the decline of monthly MOUs, and to a shift in usage
mix towards discounted incoming calls (discounts were implemented in October
1997). See "-- Other Material Trends and Contingencies -- Price Increases and
Rollbacks."
Iusacell had 755,375 and 400,123 cellular subscribers at December 31, 1998
and 1997, respectively. Prepay subscribers increased by 139.0% from 200,159
subscribers, or 50.0% of total subscribers, at December 31, 1997 to 478,361
subscribers, or 63.3% of total subscribers, at December 31, 1998. See "Business
- - -- Cellular Services -- Prepay Customers." Contract subscribers increased by
38.5% from 199,964 to 277,014 between the same dates.
Contract subscriber churn declined to an average monthly level of 2.58% for
1998 from 2.94% for 1997. This decline reflects improved customer service and
the implementation of special programs specifically designed to enhance customer
retention and loyalty.
Other Services. Other service revenues increased by 75.3% to Ps.375.0
million (U.S.$40.1 million) in 1998 from Ps.213.9 million (U.S.$22.9 million) in
1997, and represented 12.1% and 8.8% of total revenues in 1998 and 1997,
respectively. This increase was principally due to higher sales of non-cellular
products and services.
Telephone Equipment and Other. Telephone equipment and other revenues
decreased 0.3% to Ps.412.0 million (U.S.$44.1 million) in 1998 from Ps.413.3
million (U.S.$44.2 million) in 1997. This decrease was primarily due to lower
out-roaming revenues.
49
<PAGE> 54
COST OF SALES
Total cost of sales increased 13.9% to Ps.1,061.8 million (U.S.$113.5
million) in 1998 from Ps.931.9 million (U.S.$99.6 million) in 1997. As a
percentage of total revenues, cost of sales decreased to 34.2% in 1998 from
38.4% in 1997.
Cost of Services. Cost of services increased 25.6% to Ps.841.4 million
(U.S.$90.0 million) in 1998 from Ps.669.6 million (U.S.$71.6 million) in 1997.
This increase was mainly due to the 22.3% increase in cellular service revenues
(which resulted in higher overall (i) taxes and fees payable to the Mexican
government and (ii) Telmex interconnection fees), offset in part by a 21.9%
decrease in long-distance interconnection costs resulting from a greater use of
Iusacell's own expanded network. As a percentage of service revenues, cost of
services decreased from 33.3% for 1997 to 31.3% for 1998 mainly because of cost
improvement actions and a retroactive reduction in Telmex interconnection fees.
See "-- Other Material Trends and Contingencies -- Regulatory Developments."
Cost of Telephone Equipment and Other. Cost of telephone equipment and
other costs decreased by 16.0% to Ps.220.4 million (U.S.$23.6 million) in 1998
from Ps.262.3 million (U.S.$28.0 million) in 1997 primarily due to a lower cost
of handsets. As a percentage of telephone equipment and other revenues, costs
decreased to 53.5% in 1998 from 63.5% in 1997. The cost of a cellular handset
given to a contract customer is amortized over 18 months, the average length of
Iusacell's cellular contract, instead of being expensed in the period in which
the customer received the telephone. If the handset costs had been expensed
instead of amortized, Iusacell's cost of telephone equipment and other costs
would have increased by Ps.273.1 million (U.S.$29.2 million) and Ps.205.3
million (U.S.$22.0 million) in 1998 and 1997, respectively.
OPERATING EXPENSES
Operating expenses increased 22.2% to Ps.1,183.2 million (U.S.$126.5
million) in 1998 from Ps.968.5 million (U.S.$103.6 million) in 1997. As a
percentage of total revenues, operating expenses decreased to 38.2% in 1998 from
40.0% in 1997. Sales and advertising expenses increased by 34.2% from Ps.603.9
million (U.S.$64.6 million) in 1997 to Ps.810.7 million (U.S.$86.7 million) in
1998, primarily because of increased competition for customer growth and the
launch of Iusacell's digital services. General and administrative expenses
increased 2.1% to Ps.372.5 million (U.S.$39.8 million) in 1998 from Ps.364.6
million (U.S.$39.0 million) in 1997, primarily due to higher salaries and
benefits and general operating costs. In accordance with Mexican GAAP, until
September 1998, certain pre-operating expenses, primarily related to Project
450, were capitalized rather than expensed as under U.S. GAAP. In September
1998, under Mexican GAAP, Iusacell wrote off all capitalized pre-operating
expenses accumulated as of that date as a charge against current operations. See
"-- Depreciation and Amortization."
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses, including the project 450 non-cash
writedown, increased by 157.4% to Ps.1,950.1 million (U.S.$208.5 million) in
1998 from Ps.757.7 million (U.S.$81.0 million) in 1997. This significant
increase was primarily due to the Ps.1,077.5 million (U.S.$115.2 million)
non-cash writedown of the carrying value of Iusacell's investment in its 450 MHz
fixed wireless project. See "-- Local Telephony in the 450 MHz Frequency Band."
OPERATING LOSS
Iusacell recorded an operating loss of Ps.1,094.4 million (U.S.$117.0
million) in 1998 as compared to an operating loss of Ps.235.5 million (U.S.$25.2
million) in 1997. Excluding the non-cash writedown for the 450 MHz project, the
1998 operating loss would have been Ps.17.0 million (U.S.$1.8 million).
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<PAGE> 55
OTHER INCOME
Other income of Ps.145.7 million (U.S.$15.6 million) in 1998 primarily
represents a gain from the Mexican GAAP accounting of a fiber optic cable
agreement with Bestel, S.A. de C.V. See "-- U.S. GAAP Reconciliation -- Gain
from the exchange of non-monetary assets."
INTEGRAL FINANCING COST
Integral financing cost was Ps.418.1 million (U.S.$44.7 million) in 1998
compared to a cost of Ps.5.1 million (U.S.$0.5 million) in 1997 due principally
to a foreign exchange loss of Ps.918.2 million (U.S.$98.2 million) in 1998 as
compared to a foreign exchange loss of Ps.63.1 million (U.S.$6.7 million) in
1997, resulting from the effect of a higher Peso devaluation and U.S. dollar net
liability position in 1998 as compared with 1997. Net interest expense decreased
by 24.1% to Ps.245.2 million (U.S.$26.2 million) in 1998 from Ps.323.2 million
(U.S.$34.6 million) in 1997 because of the capitalization of interest related to
investments in fixed assets in the amount of Ps.135.8 million (U.S.$14.5
million). Monetary gain increased by 95.6% to Ps.745.3 million (U.S.$79.7
million) in 1998 from Ps.381.2 million (U.S.$40.8 million) in 1997 primarily due
to a higher net monetary liability position and period-over-period inflation of
18.6%.
PROVISION FOR EQUIPMENT IMPAIRMENT
In 1997, Iusacell recorded a provision of Ps.1,208.4 million (U.S.$129.2
million) under Mexican GAAP as a charge to income to reduce the value of its
communications network to fair value. See Notes 20 and 22 to the Audited
Consolidated Financial Statements.
For U.S. GAAP purposes, the Ps.1,208.4 million impairment provision was
determined in accordance with the Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-lived Assets and Assets to be
Disposed of" ("SFAS 121"). During the year ended December 31, 1997, changes in
circumstances indicated that the carrying amount of Iusacell's analog
telecommunications network might not be recoverable. These circumstances
included:
- Customer and marketing requirements for better voice quality, more and
improved value-added services and reduction of wireless fraud, all of
which were more viable with a digital platform. These requirements
accelerated the adoption of digital technology in the Mexican wireless
market.
- The view of Bell Atlantic, which assumed management control of Iusacell
in February 1997, that Iusacell would need to adopt digital technology in
order to remain competitive and that CDMA was the best technology
available to Iusacell.
- The plans developed in 1997 by Telmex, the incumbent carrier, and other
wireless carriers to launch digital technology in Mexico in 1998.
- Iusacell's decision to participate in the digital personal communications
services auctions that were announced in November 1997. Effectively, the
auctions were contributing to the growing market pressures for a wireless
service change from analog to digital technology throughout Mexico.
- An increase in Iusacell's subscriber base during 1997, such that the
analog network was operating at close to full capacity by November 1997.
The CDMA digital network has the potential to increase capacity by six to
ten times compared with an analog network with comparable equipment.
In view of these changes in circumstances, Iusacell estimated the future
cash flows, undiscounted and without interest, of the analog equipment based on
its remaining life and considering the eventual disposition of the equipment
under the terms of a December 1997 agreement with Lucent to replace such
equipment. At the time of that assessment, the sum of the undiscounted future
cash flows was less than the book value of the analog equipment.
Having determined that the analog equipment had been impaired, Iusacell
then used the measurement criteria in SFAS 121 to determine the amount of the
impairment. Because the analog
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<PAGE> 56
network is Iusacell's principal fixed asset and integral to its operations,
Iusacell believes that the asset does not qualify as an asset to be disposed of
in accordance with SFAS 121, but rather an asset to be held and used.
Consequently, for U.S. GAAP purposes, Iusacell reduced the value of its
investment in the analog network to its fair value and recorded such write-down
as a charge to operating expenses. Fair value was determined based on an
independent appraisal. Furthermore, such fair value approximates the amount of
the trade-in credits to be granted pursuant to the agreement with Lucent. See
"-- Digitalization" and Note 20 to the Audited Consolidated Financial
Statements.
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations of Ps.20.2 million (U.S.$2.2 million) in
1998 represents the loss recognized as a result of Iusacell's discontinuation of
its Cellular Solutions de Mexico operation. See Note 19 to the Audited
Consolidated Financial Statements.
NET LOSS
As a result of the factors described above, Iusacell's net loss was
Ps.1,424.1 million (U.S.$152.3 million) in 1998 as compared to a net loss of
Ps.1,302.4 million (U.S.$139.3 million) in 1997. Excluding the non-cash
writedown for the 450 MHz project, Iusacell's net loss for 1998 would have been
Ps.346.6 million (U.S.$37.1 million).
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
The following table presents the source of Iusacell's revenues for the
years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997
---------------- ---------------- %
PS. % PS. % CHANGE
------- ----- ------- ----- ------
(IN MILLIONS OF PESOS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Cellular service revenues....................... 1,690.9 70.2 1,795.3 74.1 6.2
Other service revenues(1)....................... 381.7 15.9 213.9 8.8 (43.9)
------- ----- ------- ----- -----
Total service revenues........................ 2,072.6 86.1 2,009.2 82.9 (3.0)
Telephone equipment and other revenues........ 334.2 13.9 413.3 17.1 23.6
------- ----- ------- ----- -----
Total revenues............................. 2,406.8 100.0 2,422.5 100.0 0.7
======= ===== ======= ===== =====
</TABLE>
- - ---------------
(1) Other service revenues consist of revenues from the provision of
telecommunication services in Mexico other than cellular and, until December
1996, from revenues derived from Iusacell's consolidated 51% investment in
Iusatel Chile, S.A. de C.V. ("Iusatel Chile"), a Chilean long distance
provider. Iusacell sold its 51% stake in Iusatel Chile in December 1996. See
"Business -- International Joint Ventures."
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<PAGE> 57
Cellular Services. The table below presents cellular service revenues by
source for the years ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996(1) 1997(1)
-------------------- --------------------
PS. % PS. %
--------- ------- --------- -------
(IN MILLIONS OF PESOS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Airtime(2)............................................... 590.7 34.9 672.0 37.4
Monthly fees............................................. 771.1 45.6 800.5 44.6
Long distance(3)......................................... 126.3 7.5 158.7 8.8
Value-added services(4).................................. 125.9 7.4 93.1 5.2
In-roaming(5)............................................ 76.8 4.6 69.4 3.9
Activation fees and other................................ 0.1 0.0 1.6 0.1
------- ----- ------- -----
Total cellular service revenues........................ 1,690.9 100.0 1,795.3 100.0
======= ===== ======= =====
</TABLE>
- - ---------------
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, local telephony or data transmission services
or from long distance services unrelated to cellular service.
(2) Incoming and outgoing airtime is charged on a per-minute basis for both peak
(Monday to Friday, 8:00 a.m. to 10:00 p.m.) and non-peak airtime.
(3) Long distance revenues generated by cellular subscribers were passed through
to Telmex prior to August 11, 1996. Since that date, such revenues have been
retained by Iusacell.
(4) Includes fees for value-added services, such as call waiting, call transfer,
emergency service, secretarial service and conference calling, and revenues
from activation bonds, insurance-related charges payable by subscribers,
rural and public telephony and Iusacell's cellular magazine. Does not
include charges for related airtime. Customers using value-added services
such as news, weather, sports and entertainment reports are charged only for
airtime. These revenues are therefore included in airtime.
(5) See "Business -- Cellular Services -- Roaming" for a discussion of the
differences between in-roaming and out-roaming and the revenues associated
with these services. In-roaming revenues are reflected in total service
revenues and are paid to Iusacell by operators from other regions.
Out-roaming revenues are reflected in telephone equipment and other revenues
and are passed through to the applicable host operator.
Cellular service revenues increased by 6.2% to Ps.1,795.3 million
(U.S.$192.0 million) in 1997 from Ps.1,690.9 million (U.S.$180.8 million) in
1996 and represented 74.1% and 70.2% of total revenues in 1997 and 1996,
respectively. Revenues increased as a result of a 71.8% increase in total
subscribers in 1997, comprised by a 25.6% increase in contract subscribers and a
171.4% increase in prepay subscribers, offset in part by a 11.0% decrease in
average monthly MOUs.
Airtime revenues increased 13.8% to Ps.672.0 million (U.S.$71.9 million) in
1997 from Ps.590.7 million (U.S.$63.2 million) in 1996, and represented 37.4% of
total cellular revenue in 1997 as compared to 34.9% in 1996. This increase in
airtime revenue resulted mainly from price increases and higher usage resulting
from the increase in the subscriber base. Monthly fees from contract customers
increased 3.8% to Ps.800.5 million (U.S.$85.6 million) in 1997 from Ps.771.1
million (U.S.$82.5 million) in 1996. Monthly fee growth benefited from price
increases in 1997, but trailed contract customer growth because the majority of
the new contract plan additions was added during the second half of 1997. Long
distance cellular revenues increased 25.6% to Ps.158.7 million (U.S.$17.0
million) in 1997 from Ps.126.3 million (U.S.$13.5 million) in 1996 mainly
because of the growth in the cellular subscriber base in 1997.
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<PAGE> 58
Iusacell had 400,123 and 232,906 cellular subscribers at December 31, 1997
and 1996, respectively. Prepay subscribers increased by 171.4% from 73,762
subscribers, or 31.7% of total subscribers, at December 31, 1996 to 200,159
subscribers, or 50.0% of total subscribers, at December 31, 1997. Contract
subscribers increased by 25.6% from 159,144 to 199,964 between the same dates.
In 1997, contract subscriber churn declined dramatically to an average
monthly level of 2.94% from 4.28% during 1996. This decline reflects net
increases in contract subscribers, which reversed the previous downward trend in
contract customers experienced in 1996 when many such customers migrated to
prepay plans as a result of economic conditions, as well as improved customer
service.
Average monthly MOUs for 1997 were 105, a decrease of 11.0% compared to the
monthly average of 118 MOUs in 1996. This decline in MOUs was largely due to the
significant increase in the number of Iusacell's prepay customers, who generate
substantially lower average MOUs than contract customers. In addition, Iusacell
has experienced a trend toward lower MOUs as its expanded customer base now
includes subscribers who tend to generate fewer MOUs.
Nominal average monthly cellular revenue per subscriber decreased 5.7% to
Ps.464 in 1997 from Ps.492 in 1996. This decline was primarily due to the same
reasons noted to explain the decline of monthly MOUs.
Other Services. Other service revenues decreased by 43.9% to Ps.213.9
million (U.S.$22.9 million) in 1997 from Ps.381.7 million (U.S.$40.8 million) in
1996, and represented 8.8% and 15.9% of total revenues in 1997 and 1996,
respectively. This decrease, in large part, was because of the sale of
Iusacell's interest in Iusatel Chile in December 1996. Revenues derived from
Iusatel Chile were Ps.89.3 million (U.S.$9.6 million) in 1996.
Telephone Equipment and Other. Telephone equipment and other revenues grew
23.6% to Ps.413.3 million (U.S.$44.2 million) in 1997 from Ps.334.2 million
(U.S.$35.7 million) in 1996. This increase was primarily due to an increase in
handset sales to support Iusacell's growing prepay program.
COST OF SALES
Total cost of sales decreased 1.5% to Ps.931.9 million (U.S.$99.6 million)
in 1997 from Ps.946.2 million (U.S.$101.2 million) in 1996. As a percentage of
total revenues, cost of sales decreased to 38.4% in 1997 from 39.3% in 1996.
Cost of Services. Cost of services decreased 11.9% to Ps.669.6 million
(U.S.$71.6 million) in 1997 from Ps.759.8 million (U.S.$81.2 million) in 1996.
This decrease was mainly due to the sale of Iusatel Chile and reduced Telmex
interconnection fees.
Cost of Telephone Equipment and Other. Despite the lower rate of inflation
in 1997 relative to the rate of inflation in 1996, cost of telephone equipment
and other costs increased by 40.7% to Ps.262.3 million (U.S.$28.0 million) in
1997 from Ps.186.4 million (U.S.$19.9 million) in 1996, primarily due to an
increase in handsets sold to support Iusacell's prepay program. As a percentage
of telephone equipment and other revenues, costs of telephone equipment and
other costs increased to 63.5% in 1997 from 55.8% in 1996. The cost of a
cellular handset given to a contract customer is amortized over 18 months,
instead of being expensed in the period in which the customer received the
telephone. If these handset costs had been expensed instead of amortized,
Iusacell's cost of telephone equipment and other costs would have increased by
Ps.205.3 million (U.S.$22.0 million) and Ps.293.7 million (U.S.$31.4 million) in
1997 and 1996, respectively.
All of Iusacell's cellular handsets are subject to obsolescence based on a
number of factors, including changes in customer preferences, competition and
technological developments. The decrease in the allowance for obsolete and slow
moving inventories as a percentage of cellular telephone and accessories (from
39% at December 31, 1996 to 11% at December 31, 1997) was primarily related to
two items: (i) a significant amount of handsets were purchased in December 1997
in anticipation of a sales promotion to
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<PAGE> 59
be launched in early 1998 and (ii) a special provision for loss established at
the end of 1996 to cover damage from a flood at one of Iusacell's warehouses.
OPERATING EXPENSES
Operating expenses decreased 8.0% to Ps.968.5 million (U.S.$103.6 million)
in 1997 from Ps.1,053.0 million (U.S.$112.6 million) in 1996, and, as a
percentage of total revenues, decreased to 40.0% in 1997 from 43.8% in 1996.
Sales and advertising expenses grew 6.7% from Ps.565.7 million (U.S.$60.5
million) in 1996 to Ps.603.9 million (U.S.$64.6 million) in 1997. General and
administrative expenses declined 25.2% to Ps.364.6 million (U.S.$39.0 million)
in 1997 from Ps.487.3 million (U.S.$52.1 million), primarily due to the
elimination of general and administrative expenses from Iusatel Chile, a 17%
reduction in administrative and staff personnel and a decline in consulting fees
in 1997.
In accordance with Mexican GAAP, pre-operating expenses (net of
pre-operating revenues) associated with Iusacell's provision of local wireless
service in the 450 MHz band on a trial basis (as well as with certain other
services) are capitalized rather than, as required under U.S. GAAP, expensed.
The pre-operating expenses (net of pre-operating revenues) that were capitalized
in 1997 and 1996 equaled Ps.110.3 million (U.S.$11.8 million) and Ps.108.1
million (U.S.$11.6 million), respectively.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses decreased by 11.5% to Ps.757.7
million (U.S.$81.0 million) in 1997 from Ps.855.9 million (U.S.$91.5 million) in
1996. The decline in depreciation and amortization is attributable to the
reduction in the carrying value of fixed assets during 1997. In accordance with
Mexican GAAP and following Bulletin B-10, fixed assets and depreciation for the
year are restated using inflation factors without exceeding net realizable
value.
OPERATING LOSS
For 1997, Iusacell recorded an operating loss of Ps.235.5 million
(U.S.$25.2 million) as compared to an operating loss of Ps.448.3 million
(U.S.$47.9 million) in 1996.
INTEGRAL FINANCING COST
Integral financing cost was Ps.5.1 million (U.S.$0.5 million) in 1997
compared to a gain of Ps.183.1 million (U.S.$19.6 million) in 1996 due
principally to a foreign exchange loss of Ps.63.1 million (U.S.$6.7 million) in
1997 compared to a foreign exchange gain of Ps.87.9 million (U.S.$9.4 million)
in 1996. In 1997, Iusacell recorded a decrease in gain on monetary position of
22.7% to Ps.381.2 million (U.S.$40.8 million) in 1997 from Ps.493.0 million
(U.S.$52.7 million) in 1996 reflecting the lower rate of inflation in 1997. Net
interest expense decreased 18.8% to Ps.323.2 million (U.S.$34.6 million) in 1997
from Ps.397.9 million (U.S.$42.5 million) in 1996. The decrease in interest
expense was due to significantly lower interest rates, offset in part by higher
levels of borrowing in 1997.
EQUITY PARTICIPATION IN NET INCOME OF ASSOCIATED COMPANIES
Iusacell recorded equity participation in net income of associated
companies of Ps.205.3 million (U.S.$22.0 million) in 1997 as compared to Ps.1.9
million (U.S.$0.2 million) in 1996. This increase was due to the gain on the
sale of Iusacell's Ecuadorian affiliate. See "Business -- International Joint
Ventures."
PROVISION FOR EQUIPMENT IMPAIRMENT
In 1997, Iusacell recorded a provision of Ps.1,208.4 million (U.S.$129.2
million) under Mexican GAAP as a charge to income to reduce the value of its
communications network to fair value. See Notes 20 and 22 to the Audited
Consolidated Financial Statements.
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<PAGE> 60
NET LOSS
As a result of the factors described above, Iusacell's net loss was
Ps.1,302.4 million (U.S.$139.3 million) in 1997 as compared to a net loss of
Ps.514.2 million (U.S.$55.0 million) in 1996. Excluding the provision for
equipment impairment for the analog communications network, Iusacell's net loss
for 1997 would have been Ps.94.1 million (U.S.$10.1 million).
INCOME TAX, ASSET TAX AND EMPLOYEES' PROFIT SHARING
Prior to January 1, 1999, Iusacell prepared its tax returns on a fully
consolidated basis for all but three of its subsidiaries, benefiting from the
ability to offset losses incurred by some subsidiaries against the gains of
others within the consolidated group. Iusacell only consolidated 60% of Iusatel,
S.A. de C.V. Iusatelecomunicaciones, S.A. de C.V. and Infotelecom, S.A. de C.V.
for tax purposes because they were not wholly owned subsidiaries. Beginning
January 1, 1999, as a result of Mexican income tax law amendments, Iusacell must
limit its tax consolidation to 60% of all its subsidiaries, except for five
entities (Iusatel, S.A. de C.V., Iusatelecomunicaciones, S.A. de C.V.,
Infotelecom, S.A. de C.V., Iusacell PCS, S.A. de C.V. and Punto-a-Punto
Iusacell, S.A. de C.V.) which will not be included in its consolidated tax
return (although they are consolidated for financial statement purposes),
because Iusacell does not hold at least 51% of the voting shares of such
subsidiaries. Iusacell filed an injunctive action (amparo) against the new
income tax law amendments on the basis that the law is unconstitutional. This
injunctive action was recently rejected, but Iusacell has filed for a review
(recurso de revision). See "Business -- Legal Proceedings -- Non Judicial
Disputes."
Iusacell and its subsidiaries pay an alternative net asset tax which is
levied on the average value of substantially all assets less certain
liabilities. This tax, which is 1.8% annually, is required to be paid if the
amount of the asset tax exceeds the computed income tax liability. Iusacell
provided for Ps.49.8 million (U.S.$5.3 million), Ps.59.1 million (U.S.$6.3
million), Ps.70.5 million (U.S.$7.5 million) and Ps.111.6 million (U.S.$11.9
million) of net asset taxes for 1996, 1997, 1998 and the first nine months of
1999, respectively. These taxes may be applied in subsequent years against
income tax payments, to the extent income tax liabilities for such years exceed
the net asset tax calculation. Due to net losses, Iusacell paid no income taxes
in 1996, 1997, 1998 and the first nine months of 1999 and paid the asset taxes
specified above. See Note 12 to the Audited Consolidated Financial Statements
for a discussion of Iusacell's carry forward tax losses.
While Iusacell has no employees at the holding company level, its
subsidiaries are required under Mexican law to pay their employees, in addition
to their required compensation and benefits, profit sharing in an aggregate
amount equal to 10% of the taxable income of the relevant subsidiary (calculated
without reference to inflation adjustments or amortization of tax loss
carryforwards). There was no statutory profit-sharing in any periods presented,
except for Ps.0.5 million in 1998 and Ps.0.4 million in Interim 1999.
LIQUIDITY AND CAPITAL RESOURCES
As a part of the equity recapitalization and restructure of Iusacell
completed in August 1999, New Iusacell acquired 99.5% of the capital stock of
Old Iusacell on August 10, 1999. Prior to that time, New Iusacell had no
operations, indebtedness or liabilities and nominal assets. See "Prospectus
Summary -- Reorganization of Iusacell." The indebtedness discussed in this
section was all incurred by Old Iusacell. The notes described in this prospectus
will be effectively subordinated to all existing and future indebtedness and
other liabilities of Old Iusacell and New Iusacell's other subsidiaries.
GENERAL
Iusacell believes that funds from operating activities, existing export
credit agency financing, other vendor financing, and the net proceeds from the
recent debt and equity offerings, will be adequate to meet its debt service and
principal amortization requirements, working capital requirements and capital
expenditure needs for its existing businesses for 1999 and the first half of
2000, although no assurance can
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<PAGE> 61
be given in this regard. In 2000, Iusacell will seek to raise up to U.S.$40.0
million in vendor financing to acquire microwave transmission equipment, attempt
to monetize some of its radio tower assets within the restrictions imposed by
its debt covenants pursuant to an agreement signed in December 1999 with a
Mexican affiliate of American Tower Corporation and engage in an equity capital
markets transaction. However, we cannot assure you that Iusacell will be able to
complete any of these transactions. In 2001, Iusacell expects to meet its
funding needs for its existing businesses through a combination of debt and
equity capital market transactions and vendor financings. Iusacell's capital
expenditure needs and working capital requirements to build-out and operate
concessions to provide wireless telephone services in Region 1 and Region 4 over
the PCS E-Band will require a significant amount of additional funding in 2000
and beyond. Iusacell is seeking to obtain this financing from equipment vendors
and other sources. Iusacell's future operating performance and ability to
service and repay its indebtedness will be subject to future economic and
competitive conditions and to financial, business and other factors, many of
which are beyond Iusacell's control. See "-- Capital Expenditures."
CAPITAL EXPENDITURES
Iusacell expects to make substantial capital expenditures to upgrade
network infrastructure, build out cellular, long distance, wireless local
telephony and paging networks, build out PCS networks in Region 1 and Region 4,
implement new billing systems, complete its Year 2000 compliance program and
support existing operations and new business opportunities. The degree and
timing of capital expenditures will remain strongly dependent on the competitive
environment and economic developments in Mexico, including inflation and
exchange rates, as well as on the timing of regulatory actions and on the
availability of suitable debt and/or equity financing. See "-- Liquidity."
Total capital expenditures in 1997 were Ps.920.6 million (U.S.$98.4
million), compared with Ps.359.4 million (U.S.$38.4 million) in 1996. Total
capital expenditures in 1998 increased substantially because of the accelerated
deployment of the CDMA digital network and were Ps.3,553.3 million (U.S.$379.9
million), including Ps.541.4 million (U.S.$57.9 million) for the acquisition of
PCS frequency concessions in Regions 1 and 4.
Iusacell expects capital expenditures for 1999, 2000 and 2001 to total
approximately U.S.$475.0 million. Iusacell expects to invest up to U.S.$177.0
million during 1999, of which approximately U.S.$132.8 million had been invested
as of September 30, 1999. In 1999, approximately U.S.$131.2 million will be
allocated to the development of the wireless network, including completion of
the deployment of a replacement analog cellular network and a new CDMA digital
network pursuant to an agreement entered into with Lucent in December 1997. The
balance of U.S.$45.8 million primarily was:
- invested in developing long distance, paging and other networks,
- used to fund non-network infrastructure, such as the further development
and deployment of the new billing system and upgrades to other management
information systems,
- used to make equipment and software applications Year 2000 compliant and
- used to pay interest that is being capitalized.
Iusacell expects capital expenditures for 2000 and 2001 to total approximately
U.S.$195.0 million and U.S.$103.0 million, respectively. For an explanation of
the items included in capital expenditures, see "Notes to the Selected
Consolidated Financial and Operating Information -- Footnote (9)."
Additional funds will be allocated to the build-out and operation of
concessions to provide wireless telephony over the PCS E-Band in Region 1 and
Region 4, subject to obtaining financing at the PCS operating company level from
equipment vendors and other sources. Iusacell expects that capital expenditures
to build out its wireless network in northern Mexico will not exceed U.S.$55.0
million in 2000 and 2001. See "Risk Factors -- Risk Factors Relating to
Iusacell -- If we do not obtain significant capital from outside sources, we
will not be able to continue to build out our wireless infrastructure and pursue
long distance opportunities and may lose the opportunity to generate revenues."
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In December 1997, COFETEL approved the modification of Iusacell's long
distance concession, substantially reducing the coverage and technological
investment requirements. Iusacell estimates that full compliance with these
requirements will require approximately U.S.$115.0 million in capital
expenditures, of which approximately U.S.$58.0 million had already been invested
prior to 1998, approximately U.S.$27.0 million was invested in 1998,
approximately U.S.$25.0 million will be invested in 1999, 2000 and 2001 and
approximately U.S.$5.0 million will be invested thereafter.
If we are successful in acquiring additional cellular concessions in
Mexico, we may be required to increase our capital expenditure budget. We would
expect to finance these capital expenditures through a combination of debt and
vendor financing, equity capital and operating cash flow.
LIQUIDITY
General. Except for payment of principal and interest on the notes, New
Iusacell does not have significant liquidity requirements. Old Iusacell's debt
agreements currently prohibit Old Iusacell and its subsidiaries from paying
dividends or otherwise making cash available to New Iusacell. While such
restrictions exist, New Iusacell expects to meet its liquidity requirements, if
any, with funds provided by its recent equity and debt offering, and capital
contributions from its principal shareholders.
Old Iusacell's liquidity has been provided by cash from operations, short
and long-term borrowings, vendor financing and capital contributions.
Total debt, including trade notes payable, was Ps.4,413.4 million
(U.S.$471.9 million) at September 30, 1999, which compares with U.S.$462.0
million at December 31, 1998. After giving pro forma effect to this offering and
other adjustments described under "Capitalization," our total indebtedness,
including trade notes payable, would have been Ps.7,795.2 million (U.S.$833.5
million) at September 30, 1999.
Old Iusacell's debt at December 31, 1998 represented an increase of 69.0%
from its total debt at December 31, 1997. All of Old Iusacell's debt outstanding
at September 30, 1999 was U.S. dollar-denominated and unhedged against foreign
exchange risk. See "-- Market Risks." At September 30, 1999, Old Iusacell's
average cost of outstanding debt was approximately 8.3%, with a remaining
average maturity of approximately 3.0 years. At September 30, 1999, Old
Iusacell's debt to total capital ratio was 45.0% as compared to 55.5% at
December 31, 1998 and 40.2% at December 31, 1997. Excluding the one-time charge
related to the 450 MHz project, the debt to total capital ratio would have been
50.6% at December 31, 1998.
Senior Notes due 2006. In December 1999, New Iusacell issued the old notes
under an indenture dated as of December 16, 1999 among New Iusacell and the Bank
of New York as trustee (the "New Iusacell Indenture"). US$133.5 million of the
proceeds from the offering of the old notes were deposited in a security account
for purposes of payment of the first six semiannual installments of interest on
the old notes and the exchange notes. The old notes are subject to be exchanged
for the registered notes described in this prospectus, which will also be
governed by the New Iusacell Indenture. See "Description of Notes."
Old Iusacell Notes. In July 1997, Old Iusacell issued U.S.$150.0 million
of 10% Senior Notes due 2004 under an indenture dated as of July 25, 1997 among
Old Iusacell, the subsidiaries of Old Iusacell guaranteeing such notes and First
Union National Bank, as Trustee (the "Old Iusacell Indenture"), substantially
all of which were exchanged in January 1998 for 10% Series B Senior Notes due
2004 which are also governed by the Old Iusacell Indenture (whether or not
exchanged, the "10% Senior Notes").
The Old Iusacell Indenture limits the ability of Old Iusacell to make
dividend payments to New Iusacell. In addition, it restricts the ability of Old
Iusacell and its principal subsidiaries to incur indebtedness.
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In connection with the Eximbank Facilities described below, Old Iusacell
was required, under the terms of the Old Iusacell Indenture, to equally and
ratably secure the holders of the Old Iusacell notes by a second priority pledge
of the cellular concessions, certain equipment and supplies.
The Senior Credit Facility. In July 1997, Old Iusacell entered into a
senior credit facility which consists of:
- a five-year senior secured term facility in the principal amount of
U.S.$125.0 million, all of which was drawn down in July 1997, and
- a five-year senior secured revolving credit facility in an aggregate
principal amount of U.S.$100.0 million.
By July 24, 1998, the full U.S.$100.0 million had been drawn under the
revolving credit facility and on that date the revolving credits were converted
to a term loan.
Old Iusacell's obligations under the Senior Credit Facility are
unconditionally guaranteed, jointly and severally, by the principal operating
and concession-holding subsidiaries of Old Iusacell and are secured by the
pledge of substantially all capital stock and equity interests held by Old
Iusacell and by all cellular concessions and substantially all assets used in
connection with or related to such concessions. In particular, the Senior Credit
Facility lenders have a second priority lien on all Lucent analog and CDMA
digital cellular network equipment acquired for Regions 6, 7, and 9 under the
Eximbank Facilities described below and a first priority lien on all other
assets (including, without limitation, the cellular concessions) of Old Iusacell
and its concession-holding subsidiaries.
Loans outstanding under the Senior Credit Facility bear interest at a rate
per annum equal to (at Old Iusacell's option):
- one-, two-, three- or six-month LIBOR plus 1.75% per annum, or
- an alternate base rate equal to the sum of (i) the highest of the prime
rate of The Chase Manhattan Bank, the reserve adjusted secondary market
rate for three-month certificates of deposit plus 1% per annum or the
Federal Funds effective rate plus 0.5% per annum plus (ii) 0.75% per
annum.
The Eximbank Financing. On July 15, 1999, Old Iusacell consummated a
financing which consists of:
- a five-year senior secured term facility provided by UBS AG in the
principal amount of approximately U.S.$72.5 million, which is guaranteed
by the Export-Import Bank of the United States, and
- a two-year senior secured term facility provided by UBS AG and
Commerzbank AG in the principal amount of approximately U.S.$25.7
million, which is not guaranteed by the Export-Import Bank of the United
States.
Old Iusacell's obligations under the Eximbank Facilities are
unconditionally guaranteed, jointly and severally, by the principal operating
and concession-holding subsidiaries of Old Iusacell and are secured by a first
lien on certain Lucent analog and CDMA digital cellular network equipment
acquired for Regions 6, 7 and 9, a second lien on any and all other Lucent
analog and CDMA digital cellular network equipment acquired under Old Iusacell's
contract with Lucent, including such equipment in Region 5, and a second lien on
Old Iusacell's four cellular concessions and substantially all other assets used
in connection with or related to such concessions.
Loans outstanding under the Eximbank Facilities bear interest at a rate per
annum equal to 0.20% per annum above six-month LIBOR, in the case of the
facility guaranteed by the Export-Import Bank of the United States, and 1.75%
per annum above six-month LIBOR, in the case of the unguaranteed commercial
facility.
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As of September 30, 1999, U.S.$79.3 million had been borrowed under the
Eximbank Facilities. An additional U.S.$18.9 million was borrowed on October 14,
1999.
In December 1999, UBS AG assigned its interest in the Eximbank Facilities
to Banque Nationale de Paris.
Handset financing. In January 1999, Old Iusacell obtained a handset
financing facility from UBS AG, which consists of a 360-day senior unsecured
credit facility in the principal amount of U.S.$10.0 million to be used solely
to acquire cellular handsets ("UBS Handset Facility"). Loans outstanding under
this facility will bear interest at an annual rate equal to 1.50% above LIBOR
for the related interest period, which can have a duration of 30, 60, 90, 180 or
360 days, with respect to each disbursement. Old Iusacell drew down the entire
U.S.$10.0 million available under this facility in April 1999 for a 360-day
term.
In September 1999, Old Iusacell obtained a handset financing facility from
Banco Bilbao Vizcaya which consists of an eighteen-month senior unsecured credit
facility in the principal amount of U.S.$4.0 million to be used solely to
acquire cellular handsets. Loans outstanding under this facility will bear
interest at an annual rate equal to 2.50% above 180-day LIBOR. Old Iusacell drew
down the entire U.S.$4.0 million available under this facility in September
1999. Amortizations occur in equal installments every six months.
As of September 30, 1999, U.S.$14.0 million were outstanding under the two
handset facilities. These loans are classified as trade notes payable under
Mexican GAAP.
In November 1999, in connection with a program to migrate its analog
contract customers to digital service, Old Iusacell agreed to guarantee up to
U.S.$6.6 million in future loans to be made by Banco Bilbao Vizcaya to its
customers for the purchase of digital handsets.
In December 1999, Old Iusacell entered into a second eighteen-month senior
unsecured credit facility with Banco Bilbao Vizcaya in the principal amount of
U.S.$4.0 million to be used solely to purchase cellular handsets. As with the
September 1999 facility, loans outstanding under this facility will bear
interest at an annual rate equal to 2.50% above 180-day LIBOR and will be
amortized in equal installments every six months. Old Iusacell drew down
U.S.$3.5 million under this facility on December 8, 1999.
Vendor financing. Old Iusacell, from time to time, also incurs vendor
financing indebtedness in order to finance purchases of equipment, hardware and
software. As of September 30, 1999, Old Iusacell had U.S.$3.6 million of such
vendor financing outstanding of which U.S.$1.7 million was paid in October 1999,
U.S.$0.8 million was paid in November 1999 and U.S.$1.1 million is due and
payable in March 2000. This vendor financing is classified as trade notes
payable under Mexican GAAP.
New Iusacell is currently negotiating up to U.S.$40.0 million in vendor
financing for the purchase of microwave equipment by a new subsidiary to be
created for the sole purpose of purchasing or leasing network equipment,
computer hardware and software, and radio towers. Approximately U.S.$2.5 million
has been drawn down through an interim arrangement with a microwave equipment
vendor.
Recent equity offerings. On August 10, 1999, New Iusacell completed a
comprehensive equity recapitalization and restructuring. See "Prospectus
Summary -- Reorganization of Iusacell." As part of this transaction, New
Iusacell issued 23,596,783 new Series V shares at a price of U.S.$1.05 per share
and 18,405,490 new Series V shares at a price of U.S.$0.70 per share. After
commissions and expenses, New Iusacell received net proceeds of approximately
U.S.$33.7 million, which were used primarily for the acquisition of cellular
network infrastructure equipment.
Tower Monetization. In December 1999, Iusacell entered into a series of
agreements with a Mexican affiliate of American Tower Corporation. These
agreements, among other things, give American Tower the opportunity to market a
portfolio of approximately 350 existing Iusacell towers and, subject to
restrictions imposed by Iusacell's debt covenants, acquire them. Iusacell
intends to seek at least a partial waiver of the restrictions imposed by its
debt covenants.
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DIVIDEND POLICY
Since becoming a public company in 1994, Iusacell has not paid dividends
and it currently has no plans to initiate dividend payments. In addition, the
Old Iusacell Indenture, the Senior Credit Facility and the Eximbank Facility and
the New Iusacell Indenture will limit Iusacell's ability to pay dividends.
MARKET RISKS
Iusacell's earnings are affected by changes in interest rates as a result
of its long-term borrowings. Old Iusacell's Eximbank Financing bears interest at
a variable rate of six-month LIBOR plus, depending on whether not the facility
is guaranteed by the Export-Import Bank of the United States, either 0.20% or
1.75%. The Senior Credit Facility bears interest at a variable rate equal to (at
Old Iusacell's option):
- one-, two-, three- or six-month LIBOR plus 1.75%, or
- an alternate base rate equal to the sum of (i) the highest of the prime
rate of The Chase Manhattan Bank, the reserve adjusted secondary market
rate for three-month certificates of deposit plus 1% per annum or the
Federal Funds effective rate plus 0.5% per annum plus (ii) 0.75% per
annum.
New Iusacell also has fixed rate debt under the old notes and will have
fixed rate debt under the exchange notes when they are issued. Old Iusacell has
fixed rate debt under its 10% Senior Notes.
Under the terms of the Senior Credit Facility, Old Iusacell must maintain
45% of its debt portfolio at fixed rates or under appropriate floating rate
hedging mechanisms. Iusacell does not enter into derivative financial contracts
for trading or speculative purposes; however, Iusacell has managed the exposure
to interest rate risk through the use of interest rate collars. In July 1998,
Old Iusacell entered into an interest rate collar agreement on a notional amount
of U.S.$35.0 million until July 30, 2002. The collar agreement limits the
maximum effective LIBOR cost to 6.12% if six-month LIBOR is lower than 7.12% and
7.12% if LIBOR equals or exceeds that level. The following table summarizes the
maturity dates, carrying values and fair values of the debt obligations and the
interest rate collar agreement as of December 31, 1998.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
--------- --------- --------- --------- --------- ---------- --------- ----------
(IN MILLIONS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term notes payable...... U.S.$75.0 U.S.$ -- U.S.$ -- U.S.$ -- U.S.$ -- U.S.$ -- U.S.$75.0 U.S.$75.0
Chase Credit Facility......... -- 33.8 92.3 99.0 -- -- 225.0 225.0
10% Senior Notes.............. -- -- -- -- -- 150.0 150.0 130.0
Handset facility UBS.......... -- 10.0 -- -- -- -- 10.0 10.0
Interest rate collar.......... 35.0 35.0 35.0 35.0 -- -- -- 1.1
</TABLE>
On February 26, 1999, Old Iusacell entered into a second interest rate
collar agreement to limit the maximum interest rate Old Iusacell must pay on
U.S.$15.0 million of its floating rate debt until July 2002. Under the terms of
this second collar agreement, Old Iusacell's maximum effective LIBOR cost is
limited to 5.82% if six-month LIBOR is lower than 6.82% and, if six-month LIBOR
equals or goes above 6.82%, then Old Iusacell's maximum effective LIBOR cost is
limited to 6.82%.
Iusacell's primary foreign currency exposure relates to its foreign
currency denominated debt. Iusacell's debt obligations are denominated in U.S.
dollars while it generates revenues in Mexican Pesos. Therefore, Iusacell is
exposed to currency exchange rate risks that could significantly affect
Iusacell's ability to meet its obligations. The exchange rate of Pesos to the
U.S. dollar is a freely floating rate and the Peso has experienced significant
devaluations in recent years. Any significant decrease in the value of the Peso
relative to the U.S. dollar in the near term may have a material adverse effect
on Iusacell and on its ability to meet its long-term debt obligations. As of
December 31, 1998, a hypothetical immediate 10% devaluation of the Peso relative
to the U.S. dollar, as it relates to Iusacell's short-term foreign debt, would
have a Ps.87.4 million (U.S.$9.3 million) unfavorable impact over a one-year
period on earnings and on cash flows.
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In December 1999, Iusacell used forward-rate contracts to hedge, its
exchange rate exposure for 50% of the principal and interest payments coming due
over the next 18 months, or approximately U.S.$77.0 million. Iusacell is also
considering limited hedging alternatives for up to an additional 50% of the
remaining outstanding principal and interest obligations coming due over the
next 18 months.
U.S. GAAP RECONCILIATION
The principal differences between Mexican GAAP and U.S. GAAP as they relate
to Iusacell are the adjustment for the effects of inflation, minority interests,
deferred income taxes, employee profit sharing, capitalized pre-operating costs
for Iusacell's 450 MHz local wireless project, provisions for consolidation of
facilities and accounting for non-monetary exchanges and interest rate collars.
See Note 20 to the Audited Consolidated Financial Statements and Note 8 to the
unaudited interim consolidated financial statements for a reconciliation to U.S.
GAAP of stockholders' equity and net loss for the respective periods presented.
INFLATION ADJUSTMENTS
The reconciliation to U.S. GAAP does not include the reversal of the
adjustments to the financial statements for the effects of inflation required
under Mexican GAAP (Bulletin B-10) because the application of Bulletin B-10
represents a comprehensive measure of the effects of price level changes in the
Mexican economy and, as such, is considered a more meaningful presentation than
historical cost-based financial reporting for both Mexican and U.S. accounting
purposes.
DEFERRED INCOME TAXES AND EMPLOYEE PROFIT SHARING
Under Mexican GAAP, deferred income taxes are provided for identifiable,
non-recurring timing differences at rates in effect at the time such differences
originate. Benefits from loss carryforwards are not allowed to be recognized
before the period in which the carryforward is utilized.
Under U.S. GAAP, Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" requires an asset and liability method of
accounting for income taxes whereby deferred taxes are recognized for the tax
consequences of all temporary differences between the financial statement
carrying amounts and the related tax bases of assets and liabilities. The effect
on deferred taxes of a change in tax rate is recognized in income in the period
in which the change is enacted.
SFAS 109 requires deferred tax assets to be reduced by a valuation
allowance if, based on the weight of available evidence, including cumulative
losses in recent years, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
As of September 30, 1999, Iusacell recognized for U.S. GAAP purposes a
gross deferred tax asset of Ps.1,222.1 million (U.S.$130.7 million), reflecting
the benefit of tax loss carryforwards which expire in varying amounts between
2001 and 2008. Realization is dependent on generating sufficient taxable income
prior to expiration of the loss carryforwards. Although realization is not
assured, management believes it is more likely than not that all of the net
deferred tax asset at September 30, 1999 will be realized based on the
following:
- although Iusacell has generated consolidated operating losses for the
past five years, it believes that it is more likely than not that the net
deferred tax asset will be realized based on Iusacell's latest estimate
of future taxable income over the next five years in an amount sufficient
to utilize the net deferred tax losses recorded as of September 30, 1999,
and
- the net deferred tax asset amounting to Ps.162.2 million (U.S.$17.3
million) represents only the tax loss carryforwards (which are subject to
indexation) of 1997 and 1998 which have expiration periods of 9 and 10
years, respectively.
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Iusacell's estimate of future taxable income is based primarily on and
supported by:
- management's expectations of Iusacell's growth and profitability over the
next 5 years,
- the significant improvement in operating performance from February 1997
through December 1998, as evidenced by the success of the implementation
of the Bell Atlantic wireless business model. This model has produced
strong subscriber growth in excess of 80% year over year in 1997 and
1998, improved revenues (based on customer growth and price increases),
and lower network and operating costs, resulting in an operating profit
in the first two quarters of 1998 (and, excluding the 450 write-down,
also in the third quarter of 1998), as compared to an operating loss
during 1997, and
- the effects of cost-cutting measures achieved as a result of the
restructuring completed during 1997 and 1998, primarily related to a 15%
reduction in headcount and elimination of duplicate administrative costs.
The amount of the deferred tax asset considered realizable could be reduced
in the near term if estimates of future taxable income during the carryforward
periods are lower than currently expected.
Employee profit sharing expense, which is based on the taxable income of
each corporate entity after statutory adjustments, is included in the income tax
provision under Mexican GAAP. Under U.S. GAAP, the provision for employee profit
sharing is charged to operations.
PRE-OPERATING COSTS
Under Mexican GAAP, Iusacell capitalized certain pre-operating costs
primarily related to Iusacell's 450 MHz local wireless project. Under U.S. GAAP,
pre-operating costs are expensed as incurred. During 1998, Iusacell recorded a
non-cash writedown related to its investment in the 450 MHz project for Mexican
GAAP purposes and, consequently, wrote off all pre-operating costs as of that
date.
MINORITY INTERESTS
Under Mexican GAAP, the minority interest in consolidated subsidiaries is
presented as a separate component within the stockholders' equity section of the
consolidated balance sheet. For U.S. GAAP purposes, minority interest is not
included in stockholders' equity and accordingly is deducted as a reconciling
item to arrive at U.S. GAAP equity.
GAIN FROM THE EXCHANGE OF NON-MONETARY ASSETS
In December 1998, Iusacell entered into a fiber optic cable swap agreement
with Bestel, S.A. de C.V. to exchange certain long-distance fiber optic cables
for a contract amount of Ps.210.3 million (U.S.$22.5 million). Under Mexican
GAAP, Iusacell recorded the transaction as both an acquisition and sale of fixed
assets based on the contract amount, resulting in a gain on the sale of Ps.183.1
million (U.S.$19.6 million). Under U.S. GAAP, because the assets exchanged are
similar productive assets and, on a net basis, no cash was exchanged, the
transaction does not result in the recognition of earnings. Consequently, under
U.S. GAAP, the acquisition and sale would not have been recorded.
INTEREST RATE COLLAR
Under Mexican GAAP, the interest rate collar agreements are recorded on a
cash basis. Under U.S. GAAP, the differential to be paid or received as interest
rates change is accrued and recognized as an adjustment of interest expense at
the balance sheet date. Additionally, the related amount payable or receivable
from counterparties is included in other accrued expenses at the balance sheet
date.
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PROVISION FOR CONSOLIDATION OF FACILITIES
As described in Note 2 to the Audited Consolidated Financial Statements,
during 1996 Iusacell originally recorded a provision for consolidation of
facilities related to its former headquarters building ("Montes Urales") under
Mexican GAAP. As management did not have the ability to remove Montes Urales
from operations in December 1996, Montes Urales did not qualify as an asset held
to be disposed of at such date under U.S. GAAP and consequently, should have
been accounted for as an asset to be held and used pursuant to the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of." As a result, under U.S. GAAP, an
impairment charge would not have been recorded at December 31, 1996 related to
Montes Urales.
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BUSINESS
OVERVIEW
Iusacell is Mexico's second largest wireless telecommunications provider
with more than 1.1 million cellular customers at September 30, 1999. Iusacell
owns and operates concessions in the 800 MHz band to provide cellular wireless
services in four contiguous regions in central Mexico. These regions include
Mexico City, one of the world's most populous cities, and the cities of
Guadalajara, Puebla, Veracruz, Leon, Acapulco and San Luis Potosi, and combined
represent approximately 67 million POPs or 69% of Mexico's total population.
Since February 1997, Iusacell has been under the management control of
subsidiaries of Bell Atlantic Corporation. From late 1993 through February 1997,
Bell Atlantic participated substantially in the financial and technological
operations of Iusacell. Since Bell Atlantic assumed control of the Board of
Directors and management of Iusacell, Bell Atlantic personnel seconded to
Iusacell and Bell Atlantic consultants have been integrally involved in managing
the day-to-day operations and defining and implementing the long-term strategy
of Iusacell. Since 1993, Bell Atlantic has invested approximately U.S.$1.2
billion for its 40.4% economic and voting interest in Iusacell.
Since Bell Atlantic took control of Iusacell's management in February 1997,
Iusacell's subscriber base has grown from approximately 245,000 to 1,132,205
subscribers as of September 30, 1999. Iusacell's subscribers who can make
outgoing calls and receive incoming calls had an average monthly revenue per
cellular subscriber during the nine months ended September 30, 1999 of Ps.339
(approximately U.S.$36.2). In May 1998, Iusacell launched digital service using
CDMA technology in the 800 MHz frequency band in the Mexico City area and
extended this service to other cities in each of its other cellular regions in
October 1998. Iusacell now offers digital coverage and services in all areas
where it provides cellular wireless services. In addition to its core mobile
wireless services, Iusacell also provides a wide range of other
telecommunications services including long distance, paging, wireless local
telephony and data transmission. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "-- Cellular Services" and
"-- Other Services."
The management team at Iusacell is able to draw extensively upon Bell
Atlantic's expertise in the development and implementation of Iusacell's
operating strategy. Iusacell's Chief Executive Officer is also President of Bell
Atlantic's international wireless operations and has significant experience with
Bell Atlantic's wireless operations in the United States. Iusacell's Chief
Technology Officer has 29 years of experience with Bell Atlantic.
In June 1997, Iusacell appointed as its Director General a Mexican citizen
with extensive experience in multinational operations, who immediately prior to
joining Iusacell had been the managing director of the Mexican cellular company
which operates the Cellular A-Band concessions in two contiguous northern
regions. Iusacell's Chief Operating Officer, who was appointed in February 1999,
also has an extensive background in multinational operations, with more than
five years of sales, marketing and operational experience in wireless
communications. Iusacell's Chief Financial Officer, hired in April 1999, is a
telecommunications industry veteran with more than 15 years of experience with
BellSouth Corporation and Nextel International, Inc., including nine years of
experience in the Latin American wireless industry.
The management team is supported by an experienced group of Mexican
executives and other personnel from Bell Atlantic.
BELL ATLANTIC
Bell Atlantic is one of the largest telecommunications companies in the
world, with extensive participation in and knowledge of the wireless
telecommunications business. In August 1997, Bell Atlantic and NYNEX
Corporation, two of the original seven Regional Bell Operating Companies formed
as a result of the break-up of AT&T in 1984, completed their merger to form the
new Bell Atlantic. Bell Atlantic now provides local exchange telephone service
in 12 states and the District of Columbia in a
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region in the northeastern United States stretching from Maine to Virginia that
encompasses 63 million people and 22 million households, utilizing more than 43
million access lines and employing more than 140,000 people.
Bell Atlantic is also one of the world's largest wireless
telecommunications companies, with more than 7 million attributable customers in
its cellular and PCS operations in 24 states in the United States and in its six
international wireless investments in Latin America, Europe and the Pacific Rim.
In its wireless markets, Bell Atlantic has emphasized the delivery of
high-quality customer service through customer service centers, call centers and
an extensive distribution system. Bell Atlantic had operating revenues and net
income of approximately U.S.$33.1 billion and U.S.$4.2 billion, respectively,
for the fiscal year ended December 31, 1999 and total assets of approximately
U.S.$62.6 billion at such date.
On July 27, 1998, Bell Atlantic and GTE Corporation entered into a
definitive agreement providing for a merger of equals transaction in which GTE
shareholders will receive 1.22 shares of Bell Atlantic common stock for each GTE
share they own. GTE is one of the world's largest telecommunications companies,
providing landline and wireless telephone, advanced internet, information, and
paging services and systems. The combined Bell Atlantic/GTE entity will have a
presence in over 30 countries and the customers in their service territories
currently account for more than 30% of the world's international
telecommunications traffic. Consummation of the Bell Atlantic/GTE merger depends
on a number of conditions, including approvals by the United States Federal
Communications Commission and various other regulatory authorities.
Bell Atlantic and GTE are reporting companies under the Exchange Act.
Reports and information filed by Bell Atlantic and GTE with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Office at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may be obtained by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
On September 21, 1999, Bell Atlantic and Vodafone AirTouch Plc entered into
an agreement to combine their United States wireless businesses into a new
company which would be managed by Bell Atlantic. Assuming that all of the assets
are contributed as provided for in the agreement, the new business will be 55%
owned by Bell Atlantic and 45% owned by Vodafone AirTouch. Including GTE's
wireless assets, the new business will serve approximately 20 million wireless
customers and 3.5 million paging customers throughout the United States, making
it the largest wireless business in the country. The new enterprise will have a
footprint covering more than 90% of the U.S. population, and 49 of the top 50
U.S. wireless markets. The completion of this transaction is subject to a number
of conditions, including certain regulatory approvals. The companies expect to
complete the transaction around the end of the first quarter 2000.
COMPETITIVE STRENGTHS
LARGE CELLULAR SUBSCRIBER BASE
At September 30, 1999, Iusacell had 1,132,205 cellular subscribers,
including both contract and prepay subscribers. 30.3% of Iusacell's cellular
subscriber base, consisted of customers that purchased cellular services
pursuant to fixed term contracts and the remaining 69.7% of its cellular
customers purchased their cellular services in advance, through prepay calling
cards. Iusacell believes that its contract customers seek the convenience of
uninterrupted mobile cellular service and access to high quality customer
service and are willing to pay a monthly fee for the choice of value-added
services such as call waiting, emergency service (*911), short messaging service
and caller identification. Prepay subscribers are attractive because of their
higher average per minute airtime charges, lower acquisition costs and the
absence of billing costs, credit concerns and collection risk.
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LEADING DIGITAL TECHNOLOGY PLATFORM IN ALL OUR MARKETS
Iusacell believes it is the market leader in technology. Through its
recently completed deployment of a CDMA digital network in all areas where it
provides cellular service, Iusacell became the first company in Mexico to make
digital voice service broadly available to all of its customers. Iusacell's
digital network currently provides service to areas where approximately 53
million inhabitants, or approximately 55% of Mexico's total population, live.
Compared with analog cellular technology, Iusacell's digital technology
increases system capacity by approximately six to ten times, offers better call
quality and clarity, enables significantly longer telephone battery life,
ensures greater call confidentiality and fraud protection and provides a wider
variety of advanced features and applications, such as short messaging service.
Iusacell's network technology provides superior switching and transmission
capabilities. These features allow for lower capital expenditures per subscriber
and reduced network operating costs.
In order to take advantage of the benefits of its new digital network
capacity, Iusacell has almost entirely stopped providing analog handsets to
contract customers and has accelerated its efforts to migrate existing analog
contract customers to digital service. At December 31, 1998 and September 30,
1999, Iusacell had approximately 27,000 and 163,000 digital contract customers,
respectively, and expects to have more than 200,000 digital contract customers
by the end of December 1999. Iusacell's digital contract customers in the
aggregate currently generate approximately 50% of its total cellular traffic.
As of September 30, 1999, Iusacell had invested more than U.S.$376.2
million in its cellular telecommunications network since January 1997. Of this
total, Iusacell's analog and CDMA digital network supplied by Lucent represents
an investment of U.S.$261.5 million. As of September 30, 1999, Iusacell's
network was made up of five cellular switches, 357 cell sites and 56 repeaters.
BELL ATLANTIC WIRELESS EXPERTISE AND SUPPORT
Iusacell's management team draws extensively upon Bell Atlantic's expertise
to develop and implement its operating strategy. Bell Atlantic is one of the
largest cellular operators in the United States, serving more than 6.0 million
subscribers along the East Coast and in the Southwest. Bell Atlantic also has
substantial investments in other wireless telecommunications companies,
including PrimeCo Personal Communications L.P. in the United States, Omnitel
Pronto Italia S.p.A. in Italy, EuroTel Praha s.r.o. in the Czech Republic,
EuroTel Bratislava A.S. in the Slovak Republic, STET Hellas Telecommunications
S.A. in Greece and P.T. Excelcomindo Pratama in Indonesia. Iusacell believes
that Bell Atlantic's extensive experience in the development and implementation
of marketing programs designed to promote substantial subscriber growth provides
Iusacell with a significant competitive advantage in the Mexican mobile wireless
market. Since Bell Atlantic took management control in February 1997, Iusacell's
cellular subscriber base has grown from approximately 245,000 to 1,132,205
subscribers at September 30, 1999.
EXPERIENCED MANAGEMENT TEAM
The five senior members of the Iusacell operational management team
appointed by Bell Atlantic have an aggregate of approximately 65 years of
experience in the telecommunications industry. Individually, Iusacell's
operating managers have established track records of producing subscriber
growth, penetrating new markets and developing new telecommunications product
offerings. Iusacell's management team is complemented by experienced Mexican and
Bell Atlantic telecommunications executives and consultants.
WELL-RECOGNIZED BRAND NAME
All of the services that Iusacell offers use the well-recognized IUSACELL
Digital brand name to increase consumer awareness and customer loyalty. Iusacell
believes that its network's superior call quality and its customer care
operations contribute to its strong, favorable brand awareness among potential
and
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existing customers. Iusacell's ten years of operation give it significant
advantages over new entrants to the wireless market offering similar services.
BUSINESS STRATEGY
Iusacell's strategic and operating plan is based on the wireless operating
model that Bell Atlantic has successfully deployed in the United States, Europe
and Asia. This model focuses on:
- state-of-the-art network technology and performance,
- delivery of products and services perceived to be of value by the
customer,
- strong distribution, and
- superior customer service.
Iusacell believes that its strategic and operating plan will enable it to
increase its subscriber base, subscriber usage, revenues and profitability in
its core wireless businesses. This strategic plan incorporates the following key
elements:
NATIONWIDE WIRELESS FOOTPRINT
Iusacell believes that it is important to provide reliable and high quality
wireless service to its customers throughout Mexico. It intends to achieve this
goal by owning concessions in each region of Mexico or, in those areas where it
is unable to secure concessions, by reselling another concessionaire's services
or enabling seamless roaming services and offering its customers telephones that
can access nationwide services on different frequencies. As part of this
strategy, Iusacell recently acquired concessions to provide PCS services in two
regions in northern Mexico. By adding these new regions to areas already covered
by its existing cellular footprint, Iusacell now owns concessions covering
approximately 78 million inhabitants, or 80% of Mexico's total population.
From time to time Iusacell explores possibilities to expand its nationwide
wireless footprint. Iusacell recently examined the possibility of making an
offer to acquire Grupo Portatel, S.A. de C.V., a cellular wireless service
provider in southern Mexico. In addition, Bell Atlantic recently engaged in but
terminated discussions with a third party that involved a possible combination
or alliance among Iusacell and four Cellular A-Band properties in northern
Mexico that we do not own or operate.
Iusacell also believes that it is important for its customers to be able to
access wireless services throughout North, Central and South America. Currently,
Iusacell's customers are able to roam in over 1,300 cities in the United States
and Canada as well as in Argentina and Peru. Iusacell continues to seek
arrangements that will allow its customers to roam in certain major cities in
the United States, Canada and Latin America.
SIGNIFICANTLY STRENGTHEN OUR DISTRIBUTION CHANNELS
Iusacell continues to strengthen its product distribution system to
emphasize consistent, standardized merchandising through a well-balanced mix of
company-owned stores and independent distributors conveniently located
throughout all of its operating regions. Iusacell continues to develop
additional and exclusive long-term relationships with its distributors to
encourage them to sell its products and services. Iusacell intends to continue
to increase its distribution system primarily by expanding the number of
locations where customers can purchase prepay cards. To further this strategy,
Iusacell, or its distributors, have entered agreements to allow its prepay cards
to be marketed by or at distributors of Mexico's national lottery tickets, PEMEX
franchise gas stations, OXXO and Seven Eleven franchise convenience stores,
Bancrecer automatic teller machines and Mexico City subway stations. Since Bell
Atlantic took control of Iusacell's management in February 1997, Iusacell has
increased its points of distribution from approximately 230 to 5,751 at
September 30, 1999.
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Iusacell also opened or remodeled 17 customer sales and service centers in
1997 and 22 in 1998, bringing the total number of customer sales and service
centers owned and operated by Iusacell at September 30, 1999 to 96. Thirty-two
of these stores present Iusacell's new store image, an environment which
emphasizes retail merchandising rather than transaction processing.
SUPERIOR NETWORK AND CUSTOMER SERVICE
Iusacell believes that superior network technology and proactive and timely
customer service help it to attract and retain customers. To build a superior
network, Iusacell recently completed the swap out of its previous analog network
with an analog and CDMA digital network supplied by Lucent and became the first
company in Mexico to make digital voice services broadly available to all of its
customers. For its customers, its digital technology offers better call quality
and clarity, ensures greater call confidentiality and fraud protection, enables
significantly longer telephone battery life, and provides a wider variety of
advanced features and applications as compared with analog cellular technology.
Over the last twelve months, Iusacell has experienced rapid growth in digital
subscribers and traffic. See "-- Digitalization." As a result, and in
anticipation of further growth in digital subscribers and digital usage,
Iusacell decided to accelerate its capital expenditure program to expand digital
capacity and improve digital service quality. See "-- Liquidity and Capital
Resources -- Capital Expenditures."
To provide proactive and timely customer service, Iusacell operates two
call centers that provide automated and efficient service to its customers.
Iusacell's call center service quality and response speed should further improve
with the implementation of state-of-the-art customer service software over the
next several months. Iusacell also utilizes welcome packages, customer
satisfaction calls, special programs for corporate customers and customized
billing to communicate its commitment to its customers. Iusacell's customer
service centers offer "one-stop-shopping" for cellular, long distance, paging
and data transmission services as a convenience to its customers. Iusacell has
substantially decreased customer service waiting time during peak hours at these
centers. Iusacell's customer services representatives undergo ongoing rigorous
training and are continually monitored and evaluated.
In March 1999, Iusacell installed a new prepay operating system in its four
regions. The prepay operating system improved customer satisfaction through
automated card activation and account information and by providing voice mail
and other value-added services. It has also lowered both the cost of support for
prepay services and prepay turnover and facilitated increased per subscriber
usage.
CUSTOMER SEGMENTATION
Iusacell designs its products and services for each customer segment. For
contract customers, Iusacell offers six pricing packages tailored to meet the
needs of this high-usage customer segment. Iusacell believes that its customers
seek the convenience of uninterrupted mobile service and access to high quality
customer service and wish to purchase their long distance, paging, and other
telecommunications services bundled together as a single product.
Iusacell also sells prepay cards allowing it to efficiently target the
segment of lower-usage customers. Iusacell believes its prepay customers seek
service without a fixed financial commitment and monthly billing.
In September 1999, Iusacell introduced "one-single rate" plans for contract
customers who seek the convenience of paying a single per minute rate for local,
national long distance and long distance service to the United States. In
October 1999, Iusacell introduced a "one single rate" plan for prepay customers
and extended coverage of all one single rate plans to include international long
distance service to Canada.
VALUE ADDED SERVICES
Iusacell's new analog and CDMA digital network permits it to provide its
digital and analog customers with a wide range of value added services,
including caller identification, voice mail, and three way calling. To encourage
its customers to migrate to digital service, Iusacell offers additional
value-added services, such as short messaging service, only to digital
customers.
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SALES FORCE INCENTIVES
To increase the size and quality of its subscriber base, Iusacell has a
sales force compensation plan which is largely performance based. Iusacell's
compensation plan is based on sales volume and product mix and rewards its sales
force for upgrading analog contract customers to digital service and qualified
prepay customers to contract plans. The compensation plan is also designed to
encourage salespersons to sell bundled products and value-added services.
THE TELECOMMUNICATIONS INDUSTRY IN MEXICO
MARKET LIBERALIZATION
The Mexican government initiated its efforts to liberalize the
telecommunications industry in 1989, dividing Mexico into nine geographic
regions for the provision of cellular service. In order to provide an
alternative for cellular customers, two concessions were granted in each region,
one to Telcel, the cellular subsidiary of Telmex, and the other to an
independent operator. In addition, Telmex was required to interconnect all
cellular operators to its network in an effort to facilitate competition.
In December 1990, the Mexican government initiated the privatization of
Telmex, then the sole provider of landline local, long distance and Cellular
B-Band cellular services, when it sold 20.4% of the equity and 50.1% of the
voting power in Telmex to a private consortium for U.S.$1.76 billion. The
winning consortium consisted of Grupo Carso, S.A. de C.V., a Mexican
conglomerate which owns or otherwise controls a majority of the consortium's
voting interest, SBC Communications Inc. and France Telecom S.A. Subsequent to
the original privatization, the Mexican government further reduced its holdings
in Telmex through additional transactions and has substantially completed the
privatization process.
Telcel holds the Cellular B-Band concession in each of the nine cellular
regions and is Mexico's largest cellular operator. The Cellular A-Band
concession holders and the regions in which they serve are:
- subsidiaries of Iusacell in Regions 5, 6, 7 and 9,
- Baja Celular, S.A. de C.V. in Region 1,
- Movitel del Noroeste, S.A. de C.V. in Region 2,
- Telefonia Celular de Norte, S.A. de C.V. in Region 3,
- Celular de Telefonia, S.A. de C.V. in Region 4, and
- Portatel del Sureste, S.A. de C.V. in Region 8.
Motorola, Inc. is a controlling or significant shareholder in the
aforementioned five non-Iusacell concession holders. Telcel is the sole cellular
competitor for each Cellular A-Band company.
In connection with the privatization of Telmex in 1990, the Mexican
government granted Telmex a concession to provide public domestic and
international long distance telephone service with an exclusivity period of six
years. In August 1996, the exclusivity period expired, and competition with
proprietary infrastructure commenced in January 1997. A presubscription
balloting process was conducted in Mexico's 150 largest cities, covering 85% of
Mexico's total POPs, to enable customers to choose a long distance provider.
The SCT has granted a total of 17 long distance concessions, including that
held by Iusacell. Services are currently being provided under only ten of these
concessions. Long distance concessionaires include, among others:
- Alestra S. de R.L., in which AT&T Corporation is a shareholder.
- Avantel, S.A. de C.V., in which MCI WorldCom Inc. is a shareholder.
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- Telinor, S.A. de C.V. (Axtel), in which The Bell Telephone Company of
Canada, commonly known as Bell Canada, is a shareholder, and
- Iusatel, S.A. de C.V., a subsidiary of Iusacell.
Each concession has a nationwide scope and a thirty-year term. Concession
holders are authorized to offer domestic, international and value-added
services, including voice and data transmission services.
The Mexican government has also initiated the liberalization process for
competition in local telephony service. Accordingly, the SCT has already granted
three concessions for wireline local telephone service.
In May 1998, the auctions for spectrum in the 450 MHz, 1.9 GHz (PCS) and
3.4-3.7 GHz (Wireless Local Loop) frequency bands for local wireless service
organized by the COFETEL concluded. Four companies won nationwide concessions in
the Wireless Local Loop frequencies:
- Telmex,
- Axtel,
- Midicel, S.A. de C.V. (Midicel), and
- Servicios Profesionales de Comunicacion, S.A. de C.V. (Unefon), a TV
Azteca, S.A. de C.V. subsidiary, and an Elektra, S.A. de C.V. affiliate.
Three companies won nationwide concessions in the 1.9 GHz (PCS)
frequencies. Unefon won the 30 MHz PCS A-Band auction on a nationwide level.
Pegaso Comunicaciones y Sistemas, S.A. de C.V. (Pegaso), a consortium led by
Leap Communications International, Inc., Grupo Televisa, S.A. and a group of
other investors won a mix of 30 MHz PCS B-Band and 10 MHz PCS E-Band concessions
across all nine regions. Telcel won the 10 MHz PCS D-Band auction on a
nationwide level. Grupo Hermes, S.A. de C.V. and Midicel won auctions for seven
of the remaining nine PCS B-Band and PCS E-Band properties.
Formal concessions for Wireless Local Loop and PCS frequencies were issued
in late 1998 to all auction winners, except Unefon and Midicel, which received
extensions to May 15, 1999 to pay accrued interest and to June 15, 1999 to pay
the balance of their concession fees. Midicel did not meet its interest payment
requirements in May 1999 and forfeited its Wireless Local Loop and PCS
concessions and approximately U.S.$50 million in deposits, letters of credit and
surety bonds. Midicel later offered full payment and petitioned for a review
(recurso de revision) of the forfeiture order. As a result, the forfeiture order
has been suspended. Unefon did meet its May 1999 and June 1999 payment
requirements and received its Wireless Local Loop and PCS concessions, which
permit it to offer service beginning January 1, 2000.
Each concession has a twenty-year term and authorizes the provision of
mobile and fixed wireless service and other value-added services.
UNDERSERVED TELEPHONY MARKET
Iusacell believes that there is substantial unmet demand for telephone
service in Mexico as demonstrated by the relatively low level of wireline and
cellular penetration. According to the International Telecommunications Union,
an agency of the United Nations, as of December 31, 1997, there were
approximately 9.6 lines per 100 inhabitants in Mexico, which is lower than the
teledensity rates in some other Latin American countries and substantially lower
than those in developed countries such as the United States.
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The following table presents, for major Latin American countries and the
United States, telephone lines in service per 100 inhabitants as of December 31,
1997.
SELECTED TELEPHONE PENETRATION
<TABLE>
<CAPTION>
LINES IN SERVICE PER
COUNTRY 100 INHABITANTS(1)
- - ------- --------------------
<S> <C>
United States............................................... 64.37
Uruguay..................................................... 23.20
Argentina................................................... 19.13
Chile....................................................... 17.98
Colombia.................................................... 14.75
Venezuela................................................... 11.64
Brazil...................................................... 10.66
Mexico...................................................... 9.60
Peru........................................................ 6.75
</TABLE>
- - ---------------
(1) Source: International Telecommunications Union -- Yearbook of Statistics,
January 1999.
Pyramid Research, a division of the Economist Intelligence Unit, Ltd., an
independent telecommunications consultant, estimates that at the end of 1998,
the teledensity rate in Mexico was 10.2 telephone lines per 100 inhabitants
compared to teledensity rates of 19.1 in Argentina, 18.0 in Chile, 12.1 in
Brazil and 11.7 in Venezuela.
According to Pyramid Research, the wireline local telephony market
represents approximately 50.0% of Mexico's total telecommunications market, when
measured by revenues, and generated approximately Ps.3.4 billion of revenue in
1998. The business segment of the local telephone market represents
approximately 25% of the market, with the balance accounted for by the
residential segment. During the period from 1992 to 1998, the total local
telephone market call volume grew an average of 5.4% per year compared to an
average gross domestic product growth of 2.8% per year.
The following table presents, for major Latin American countries and the
United States, the number of subscribers of cellular mobile telephone services
per 100 inhabitants as of December 31, 1997.
SELECTED CELLULAR PENETRATION
<TABLE>
<CAPTION>
CELLULAR SUBSCRIBERS
COUNTRY PER 100 INHABITANTS(1)
- - ------- ----------------------
<S> <C>
United States............................................... 20.65
Argentina................................................... 5.63
Venezuela................................................... 4.62
Uruguay..................................................... 4.57
Colombia.................................................... 3.50
Chile....................................................... 2.80
Brazil...................................................... 2.75
Mexico...................................................... 1.81
Peru........................................................ 1.79
</TABLE>
- - ---------------
(1) Source: International Telecommunications Union -- Yearbook of Statistics,
January 1999.
Wireless penetration in Mexico has grown significantly over the last 21
months. Iusacell estimates that, at September 30, 1999, there were more than 5
cellular subscribers per 100 inhabitants in Mexico.
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The Mexican government, together with the telecommunications industry,
currently is discussing alternative incentives to help correct Mexico's
comparatively low teledensity.
CHANGING COMPETITIVE DYNAMICS
Iusacell's cellular competitor is Telcel, a wholly owned subsidiary of
Telmex, which holds the Cellular B-Band concession in all nine regions of
Mexico. Iusacell believes that Telmex faces increasing competition, especially
in the long distance market, which was opened to competition in January 1997,
and in local telephony upon the introduction of service by the new local
telephony concessionaires during 1999. Telmex's major long distance competitors
include Alestra and Avantel, two joint ventures in which AT&T and MCI WorldCom,
respectively, are the strategic partners. Telmex's major local telephony
competitors will include Axtel, in which Bell Canada is the strategic partner,
and Unefon, a Mexican company whose affiliates have strong distribution and
marketing capabilities.
In late 1995, Iusacell brought a suit charging Telmex with unlawfully
cross-subsidizing Telcel's cellular phone operations. See "-- Legal
Proceedings." Iusacell believes that the increased competition in both the long
distance and local markets, together with the proposed accounting separation
rules issued by COFETEL in December 1998 and dominant carrier regulations, if
implemented, should hinder Telmex's ability to continue to cross-subsidize
Telcel.
CALLING PARTY PAYS
On May 1, 1999, Mexico implemented the "calling party pays" modality, or
CPP, which had already been implemented in some other Latin American and
European countries. Calling party pays is a cellular telephony payment structure
in which the party that places a call to a cellular telephone is billed for
interconnection access, and the recipient is not billed for the airtime charges
corresponding to that call.
In the first six months of CPP operations, Iusacell's call traffic
increased by more than 11%, with an increase in the percentage of total calls
that were incoming calls. Iusacell believes that a significant portion of this
increase is attributable to increased usage by its prepay customers because CPP
gives them the incentive to keep their handsets turned on to receive incoming
calls. Iusacell expects that CPP will contribute to the continued acceleration
of subscriber growth and increase subscriber usage throughout the Mexican
wireless market.
CELLULAR SERVICES
HISTORY AND OVERVIEW
Iusacell's predecessor became the first Mexican provider of cellular
telecommunications services in 1989, when it commenced operation of the Cellular
A-Band network in Region 9. Through a series of transactions from 1990 to 1994,
Iusacell acquired 100% beneficial ownership interests in the entities which hold
the Cellular-A Band concessions in Regions 5, 6 and 7. These regions cover a
contiguous geographic area in central Mexico, which allows Iusacell to achieve
economies of scale.
Iusacell's regions cover a variety of industries. Region 9 includes Mexico
City, which has the greatest concentration of service and manufacturing
industries and is also the center of Mexico's public and financial services
sectors. Region 5 includes Guadalajara, Mexico's second largest city and the
commercial and service center of western Mexico. Region 6 includes Leon and San
Luis Potosi and has historically been dominated by the agricultural sector,
although it has recently begun to develop as an automobile manufacturing center.
Region 7 includes Puebla, Veracruz, Acapulco and Oaxaca and contains major
operations of the Mexican petrochemical and automotive industries and
significant tourist resorts and attractions.
SUBSCRIBERS AND SYSTEM USAGE
As of September 30, 1999, Iusacell had a total of 618,189 cellular
subscribers in Region 9. Of this number, 31.6% were contract plan subscribers
and 68.4% were prepay customers. According to customer
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profiles, professionals comprise a large portion of its Region 9 cellular
subscriber base. Iusacell offers a number of value-added services designed
specifically to fulfill the demands of this important group of contract
subscribers. For example, it offers secretarial services and provides
English-speaking operators to serve the large English-speaking market in Region
9. Iusacell also provides financial news reporting, emergency services,
entertainment information, reservations services and sports reports. Moreover,
CDMA digital contract customers in Region 9 have available caller
identification, short messaging service and data transmission services. Iusacell
believes that these value-added services help increase contract subscriber usage
and also enhance its market image as a full service cellular provider.
As of September 30, 1999, Iusacell had a combined total of 514,016 cellular
subscribers in Regions 5, 6 and 7. Of this number, 28.6% were contract plan
subscribers and 71.4% were prepay customers. Iusacell believes that its
subscriber base in these regions consists of subscribers engaged in a variety of
occupations. Due to the lower landline penetration outside of Region 9, the
subscriber base in Regions 5, 6 and 7 includes a number of users who purchase
cellular services as a principal means of telecommunications. Compared to Region
9, the marketing programs in these regions have focused more on the benefits
inherent in basic cellular service, such as mobility and convenience.
Iusacell believes that a strong distribution network is necessary in order
to develop and sustain a significant presence in these markets. See
"-- Marketing -- Distribution."
PREPAY CUSTOMERS
A prepay customer is no longer considered a customer of Iusacell when a
specified period of time has elapsed since the customer purchased and activated,
or added credit to, his or her last prepay card. The customer's telephone number
is then deactivated, and he or she is considered to have turned over.
Iusacell's current prepay customers who want to continue to have wireless
service must choose to:
- continue to be prepay customers of Iusacell by purchasing another card,
- become contract customers of Iusacell, or
- become either contract or prepay customers of Telcel or another wireless
service provider.
A VIVA prepay customer currently has 365 days to activate a new card after
the balance on his existing card becomes zero before losing his phone number.
During such time and with the implementation of the CPP modality, a VIVA
customer will be able to receive local incoming calls, but such customer will
not be able to make outgoing calls. Balances automatically become zero if the
customer has not activated a new card within 180 days after activation of the
previous card. Iusacell is considering indefinitely extending the period of time
for "incoming calls only" customers who have experienced significant incoming
call traffic. Iusacell continues to evaluate different methods of determining
turnover, as the current method is dependent upon, among other things, the
number of days of use Iusacell permits before deactivating a telephone number.
In March 1999, Iusacell substantially completed the installation of the
VIVA prepay operating system and the conversion of its Control Plus platform
customers to VIVA throughout its regions. The VIVA platform better tracks those
customers who turn over. This new operating system (together with initiatives to
increase the number of distribution points for prepay cards, adjust commissions
to encourage distributors to sell prepay cards of higher denominations, improve
customer care and otherwise improve the convenience of the prepay program) has
enhanced Iusacell's ability to add and retain prepay customers and has increased
usage. See "-- Marketing -- Pricing."
Given the higher turnover among its prepay customers, Iusacell pursues
plans to migrate its qualified prepay customers to contract plans, where
customer loyalty and retention have been historically higher.
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CONTRACT CHURN
Contract churn measures both voluntarily- and involuntarily-disconnected
subscribers. Through December 31, 1997, Iusacell calculated contract churn for a
given period by dividing, for each month in that period, the total number of
contract subscribers disconnected in such month by the number of contract
subscribers at the beginning of such month and dividing the sum of the resulting
quotients for all months in such period by the number of months in such period.
Effective January 1, 1998, Iusacell changed the methodology by which it
determines average monthly contract churn for a given period. Average monthly
contract churn for a given period is now calculated by dividing the sum of all
contract subscribers disconnected during such period by the sum of the
beginning-of-month contract subscribers for each of the months in such period,
expressed as a percentage.
Voluntarily disconnected subscribers encompass subscribers who choose to:
- no longer subscribe to wireless service,
- become a prepay customer of Iusacell, or
- obtain wireless service on a contract or a prepay basis from Telcel or
another wireless service provider.
Involuntarily disconnected subscribers encompass customers whose service is
terminated after failing to meet Iusacell's payment requirements. Iusacell
believes that a significant part of its contract churn in 1996 and the first
half of 1997 was due to customers switching from its contract plans to either
Telcel's prepay program, launched in February 1996, or Iusacell's own prepay
plan, launched in June 1996. With improved economic conditions in Mexico,
improved customer service and customer retention programs and the digitalization
of the network, the contract churn rate has declined, from 3.03% in the first
nine months of 1997 to 2.44% in the first nine months of 1999.
ROAMING
Iusacell offers its contract cellular subscribers nationwide and
international service via roaming agreements. Subscribers can make calls from
any location in Mexico served by a Cellular A-Band operator, and can receive any
call made to the subscriber's number (automatic call delivery) regardless of the
region in Mexico in which such subscriber is located. Iusacell also provides
cellular services to all subscribers of other non-wireline cellular operators in
Mexico while such subscribers are temporarily located in a region served by
Iusacell.
An operator (a host operator) providing service to another operator's
subscriber temporarily located in its service region (an in-roamer) earns usage
revenue. Iusacell bills such other operator (the home operator) of an in-roamer
for the in-roamer's usage. In the case of roaming by a Iusacell subscriber in
the region of a host operator (an out-roamer), Iusacell is billed by the host
operator for the subscriber's usage. Iusacell remits the billed amount to the
host operator and bills its own customer, the out-roamer, without any markup. As
a result, Iusacell retains the collection risk for roaming charges incurred by
its own subscribers. Conversely, roaming charges billed by Iusacell for
in-roaming usage by subscribers of other non-wireline operators are the
responsibility of those operators. Roaming charges between wireless operators
are settled monthly.
Interconnection charges owed to Telmex and long-distance charges owed to
long distance carriers as a result of roaming are the responsibility of the host
operator. In addition to higher per minute charges for airtime (as compared to
home region rates), the host operator is entitled to receive a fee for each day
roaming service is initiated. In-roaming fees and usage revenue represented
3.9%, 3.6% and 2.1% of Iusacell's total revenues during 1997, 1998 and the first
nine months of 1999, respectively. Out-roaming charges represented 5.2%, 5.4%
and 4.6% of Iusacell's total revenues during 1997, 1998 and the first nine
months of 1999.
Iusacell has signed over 61 agreements with United States, Canadian and
other foreign operators to provide its subscribers with international roaming
capabilities. These operators include Bell Atlantic
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Mobile, AT&T Wireless, BellSouth Mobility, Rogers Cantel and AirTouch
Communications. Iusacell is continually reviewing opportunities to enter into
agreements with other cellular operators to expand its international roaming
capabilities. In addition, Iusacell provides, through the National Automatic
Cellular Network, automatic call delivery throughout most of the United States,
including Puerto Rico, and Canada, whereby Iusacell subscribers may receive
telephone calls from Mexico without the caller having to dial access codes.
Currently, Iusacell's customers are able to roam in over 1,300 cities in the
United States and Canada as well as in Argentina and Peru.
PERSONAL COMMUNICATIONS SERVICES
As part of Iusacell's strategy to develop a nationwide wireless footprint,
in 1998 Iusacell won in auction concessions giving it the right to provide PCS
wireless services in Regions 1 and 4 in northern Mexico for which Iusacell paid
Ps.541.4 million (U.S.$57.9 million; U.S.$66.6 million including value added
tax) in June and September 1998. These two regions include several industrial
cities, including Monterrey and Tijuana, and cover approximately 11% of Mexico's
total population. Iusacell expects to launch wireless PCS in Monterrey in 2000,
subject to obtaining financing. Iusacell seeks to obtain this financing from
equipment vendors and other sources.
Iusacell intends to market PCS using the same fundamental strategies
successfully employed by its existing cellular operations. The PCS network that
Iusacell intends to deploy will use digital CDMA technology purchased from
Lucent Technologies, Inc.
LONG DISTANCE SERVICES
In August 1996, Iusacell became one of Telmex's first competitors in long
distance service when Iusacell began to provide long distance services to its
cellular subscriber base in Mexico pursuant to the 30-year concession to Iusatel
which was awarded in October 1995 and was modified in December 1997. Iusacell's
competitors in long distance include the 16 other companies granted concessions,
including Telmex, the former long distance monopoly. Iusacell believes that
competition in the Mexican long distance market has stimulated growth in demand
for long distance service; as prices dropped approximately 30%, long distance
traffic increased nearly 14% in 1997 compared to 1996. During 1998, there were
no significant price changes and long distance traffic increased 11% compared
with 1997. In the first half of 1999, prices were increased approximately 13.6%.
Iusacell currently provides long distance service using its own switches
and transmission equipment and a combination of fiber optic lines, microwave
links and lines leased from Telmex and Alestra. At September 30, 1999, Iusacell
provided long distance service in 60 cities to 1,158,501 customers,
approximately 1,147,433 of whom were existing customers for Iusacell's other
services. Iusacell has chosen not to commit significant marketing resources to
the presubscription balloting process, from 1997 to the present, and as a result
fared poorly in initial balloting results. Revenues related to long distance
services represented 10.5% and 12.0% of total revenues for 1998 and the first
nine months of 1999, respectively. See "-- The Telecommunications Industry in
Mexico -- Market Liberalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Iusacell's long distance concession provides for coverage and technological
investment requirements. If Iusacell does not satisfy such requirements, it may
have to pay fines and penalties and potentially lose its long distance
concession. After evaluating the commercial feasibility of complying with its
initial concession, Iusacell requested that the SCT and COFETEL modify the terms
of such concession to reflect a more rational business plan. In December 1997,
the government granted the modification request, authorizing a change in the
coverage requirements and increasing flexibility in the choice of transmission
technology, significantly reducing Iusacell's investment requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Other Material Trends and Contingencies -- Regulatory
Developments -- Long Distance Concession."
Iusacell further reduced the capital investment for its long distance
business by entering into fiber optic cable swap agreements with two other long
distance companies, Marcatel and Bestel, in March 1998
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and December 1998, respectively. These agreements have allowed Iusacell
effectively to acquire fibers in the long distance fiber optic networks being
built by Marcatel and Bestel in central and northern Mexico in exchange for
fibers in the long distance fiber optic network Iusacell was building in central
Mexico. See "-- Government Regulation -- Concessions and Permits -- Long
Distance" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources -- Capital
Expenditures."
OTHER SERVICES
PAGING
On December 14, 1995, Iusacell and Infomin formed Infotelecom as a joint
venture to market national and international paging services. Iusacell owns 49%
of Infotelecom, Infomin owns 49%, and the remaining 2% is owned by Mr. Jose
Ramon Elizondo, a director of New Iusacell. Infomin has a concession, which
expires on July 20, 2009, to provide nationwide paging services in Mexico. Under
the Infotelecom joint venture agreement, Infomin is obligated to contribute this
concession to Infotelecom. See "-- Government Regulation -- Concessions and
Permits -- Paging." Infomin has informed us that it intends to transfer its
shares in Infotelecom to Banorte, S.A. Institucion de Banca Multiple, a Mexican
bank, in settlement of certain indebtedness.
Pursuant to a marketing agreement between Iusacell and Infomin, Infotelecom
has the right to market national paging services on behalf of Infomin, and
Infotelecom is required to make monthly payments to Infomin equal to 5% of all
gross revenues for the preceding month. This payment represents the amount which
Infomin, as the concession holder, must pay the SCT for the right to provide
paging services.
Infotelecom began marketing paging services in August 1996 and, at December
31, 1998, provided service in 17 cities including Mexico City, Guadalajara,
Monterrey, Puebla, Cuernavaca, Toluca, Queretaro, Leon and Ciudad Juarez.
Infotelecom plans to expand the marketing of paging services to a total of 32
cities by mid-2000. Iusacell plans to take advantage of its existing cellular
network and its operating and administrative resources in order to achieve cost
efficiencies in the provision of paging services. In September 1999, Infotelecom
launched a prepay pager program.
As of September 30, 1999, Infotelecom had 27,249 paging customers.
Iusacell's revenues related to paging services represented 1.6% and 1.3% of
total revenues for 1998 and the first nine months of 1999, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Under their joint venture agreement, Iusacell and Infomin valued the
Infomin paging concession at U.S.$10.5 million, and Iusacell agreed to fund the
first U.S.$10.5 million of Infotelecom's cash requirements before Infomin would
be required to make pro rata cash contributions. In December 1998, Iusacell and
Infomin determined the appropriate manner in which to capitalize Infotelecom. Up
to that time, Iusacell had been funding the joint venture by means of loans. On
December 31, 1998, Iusacell capitalized Ps.121.8 million (U.S.$13.0 million) in
advances to Infotelecom, including Ps.45.2 million (U.S.$4.8 million) in
interest which was not credited against the U.S.$10.5 million required to be
funded by Iusacell. However, U.S.$9.0 million of such capitalization was applied
against the U.S.$10.5 million to be funded by Iusacell.
LOCAL, PUBLIC AND RURAL TELEPHONY
Iusacell operates a mobile nationwide IMTS radiotelephone network in the
440-450 MHz, 485-495 MHz and 138-144 MHz frequency bands, providing local
radiotelephone services to commercial and noncommercial customers across Mexico.
As of September 30, 1999, Iusacell had 6 IMTS radiotelephone subscribers with
average monthly billings for the nine months ended September 30, 1999 of
approximately Ps.833 (U.S.$89.1) per customer. Due to the substitutability of
cellular service for IMTS
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service, Iusacell is negotiating the cessation of IMTS service and the migration
of IMTS subscribers to cellular service or other local telephony services with
the SCT and COFETEL.
Iusacell also operates public and rural telephony programs, utilizing
available cellular capacity. These programs provide telecommunications services
through cellular telephones in phone booths, intercity buses and rural areas.
The provision of services in this way fulfills the terms of Iusacell's
concessions for the provision of cellular telephone service and utilizes
Iusacell's cellular network to provide telecommunications coverage in areas with
little or no basic service. As of September 30, 1999, Iusacell had 11,290
cellular telephones in service under its public and rural telephony programs.
As of September 30, 1999, Iusacell was providing, on a trial basis pending
approval from the SCT, local wireless service in the 450 MHz frequency band to
15,080 customers in selected markets in Region 9. The average monthly minutes of
use for these trial subscribers during the nine months ended September 30, 1999,
who had average monthly billings during such nine-month period of approximately
Ps.341 (U.S.$36.46) per subscriber, excluding long distance charges, was
approximately 539 minutes per subscriber divided almost equally among incoming
(52%) and outgoing (48%) calls. Iusacell does not charge its customers
interconnection fees for incoming calls. Iusacell believes that there is
substantial unmet demand for telephone service in Mexico as demonstrated by the
relatively low level of residential wireline, business wireline and cellular
penetration. See "-- The Telecommunications Industry in Mexico -- Underserved
Telephony Market."
Iusacell has experienced substantial delays in obtaining the SCT's approval
of its technical and economic plans for local wireless service in the 450 MHz
frequency band. However, on June 10, 1997, the SCT and Iusacell agreed on a
process by which Iusacell could obtain a concession issued and recognized by the
SCT to provide local wireless service in the 450 MHz frequency band. This
agreement allows Iusacell to convert and consolidate its existing concessioned
radiotelephony frequencies into 450 MHz spectrum in Regions 4, 5, 6, 7 and 9 and
grants Iusacell a right of first refusal to acquire concessions to provide local
wireless service over such frequencies at prices derived from the prices of the
winning bids in the auctions for 450 MHz and 1.9 GHz (PCS) frequency bands
concluded in May 1998. These auctions yielded a right of first refusal exercise
price estimated at U.S.$2.25 million for all five regions. However, neither the
SCT nor COFETEL has formally notified Iusacell of the exact right of first
refusal exercise price, the payment terms or the coverage/build-out requirements
relating to the concessions, all of which are necessary for Iusacell to decide
whether to exercise its right of first refusal.
As a result of these delays and the uncertainty relating to its ability, at
a commercially acceptable cost, to implement full scale local wireless service
in the 450 MHz frequency band, Iusacell is exploring alternatives for providing
local telephony services, such as limited zone wireless services in the 800 MHz
(cellular) or 1.9 GHz (PCS) frequency bands deploying digital technology that
permits mobility or fixed wireless services over such bands. If Iusacell were to
determine that it would be preferable to pursue such an alternative rather than
to continue to pursue local wireless service in the 450 MHz frequency band, such
alternative could require the acquisition of concessions, other regulatory
approvals and the payment of substantial fees. Iusacell expects to finalize
overall strategy for providing local telephony services in the first quarter of
2000.
In September 1998, Iusacell determined that, because of many factors,
including the impact of changing technology since the initiation of the 450 MHz
fixed local wireless project in 1994, an impairment of its investment in 450 MHz
TDMA technology had occurred. As a result, Iusacell recorded a substantial
non-cash writedown of its investment in the 450 MHz fixed local wireless
project. See "-- Government Regulation -- Concessions and Permits -- Local
Telephony," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Local Telephony in the 450 MHz Frequency Band" and
"Management's -- Discussion and Analysis of Financial Condition and Results of
Operations -- Non-recurring Charges."
In expanding its local telephone services, Iusacell plans to capitalize on
synergies between its mobile wireless and local wireless services, utilizing its
existing cellular network and anticipated 1.9 GHz
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(PCS) network for connections with the local subscribers' premises. Furthermore,
Iusacell believes that local wireless service requires a lower infrastructure
investment per line than landline service.
In January 1996, Iusacell's long distance subsidiary applied to modify its
concession to allow it to provide local wireline service, including dedicated
circuits, local switching and data service. This request was reasserted in
Iusacell's October 1997 application to modify its long distance concession. See
"-- Long Distance Services." This request was rejected for procedural reasons in
July 1998, and the subsidiary is considering filing a modified application.
Iusatelecomunicaciones, S.A. de C.V., Iusacell's 450 MHz local wireless
subsidiary, is also considering filing for a local wireline concession. While
Iusacell currently does not anticipate that the provision of local wireline
service will become a significant part of its services, it may provide, on a
case-by-case basis, local wireline telephone service as part of its overall
provision of telecommunications services.
DATA TRANSMISSION
Iusacell began providing data transmission services in 1993. Iusacell
provides both public and private data transmission primarily using excess
capacity in its microwave backbone in its existing cellular network in Region 9,
and satellite transmission through Satelitron, S.A. de C.V., a joint venture
among Iusacell, Hughes Network Systems and another partner which provides a
shared hub for private networks. Iusacell currently intends to sell its interest
in Satelitron. Iusacell provides its data transmission services primarily to the
financial services and consumer products industries.
MICROWAVE TRANSMISSION
In December 1998, the SCT issued three 20 year concessions to Punto-a-Punto
Iusacell, S.A. de C.V., a joint venture between Iusacell and Mr. Jose Ramon
Elizondo, a director of Iusacell, for short haul microwave frequencies in the 15
GHz and 23 GHz frequency bands won at auction. Punto-a-Punto Iusacell paid
approximately Ps.36.5 million (U.S.$3.9 million) for these concessions. These
frequencies are being used to interconnect Iusacell's cell sites, business
customers and other networks. Additionally, Iusacell has an obligation to lease
these frequencies to other users to enable them to install their own microwave
links. No such leasing is currently taking place.
Punto-a-Punto Iusacell participated in the auctions for long haul microwave
frequencies in the 7 GHz frequency band that began in March 1999 and concluded
in July 1999. However, Punto-a-Punto Iusacell did not win any concessions in
these auctions.
In September 1999, Punto-a-Punto Iusacell entered into an agreement with an
affiliate of the four Cellular A-Band regions in northern Mexico to swap long
haul microwave frequency links held by the affiliate for short-haul microwave
frequency links held by Iusacell plus cash payable upon the receipt by the
affiliate of its concession for long-haul frequencies. For the next 19 years,
Punto-a-Punto Iusacell will allow the affiliate to lease up to 200 short-haul
frequency links in each of the 15 GHz and 23 GHz frequency bands, for use in any
Region in Mexico, and will pay the affiliate a one-time, up front lump-sum
payment of approximately U.S.$2.45 million. In return, Punto-a-Punto Iusacell
will have the right to lease, for the next 19 years, up to 150 long-haul
frequency links in a 7 GHz frequency band for use in any one or more of Regions
5, 6, 7, 8 and 9. Punto-a-Punto Iusacell expects to close this transaction by
the end of 1999.
MARKETING
With the assumption of control by Bell Atlantic, Iusacell has redefined its
marketing strategy for achieving profitable growth, particularly in its cellular
business. More recently, Iusacell has focused its marketing strategy on the CDMA
digital cellular business, where there is greater per subscriber usage and
revenues. Iusacell seeks to increase its average monthly revenue per subscriber,
aggressively grow its cellular subscriber base, decrease the cost of acquiring
additional subscribers and reduce contract churn and prepay turnover by
improving its marketing to its existing and potential cellular subscribers.
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Iusacell's subscribers consist of contract and prepay customers who can be
classified as high, moderate or low-usage customers. Iusacell is implementing
distribution, advertising, customer service support and pricing plans targeted
to each specific customer segment and to increase airtime usage.
CONTRACT SUBSCRIBERS
Contract subscribers seek uninterrupted mobile cellular service, including
long distance, roaming, access to high-quality customer service and the ability
to choose among value-added services such as call waiting, emergency service,
short message service, caller identification and conference call service, all
for one monthly fee. At September 30, 1999, approximately 30.3% of Iusacell's
total customer base was made up of contract subscribers.
High-usage contract subscribers include corporate customers, professionals,
owners of small to medium-sized businesses and other subscribers who have a high
need for mobility and who rely on cellular service daily. These subscribers are
willing to pay a higher monthly fee in exchange for a large block of free
minutes, a lower airtime rate and a full range of value-added services and
customer service conveniences. These subscribers are concentrated in analog and
digital premium plans. Iusacell is aggressively pursuing customer growth in this
segment, particularly with its "New Millennium" digital plans, through targeted
marketing and distribution, advertising campaigns, pricing plans and special
promotions.
Moderate-usage contract subscribers include some professionals, small
business owners and residential customers who use cellular services frequently
and require the reliability of a contract plan, but do not generate the monthly
MOUs of high-usage contract subscribers. Iusacell plans to continue to generate
revenue from this segment through targeted marketing and distribution,
advertising, pricing and special promotions. Iusacell seeks to migrate these
customers to digital service as well.
While Iusacell does not target low-usage contract customers as aggressively
as other customers, it provides service options to meet the requirements of this
subscriber group. The low-usage contract plan segment consists primarily of
residential customers and small business owners who prefer the reliability of
contract plan service, but whose usage may not justify the inclusion of various
value-added services in the fixed monthly charge. This segment is targeted
through Iusacell's group of independent distributors and, to some extent,
through its commission agents and advertising programs. Three pricing plans are
currently offered to meet the needs of low-usage contract customers.
PREPAY SUBSCRIBERS
Since the inception of the prepay plan in 1996, the number of prepay
subscribers has grown to represent approximately 69.7% of Iusacell's subscribers
at September 30, 1999. A prepay subscriber can activate a cellular phone at a
Iusacell customer service center, purchase a prepaid card with a fixed amount of
credit to be used over a period of up to 180 days and credit the prepaid card
value to the subscriber's account either at a customer service center or by a
phone call. Such a customer will have access to incoming and outgoing cellular
service until the credit is fully used or otherwise until the card expires at
the end of 180 days, whichever occurs first, and thereafter will have access to
local incoming cellular service for an additional 365 days without activating a
new card. Iusacell is considering indefinitely extending the period of time for
some "incoming calls only" customers who have experienced significant incoming
call traffic. See "-- Cellular Services -- Prepay Customers."
Iusacell believes that prepay plans are attractive to a wide range of
cellular customers. In addition to helping customers control costs, a prepay
program has no monthly bill and allows customers to prepay for cellular services
in cash. The prepay market is composed of customers who, among others, typically
earn a variable income and prefer not to make a fixed financial commitment, do
not have the credit profile required to purchase a contract plan or seek
cellular services for emergency or limited use only.
Iusacell believes the prepay service offerings provide an opportunity to
improve margins because, compared to the average contract plan, prepay plans
involve higher average per minute airtime charges, a
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lower cost to acquire prepay subscribers and the absence of billing costs,
credit concerns and payment risk. Prepay customers are also potential customers
for other services and products offered by Iusacell. However, prepay customers,
on average, have substantially lower minutes of use than contract customers and
do not pay monthly fees and, as a result, generate substantially lower average
monthly revenues per customer. Iusacell focuses marketing efforts on increasing
usage by prepay customers, including migrating qualified prepay customers to
higher revenue contract plans.
As of the March 1999, Iusacell had installed and substantially completed
the migration of all of its prepay customers to its new VIVA prepay operating
system in all four of its operating regions. This new operating system allows
Iusacell to better track the usage patterns and identity of its prepay
subscribers. The new operating system has improved customer satisfaction through
automated reactivation, voice messaging and other value-added services, and has
lowered the cost of support for prepay services. The new operating system,
together with initiatives to increase the number of distribution points for
prepay cards, adjust commissions to encourage distributors to sell prepay cards
of higher denominations, improve customer care and otherwise improve the
convenience of Iusacell's prepay program, has enhanced Iusacell's ability to add
and retain prepay customers.
DISTRIBUTION
Iusacell targets the various segments of its subscriber base through six
sales and distribution channels: customer sales and service centers, corporate
representatives, independent distributors, a direct sales force, commission
sales agents and telemarketing. Iusacell is aggressively increasing the number
of its points of distribution in order to acquire additional subscribers. At
September 30, 1999, Iusacell had 5,751 points of distribution, as compared to
2,820, 918 and 228 at December 31, 1998, 1997 and 1996, respectively. These
points of sale are comprised of 96 customer sales and service centers owned and
operated by Iusacell, 916 points of sale operated by independent distributors
who offer all Iusacell products and 4,739 points of sale for distribution only
of VIVA prepay cards also operated by independent distributors.
Iusacell's redesigned sales force compensation plan is structured to
motivate the sales force within each distribution channel through monetary
incentives. In addition, this plan provides training so that the sales force is
encouraged to activate profitable and loyal accounts, cross-sell the full line
of Iusacell's service offerings and maintain its standards in advertising,
promotions and customer service.
Customer Sales and Service Centers. Iusacell has reconfigured each of its
customer sales and service centers to offer one-stop-shopping for a variety of
cellular, long distance and paging services, as well as accessories. Walk-in
customers can subscribe to cellular service contract plans, purchase prepay
cards, sign up for long distance service and purchase equipment such as
handsets, pagers and accessories. In an effort to maximize customer loyalty,
reduce contract churn and prepay turnover and increase average monthly revenue
per subscriber through cross-selling, Iusacell continues to emphasize the
customer sales and service centers that it owns and operates itself as a key
distribution channel. In 1997, Iusacell opened or remodeled 17 customer sales
and service centers, including 10 redesigned prototype customer sales and
service centers incorporating a new uniform store design, which provided the
basis for new and refurbished centers in the future. During 1998, Iusacell
opened 22 new customer sales and service centers based on the experience gained
from the ten prototype locations. As of September 30, 1999, Iusacell owned and
operated 94 customer sales and service centers throughout its four cellular
regions, and two other centers dedicated to long distance and paging sales in
northern Mexico.
Corporate Representatives. To service the needs of its large corporate and
other high-usage customers, Iusacell has created a dedicated corporate sales
group, which, at September 30, 1999, included 62 full-time sales
representatives. This group of trained representatives seeks to increase sales
to high-usage customers by:
- "bundling" combinations of services into customized packages designed to
meet customers' requirements,
- developing and marketing new services to satisfy the demands of such
customers, and
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- educating corporate purchasing managers about alternative pricing plans
and services.
Iusacell plans to increase the size and geographic reach of this sales
force in the future.
Independent Distributors. In order to broaden its market, Iusacell
maintains relationships with a broad network of 128 exclusive distributors that,
at September 30, 1999, sold all of Iusacell's products at 916 points of sale and
distributed VIVA prepay cards at an additional 4,739 points of sale. This
includes a distribution contract with Precel, formerly one of Telcel's largest
distributors, which currently provides exclusive distribution in 200 locations.
In order to ensure that its standards are maintained at all distribution points,
Iusacell provides assistance to its distributors in training, promotions and
advertising. Iusacell also provides them with information on its customer base
to allow the distributors to service Iusacell's customers effectively.
Direct Sales Force. As of September 30, 1999, Iusacell employed 15 direct
sales representatives to target moderate-usage contract plan subscribers. These
direct sales representatives travel extensively to deliver personalized service
to subscribers such as small and medium-sized businesses and individuals.
Iusacell also has established a program dedicated to servicing heavy users in a
personal and expedient manner. Iusacell carefully selects, trains and motivates
this sales force to maintain service standards.
Commission Sales Agents. Iusacell retains commission agents as a flexible
sales force in all of its cellular regions. The agents function as cellular
service brokers for Iusacell, working out of their own premises to better target
their customers. These agents provide additional distribution outlets with
minimal support from Iusacell. As of September 30, 1999, Iusacell had
arrangements with 52 commission sales agents who distribute its products with no
direct costs to Iusacell.
Telemarketing. From time to time, Iusacell engages telemarketing service
providers as a direct marketing mechanism or to follow up on targeted mailings.
ADVERTISING
Iusacell has launched an integrated media plan emphasizing the benefits of
its products and supported by the Iusacell brand image, the logo for which was
redesigned in 1997. Since that time, all product offerings have been marketed
under the single, well-recognized IUSACELL brand name which was reinaugurated as
IUSACELL Digital in February 1998, in anticipation of the digitalization of
Iusacell's network and product offerings.
The media plan targets potential subscribers through a coordinated print,
radio, television and fixed and moving outdoor advertising campaign. A key
element of this integrated media plan is a periodic agency review, where the
sales results of a given campaign are evaluated. The integrated media plan
enables Iusacell to negotiate more favorable advertising rates. Television and
print advertisements prominently feature an ad-response telephone number to
solicit new customer inquiries. Trained representatives who are equipped to
answer questions regarding services and products are available from 7 a.m. to 11
p.m. daily.
CUSTOMER SERVICE
Iusacell views superior customer service as essential in order to
distinguish itself in the competitive Mexican cellular telecommunications
market. Iusacell trains its customer service representatives to ensure that each
customer receives prompt attention, informed answers to any inquiries and
satisfactory resolution of any concerns. Iusacell believes that enhanced
customer service, especially after-sales support, is integral in developing
brand loyalty and supports the efforts of its sales force to cross-sell its
services and products. For prepay customers, the newly installed VIVA prepay
operating system better tracks the usage patterns and identities of these
subscribers. The system has improved customer satisfaction through automated
activation, voice messaging and other value-added services and has lowered the
cost of support services.
To further enhance customer service, Iusacell has installed dedicated
personal computer terminals linked to its billing system so that each customer
service representative, either at a Iusacell customer sales
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and service center or at a Iusacell call center, can handle customer inquiries,
billing questions and account payments with real-time data and a full customer
profile in hand. Customer data gathered from such sources as the activation
process, the billing system and exit interviews with customers who terminate
service, allows Iusacell to better tailor its marketing strategy to each
customer. Along with providing information as to how Iusacell can improve its
customer service, this data is expected to enable representatives from each of
the distribution channels to better target their sales approach to each customer
when cross-selling Iusacell's services and products.
In early 1998, Iusacell opened two call centers that provide more automated
and efficient service to customers through the use of state-of-the-art software
and rigorous customer service training. By the end of 1998, these call centers
consolidated the work previously done by six call centers. In 1998, Iusacell
also began implementing the Customer Attention Support Team (CAST) program in
its busiest customer service centers in order to accelerate the problem
resolution process. This program has also been expanded to include the majority
of Iusacell's customer service centers in all four of its cellular operating
regions.
PRICING
General. Iusacell offers a variety of flexible pricing options for its
cellular service. The primary components of the contract pricing plans include
monthly fees, per minute usage charges and a number of free minutes per month.
The prepay program markets cards which credit a defined number of Pesos to a
customer's account, to be utilized for outgoing calls over a period of no more
than 180 days and for local incoming calls for 185 additional days. Most of the
contract plans include a selection of free cellular handsets. The prepay plans
do not provide free cellular handsets.
Contract Plans. The digital and analog contract pricing plans are designed
to target primarily high and moderate usage contract subscribers. High-usage
customers are typically willing to pay higher monthly fees in exchange for
larger blocks of free minutes, value-added services, a free handset and lower
per minute airtime charges under a single contract. Moderate-usage contract
subscribers typically prefer pricing options which have a lower monthly charge,
fewer free minutes and higher per minute airtime charges than those options
chosen by high-usage customers.
With the introduction of CDMA cellular service in Region 9 in early 1998,
Iusacell inaugurated five digital contract pricing plans. In September 1998,
Iusacell added six more plans. The pricing plans for digital service target
moderate and high-usage customers and offer incremental free minutes as a part
of the basic monthly charge. The digital pricing plans offer different packages
of additional services and features available only with digital technology.
In April 1999, in an effort to differentiate its digital product, Iusacell
drastically simplified its digital contract plan offerings. Iusacell reduced the
number of its contract plans from 11 to 5 and substantially increased the number
of minutes included with the monthly fee when compared with previous comparable
digital and analog contract plans.
To satisfy the more limited needs of low-usage contract subscribers,
Iusacell also offers plans which provide a moderately priced, fixed monthly
charge coupled with a high per minute airtime charge and relatively few free
minutes.
Prepay Plans. In contrast to contract subscribers, prepay customers
typically generate low levels of cellular usage, do not have access to
value-added services (except for purchasers of Ps.500 prepay cards) or roaming,
generally already own a handset and often are unwilling to make a fixed
financial commitment or do not have the credit profile to purchase contract plan
cellular services. Other prepay customers include vacationers and traveling
business people who require cellular service for short periods of time. In
addition to helping customers control costs, Iusacell's prepay programs have no
monthly bill and allow customers to prepay for cellular services in cash.
In September 1997, Iusacell introduced its next-generation VIVA prepay
service to replace its in-house Control Plus platform. VIVA provides for
automated reactivation without human intermediaries and value-added services
such as voice-messaging. VIVA prepay cards are available in denominations of
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Ps.100, 150, 250 and 500, although a new customer cannot be activated with a
Ps.100 card. As of March 31, 1999, VIVA had been implemented in all four regions
and substantially all existing Control Plus customers had been migrated to VIVA.
Discounts on Incoming Calls. In response to competitive and market
conditions, Iusacell offers discounts on the airtime charges of up to 50% for
incoming calls for its customers who are in their home region and who have opted
out of the CPP system. Beginning in May 1999, with the advent of the CPP
modality, cellular customers who do not opt out of CPP do not pay airtime
charges for incoming local calls (other than incoming local calls while roaming
outside their home region).
Strategy. Iusacell intends to continually review market pricing and will
attempt to increase prices, if economic and competitive conditions permit, to
keep pace with inflation. In April 1997, Iusacell announced a weighted average
increase of 14.8% for the per minute airtime price on all its contract and
prepay plans. This weighted average price increase was calculated by applying
the actual price increases announced in April 1997 to both peak and non-peak per
minute airtime charges for each of Iusacell's contract and prepay plans,
weighted by the ratio of each plan's contribution to overall airtime revenues
during the month of February 1997.
In May 1997, Iusacell announced a weighted average increase of 4.5% for the
fixed monthly charges on all its contract plans. This weighted average price
increase was calculated by applying the actual price increases announced in May
1997 for all Iusacell's contract plans, weighted by the ratio of each plan's
contribution to overall monthly fixed charges during the month of April 1997.
To maintain competitiveness, airtime prices were adjusted downward by 4.6%
on a weighted average basis in October 1997 and another 1.0% on one of the
low-end contract plans in November 1997. Also, in response to Telcel pricing
actions and as a means of boosting traffic volumes and ultimately average
revenue per subscriber, the airtime price for incoming calls was reduced by
25%-50% for all contract plans in October 1997.
In late March 1998, Iusacell raised airtime prices approximately 7.9% on
average for contract plans and 13.6% for prepay customers. Because of market and
competitive conditions, however, this increase was partially rolled back in
early May 1998 for both contract and prepay customers and, in late May 1998, the
remainder of the price increase for contract plans was reversed. As a result,
however, a 9.9% price increase for prepay customers remained.
In August 1998, Iusacell filed with COFETEL to register tariffs that would
increase analog contract plan airtime prices in Region 9 by approximately 3% on
a weighted average basis. Competitive conditions caused this price increase not
to be implemented. In October 1998, Iusacell raised airtime prices for its
contract plans by approximately 8% on a weighted average basis. In late March
1999, Iusacell raised airtime prices on its contract plans by approximately 12%
on a weighted average basis and approximately 6% for prepay customers. These
price increases remained in place as the competition matched the increases.
ACTIVATION, BILLING AND COLLECTION PROCEDURES
Iusacell can activate a phone within 30 minutes of receiving credit
approval for customers who intend to pay their monthly charges with a credit
card. For customers who intend to pay their monthly charges in cash, there is a
credit review process of no longer than 48 hours prior to the delivery and
activation of a cellular telephone and a requirement of a security deposit,
depending on the contract plan, in a minimum amount equal to 1.5 times the
corresponding monthly rental fee. For prepay customers, activation time is 30
minutes or less. Iusacell believes that its ability to activate a cellular
telephone number promptly gives it a competitive advantage over Telcel.
Iusacell mitigates its credit exposure in five ways:
- for those customers paying by credit card, by obtaining a credit report
from the National Credit Bureau (Bureau Nacional de Credito), a Mexican
affiliate of TransUnion Corporation,
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- by requiring payment to be made by credit card or, for those customers
who do not pay by credit card, by requiring security deposits and
conducting a credit investigation,
- by requiring that contract customers purchase a bond, which provides for
payment in the event of customer defaults, after the first year of
service,
- by establishing credit limits, and
- by utilizing prepay cards, which eliminate all credit risk.
For 1997 and 1998, Iusacell reserved approximately 1.0% of its cellular
revenues for doubtful receivables. For the first nine months of 1999, Iusacell
reserved approximately 1.6% of its cellular revenues for doubtful receivables.
Toward the end of the third quarter, Iusacell changed its billing practice
for contract customers who had fallen behind in their payments and whose service
had been suspended. Rather than continue its policy of not charging monthly fees
upon suspension, Iusacell, in the hope of receiving additional cash from
suspended customers who ultimately pay overdue amounts and reinitiate service,
began to continue to charge monthly fees to suspended customers, but reserved
the monthly fees as doubtful receivables. Although Iusacell expects to recognize
some additional revenue as a result of this change in policy, Iusacell expects
doubtful receivables, at least initially, to approach 5%.
Iusacell has instituted customer retention procedures where a late-paying
customer is contacted by a service representative prior to termination to urge
such customer to settle his or her account and to inquire about the reasons for
nonpayment. Iusacell believes that these follow-up procedures help decrease the
rate of nonpayment and improve customer goodwill by allowing Iusacell to address
any customer grievances which may have led to customer delinquency, helping to
retain potentially profitable accounts.
Iusacell has also implemented a system to monitor MOU levels and the number
of calls to certain geographic areas in order to identify abnormal usage by
contract subscribers. When abnormal usage is detected, Iusacell contacts the
subscriber to determine whether such usage has been authorized. Iusacell
believes that these procedures are effective in reducing the number of billing
disputes with subscribers and losses due to cellular fraud.
Billing is currently administered using five different billing systems,
including a new cellular customer care and billing system provided by LHS
Communications Systems, Inc. in Regions 5, 6, 7 and 9, two point of sale
systems, a proprietary residential long distance system, a proprietary system
for high-volume business long distance customers and a purchased system for
paging customers. Iusacell compiles billing information from its switches on
magnetic tape every 24 hours for processing by its billing systems. Protective
and disaster recovery measures are taken in connection with all billing
information.
In late 1997, Iusacell decided to implement the LHS customer care and
billing system to support its cellular business in all of its regions. Although
the implementation of the LHS customer care and billing system in Region 5 in
January 1999 experienced certain performance and stability problems due to
software defects which negatively impacted billing cycles, the implementation of
flexible pricing discounts, billing for roaming and credit and collection
functionality, these problems, except for the roaming issues, have been largely
resolved. The LHS customer care and billing system was implemented in Region 6
in early August 1999, in Region 7 in early September 1999 and in Region 9
beginning October 1, 1999. Iusacell expects that the new LHS system will
ultimately improve processing speed and data integrity; will permit easier and
more flexible access to customer information, thereby facilitating targeted
marketing and resolution of customer complaints; and will help resolve Year 2000
compliance issues. In the future, Iusacell may determine to extend this new
system to all of its product lines to permit a customer to receive a single bill
for all services provided.
Iusacell expects to invest in 1998, 1999 and 2000 a total of approximately
U.S.$33.7 million for the cellular portion of its new customer call and billing
system. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance" and "-- Liquidity and Capital
Resources -- Capital Expenditures."
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NETWORK AND EQUIPMENT
CELLULAR SERVICES
As of September 30, 1999, Iusacell's integrated cellular network was
composed of 5 cellular switches, 357 cell sites and 56 repeaters, and covers
approximately 79% of total cellular regional POPs: 53 million inhabitants or 55%
of Mexico's total population.
In December 1997, Iusacell signed an agreement with subsidiaries of Lucent
Technologies, Inc. for the replacement of Iusacell's existing analog network
equipment with Lucent analog and CDMA digital network equipment. This
replacement began in February 1998 and was completed in August 1999. In May
1998, Iusacell launched CDMA digital service in the Mexico City area of Region
9. In the fourth quarter of 1998, Iusacell introduced digital service in the
cities of Guadalajara, Morelia, Leon, Queretaro, Puebla and Cuernavaca. Region 5
became Iusacell's first region to swap out completely to Lucent analog and CDMA
network equipment in February 1999 and, since that time, Iusacell gradually
swapped out the remainder of its network on a sub-region by sub-region basis.
Region 6 was completely swapped out in May 1999, Region 9 was completely swapped
out in July 1999, and Region 7 was completely swapped out in August 1999.
Iusacell elected to deploy CDMA technology instead of TDMA technology based
on its and Bell Atlantic's evaluation of the two technologies. Bell Atlantic is
successfully using CDMA technology in most of its U.S. markets with favorable
customer response. CDMA offers significantly greater call-carrying capacity,
superior voice quality, longer telephone battery life and greater fraud
protection and is easier to upgrade than TDMA. Iusacell will maintain
transmitting equipment to serve both analog and digital formats, and Iusacell is
marketing dual-mode cellular telephones capable of sending and receiving both
analog and digital transmissions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Digitalization."
Iusacell's cellular network consists of digital switching systems that are
capable of serving multiple markets. Region 9 is served by two Lucent
Technologies 5ESS switches. Regions 5, 6, and 7 are each served by one Lucent
Technologies 5ESS switch. All switching equipment is fully networked.
Iusacell installed its first mobile switching center in 1989 in Region 9
and currently operates 192 cell sites in Region 9, providing telephone coverage
to substantially all of the populated territory and major highway routes of
Region 9. Regions 5, 6 and 7 currently operate with a total of 164 cell sites,
resulting in cellular telephone coverage in all major population centers as well
as along the principal highway routes in the regions.
Iusacell installed 71 cell sites and 5 repeaters in its regions during 1998
in an effort to increase geographic coverage, as well as boost call-carrying
capacity within areas already covered, and removed from operation 4 cell sites
and 9 repeaters in 1998. Iusacell installed 15 cell sites and removed from
operation one cell site in the first eight months of 1999 and plans to install
17 additional cell sites and one additional repeater during the remaining four
months. Iusacell increases call-carrying capacity and coverage by three
principal means: "cell splitting," deploying "micro-cells" and using cell site
repeaters or enhancers. Approximately 70% of the cells in Region 9 were created
as a result of cell splitting.
Digital microwave links between cell sites and the landline system are
supplied by various equipment manufacturers. Taking advantage of the ability of
its various switching systems to run customized software, Iusacell has developed
a proprietary software package which is able to track and report, in real-time,
all aspects of network performance, including traffic analysis, call quality and
alarms. Iusacell seeks to upgrade and improve its cellular network as new
technologies become available.
Iusacell has a network operations and control center (NOCC) in Mexico City
which oversees, administers and provides technical support to all regions.
Iusacell plans to upgrade its NOCC by installing a new network management system
that will provide more complete and automated surveillance capabilities and
fault and performance management for all network equipment. The first phase of
the
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NOCC upgrade became operational in the first quarter of 1999 and the second and
final phase will become operational during the fourth quarter of 1999.
OTHER SERVICES
Iusacell provides paging services primarily using its own cellular network
facilities as well as 48 owned and one leased paging antennas. For long
distance, Iusacell uses fiber optics and state-of-the-art digital systems. In
particular, Iusacell uses its three long distance switches and its own fiber
optic network and transmission equipment, as well as other facilities leased
from Telmex and other competitors.
Iusacell provides private data transmission services, primarily using
excess capacity in its microwave backbone in its existing cellular network in
Region 9, and satellite transmission through its Satelitron joint venture, which
provides a shared hub for private networks.
Iusacell's local wireless network, if implemented in the 450 MHz frequency
band, is expected to be based on the most advanced digital switching,
transmission and subscriber connection equipment that is readily available and
commercially feasible. Iusacell would utilize its existing infrastructure,
including one switch and 15 450 MHz cell sites, to the extent possible. If
Iusacell opts to provide local wireless service through its 800 MHz cellular or
1.9 GHz (PCS) frequency bands, the digital technology that would be employed
would offer additional features such as out-of-zone mobility.
INFRASTRUCTURE SYNERGIES
While cellular transmitters are unique to cellular service, towers can be
used for cellular and paging transmissions, and the same physical infrastructure
can be used for cellular, paging and long distance equipment. Synergies also
exist in maintenance, work force training and equipment purchasing. Iusacell
believes that, as it expands its non-cellular offerings, these synergies will
allow it to reduce its infrastructure costs significantly and will reduce the
time needed for implementation of a new service.
For a discussion of Iusacell's capital expenditure plans for its cellular
and other services, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Capital Expenditures."
COMPETITION
The offering of cellular services in Mexico is currently a regulated
duopoly in each region. Iusacell's cellular competitor in all regions in which
it provides service is Telcel, the holder of the Cellular B-Band concession for
service throughout Mexico and the country's largest cellular provider. Cellular
systems compete principally on the basis of quality of telecommunications
services, customer service, price, breadth of coverage area, roaming
capabilities and value-added services. Operators are largely free to set their
own rates, provided they are set on the basis of cost. See "-- Government
Regulation."
Iusacell will face increasing competition from companies providing mobile
wireless telecommunications services utilizing alternative existing
technologies. Nextel de Mexico, S.A. de C.V. began marketing its enhanced
specialized mobile radio services in 1998. In 1999, Iusacell began to face
competition from the winners of 1.9 GHz (PCS) spectrum in the auctions concluded
in May 1998. Pegaso commercially launched its PCS services in Region 1 in
February 1999 and recently launched its PCS services in Mexico City, Guadalajara
and Monterrey. Iusacell expects Pegaso to begin to provide PCS services in
Acapulco and Veracruz in the first quarter of 2000. Iusacell also expects to
face increasing competition from companies that provide services utilizing new
technologies, such as satellite telephony.
In paging services, Iusacell competes with established companies such as
Comunicaciones Mtel, S.A. de C.V. (Skytel), Operadora Biper, S.A. de C.V.
(Biper), Enlaces Radiofonicos, S.A. de C.V. (Digitel), Comunicacion Dinamica
Metropolitana, S.A. de C.V. (Coditel), Grupo Radio Beep, S.A. de C.V. and
Buscatel, S.A. de C.V., a Telmex subsidiary. Some of Iusacell's paging
competitors have already established nationwide paging networks, giving them a
significant operational and marketing advantage over Iusacell. COFETEL recently
concluded auctions for a series of nationwide and regional concessions for
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frequencies to be used to provide two-way paging services. Moreover, digital
wireless providers, including Telcel, Pegaso and Iusacell, have begun to provide
short message service, which is a paging service, over wireless frequencies.
In providing long distance telephone service, Iusacell faces or will face
competition from 16 other concession holders, including Telmex and joint venture
companies in which AT&T and MCI WorldCom have beneficial ownership interests.
Presubscription balloting took place in 150 cities in 1997, 1998 and the first
quarter of 1999 in which telephone customers chose their long distance carrier.
Iusacell chose not to commit significant marketing resources to the balloting
process and fared poorly in initial balloting results.
In the local telephony market, Iusacell expects to face significant
competition from Telmex, the existing monopoly, and new competitors providing
service over the 1.9 GHz (PCS) and 3.4-3.7 GHz (Wireless Local Loop) frequency
bands. Unefon launched service in Mexico City in January 2000. See "-- The
Telecommunications Industry in Mexico -- Market Liberalization."
In providing data transmission services, Iusacell competes for customers
with Telmex, state-owned Telecom and the operational long distance companies. In
addition, Iusacell believes that the current Mexican data transmission industry
includes over 1,000 private networks that provide data transmission services.
INTERNATIONAL JOINT VENTURES
On September 12, 1997, Iusacell signed an agreement to sell its direct and
indirect minority interests in its Ecuadorian cellular company, Conecel, and its
Ecuadorian paging company, Corptilor, S.A., to a corporation controlled by the
controlling shareholder of the majority shareholder of these companies. At the
September 30, 1997 closing, Iusacell received U.S.$29.4 million in cash
consideration for its direct interests in these companies, and in 1998 it
received approximately U.S.$2.0 million, net of taxes, in respect of its
indirect interest. In November 1999, Iusacell received an additional U.S.$1.6
million, net of Colombian taxes, in respect of the liquidation of the company
that held this indirect interest.
In December 1996, Iusacell sold a 51% stake in Iusatel Chile, a Chilean
long distance company, and agreed to sell the remaining 49% upon acquisition
from its previous partners. The second stage of this transaction was completed
in early 1997. Iusacell received U.S.$5.0 million for the two sales. The sale
transaction also included a capitalization of U.S.$13.3 million of obligations
of Iusacell to Iusatel Chile. Iusacell received full payment in December 1997.
GOVERNMENT REGULATION
Telecommunications systems in Mexico are regulated by the SCT and COFETEL,
a decentralized regulatory body within the SCT, pursuant to the 1995
Telecommunications Law (Ley Federal de Telecomunicaciones), which became
effective on June 8, 1995. Regulations governing international long distance,
domestic long distance and local telephony have been promulgated under the 1995
Telecommunications Law. However, some rules from the prior Law of General Means
of Communication (Ley de Vias Generales de Comunicacion) and the rules
promulgated under such law, including, without limitation, the
Telecommunications Rules (Reglamento de Telecomunicaciones) which we
collectively refer to as the Original Communications Laws, generally remain
effective.
These laws and regulations define the regulatory structure applicable to
the nationwide telecommunications infrastructure and the provision of
telecommunications services. They govern, among other things:
- applications to install, maintain and operate telecommunications systems,
- the establishment of technical standards for the provision of
telecommunications services,
- the grant, revocation and modification of concessions and permits, and
- the auction of spectrum.
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In particular, the terms and conditions of concessions and permits granted
under the Original Communications Laws, which is the case for most concessions
and permits granted to Iusacell and its subsidiaries, should be governed by the
Original Communications Laws and respected under the new regulatory regime until
their expiration. The 1995 Telecommunications Law may grant rights enhancing
those set forth in the Original Communications Laws. However, rates charged by
holders of concessions and permits granted under the Original Communications
Laws will continue to require prior approval from the SCT, unless such
concession or permit is amended. Iusacell, whose four cellular concessions were
granted under the Original Communications Laws, has requested an amendment of
its concessions to permit it to register tariffs with COFETEL without prior
approval from the SCT.
CONCESSIONS AND PERMITS
To provide public telecommunications services in Mexico through a public
network, the service provider must first obtain a concession from the SCT.
Pursuant to the 1995 Telecommunications Law, concessions for public networks may
not exceed a term of 30 years, and concessions for radioelectric spectrum may
not exceed a term of 20 years. Concessions may be extended for a term equivalent
to the term for which the concession was originally granted, but not to exceed
such 20- or 30-year limit, as the case may be. Concessions specify, among other
things:
- the type of network, system or service,
- the allocated spectrum, if applicable,
- the geographical region in which the holder of the concession may provide
the service,
- the required capital expenditure program,
- the term during which such service may be provided,
- the payment, where applicable, required to be made to acquire the
concession, including, where applicable, the participation of the Mexican
government in the revenues of the holder of the concession, and
- any other rights and obligations affecting the concession holder.
In addition to concessions, the SCT may also grant permits for (x)
establishing, operating or exploiting private telecommunications services not
constituting a public network (i.e., reselling) and (y) installing, operating or
exploiting transmission-ground stations. There is no specified maximum term for
permits. Under the 1995 Telecommunications Law, only registration with the SCT
is required to provide value-added telecommunications services.
Under the 1995 Telecommunications Law and the Foreign Investment Law (Ley
de Inversion Extranjera), concessions may only be granted to Mexican individuals
and to Mexican corporations in which non-Mexicans hold no more than 49% of their
voting shares or which are not otherwise controlled by non-Mexicans, except
that, in the case of concessions for cellular communications services, foreign
investment participation may exceed 49% with the prior approval of the Mexican
Foreign Investment Commission of the Mexican Ministry of Commerce and Industrial
Development. There are no foreign investment participation restrictions in
respect of operations conducted under permits.
A concession or a permit may be terminated pursuant to the 1995
Telecommunications Law upon:
- expiration of its term,
- resignation by the concession holder or the permit holder,
- revocation,
- expropriation, or
- dissolution or bankruptcy of the concession holder or the permit holder.
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A concession or a permit may be revoked prior to the end of its term under
certain circumstances, such as:
- unauthorized or unjustified interruption of service,
- the taking of any action that impairs the rights of other concessionaires
or permit holders,
- failure to comply with the obligations or conditions specified in the
concession or permit,
- failure to provide interconnection services with other holders of
telecommunications concessions and permits,
- loss of the concession or permit holder's Mexican nationality in
instances in which Mexican nationality is legally required,
- unauthorized assignment, transfer or encumbrance of the concession or
permit, of any rights under the concession or permit or of assets used
for the exploitation of the concession or permit,
- failure to pay to the Mexican government its fee for the concession or
permit or, where applicable, its participation in the revenues of the
holder of the concession or permit, and
- participation of any foreign government in the capital stock of the
holder of the concession or permit.
In addition, the SCT may establish for any concession further events which
could result in revocation of that concession.
The Mexican government, through the SCT, may also temporarily seize all
assets related to a concession or permit in the event of a natural disaster,
war, significant public disturbance or threats to internal peace and for other
reasons related to preserving public order or for economic reasons. In addition,
the government has the statutory right to expropriate a concession and assets
related to its exploitation for public interest reasons. Under Mexican law, the
Mexican government is obligated to compensate the owner of the assets in the
case of a statutory expropriation or temporary seizure, except in the event of
war. If the Mexican government temporarily seizes such assets, it must indemnify
the concession or permit holder for all losses and damages, including lost
revenues.
In the case of an expropriation, the amount of the compensation is to be
determined by appraisers. If the party affected by the expropriation disagrees
with the amount appraised, it may initiate judicial action against the
government. Should no agreement be reached on the amount of the indemnity in the
case of a seizure or expropriation, the determination will be made by an
independent appraiser. Iusacell is not aware of any instance in which the SCT
has exercised any of these powers in connection with a cellular company.
The Original Concession. Iusacell's right to provide radiotelephony, local
wireless and data transmission services nationwide, as well as cellular service
in Region 9, is based upon the concession granted to the predecessor of
Iusacell's wholly owned subsidiary, SOS Telecomunicaciones, S.A. de C.V., on
April 1, 1957, as amended, which we refer to as the Original Concession. The
term of the Original Concession is 50 years, and it expires on April 1, 2007.
The Original Concession may, however, be revoked prior to such date in the event
that SOS fails to comply with its terms or applicable law. The Original
Concession is renewable upon timely application to the SCT, provided that SOS
has complied with all of the requirements of the Original Concession and agrees
to any new terms and conditions established by the SCT at the time of renewal.
In consideration for the Original Concession, SOS must make payments to the
Mexican government equal to 5% of all gross revenues derived from services
provided through its Region 9 cellular network and payments in an amount which
is the greater of (i) 4% of all gross revenues and (ii) 10% of net income, in
either case, derived from services provided through its nationwide
radiocommunications network.
Under the terms of the Original Concession, SOS must continually modernize
its services. In updating its services, SOS must submit technical and economic
plans for approval by the SCT. In
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determining whether to approve these plans, the SCT is authorized to consider
whether the plans sufficiently address factors such as the public interest
(including, without limitation, teledensity) and efficiency and uniformity in
telecommunications throughout Mexico.
Initially, the Original Concession authorized only the installation and
commercial operation of nationwide mobile (vehicle-installed) radiotelephone
public service in the 132-144 MHz frequency range. Since then, however, the
Original Concession has been amended numerous times, allowing Iusacell to expand
the types of telecommunications services which it may offer. In 1978, the
Original Concession was amended to grant SOS an additional allocation in the
440-450 MHz and 485-495 MHz frequency ranges in return for yielding a portion of
its 132-144 MHz frequency range allocation. SOS retained the frequencies between
138 and 144 MHz.
Between 1986 and 1989, the Original Concession was further amended to
enable SOS to provide fixed rural radiotelephony service, to offer telex and
data transmission with the obligation to link its subscribers to the network
owned by Telecom, and to interconnect its radiocommunications ground stations
through satellite.
In 1989, SOS was authorized to install, operate and maintain a mobile
public radiocommunications network with cellular technology in the 825-835 MHz
and 870-880 MHz frequency bands in Region 9. In 1990, SOS was authorized to
carry intra-regional cellular-to-cellular communications throughout Region 9
without being required to interconnect with the long distance carrier. In 1992,
SOS was authorized to provide public data transmission service nationwide
through its radio communications networks without the obligation to link its
subscribers to the Telecom network.
In 1993, SOS was granted an additional 5 MHz band in the 800 MHz frequency
range for the provision of cellular service, due to the high volume of cellular
traffic experienced in Region 9. In the same year, SOS was authorized to improve
its radiocommunications public service in the 440-450 MHz and 485-495 MHz
frequency ranges by utilizing digital technology and to interconnect its
telecommunications systems through fiber optic, satellite and microwave
technologies. The SCT also clarified the ability, and indeed the obligation, of
SOS to interconnect customers of its nationwide radio communications network
regardless of whether such customers use fixed, mobile or portable telephones.
In accordance with the 1995 Telecommunications Law, SOS applied to renew
the Original Concession in March 1997. Moreover, in December 1996, Iusacell
applied to divide the Original Concession into two concessions, one relating to
the provision of cellular services over the 800 MHz frequency band in Region 9,
which would not be subject to restrictions on foreign investment, and a second
relating to the 450 MHz frequencies, which would be subject to restrictions on
foreign investment. See "-- Foreign Ownership Restrictions." Iusacell is
currently negotiating the terms and conditions for such extension and division
with COFETEL.
Cellular Concessions. Mexico is divided into nine cellular regions. The
SCT has allocated cellular telephone system frequencies in each region in the
Cellular A-Band and the Cellular B-Band. In each region, Telcel holds the
Cellular B-Band concession and its cellular competitor in each region holds the
Cellular A-Band concession.
In Region 9, Iusacell holds the right to provide cellular service pursuant
to an authorization granted to SOS by the SCT in 1989 under the Original
Concession. In Regions 5, 6 and 7, Iusacell holds the right to provide cellular
service through its subsidiaries Comunicaciones Celulares de Occidente, S.A. de
C.V., known as Comcel, Sistemas Telefonicos Portatiles Celulares, S.A. de C.V.,
known as Portacel and Telecomunicaciones del Golfo, S.A. de C.V., known as
Telgolfo, respectively. Comcel, Portacel and Telgolfo each hold 20-year
concessions expiring in 2010 which authorize these subsidiaries to install,
operate, maintain and exploit mobile public radiotelephone networks with
cellular technology for commercial use in the Cellular A-Band. In consideration
for these authorizations and concessions, the
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subsidiaries made initial payments to the Mexican government and, in addition,
must make payments as follows:
<TABLE>
<CAPTION>
PERCENT OF GROSS REVENUES
PAYABLE TO MEXICAN
SUBSIDIARY GOVERNMENT
- - ---------- -------------------------
<S> <C>
Comcel................................................. 8%
Portacel............................................... 7%
Telgolfo............................................... 8%
</TABLE>
By the terms of their concessions, Comcel, Portacel and Telgolfo must
continually modernize their services after receiving approval of their technical
and economic plans from the SCT. In determining whether to approve these plans,
the SCT is authorized to consider whether the plans sufficiently address factors
such as the public interest (including, without limitation, teledensity) and
efficiency and uniformity in telecommunications throughout Mexico. These
concessions may be revoked or terminated prior to their expiration dates in the
event the concession holder fails to comply with the conditions established in
the concessions or applicable law. The concessions may, however, be renewed for
a term equal to the original term upon timely application to the SCT, provided
that the concession holder had complied with all of the requirements of its
concession and agrees to any new terms and conditions established by the SCT at
the time of such renewal.
Paging. On December 14, 1995, Iusacell and Infomin formed Infotelecom as a
joint venture to market national and international paging services. Infomin has
a concession, which expires on July 20, 2009, to provide nationwide paging
services in Mexico. Although the joint venture agreement between Iusacell and
Infomin contemplates that Infomin will ultimately transfer its paging concession
to Infotelecom, Infomin's paging concession prohibits foreign ownership of more
than 49% of the voting shares of the entity holding the concession. Infomin,
therefore, would be unable to contribute its paging license to the joint venture
so long as Bell Atlantic continued to control the management of Iusacell and
Iusacell continued to hold more than 49% of the voting shares of Infotelecom. In
order to eliminate this obstacle to the transfer of the paging concession to
Infotelecom, in December 1998 Iusacell sold a 2% interest in Infotelecom to Mr.
Jose Ramon Elizondo, a director of Iusacell. As a result, Iusacell currently
holds a 49% interest in Infotelecom. See "-- Other Services -- Paging."
Infotelecom is required to make monthly payments to Infomin equal to 5% of all
gross revenues for the preceding month. This payment represents the amount which
Infomin as concession holder must pay the SCT for the right to provide paging
service.
Long Distance. Iusacell's right to provide international long distance
services is based upon a long distance concession granted by the SCT to Iusatel,
S.A. de C.V. on October 16, 1995. The term of the long distance concession is 30
years and may be renewed upon timely application to the SCT, for an equal period
of time, provided that Iusatel complies with certain requirements. Upon
Iusacell's application, the SCT and COFETEL modified this concession on December
17, 1997, authorizing a change in the coverage requirements and increasing
flexibility in the choice of transmission technology.
Pursuant to the modified concession, Iusatel is required to comply with
technical specifications and had to serve with its own infrastructure a minimum
of 11 specified cities by July 31, 1998, 26 additional specified cities by
December 31, 1999 and another 13 additional specified cities by December 31,
2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Capital
Expenditures."
In February 1997, the Mexican Foreign Investment Commission conditioned its
approval of Bell Atlantic assuming management control over Iusacell upon the
requirement, among others, that Iusacell transfer at least 51% of the voting
shares of Iusatel to Mexican investors on terms acceptable to the Foreign
Investment Commission. In November 1998, Iusacell complied with this requirement
by having Mr. Elizondo agree to subscribe to 5.1% of the capital stock of
Iusatel, comprising 51% of the voting shares thereof. Iusacell retained a 94.9%
equity interest in Iusatel, including a 90% equity interest through
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the ownership of neutral limited voting stock (inversion neutra) and a 49%
voting interest representing a 4.9% equity interest. See "-- Foreign Ownership
Restrictions."
Local Telephony. Iusacell believes its right to provide local telephony
service is derived from the Original Concession. The Original Concession, as
originally granted, permitted Iusacell to provide radiocommunications service to
vehicle-mounted terminal equipment nationwide.
In 1986, the SCT amended the Original Concession to authorize Iusacell to
provide fixed public radiotelephony service in rural areas nationwide in
accordance with plans to be approved by the SCT. In 1990, the Telecommunications
Rules were promulgated by the Mexican government which further modified the
Original Concession.
These regulations classified radiocommunications services on the basis of
the networks used to provide such services rather than upon the basis of
subscriber terminal equipment. Radiocommunications networks are generally
classified as either "fixed" or "mobile." Iusacell's radiocommunications network
is a mobile network. In 1993, the SCT clarified the ability, and indeed the
obligation, of SOS to interconnect customers of its nationwide
radiocommunications network regardless of whether such customers use fixed,
mobile or portable telephones.
Pursuant to the Original Concession, the commencement of construction and
marketing of local wireless service in the 450 MHz frequency band on a
commercial basis requires the prior approval of the SCT. Iusacell has never
received the SCT's approval of its technical and economic plans for local
wireless service in the 450 MHz frequency band.
However, in June 1997, the SCT and Iusacell reached agreement on a process
by which Iusacell could obtain a concession issued and recognized by the SCT to
provide local wireless service in the 450 MHz frequency band. Under this
agreement, Iusacell would convert and consolidate some of its existing
concessioned radiotelephony frequencies into 450 MHz spectrum in Regions 4, 5,
6, 7 and 9 and would have a right of first refusal to acquire the concessions to
provide local wireless service over such frequencies at prices derived from the
prices of the winning bids in the auctions for 450 MHz and 1.9 GHz (PCS)
frequency bands concluded in May 1998.
These auctions yielded a right of first refusal exercise price estimated at
U.S.$2.25 million for all five regions. However, neither the SCT nor COFETEL has
formally notified Iusacell of the exact right of first refusal exercise price,
the payment terms or the coverage/build-out requirements relating to the
concessions, all of which are necessary for Iusacell to decide whether to
exercise its right of first refusal.
Iusacell is exploring alternatives for providing local telephony services,
including limited zone wireless services in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands deploying digital technology that will permit mobility and
fixed wireless services over such bands. If Iusacell were to determine that it
would be preferable to pursue such alternatives, the acquisition of concessions,
other regulatory approvals and the payment of substantial fees could be
required. Iusacell expects to make its decision on the overall strategy for
providing local telephony services before the fourth quarter of 1999.
In September 1998, Iusacell determined that, because of many factors,
including the impact of changing technology since the initiation of the 450 MHz
fixed local wireless project in 1994, an impairment of its investment in 450 MHz
TDMA technology had occurred. As a result, Iusacell recorded a substantial
non-cash writedown of its investment in the 450 MHz fixed local wireless
project. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Local Telephony in the 450 MHz Frequency Band."
In November 1998, Mr. Jose Ramon Elizondo, a director of Iusacell, agreed
to subscribe to 5.1% of the capital stock of Iusatelecomunicaciones, S.A. de
C.V., the Iusacell subsidiary which provides local wireless service in the 450
MHz frequency band on a trial basis, comprising 51% of its total voting shares.
Iusacell retained a 94.9% equity interest in Iusatelecomunicaciones, including a
90% equity interest through the ownership of neutral limited voting stock
(inversion neutra) and a 49% voting interest representing a 4.9% equity
interest. See "-- Foreign Ownership Restrictions."
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Data Transmission. Iusacell's right to offer telex and provide public data
transmission service throughout Mexico is derived from the Original Concession.
Iusacell utilizes its allocations in the 138-144 MHz, 440-450 MHz and 485-495
MHz frequency bands, excess capacity in its cellular microwave backbone in
Region 9 and Satelitron satellite transmission services to provide data
transmission services. Satellite Transmission Permit. On December 15, 1991,
Satelitron, a joint venture among Hughes Network Systems, Iusacell and one other
investor, was granted a 15-year permit to provide dedicated circuit services and
private networks through Mexican satellites or any other satellites designated
by the Mexican government. The Satelitron permit is renewable for 15 additional
years upon timely application to the SCT, provided Satelitron has complied with
all of the requirements of the permit and agrees to any new terms and conditions
established by the SCT at the time of such renewal. Under this permit,
Satelitron is required to make monthly payments to the SCT equal to 2.5% of all
gross revenues derived from its provision of access to its satellite bandwidth,
and 2.5% of all such gross revenues to Telecom for supervision and supporting
services. Iusacell currently intends to sell its interest in Satelitron.
Dedicated Microwave Circuit Services Permit. On December 8, 1993, the SCT
authorized SOS to use its microwave network's excess capacity to provide
dedicated circuit services. In accordance with the terms of this permit, these
dedicated microwave circuits cannot be interconnected to public exchange
networks, and the service must only be provided through the links of the
microwave network authorized by the SCT. On February 1, 1994, the SCT authorized
SOS to carry voice, data and video conferencing through these dedicated circuit
services.
Value-Added Services Permit. On June 17, 1993, SOS was granted a permit to
provide through its public network the following value-added telecommunications
services to its cellular subscribers:
- secretarial service,
- voice mail, and
- data transmission.
The term of this permit is the same as that of the authorization for using
the Region 9 cellular network through which the value-added services are to be
provided. Under this permit SOS is required to make annual payments to the
Mexican government equal to 5% of all gross revenues derived directly from the
provision of these services. In October 1994, Comcel, Telgolfo and Portacel were
each granted a permit to provide secretarial services under the same terms
granted to SOS, including the making of the annual payments to the Mexican
government.
FOREIGN OWNERSHIP RESTRICTIONS
Pursuant to the 1995 Telecommunications Law and the 1993 Foreign Investment
Law, holders of concessions to provide telecommunications services in Mexico,
excluding providers of cellular service, cannot have a majority of their voting
shares owned by, and cannot be otherwise controlled by, foreign persons. In
February 1997, the Mexican Foreign Investment Commission conditioned its
approval of Bell Atlantic assuming management control over Iusacell upon the
requirement that, within a renewable period of 180 days, Iusacell would transfer
at least 51% of the voting shares of Iusatelecomunicaciones and Iusatel to
Mexican investors on terms acceptable to the Foreign Investment Commission. The
Foreign Investment Bureau of the SECOFI twice extended the transfer deadline.
In November 1998, Iusacell complied with this requirement by transferring
51% of the voting shares of these two subsidiaries to Mr. Jose Ramon Elizondo, a
director of Iusacell, by means of a subscription to capital. Iusacell retained
49% of the voting shares of these subsidiaries. Iusacell also holds another 90%
of the capital of these subsidiaries through the ownership of neutral limited
voting stock (inversion neutra) that does not constitute voting shares for
purposes of the Mexican foreign investment laws. Consequently, Iusacell holds a
94.9% equity interest in these two subsidiaries.
In order to participate in the auctions for concessions for microwave
frequencies concluded in September 1997, Iusacell formed Punto-a-Punto Iusacell,
S.A. de C.V., a joint venture with Mr. Elizondo.
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The Mexican Foreign Investment Bureau has approved a capital structure
substantially similar to that authorized for Iusatel and Iusatelecomunicaciones
for the microwave joint venture.
In order to participate in the auctions for concessions for 1.9 GHz PCS
frequencies concluded in May 1998, Iusacell formed Iusacell PCS, S.A. de C.V.,
another joint venture with Mr. Elizondo. The Mexican Foreign Investment Bureau
approved a capital structure substantially similar to that authorized for
Iusatel, Iusatelecomunicaciones and Punto-a-Punto Iusacell.
Moreover, in December 1998 Mr. Elizondo acquired a 2% interest in
Infotelecom, S.A. de C.V., a company which commercializes paging services, from
Iusacell. As a result, Iusacell currently holds only 49% of this entity,
complying with the condition precedent necessary to allow its other partner,
Infomin, S.A. de C.V., a Mexican controlled company, to transfer its paging
concession to Infotelecom, as previously agreed with Iusacell. See "Certain
Transactions -- Interests of Directors."
RATES FOR TELECOMMUNICATIONS SERVICES
Under the Original Communications Laws, SCT approval was required for rates
charged for all basic and certain value-added cellular services and for data
transmission services. Historically, the SCT permitted rate increases based on
the cost of service, the level of competition, the financial situation of the
carrier and macroeconomic factors. Carriers were not allowed to discount the
rates authorized by the SCT, although operators occasionally waived activation
fees on a promotional basis. Interconnection rates were also authorized by the
SCT. All terms of interconnection (such as point of interconnection) other than
interconnection rates were negotiated between the regional non-wireline cellular
carriers and Telmex under the SCT's supervision. Rates for dedicated circuit
services through microwave networks, and dedicated circuits and private networks
through satellites, were not regulated under the Original Communications Laws.
Under the 1995 Telecommunications Law, rates for telecommunications
services, including cellular and long distance services, are now freely
determined by the providers of such services. Providers are prohibited from
adopting discriminatory practices in the application of rates. In addition, the
SCT is authorized to impose specific rate requirements on those companies
determined by the Federal Competition Commission to have substantial market
power. All tariffs for telecommunications services, other than value-added
services, must be registered with COFETEL prior to becoming effective.
UNITED STATES REGULATION
Bell Atlantic, like all other regional Bell operating companies, was
subject to a consent decree (the "Decree") entered in a United States federal
court in 1982 resulting from antitrust litigation brought by the United States
Department of Justice against AT&T. The Decree required AT&T to divest itself of
its local telephone companies. Under the Decree, Bell Atlantic was prohibited
from providing interLATA (long distance) telecommunications, engaging in the
manufacture of customer premises equipment ("CPE"), or engaging in the
manufacture or sale of telecommunications equipment.
The Telecommunications Act of 1996 (the "1996 Act"), which became effective
on February 8, 1996, includes provisions that open local telephony markets to
competition and would permit regional Bell operating companies, such as Bell
Atlantic, to provide interLATA services (long distance) and video programming
and to engage in manufacturing. Under the 1996 Act, Bell Atlantic was allowed to
provide certain interLATA (long distance) services immediately upon enactment,
including interLATA (long distance) services originating outside the states
where its subsidiaries provide local exchange telephone services and interLATA
(long distance) services that are "incidental" to other permitted business such
as wireless services.
However, the ability of Bell Atlantic and its affiliates to engage in
businesses previously prohibited by the Decree, including providing interLATA
(long distance) services originating in the states where Bell Atlantic's
subsidiaries provide local exchange telephone service, and manufacturing CPE or
telecommuni-
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cations equipment, is largely dependent on satisfying certain conditions
contained in the 1996 Act and related regulations.
Since Iusacell is affiliated with Bell Atlantic, its operations must comply
with the terms of the Decree. Bell Atlantic obtained waivers under the Decree in
1986 and 1993 that together permitted it to conduct business outside the United
States, subject to certain exceptions and restrictions. Under such exceptions
and restrictions, a foreign telecommunications entity affiliated with Bell
Atlantic (an "FTE"), such as Iusacell, could not provide interexchange (long
distance) telecommunications services between points in the United States or own
any international telecommunications facilities in the United States.
As to telecommunications traffic between the United States and a foreign
country, an FTE could provide only the foreign "half" of such traffic. An FTE
was prohibited from discriminating in handling traffic to and from the United
States and was limited as to interests it could own in international cables and
satellite facilities to and from the United States. Finally, an FTE was
prohibited from exporting to the United States any telecommunications equipment
or CPE manufactured outside the United States.
The 1996 Act eliminated certain restrictions under the Decree including:
- restrictions that precluded an FTE from providing the United States
"half" of traffic originating in a foreign country,
- restrictions on exporting to the United States telecommunications
equipment or CPE manufactured outside the United States, and
- restrictions on providing interLATA (long distance) telecommunications
services between points in the United States or international long
distance service originating in the United States, and from owning
international telecommunications facilities in the United States subject
to the same conditions that Bell Atlantic must satisfy under the 1996 Act
and any regulations promulgated thereunder with respect to interLATA
(long distance) telecommunications services originating in the states in
which Bell Atlantic's local exchange subsidiaries provide service.
Under the 1996 Act, Iusacell may now provide both the foreign "half" and
the United States "half" of telecommunications traffic originating in Mexico (or
any other foreign country) and may now carry international telecommunications
traffic which, although routed through the United States, neither originates nor
terminates in the United States. In addition, Iusacell may, on a resale basis,
carry United States originated traffic bound for Mexico (or other foreign
countries) so long as the traffic originates outside the states where Bell
Atlantic's subsidiaries provide local exchange telephone service.
In 1996, Iusatel applied for and received authorization under Section 214
of the United States Communications Act of 1934 to become a facilities-based
provider of international long distance services from the United States (the
"Section 214 Authorization"). The Section 214 Authorization was transferred to a
Peralta Group entity in January 1996. Because the restructuring of Iusatel to
comply with the 1995 Telecommunications Law and the Foreign Investment Law has
been completed, Iusatel and such Peralta Group entity intend to seek to formally
return control of the Section 214 Authorization to Iusatel. Iusacell has not yet
determined whether it will engage in activities permitted by the 1996 Act or,
upon any reassignment to Iusatel, the Section 214 Authorization. If Iusacell
chooses to engage in such activities, no definitive prediction can be made as to
the specific impact of such activities on Iusacell's business, financial
condition or results of operations.
Other laws of the United States may restrict activities of Iusacell by
virtue of Bell Atlantic's ownership interest, including laws and regulations
that restrict trade with, and investments in, specific countries, as well as the
United States Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act
is also applicable to Iusacell because its securities are listed on the New York
Stock Exchange.
The Iusacell Shareholders Agreement contains provisions designed to require
Iusacell to refrain from taking any actions that would cause Bell Atlantic to be
in violation of applicable law.
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EMPLOYEES
At September 30, 1999, Iusacell and its subsidiaries had an aggregate of
1,823 full-time and part-time employees, 131 temporary employees and 5 full time
Bell Atlantic seconded employees or consultants. Approximately 38.2% of the full
time employees were members of a labor union. Iusacell has never experienced a
work stoppage and management considers its relationship with its employees to be
good.
PROPERTY
Throughout the regions served by its cellular operations at September 30,
1999, Iusacell operated 96 customer sales and service centers and a total of 357
cellular 800 MHz cell sites, 15 fixed local wireless 450 MHz cell sites, 56
repeaters, five mobile switching centers, one switch for local wireless service,
three switches for long distance service and 49 paging antennas.
Iusacell generally leases the land where its customer sales and service
centers, cell sites, antennas, microwave transmission equipment and mobile
switching centers are located. Iusacell owns and leases administrative offices
in Mexico City as well as in Guadalajara, Puebla, Monterrey, Leon and Ciudad
Juarez. Iusacell generally owns its cellular network equipment, subject to
liens.
LEGAL PROCEEDINGS
Although Iusacell is a party to some legal proceedings in the ordinary
course of its business, management believes that, except as described below,
none of these proceedings, individually or in the aggregate, are likely to have
a material adverse effect on Iusacell.
SUIT AGAINST TELMEX AND TELCEL
A ruling by the Federal Competition Commission is still pending on the suit
filed by Iusacell in November 1995, against Telmex and Telcel, claiming that the
two companies have engaged in monopolistic practices in the Mexican
telecommunications market, including unlawful cross-subsidies by Telmex of
Telcel's cellular phone operations.
As relief, Iusacell sought a declaration that Telmex and Telcel have
violated Mexican antitrust laws; the imposition of applicable sanctions; the
termination of the anticompetitive control that Telmex allegedly exercises over
Telcel; the modification of the interconnection contracts between Telmex and
Iusacell to eliminate anticompetitive provisions; the declaration of Telmex as a
dominant carrier in the cellular market; the regulation of interconnection in a
manner that promotes competition, including special regulation of Telmex as a
dominant carrier; the regulation of the terms under which users have access to
the different services that Telmex provides; the establishment of separate
accounting standards for Telmex; and the establishment of regulations for
unbundled and non-discriminating interaffiliate interconnection tariffs between
and among Telmex and its affiliates.
Telmex and Telcel have filed various motions against the suit. In February
1997, the Federal Competition Commission imposed a fine of Ps.847,500
(approximately U.S.$106,000 at that time) on Telmex and Telcel for their refusal
to provide the expert appointed by Iusacell with the necessary information to
prepare his opinion on the cross-subsidies claim. Additional fines were to
accrue on a daily basis. Telmex and Telcel filed for an injunction (amparo)
against the Federal Competition Commission asserting that Mexican antitrust laws
do not apply to Telmex and Telcel and questioning the constitutionality of the
Federal Competition Commission. In October 1997, the Administrative Third Court
of Appeals for the First Circuit in Mexico denied granting Telmex and Telcel a
preliminary injunction. Telmex and Telcel appealed this denial to the Mexican
Supreme Court, which has yet to determine the matter. In November 1998, in order
to accelerate resolution of this matter, the Federal Competition Commission
issued a new discovery order against Telmex and Telcel, confirming that the per
diem fines accrued against Telmex and Telcel for their prior refusal to comply
had reached approximately Ps.8.5 million (U.S.$900,000). Telmex and Telcel filed
an injunctive action (amparo)against this new
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discovery order and the imposition of the fine. Telmex's amparo was recently
denied, but Telmex has petitioned for a review of the decision (recurso de
revision).
SUIT BY MITSUBISHI
Mitsubishi Electronics America, Inc. filed a complaint with the Circuit
Court of Cook County, Illinois, in the United States on July 18, 1996 against
Iusacell, Bell Atlantic Corporation and Bell Atlantic Latin American Holdings,
Inc. Mitsubishi's complaint alleges, among other things, that Iusacell breached
a purported contract for the purchase of 60,000 local wireless telephone
terminals at a cost of U.S.$510 each. Mitsubishi seeks judgment in an amount in
excess of U.S.$50,000 for each of three counts against Iusacell, plus punitive
damages for one of those counts. Mitsubishi has filed answers to interrogatories
claiming damages in an amount of U.S.$8,825,343.
Iusacell's motions to dismiss the complaint for lack of personal
jurisdiction and on substantive grounds were rejected, although the court
reserved judgment on Iusacell's motion to dismiss for forum non conveniens. The
litigation is now in the discovery stage; production of documents has largely
been completed and depositions of witnesses has begun. Iusacell believes the
lawsuit has no basis and does not anticipate that Mitsubishi will obtain a
judgment in its favor for a material amount of money damages because, in
Iusacell's view, the purported contract was a non-binding letter of intent, and
the purported reliance by Mitsubishi on negotiations with Iusacell to order
terminal components was unreasonable and unwarranted. Nevertheless, in light of
anticipated litigation expenses in 2000, Iusacell is creating a contingency
reserve of U.S.$3.0 million with respect to the litigation.
SUIT BY PUBLICIDAD FERRER
In February 1998, Publicidad Ferrer y Asociados, S.A. de C.V., Iusacell's
former advertising agency, filed a complaint with the 39th Civil Superior
Tribunal in the Federal District of Mexico against Iusacell. Publicidad Ferrer's
complaint alleges that Iusacell improperly terminated its contract and seeks
approximately Ps.23.7 million (U.S.$2.5 million) in damages in respect of lost
commissions. In September 1998, the 39th Civil Superior Tribunal ruled in favor
of Iusacell, finding no breach of contract and no damages. Publicidad Ferrer
appealed to the Third Superior Tribunal in the Federal District of Mexico, which
affirmed the lower court's ruling. Publicidad Ferrer then appealed to the First
Circuit Collegial Tribunal of the Mexican Supreme Court. In June 1999, the First
Circuit Collegial Tribunal reversed the ruling of the Third Superior Tribunal,
finding Iusacell in breach of contract and finding further that Publicidad
Ferrer suffered Ps.23.7 million in damages. The First Circuit Collegial Tribunal
remanded the case to the Third Superior Tribunal for sentencing in accordance
with the guidelines set forth in its ruling. Upon remand, the Third Superior
Tribunal found Iusacell in breach of its contract, but also ruled that the
damages suffered by Publicidad Ferrer were only Ps.16.8 million (U.S.$1.8
million). Both Iusacell and Publicidad Ferrer filed injunctive actions (amparos)
against this sentence. The First Circuit Collegial Tribunal denied both
injunctive actions. In February 2000, Iusacell settled this litigation for
Ps.14.5 million (U.S.$1.6 million).
NON-JUDICIAL DISPUTES
In early 1999, the Mexican government enacted amendments to the Mexican
Income Tax Law (Ley del Impuesto Sobre la Renta) pursuant to which holding
companies, beginning January 1, 1999, were required to limit their tax
consolidation to 60% of all of their subsidiaries. Prior to January 1, 1999,
Iusacell prepared its tax returns on a fully consolidated basis (except for
three non-wholly owned subsidiaries which were 60% consolidated for tax
purposes), benefiting from the ability to offset loss incurred by some
subsidiaries against the gains of others within the consolidated group. In April
1999, Iusacell filed an injunctive action (amparo) with the Second Court in
Administrative Matters of the Federal District of Mexico against these new
income tax law amendments on the grounds that they were unconstitutional.
Recently, this court rejected Iusacell's injunctive action, and Iusacell has
filed for a review (recurso de revision) with the Second Circuit Collegial
Tribunal in Administrative Matters. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Income Tax, Asset Tax and Employees' Profit Sharing."
In May 1998, Iusacell discovered that its former corporate headquarters in
Mexico City, of which one of its subsidiaries is the owner, is encumbered by
liens for an amount in excess of the estimated fair market value of the
property. The potential loss that may result due to the liens would be the book
value of the building, which was Ps.89.4 million (U.S.$9.6 million) at September
30, 1999. Iusacell is currently negotiating with the Mexican Treasury, the
holder of the liens, to unencumber the property. We cannot assure you, however,
that Iusacell will be able to remove the liens from such property and realize
any value from such asset.
In March 1994, Iusacell and Northern Telecom (CALA) Corporation ("Nortel")
entered into a five-year, U.S.$330.0 million agreement, which we refer to as the
Nortel Agreement, pursuant to which Nortel would supply network switching
equipment, switching center transmission equipment and radio base station
equipment, as well as associated software and technical services, for the
development of the 450 MHz local wireless network. Pursuant to a side letter
agreement entered into in December 1995, the Nortel Agreement would terminate
automatically if Iusacell's technical and economic plans for the 450 MHz project
had not been approved by, or Iusacell did not receive a concession to provide
local wireless telephony in the 450 MHz frequency band from, the SCT on or
before December 31, 1997. Neither event having occurred on or prior to December
31, 1997, the Nortel Agreement has terminated. In 1994, as required under the
Nortel Agreement, Iusacell made advance payments of U.S.$15.0 million in
anticipation of 1995 and 1996 purchases which were never made. Iusacell now
seeks a refund of such advanced funds. Nortel, however, has asserted that such
advances should be credited against development costs.
In 1995, Iusacell entered into a U.S.$82.0 million purchase agreement with
Telrad Telecommunications Electronics Industries, Ltd. for 450 MHz local
wireless terminals. Iusacell terminated this agreement in November 1996 based on
the failure by Telrad to meet delivery and government approval milestones and
the failure to meet quality standards. Although Iusacell believes that it has no
further liability under the Telrad contract and has no further liability under
the Nortel Agreement, we cannot assure you that Telrad or Nortel will not seek
legal redress against Iusacell or that Telrad or Nortel will not succeed in
obtaining damages from Iusacell. Although Iusacell believes that Nortel is
legally obligated to refund the U.S.$15.0 million advance to Iusacell, there can
be no assurance that Iusacell will succeed in obtaining such refund. See
"-- Government Regulation."
In 1996, Mexican tax authorities commenced tax audits on Iusacell and two
of its subsidiaries. These audits were completed in early 1999. In May 1999, the
Mexican tax authorities assessed Iusacell a Ps.21.4 million (U.S.$2.3 million)
penalty for purported incorrect deductions of certain interest expense for
income tax purposes. Iusacell recently paid this assessment.
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ENFORCEABILITY OF CIVIL LIABILITIES
Iusacell is incorporated with limited liability in Mexico and substantially
all of its assets are located in Mexico. In addition, the majority of the
directors and officers of Iusacell and some of the experts named in this
prospectus reside outside the United States (principally in Mexico) and all or a
significant portion of the assets of those persons and of Iusacell are located
outside the United States. As a result, it may not be possible for investors to
effect service of process upon such persons within the United States or to
enforce against such persons, Iusacell judgments obtained in the courts of the
United States, including without limitation, judgments predicated upon the civil
liability provisions of the federal securities laws of the United States.
Iusacell has been advised by De Ovando y Martinez del Campo, S.C., its
special Mexican counsel, that there is doubt as to the enforceability in
original actions in Mexican courts of liabilities predicated solely upon U.S.
Federal securities laws and as to the enforceability in Mexican courts of
judgments of U.S. courts obtained in actions predicated upon the civil liability
provisions of the U.S. Federal securities laws. As a result, because
substantially all of the assets of Iusacell are located in Mexico, holders of
Iusacell securities may effectively be required to pursue in Mexico, under
Mexican law, any claims they may have against Iusacell.
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MANAGEMENT
New Iusacell is managed by a twelve-member Board of Directors. The
directors nominated by Bell Atlantic have the power under Iusacell's bylaws to
approve, without the affirmative vote of any other directors, all resolutions of
the Board of Directors, except with respect to some transactions over which the
New Iusacell Shareholders Agreement grants the Peralta Group supermajority
rights. Pursuant to the New Iusacell Shareholders Agreement, Lawrence T. Babbio,
Jr. is the Chairman of the Board of Directors and possesses a tie-breaking vote.
See "Principal Shareholders."
DIRECTORS
The following table presents information with respect to the current
directors of New Iusacell at June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- - ---- --- -----------
<S> <C> <C>
Lawrence T. Babbio, Jr. ................... 54 Chairman of the Board of Directors and
Series A Director
Dennis F. Strigl........................... 53 Series A Director
Thomas A. Bartlett......................... 41 Chief Executive Officer and Series A
Director
John E. Chynoweth*......................... 48 Series A Director
Stephen B. Heimann......................... 44 Series A Director
Fernando de Ovando......................... 47 Series A Director
Jose Ramon Elizondo Anaya.................. 45 Series A Director
Carlos Peralta Quintero.................... 47 Series V Director
Ernesto Canales Santos..................... 58 Series V Director
Luis Felipe Gonzalez Munoz................. 44 Series V Director
Rodolfo Garcia Muriel...................... 54 Series V Director
Fulvio V. del Valle........................ 49 President, Director General and Series V
Director
</TABLE>
- - ---------------
* Mr. Chynoweth passed away on November 30, 1999.
New Iusacell's bylaws authorize alternate directors to serve on the Board
of Directors in place of directors who are unable to attend meetings or
otherwise participate in the activities of the Board of Directors. The Series A
alternate directors are Thomas Burgos, Ruben G. Perlmutter, Mary Cummings, John
Furey, Jeffrey S. Noto, Javier Martinez del Campo and Ignacio Gomez Morin. The
Series V alternate directors are Victor Barreiro Cortes, Marco Antonio de la
Torre Barranco, Francisco Jose Flores Melendez and Eduardo Rihan for Messrs.
Peralta, Canales, Gonzalez and Muriel and William S. Roberts for Mr. del Valle.
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EXECUTIVE OFFICERS
The following table presents information relating to the current executive
officers of New Iusacell at June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- - ---- --- -----------
<S> <C> <C>
*Thomas A. Bartlett........................ 41 Chief Executive Officer
Fulvio V. del Valle........................ 49 President and Director General
William S. Roberts......................... 44 Executive Vice President and Chief
Financial Officer
Rolando Stevens............................ 43 Executive Vice President and Chief
Operating Officer
Ricardo Arevalo............................ 34 Vice President, Information Systems, and
Chief Information Officer
*Thomas Burgos............................. 48 Vice President, Technical Operations, and
Chief Technology Officer
Ramon Pando................................ 43 Vice President, Sales
*Ruben G. Perlmutter....................... 41 Vice President, Mergers and Acquisitions,
and General Counsel
Amaury Rivera.............................. 38 Vice President, Marketing
Francisco Soroa............................ 46 Vice President, Public Relations and
Corporate Communications
Jose Bellido............................... 39 Director, Human Resources**
Jorge Halvas............................... 35 Director, Regulatory Affairs**
</TABLE>
- - ---------------
* Indicates an employee of Bell Atlantic who is currently serving as an officer
of New Iusacell pursuant to consulting or secondment arrangements. See
"Certain Transactions."
** Promoted to Vice President in February 2000.
COMMITTEES OF THE BOARD OF DIRECTORS
New Iusacell has established Executive, Finance and Audit, and Human
Resources and Compensation Committees of the Board of Directors. All decisions
of these committees require a majority vote of their members, including the
favorable vote of at least one member appointed by the Series A shareholders.
See "Principal Shareholders."
The Executive Committee, an administrative and decision-making body of the
Board of Directors, may act for the Board of Directors except where Mexican law
requires action of the Board of Directors. The members of the Executive
Committee are Messrs. Babbio, Strigl, Bartlett, Chynoweth, Heimann, Peralta,
Canales and del Valle.
The Finance and Audit Committee recommends New Iusacell's independent
public accountants, reviews New Iusacell's annual consolidated financial
statements, provides oversight of New Iusacell's auditing, accounting, financial
reporting and internal control functions, and reviews with management and New
Iusacell's independent public accountants the plans and results of the auditing
function. The members of the Finance and Audit Committee are Messrs. Bartlett,
Chynoweth, Heimann, Noto, Canales and Gonzalez.
The Human Resources and Compensation Committee reviews, evaluates and makes
recommendations to the Board of Directors regarding New Iusacell's executive
compensation standards and practices, including salaries, bonus distributions,
grants under the executive employee stock purchase plan (described below) and
deferred compensation arrangements. The members of the Human Resources and
Compensation Committee are Messrs. Bartlett, Heimann and Rihan and Ms. Cummings.
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<PAGE> 107
COMPENSATION
The aggregate amount of compensation paid by Old Iusacell in 1998 to all
directors and executive officers as a group was Ps.42.7 million (U.S.$4.6
million).
In addition, in 1998 Old Iusacell granted purchase rights with a respect to
a total of 913,100 Series L shares to its executive officers under the
management employee stock purchase plan described below. As of December 31,
1998, the individuals who are currently executive officers of Old Iusacell held
purchase rights under the plan with respect to 2,808,282 Series L shares. In
1998, the individuals who are currently Old Iusacell executive officers
exercised purchase rights with respect to 330,510 Series L shares and executive
officers whose labor relationship with Old Iusacell terminated during 1998
exercised purchase rights with respect to 144,750 Series L shares. In addition,
purchase rights with respect to 604,103 Series L shares were forfeited by
executive officers whose labor relationship with Old Iusacell terminated during
1998.
As part of its general compensation policy, Iusacell also conducts periodic
reviews of its management and employees to determine bonus compensation.
Iusacell also provides its executive officers with use of an automobile. In
addition, Iusacell provides its executive officers and other employees with food
and gas stamps on a monthly basis (Ps.700 and Ps.1,035 per month, respectively)
and with contributions to a savings plan (Ps.1,361 per month).
MANAGEMENT EMPLOYEE STOCK PURCHASE PLAN
New Iusacell's management employee stock purchase plan became the successor
to Old Iusacell's management employee stock purchase plan upon the close of
Iusacell's reorganization in August 1999. The plan helps to retain key
executives and better align their interests with those of Iusacell. The stock
purchase plan is administered by a management trust with the assistance of the
trust division of Bancrecer, S.A. Under the stock purchase plan, the technical
committee of the management trust (the "Technical Committee"), which is composed
of certain executive officers of Iusacell, determines the executive employees to
whom Series V shares of New Iusacell will be offered for purchase under the
stock purchase plan.
The Technical Committee determines the number of Series V shares to be
offered for purchase to such executive employees, the purchase price per share
for such purchase rights, the vesting schedule for such purchase rights, the
payment terms and all other terms and conditions. The purchase price per share
for the purchase rights is the closing price for the Series V shares on the
Mexican Stock Exchange on the business day selected by the Technical Committee
as the date of sale.
Grantees who leave the employ of New Iusacell forfeit unvested purchase
rights and, after a period of time, forfeit vested and unexercised purchase
rights, all of which forfeited purchase rights may be reissued by the Technical
Committee. The number of Series V shares that may be granted under the stock
purchase plan cannot exceed 4.9% of the aggregate number of issued and
outstanding New Iusacell shares.
In December 1996, Old Iusacell's shareholders approved the issuance of
7,812,500 Old Iusacell Series L shares for grant of purchase rights under the
stock purchase plan. In April 1998, 262,666 Old Iusacell Series L shares which
were authorized for issuance but never issued under the stock purchase plan were
automatically canceled pursuant to a resolution of the shareholders of Old
Iusacell at the time such shares were authorized for issuance. In June 1998, Old
Iusacell's shareholders approved a 1,187,500 share increase in the number of Old
Iusacell Series L shares available for grant under the stock purchase plan.
In 1997, the Human Resources and Compensation Committee and the Technical
Committee granted purchase rights with respect to a total of 8,571,311 Old
Iusacell Series L shares to 51 executive employees at purchase prices ranging
between Ps.8.48 and Ps.14.00 per Series L share. In 1998, the Human Resources
and Compensation Committee and the Technical Committee granted purchase rights
with respect to a total of 2,199,600 Old Iusacell Series L shares to 15
executive employees at purchase prices ranging between Ps.5.16 and Ps.6.98 per
Series L share. All such purchase rights vest either in three equal
103
<PAGE> 108
annual installments commencing a year after the date of grant or in a lump two
or three years after the date of the grant.
As of December 31, 1998, purchase rights with respect to 7,699,890 Old
Iusacell Series L shares were outstanding and had not been forfeited or
exercised, purchase rights with respect to 2,103,581 Old Iusacell Series L
shares had been forfeited and purchase rights with respect to 967,440 Old
Iusacell Series L shares had been exercised.
Upon the close of the Iusacell reorganization in August 1999, outstanding
purchase rights with respect to Old Iusacell series L shares were exchanged for
rights to purchase New Iusacell Series V shares. In addition, 39 Iusacell
management employees exercised the right to purchase 1,220,690 Series V shares
at U.S.$0.70 per share (Ps.6.52 on the date immediately prior to the date of the
launch of the offer) in the rights offer in respect of the shares held in the
management trust administering the plan.
As of September 30, 1999, purchase rights with respect to 6,285,562 Series
V shares had not been exercised and were outstanding in the management trust
administering the plan.
BIOGRAPHIES
Lawrence T. Babbio, Jr. has been a member and Chairman of the Board of
Directors of New Iusacell since August 1998. Mr. Babbio has been a member of the
Board of Directors of Old Iusacell since November 1993, became Vice Chairman of
the Board in February 1994 and, upon the death of Alejo Peralta y Diaz Ceballos
on April 8, 1997, became Chairman of the Board. Since 1966, Mr. Babbio has
served in a variety of capacities with affiliates of Bell Atlantic and its
predecessors. In December 1998, Mr. Babbio was elected president and chief
operating officer of Bell Atlantic. From August 1997 to December 1998 he was
president and chief executive officer of the Network Group and chairman of the
Global Wireless Group of Bell Atlantic. From January 1995 until August 1997, Mr.
Babbio served as vice chairman of Bell Atlantic. From May 1994 to January 1995,
he served as executive vice president and chief operating officer of Bell
Atlantic. From February 1991 to May 1994 he served as chairman, president and
chief executive officer of Bell Atlantic Enterprises International, Inc. Prior
to that, he served as president of Bell Atlantic Mobile Systems, Inc., a
position he had held since November 1990. He currently serves on the board of
directors of Bell Atlantic, Compaq Computer Corporation and Aramark Corporation.
Mr. Babbio holds an undergraduate degree in electrical engineering from Stevens
Institute of Technology and an M.B.A. from New York University.
Carlos Peralta Quintero has been a member of the Board of Directors of New
Iusacell since August 1998. Mr. Peralta has been a member of the Board of
Directors of Old Iusacell since October 1992 and served as Vice Chairman of Old
Iusacell from October 1992 to February 1997. He also currently serves as the
Chairman of the Board of Directors and Chief Executive Officer of Grupo
Industrial IUSA, S.A. de C.V. Mr. Peralta is also a member of the boards of
directors of Compania Industrial de Parras, S.A. de C.V., Hilaturas Parras, S.A.
de C.V., Cambridge Lee Industries Ltd. and Alper Holdings Ltd.
Thomas A. Bartlett has been a member of the Board of Directors of New
Iusacell since August 1998 and Chief Executive Officer of New Iusacell since
August 1999. Mr. Bartlett has also been a member of the Board of Directors of
Old Iusacell since April 1996 and Chief Executive Officer of Old Iusacell since
February 1997; he also served as President of Old Iusacell from February 1997
through September 1997. Since 1983, Mr. Bartlett has served in a variety of
capacities with affiliates of Bell Atlantic. In August 1995, he was appointed
president of Bell Atlantic's international wireless operations. For more than
four years prior to such appointment, Mr. Bartlett served in several capacities
with Bell Atlantic Mobile Systems, Inc. and Bell Atlantic NYNEX Mobile: as
president of the New England and Upstate New York region for Bell Atlantic NYNEX
Mobile in July and August 1995, as regional vice president for the Philadelphia
Tri-State region for Bell Atlantic Mobile Systems, Inc. from May 1992 through
June 1995, and as vice president for business development for Bell Atlantic
Mobile Systems, Inc. from July 1991 to May 1992. From December 1988 to July
1991, Mr. Bartlett served as chief financial officer of Bell Atlantic Business
Systems Services, Inc. Mr. Bartlett holds an industrial engineering degree from
Lehigh University and an M.B.A. from Rutgers University.
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<PAGE> 109
Fulvio V. del Valle has been a member of the Board of Directors of New
Iusacell since June 1999 and President and Director General of New Iusacell
since August 1999. Mr. del Valle has also been the President of Old Iusacell
since October 1997, the Director General of Old Iusacell since June 1997 and a
member of the Board of Directors of Old Iusacell since June 1998. From August
1996 until June 1997, Mr. del Valle served as managing director of the
non-wireline cellular companies in Regions 3 (Norcel) and 4 (CedeTel). For more
than 20 years prior, Mr. del Valle served in senior Latin America region
executive positions for several multinational corporations. Mr. del Valle was
employed by AMP Inc., as regional director, Latin America, from January 1996
through July 1996 and as managing director, Mexico from August 1992 until
December 1995. From September 1986 until July 1992, Mr. del Valle served as
Regional Director for South America, Electronics Division for DuPont Latin
America Corp. and from March 1980 through August 1986, he served as general
manager, Latin American North Region for National Semiconductor Corp. Mr. del
Valle holds an undergraduate degree in electrical engineering from the Instituto
Politecnico Nacional of Mexico and a master's degree in physics from Virginia
Polytechnic Institute.
Ricardo Arevalo Ruiz has served as Vice President, Information Systems and
Chief Information Officer of New Iusacell since August 1999. Mr. Arevalo has
also served as Vice President, Information Systems of Old Iusacell since
November 1997 and as Chief Information Officer since August 1998. Mr. Arevalo
joined Old Iusacell in August 1997 and served as Director, Systems Development
until November 1997. From May 1993 until August 1997, Mr. Arevalo served as
Director, Information Systems, Materials and Logistics, and Customer Service at
AMP de Mexico, S.A. de C.V. Prior to such position, from October 1990 until May
1993, Mr. Arevalo was employed as Information Systems Manager for Tequila
Cuervo, S.A. de C.V. Mr. Arevalo holds an undergraduate degree in computer
sciences and a diploma in marketing from the Instituto Tecnologico y de Estudios
Superiores de Monterrey.
Jose Bellido Valerio has served as Director, Human Resources of New
Iusacell since August 1999. Mr. Bellido has also been Director, Human Resources
of Old Iusacell since May 1996. Before that, from May 1994 through April 1996,
he served as Old Iusacell's Director of Personnel and, from February 1993
through April 1994, as Old Iusacell's Human Resources Manager. For more than
four years prior to joining Old Iusacell, Mr. Bellido served as Manager of
Industrial Relations for Aeromexico, S.A. de C.V. Mr. Bellido holds a law degree
from the Universidad Nacional Autonoma de Mexico, a specialized degree in labor
law from Universidad Panamericana, a diploma in human resources strategic
planning from the University of California at Berkeley, and a masters degree in
business from the Instituto Panamericano de Alta Direccion de Empresas (IPADE).
Thomas Burgos has served as Vice President, Technical Operations and Chief
Technology Officer of New Iusacell since August 1999. He has also been Vice
President, Technical Operations and Chief Technology Officer of Old Iusacell
since June 1998 and, from June 1997 until June 1998, served as Old Iusacell's
Director of Network Operations. Since 1970, Mr. Burgos has served in a variety
of network and marketing positions with affiliates of Bell Atlantic and their
predecessors. From February 1993 until June 1997, Mr. Burgos served as Director,
Network of Bell Atlantic -- New Jersey, Inc. From November 1989 until February
1993, Mr. Burgos served as Director of Staff Support, Network and Network
Services for Bell Atlantic Network Services, Inc. For 13 years before, Mr.
Burgos served in various network and marketing capacities for New Jersey Bell,
Inc. and worked 6 years as a telecommunications specialist in AT&T's long lines
division. Mr. Burgos holds a B.S. degree from Trinity University, Delaware.
Ernesto Canales Santos has been a member of the Board of Directors of New
Iusacell since August 1998 and a member of the Board of Directors of Old
Iusacell since November 1993. Mr. Canales is a founding partner of Canales
Asesoria Juridica, S.C., a law firm formed in 1986. Previously, he was chief
legal counsel of Grupo Industrial Alfa, S.A. de C.V., from 1974 to 1986. Mr.
Canales is a member of the boards of directors of Grupo Financiero
Banamex/Accival, S.A. de C.V., Industrias Axa, S.A. de C.V., Industrias Unidas,
S.A. (IUSA) and Industrias Monterey, S.A. (IMSA). Mr. Canales is also a member
of the Patronato del Museo de Historia Mexicana. Mr. Canales holds a law degree
from the Escuela Libre de Derecho and a master's degree in comparative law from
Columbia University.
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<PAGE> 110
Fernando de Ovando has been a member of the Board of Directors of New
Iusacell since June 1998 and a member of the Board of Directors of Old Iusacell
since February 1997 and was the Secretary of Old Iusacell from November 1993
until February 1997. Mr. de Ovando has been a partner in the law firm of De
Ovando y Martinez del Campo, S.C. and its predecessors since 1984. Mr. de Ovando
is a member of the boards of directors and/or secretary of several private
Mexican corporations and Mexican subsidiaries of foreign corporations. Mr. de
Ovando holds a law degree from the Universidad Anahuac and an LL.M. degree from
the University of Toronto.
Jose Ramon Elizondo Anaya has been a member of the Board of Directors of
New Iusacell since June 1998 and a member of the Board of Directors of Old
Iusacell since February 1997. Since June 1991, Mr. Elizondo has served as
chairman of the board and chief executive officer of Union de Capitales, S.A. de
C.V. (UNICA), a capital investment fund. For more than ten years prior to such
position, Mr. Elizondo was a manager of Operadora de Bolsa, Casa de Bolsa,
including managing director of the investment banking department and president
of its investment banking committee and managing director of the mergers and
acquisitions and corporate finance departments. Mr. Elizondo is a member of the
boards of directors of Ekco, S.A., Banca Quadrom, S.A. de C.V., Grupo Azucero
Mex, S.A. de C.V., Grupo Embotelladoras, S.A. de C.V., Grupo Financiero
BanCrecer, S.A., Grupo Marti, S.A., Q Tel, S.A. de C.V., as well as the
companies in which UNICA has invested. Mr. Elizondo holds an undergraduate
public accounting degree from Universidad LaSalle and received an M.B.A. from
the Instituto Tecnologico y de Estudios Superiores de Monterrey.
Rodolfo Garcia Muriel has been a member of the Board of Directors of New
Iusacell since June 1998 and was an alternate member of the Board of Directors
of Old Iusacell from November 1993 to May 1994 and became a director of Old
Iusacell in May 1994. He is currently general director of Compania Industrial de
Parras, S.A. de C.V. Mr. Garcia Muriel has been a member of the boards of
directors of Cementos Mexicanos, S.A. de C.V., Cementos Maya, S.A., Cementos
Tolteca, S.A. de C.V., and Grupo Financiero InverMexico, S.A. de C.V. He also
served as chairman of the boards of directors of Corporacion Industrial Mexico
Francia, Fondo de Optimacion de Capitales, Consejo Regional Metropolitano de
Banco Mexicano, Parras Cone de Mexico, S.A. de C.V. and Lavapar, S.A. de C.V.,
and is currently the vice president of the National Chamber of the Textile
Industry (Canaitex).
Luis Felipe Gonzalez Munoz has been a member of the Board of Directors of
New Iusacell since June 1998 and a member of the Board of Directors of Old
Iusacell since April 1997 and between May 1994 and December 1996; between
December 1996 and April 1997, Mr. Gonzalez was an alternate member of the Board
of Directors. Mr. Gonzalez is a member of the Finance and Audit Committee. Mr.
Gonzalez has served as chief financial officer of Industrias Unidas, S.A. de
C.V. since November 1993. For more than ten years prior to such position, Mr.
Gonzalez was employed by Vitrocrisa, S.A. de C.V. and its affiliates, including
as director of administration, finance and human resources from September 1990
until July 1993, and as director of administration and finance from February
1988 to September 1990. Mr. Gonzalez is a member of the board of directors of
Grupo Industrial IUSA, S.A. de C.V., Propulsora de Negocios, S.A. de C.V.,
Cambridge Lee Industries Inc., Compania Industrial Parras, S.A. de C.V., and
Hilaturas Parras, S.A. de C.V. Mr. Gonzalez holds an undergraduate business
administration degree and M.B.A. from the Instituto Tecnologico y de Estudios
Superiores de Monterrey.
Jorge Halvas Begovich has been Director, Regulatory Affairs of New Iusacell
since August 1999, Director, Regulatory Affairs of Old Iusacell since June 1997
and, from December 1995 until June 1997, served as Manager, Regulatory Affairs
of Old Iusacell. For more than eight years prior to such position, Mr. Halvas
worked in various capacities in the banking and brokerage industries: from
January 1995 through November 1995, Mr. Halvas served as a consultant to the
Vice President of Specialized Supervision of the Comision Nacional Bancaria y de
Valores, and from February 1993 until December 1994, he served as a Credit
Director for Banca Confia, S.A. Abaco Grupo Financiero. Mr. Halvas holds an
undergraduate business degree from Universidad Panamericana and an M.B.A. from
the Instituto Panamericano de Alta Direccion de Empresas (IPADE).
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<PAGE> 111
Stephen B. Heimann has been a member of the Board of Directors of New
Iusacell since June 1999 and a member of the Board of Directors of Old Iusacell
since April 1999. Mr. Heimann has been Senior Attorney -- International Wireless
at Bell Atlantic Network Services, Inc. since August 1997, having previously
been employed as a mergers and acquisitions attorney for that company since
February 1990. From September 1981 until February 1990, Mr. Heimann was a
corporate associate at the Washington, D.C. law firm of Shaw, Pittman, Potts &
Trowbridge. Mr. Heimann holds degrees from Yale College and Yale Law School.
Ramon Pando Leyva has served as Vice President, Sales of New Iusacell since
August 1999 and as Vice President, Sales of Old Iusacell since April 1999. For
more than five years prior, he served in a variety of sales positions within Old
Iusacell: as Region 9 Sales Director from February 1997, to April 1999, as Sales
and Distribution Director of Wireless Local Telephony from July 1994 to February
1997, and as Region 9 Cellular Division Sales Director from April 1993 until
July 1994. For more than six years before joining Old Iusacell, Mr. Pando was
the Commercial Director of Valvulas Inoxidables, S.A. de C.V. Mr. Pando holds an
undergraduate degree in business administration from the Universidad Autonoma de
Mexico (UNAM), has received diplomas in marketing and financial administration
from the Instituto Tecnologico de Monterrey and completed the advanced
management program at the Instituto Panamericano de Alta Direccion de Empresas
(IPADE).
Ruben G. Perlmutter has served as Vice President, Mergers & Acquisitions,
and General Counsel of New Iusacell since August 1999 and Vice President,
Mergers & Acquisitions and General Counsel and a member of the Board of
Directors of Old Iusacell since February 1997. From November 1993 through
February 1997, Mr. Perlmutter was employed as an attorney by Bell Atlantic
Network Services, Inc. For more than four years prior to such position, Mr.
Perlmutter was a corporate associate at Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel, a New York law firm. Mr. Perlmutter holds degrees from Harvard College
and Harvard Law School.
Amaury Rivera has been Vice President, Marketing of New Iusacell since
August 1999 and Vice President, Marketing of Old Iusacell since February 1999.
Before joining Old Iusacell, from March 1996 through January 1999, Mr. Rivera
served as Regional Vice President of Lambda Communications Inc. and General
Manager of Centennial Puerto Rico Wireless. Mr. Rivera served as Vice President
and General Manager of Perry Products Co., Inc. from January 1993 until March
1996; as Vice President, Marketing and Assistant to the President of Vassallo
Industries, Inc. from January 1990 to January 1993; and, for more than five
years before then, as an investment banker at Bear Stearns & Co. Mr. Rivera
holds an undergraduate degree in marketing and finance from the School of
Management of Boston University.
William S. Roberts has served as Executive Vice President and Chief
Financial Officer of New Iusacell since August 1999 and as Executive Vice
President and Chief Financial Officer of Old Iusacell since July 1999 and served
as Executive Vice President and Chief Financial Officer Designate of Old
Iusacell from April 1999 through June 1999. From June 1998 until December 1998,
Mr. Roberts served as Vice Chairman and Chief Executive Officer of Nextel
Mexico, S.A. de C.V. From September 1997 to June 1998 Mr. Roberts was employed
as Vice President, International Operations of Nextel International, Inc., and
he served as Chief Operating Officer of McCaw International, Inc. from November
1996 to September 1997. For 13 years prior, Mr. Roberts served in a variety of
capacities with affiliates of Bell South Corporation, the last seven with Bell
South International, Inc. and its affiliates. Mr. Roberts was employed for more
than four years by Bell South Inversiones S.A. in Chile: as Chief Operating
Officer from August 1994 to November 1996, as Director General of the Cellular
Division from February 1995 to September 1995, and as Finance Director from July
1992 through July 1994. From July 1990 to July 1992, Mr. Roberts served as
Finance Director of Comunicaciones Celulares de Occidente, S.A. de C.V., Old
Iusacell's Region 5 cellular concessionaire. Mr. Roberts is a Certified Public
Accountant in Virginia and Georgia and holds an undergraduate accounting degree
from the University of West Florida.
Francisco Soroa de las Cuevas has been Vice President, Public Relations and
Corporate Communications of New Iusacell since August 1999 and Vice President,
Public Relations and Corporate
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Communications of Old Iusacell since February 1997 and, from November 1996 until
February 1997, served as Director, Public Relations of Old Iusacell. From
October 1998 through January 1999 Mr. Soroa was also responsible for human
resources. From May 1995 until November 1996, Mr. Soroa served as Director of
Public Relations of Pepsico de Mexico, S.A. de C.V. For more than seven years
prior to such position, from June 1987 until May 1995, Mr. Soroa served as
Director of Public Relations and Service to Personnel of Volkswagen de Mexico,
S.A. de C.V. Mr. Soroa holds an undergraduate degree in international relations
from the Universidad de las Americas.
Rolando Stevens Avila has been Executive Vice President and Chief Operating
Officer of New Iusacell since August 1999 and Executive Vice President and Chief
Operating Officer of Old Iusacell since February 1999 and served as Senior Vice
President, Commercial Operations of Old Iusacell from February 1997 through
January 1999. Mr. Stevens has also served as Director General of Infotelecom,
S.A. de C.V. since August 1996. Prior thereto, between August 1994 and February
1997, he served as Divisional Director of Wireless Local Telephony of Old
Iusacell and, from January 1994 until August 1994 served as Region 9 Cellular
Operations Director of Old Iusacell. For more than nine years prior to such
position, Mr. Stevens held Director General positions for several divisions of
Philips N.V. as well as marketing executive positions for Philips projects in
Mexico, Brazil, Europe and the United States. For more than eight years prior
thereto, Mr. Stevens held technical management positions for several divisions
of the Philips Company. Mr. Stevens holds a degree in mechanical electrical
engineering from the Universidad Nacional Autonoma de Mexico and an M.B.A. in
marketing and finance from the Universidad LaSalle and received post-graduate
training in industrial engineering at the University of Southern California.
Dennis F. Strigl has been a member of the Board of Directors of New
Iusacell since June 1999 and a member of the Board of Directors of Old Iusacell
since April 1997 and between November 1993 and September 1995. Mr. Strigl has
served as president and chief executive officer of Bell Atlantic Mobile Systems,
Inc. and Bell Atlantic NYNEX Mobile since 1991, and in August 1997 was elected
group president and chief executive officer of the Global Wireless Group of Bell
Atlantic. Prior to such position, Mr. Strigl was vice president for operations
and chief operating officer of Bell Atlantic New Jersey, Inc. (formerly New
Jersey Bell Telephone Company) and served on its board of directors. Between
1984 and 1989, Mr. Strigl served in a variety of capacities for Ameritech
Corporation. Mr. Strigl currently serves on the board of directors of General
Magic Corp. and Salient 2 Communications, Inc. Mr. Strigl holds an undergraduate
degree in business administration from Canisius College and an M.B.A. from
Fairleigh Dickinson University.
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PRINCIPAL SHAREHOLDERS
New Iusacell shareholders are as follows:
Assuming full participation in the exchange offer, New Iusacell
shareholders will be as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------------------------------------------------
SHAREHOLDERS A SHARES % V SHARES % TOTAL %
- - ------------ ----------- ----- ----------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Bell Atlantic(1)......... 504,331,308 68.4 27,178,520 4.6 531,509,828 40.2
Peralta Group(2)......... 232,499,437 31.6 298,984,939 51.1 531,484,376 40.2
Public investors(3)...... -- -- 258,902,573 44.3 258,902,573 19.6
----------- ----- ----------- ----- ------------- -----
----------- ----- ----------- ----- ------------- -----
Total.................. 736,830,745 100.0 585,066,032 100.0 1,321,896,777 100.0
=========== ===== =========== ===== ============= =====
</TABLE>
- - ---------------
(1) The address of the Bell Atlantic Corporation is: 1095 Avenue of the
Americas, New York, New York.
(2) The address of the Peralta Group is: Paseo de la Reforma 2608, Col. Reforma
Lomas Altas, Deleg. Miguel Hidalgo, 11950 Mexico D.F.
(3) Includes the Series V shares held by a management trust pursuant to an
management employee stock purchase plan. See "Management -- Management
Employee Stock Purchase Plan."
Mr. Carlos Peralta has pledged 392,318,334 New Iusacell shares held of
record by him to four banks as security for certain loans extended to him.
New Iusacell's directors and officers as a group own, in aggregate, less
than 1% of Iusacell's shares, excluding the shares held by Mr. Carlos Peralta.
GOVERNANCE
In accordance with New Iusacell's bylaws and the New Iusacell Shareholders
Agreement, New Iusacell's Board of Directors consists of twelve members. The
Series A shareholders have the right to appoint seven directors and their
alternates and the Series V shareholders have the right to appoint five
directors and their alternates. Iusacell's bylaws give Bell Atlantic, as
majority owner of the Series A shares, the right to elect six of the Series A
directors. Under the New Iusacell Shareholders Agreement, Bell Atlantic has the
right to elect six of the Series A directors, including the Chairman of the
Board of Directors, whose vote, under both New Iusacell's by-laws and the New
Iusacell Shareholders Agreement, breaks a tie. The Peralta Group has the right
to appoint the remaining Series A director from a list of nominees provided by
Bell Atlantic and, as the majority owner of the Series V shares, four Series V
directors. Bell Atlantic and the Peralta Group have also agreed that the
Director General of New Iusacell shall be the remaining Series V director.
New Iusacell's bylaws provide that resolutions of the Board of Directors
will be valid when approved by a majority vote of the members present, including
a majority of the Series A directors. As a result the directors nominated by
Bell Atlantic have the power under the bylaws to approve, without the
affirmative vote of any other directors, all resolutions of the Board of
Directors. The New Iusacell Shareholders Agreement, however, grants the Peralta
Group supermajority rights with respect to certain transactions. For actions of
the Board of Directors, a "supermajority vote" means the affirmative vote of a
majority of the members of the Board of Directors, including a majority of the
Series A directors and of the Series V directors. For actions by the
shareholders, "supermajority vote" means the affirmative vote of the beneficial
owners of a majority of the Series A shares and of the Series V shares.
The following transactions are subject to a supermajority vote by New
Iusacell's Board of Directors or its shareholders:
- acquisitions of non-telecommunications businesses for a purchase price in
excess of U.S.$30.0 million,
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- certain acquisitions, joint ventures and mergers within the
telecommunications business involving assets in excess of U.S.$100.0
million,
- certain dispositions of assets for consideration in excess of U.S.$30.0
million,
- certain incurrences of indebtedness after January 1, 1999 in an amount
exceeding U.S.$100.0 million in the aggregate within any twelve-month
period,
- certain issuances of capital stock in an amount exceeding U.S.$50.0
million in the aggregate within any twelve-month period,
- entering into, amending or terminating contracts with or for the benefit
of certain affiliates of New Iusacell, except for any renewals or
extensions on terms substantially similar to those of certain consulting
and seconded employee arrangements of New Iusacell with Bell Atlantic
affiliates,
- termination or disposition of any telecommunication transmission business
with annual revenues of more than U.S.$10.0 million in each of the two
most recent fiscal years, and
- terminations of concessions relating to telecommunications operations.
Pursuant to the New Iusacell Shareholders Agreement, Bell Atlantic and the
Peralta Group have agreed to restrictions on the transfer of their New Iusacell
Shares. Bell Atlantic and the Peralta Group agreed, among other things, that
until February 4, 2000, they will not sell more than 2% of their respective
holdings in New Iusacell as of August 11, 1999. The Peralta Group also granted
Bell Atlantic a right of first refusal on the transfer of any series A shares by
the Peralta Group.
Pursuant to the New Iusacell Shareholders Agreement, Bell Atlantic and the
Peralta Group have the right to cause New Iusacell to facilitate two registered
secondary public offerings of their respective shares, as long as minimum
ownership requirements are met. In addition, the Peralta Group has a one-time
option to cause New Iusacell to effect a six-month shelf registration of its
shares. After one party's exercise of its registration rights, all other parties
having registration rights may elect to include their shares in the offering.
Any party holding registration rights may not exercise such rights during the
90-day period commencing on the effective date of any registration statement
filed by Iusacell for a primary equity offering in which gross proceeds are
expected to exceed U.S.$30.0 million.
The New Iusacell Shareholders Agreement also provides that if New Iusacell
registers any equity securities for a primary or secondary public offering, it
must permit Bell Atlantic and the Peralta Group (and anyone to whom they have
transferred shares otherwise than in a public offering) to include their shares
in such offering. New Iusacell has agreed to bear all expenses of any of the
above-described primary or secondary public offerings, other than the fees of
counsel to the holders of the registration rights and any underwriting
commissions or discounts. In addition, New Iusacell has agreed not to effect any
public sale or distribution of securities similar to those being registered
during the period commencing 21 days prior to the effective date of a
registration statement covering the registered securities and continuing until
90 days following such effective date.
Pursuant to an agreement dated February 22, 1999 between Bell Atlantic and
the Peralta Group, the Peralta Group has the right to require Bell Atlantic to
purchase up to 516,877,269 shares of New Iusacell (which was the total number of
shares held by the Peralta Group on the date of such agreement) by giving Bell
Atlantic notice to such effect between November 15, 2001 and December 15, 2001.
The purchase price for such shares is contractually set at U.S.$0.75 per share.
These rights are specific to these 516,877,269 shares and, subject to certain
exceptions, terminate automatically with respect to particular shares if the
Peralta Group transfers such shares to a third party.
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CERTAIN TRANSACTIONS
GENERAL POLICY
Iusacell adopted a policy on transactions with related parties in November
1993 in connection with the acquisition by Bell Atlantic of its initial holdings
in Iusacell. This policy provides that Iusacell will not, and will not permit
any of its subsidiaries to, enter into any contract or transaction with or for
the benefit of any of their affiliates (excluding transactions with, between or
among wholly owned subsidiaries), including the Peralta Group and Bell Atlantic,
which is not at a price and on other terms at least as favorable to Iusacell or
the subsidiary as those which could be obtained on an arm's-length basis from an
unaffiliated third party. This policy has been formalized in the New Iusacell
Shareholders Agreement.
THE BELL ATLANTIC FACILITY
On July 25, 1997 Bell Atlantic agreed to provide Old Iusacell with a
subordinated convertible financing facility in an aggregate amount of U.S.$150
million (the "Bell Atlantic Facility"). The subordinated convertible debentures
(the "Debentures") issuable under the Bell Atlantic Facility were available for
issuance through June 30, 1999, were to mature on December 31, 1999, and were to
bear interest at an annual rate equal to six-month LIBOR plus 500 basis points,
payable semi-annually in cash or by issuance of additional Debentures, at the
option of Bell Atlantic, subject to the terms of a subordination agreement with
certain senior lenders. The principal amount of the Debentures was convertible
at any time prior to maturity into Series A shares of Old Iusacell at a
conversion price of U.S.$0.70 per share.
In August, September and December 1998, Old Iusacell effected borrowings
totaling U.S.$101.5 million under the Bell Atlantic Facility. The Debentures
issued upon such borrowings were immediately converted into an aggregate of
144,999,999 series A shares of Old Iusacell, 21,428,571 of which shares were
simultaneously sold to the Peralta Group. In March 1999, Old Iusacell borrowed
an additional U.S.$31 million under the Bell Atlantic Facility. The Debentures
issued upon such borrowing were immediately converted into an aggregate of
44,285,714 Series A shares of Old Iusacell, 22,142,857 of which shares were
simultaneously sold to the Peralta Group. The availability of funds under the
Bell Atlantic Facility expired on June 30, 1999. Old Iusacell did not draw down
any of the remaining U.S.$17.5 million available.
CONSULTING AND SECONDMENT AGREEMENTS
Old Iusacell and Bell Atlantic have entered into a series of consulting and
secondment agreements pursuant to which Bell Atlantic has agreed, for an
indefinite term, to provide Iusacell with management, technical, marketing,
legal and other consulting services and seconded employees. Seconded employees
generally agree to expatriate assignments of two to three years duration, with
such employees' compensation being paid by Bell Atlantic and reimbursed by
Iusacell. Bell Atlantic charges Iusacell for the provision of consulting
services at cost.
With respect to consulting services and seconded employees provided in
1998, Old Iusacell has been invoiced by Bell Atlantic for a total of U.S.$5.8
million, which amount includes U.S.$2.4 million in reimbursement of the actual
cost of seconded employees. At December 31, 1998, Old Iusacell owed Bell
Atlantic U.S.$13.1 million for consulting services and seconded employees
provided in 1996, 1997 and 1998.
REAL ESTATE LEASES
Inmobiliaria Montes Urales 460, S.A. de C.V., a subsidiary of Iusacell,
leases office space to Servicios Corporativos IUSA, S.A. de C.V., a member of
the Peralta Group, pursuant to a one-year lease which is re-priced on January 1
of each year. Currently, payments under the lease equal U.S.$99,220 per month.
In 1998, Servicios Corporativos IUSA paid Inmobiliaria Montes Urales 460
U.S.$813,072 for such office space.
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The Peralta Group owns Fraccionadora y Constructora Mexicana, S.A. de C.V.,
known as Fracomex, a company engaged in real estate investment and management
that has entered into 13 lease agreements with some subsidiaries of Iusacell.
The total amount paid by Iusacell to Fracomex per month for all such leases is
approximately U.S.$26,795. In 1998, these payments totaled approximately
U.S.$344,000.
Two Peralta Group members lease land to Iusacell at the Peralta Group
industrial complex in Pasteje, Mexico, upon which Iusacell has built and
operates warehouses. Iusacell subleases some of this land to its Satelitron
satellite transmission subsidiary. These land leases expire in December 2015,
but can be terminated before then if either party gives the other one year's
prior written notice. Currently, Iusacell pays these two Peralta Group entities
U.S.$22,830 per month for these land leases. In 1998, payments for these leases
totaled U.S.$273,960.
Iusacell leases office space to Telecomunicaciones y Equipos, S.A. de C.V.
(TESA), a Peralta Group member. Currently, payments under the lease equal
U.S.$6,410 per month. In 1998, lease payments totaled U.S.$76,920. TESA owes
Iusacell rental payments for 1996 in the total amount of U.S.$76,920.
OTHER SERVICES
Iusacell's Satelitron subsidiary provides data transmission services,
technical services and facilities to Internet Directo, S.A. de C.V., a Peralta
Group member that provides transmission enhancement services to internet access
providers. In 1998, Iusacell billed Internet Directo U.S.$247,696, including
value-added taxes, for such services.
In 1996 and 1997, a subsidiary of Iusacell provided dedicated circuits to
Empresa Attis de Mexico, S.A. de C.V., a Mexican company in which, at that time,
the Peralta Group held a minority position. Since 1997, Empresa Attis has owed
Iusacell Ps.493,484.74 (U.S.$51,831) for such circuits. Empresa Attis was
adjudged bankrupt in 1997. This receivable has recently been determined to be
unrecoverable and has been charged against Iusacell's bad debt reserve.
INTERESTS OF DIRECTORS
In December 1998, Old Iusacell paid Mr. Marco Antonio de la Torre Barranco,
an alternate director of Iusacell, U.S.$350,000 for his 31.7% interest in
Cellular Solutions de Mexico, S.A. de C.V., a company involved in the sale of
cellular accessories. Old Iusacell now owns 100% of Cellular Solutions de
Mexico, S.A. de C.V., which ceased business operations in December 1998.
In 1998, Manufacturas Electronicas Pasteje, S.A. de C.V., a joint venture
between the Peralta Group and Mr. Marco Antonio de la Torre Barranco, provided
telephone and accessory repair services to Iusacell in the amount of Ps.3.3
million (U.S.$351,650).
In 1998, Telemercadeo Integral Panamericano, S.A. de C.V., a joint venture
between the Peralta Group and Mr. Marco Antonio de la Torre Barranco, provided
telemarketing services to Iusacell in the amount of Ps.3.0 million
(U.S.$311,247).
Mr. Fernando de Ovando, a director of New Iusacell, Mr. Javier Martinez del
Campo, an alternate director of New Iusacell, and Mr. Ignacio Gomez Morin, an
alternate director of New Iusacell, are members of the law firm of De Ovando y
Martinez del Campo, S.C., which, in 1998, provided legal services to Iusacell in
the amount of approximately Ps.1.1 million (U.S.$117,000).
As of November 1998, New Iusacell, Old Iusacell and Mr. Jose Ramon
Elizondo, a director of New Iusacell, entered into an agreement to participate
together in the microwave frequencies leasing, long distance, local telephony,
PCS and paging businesses. Iusacell and Mr. Elizondo have agreed that Iusacell
will own 94.9% of the economic interest and 49% of the voting shares of:
- Iusatel, S.A. de C.V., Iusacell's long distance concessionaire,
- Iusatelecomunicaciones, S.A. de C.V., Iusacell's fixed local wireless
telephony operation,
- Punto-a-Punto Iusacell, S.A. de C.V., a microwave frequencies
concessionaire, and
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- Iusacell PCS, S.A. de C.V., which holds concessions for 1.9 GHz (PCS)
frequencies in Region 1 and Region 4.
Mr. Elizondo will own 5.1% of the economic interest and 51% of the voting
shares of these companies.
In addition, Mr. Elizondo agreed to purchase a 2% economic and voting
interest in Infotelecom, S.A. de C.V., a paging company, at cost from Old
Iusacell, which will continue to hold a 49% economic and voting interest in such
company. Mr. Elizondo completed this purchase in December 1998 for approximately
Ps.25,000 (approximately U.S.$2,625).
In November 1998, Mr. Elizondo subscribed to 51% of the voting shares of
Iusatel, S.A. de C.V. and Iusatelcommunicaciones, S.A. de C.V. for approximately
Ps.23.6 million (U.S.$2.5 million) and Ps.8.1 million (U.S.$850,000),
respectively. Mr. Elizondo has not yet paid for these subscriptions to capital
and has until June 30, 2000 to do so.
Old Iusacell and Mr. Elizondo organized Punto-a-Punto Iusacell, S.A. de
C.V. in July 1997 to participate in the operation of three concessions for
point-to-point short haul microwave frequencies acquired in the auctions
concluded in October 1997 and to participate in the auctions for long haul
microwave frequencies that commenced in March 1999 and concluded in July 1999
(and in which Punto-a-Punto Iusacell did not win any concessions). Old Iusacell
and Mr. Elizondo created a similar entity, Iusacell PCS, S.A. de C.V., in
October 1997 to operate the concessions for 1.9 GHz (PCS) frequencies in Region
1 and Region 4 acquired through the auctions completed in May 1998. See
"Business -- Government Regulation -- Foreign Ownership Restrictions."
New Iusacell estimates that Mr. Elizondo's maximum investment in these five
entities will be U.S.$15 million. The shares acquired or to be acquired by Mr.
Elizondo will be or are illiquid. From and after June 30, 2002, Mr. Elizondo can
put all, but not less than all, shares in any one or more of these five joint
venture investments to New Iusacell for an amount equal to his investment in the
corresponding joint venture company or companies, his cost of money to finance
such investment or investments plus, for each year of his investment, 4% of the
corresponding investment amount, grossed up with respect to any applicable
Mexican income taxes. New Iusacell and Old Iusacell each will have the right, at
any time, to call Mr. Elizondo's interest in these companies at the same price
as if the put were exercised.
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DESCRIPTION OF NOTES
GENERAL
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description the words "we",
"us", "ours" and "New Iusacell" refer only to Nuevo Grupo Iusacell, S.A. de C.V.
and not to any of its subsidiaries.
The old notes were, and the exchange notes will be, issued under an
indenture between New Iusacell and The Bank of New York, as trustee. The terms
of the exchange notes are identical in all material respects to the old notes
except that, upon completion of the exchange offer, the exchange notes will be:
- freely transferable, and
- free of any covenants regarding exchange and registration rights.
The following description is a summary of the material provisions of the
indenture and does not restate that agreement in its entirety. The summary is
subject to and qualified in its entirety by reference to all of the provisions
of the indenture, including terms that it defines therein and those terms that
are made a part of the indenture by reference to the Trust Indenture Act of
1939. We urge you to read the indenture and registration rights agreement
because they, and not this description, define your rights as holders of the
notes. Copies of the indenture and registration rights agreement are available
as described in "Where You Can Find More Information" on page i.
Because the terms and conditions of the exchange notes and the old notes
are identical in all material respects, where applicable, this summary applies
equally to the old notes and the exchange notes. We sometimes refer to the old
notes and the exchange notes collectively as the "notes."
BRIEF DESCRIPTION OF THE NOTES
The notes will be issued only:
- in fully registered form;
- without any coupons; and
- in denominations of U.S.$1,000 and any integral multiples of U.S.$1,000.
You will not be required to pay a service charge for registering transfers
of your exchange notes, but we may require you to pay a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
The notes:
- are our unsecured senior obligations; and
- will mature on December 1, 2006.
Interest on the notes:
- will be payable at a rate of 14 1/4% per year semi-annually in arrears on
each June 1 and December 1 commencing on June 1, 2000;
- will accrue from the most recent interest payment date to which interest
has been paid or duly provided for or, if no interest has been paid or
duly provided for, December 16, 1999;
- will be payable in cash to holders of record at the close of business on
May 15 or November 15 immediately preceding the respective interest
payment date; and
- will be computed on the basis of a 360-day year of twelve 30-day months.
We will pay continue to pay interest on overdue principal and interest, to
the extent permitted by law, at 14 1/4%.
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Concurrently with the closing of the closing of the offering of the old
notes, which we completed in December 1999, we deposited approximately
U.S.$135.5 million into a security account with The Bank of New York, which is
acting as security agent. These funds, together with the proceeds from the
investment of these funds in U.S. government securities, will be used to pay the
interest on the notes when due, through December 1, 2002.
OPTIONAL REDEMPTION
At any time until December 1, 2002, we have the right to buy back in the
aggregate up to 35% of the original aggregate principal amount of the notes. We
may only purchase the notes with the money that we received from one or more
Public Equity Offerings. If we choose to make this type of redemption we must
pay a redemption price of 114.25% of the principal amount of the notes plus
accrued interest, if any, to the date of the redemption. However, following each
such optional redemption, at least 65% of the original aggregate principal
amount of the notes must remain outstanding.
No note of U.S.$1,000 in original principal amount or less will be redeemed
in part. If any note is to be redeemed in part only, the notice of redemption
relating to such note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original note.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REDEMPTION FOR CHANGES IN MEXICAN WITHHOLDING TAXES
If our interest payments under the notes become subject to withholding
taxes of more than 15%, we may redeem all of the notes.
The Mexican government may change its tax laws or may change its
interpretation of the tax laws. A Mexican court may also change a tax law. If
such a change becomes effective on or after the date on which the notes are
originally issued, we may become obligated, even after taking reasonable
measures available to us to avoid such requirement, to pay additional amounts
with respect to any note pursuant to the terms and conditions thereof in excess
of the additional amounts that we would be obligated to pay if payments made on
the notes were subject to withholding or deduction of Mexican taxes at a rate of
15%. We refer to these additional payment amounts as excessive additional
amounts. If this occurs, then, at our option, the notes may be redeemed in
whole, but not in part, at any time, on giving not less than 30 nor more than 60
days' notice mailed to the Trustee at a cash price equal to the sum of:
(1) 100% of the principal amount thereof on the date of redemption;
(2) the accrued and unpaid interest, if any, thereon to the date of
redemption; and
(3) any additional amounts which would otherwise be payable.
Redemption can only occur in accordance with the following conditions:
(1) no notice of redemption may be given earlier than 90 days prior to the
earliest date on which, but for such redemption, we would be obligated
to pay excessive additional amounts if a payment on the notes were then
due: and
(2) at the time notice of redemption is given, the obligation to pay
additional amounts (including any excessive additional amounts) remains
in effect.
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<PAGE> 120
Prior to publication of any notice of redemption pursuant to this
provision, we will deliver to the Trustee:
(1) a certificate signed by a duly authorized officer of New Iusacell
stating that we are entitled to effect such redemption and setting
forth a statement of facts showing that the conditions precedent of our
right to so redeem have occurred; and
(2) an opinion of independent Mexican legal counsel or independent public
accountants that we have selected and reasonably acceptable to the
Trustee to the effect that we are or will become obligated to pay such
excessive additional amounts as a result of a change or amendment in
the law. Once we deliver such notice to the Trustee, it will be
irrevocable.
ADDITIONAL AMOUNTS
In general, we will make payments on the notes free of any Mexican Taxes.
The general rule is subject to several exceptions.
In general, payments made with respect to the notes will be made free and
clear of Mexican taxes or other governmental charges imposed by or on behalf of
any Mexican government authority. If Mexican law or an interpretation or
administration of Mexican law requires us to withhold or deduct any amount for
or on account of taxes from any payment made under or with respect to the notes,
we will:
- pay such additional amounts, subject to the exceptions listed below, as
may be necessary, so that the net amount received by each holder of
notes, including such additional amounts, after such withholding or
deduction will not be less than the amount such holder would have
received if such taxes had not been withheld or deducted;
- deduct or withhold such taxes; and
- remit the full amount so deducted or withheld to the relevant taxing or
other authority.
Sometimes, even though a Holder may have to pay taxes or other charges
related to the notes, he or she will not be entitled to receive additional
amounts.
Notwithstanding the foregoing, no such additional amounts are payable with
respect to:
- any taxes or withholding which would not have been imposed but for a
connection between the Holder or beneficial owner of a note and Mexico or
any political subdivision thereof or taxing authority therein, other than
the holding of a note and the receipt of payments with respect to such
note;
- any taxes or withholding which would not have been imposed but for the
presentation by the Holder or beneficial owner of the note for payment on
a date more than 30 days after the date on which such payment became due
and payable, or the date on which payment thereof is duly provided for
and notice thereof given to holders, whichever occurs later,
except to the extent that the Holder of such note would have been
entitled to such additional amounts with respect to such taxes on
presenting such note for payment on any date during such 30-day period;
or
- any estate inheritance, gift or other similar taxes imposed with respect
to a note.
Any reference made in this description of the notes, in the indenture or in
the notes to principal, premium or interest or any other payment in respect of
the notes, will be deemed also to refer to any additional amount that may be
payable.
We will ensure that the Trustee receives the documentation evidencing our
payment of Mexican taxes for which we have paid an additional amount. This
documentation will be sufficient to obtain foreign tax credits for U.S. Federal
income tax purposes. Copies of this documentation will be sent to Holders upon
request.
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RANKING
The indebtedness evidenced by the notes will:
- be unsecured senior Indebtedness of New Iusacell;
- rank equally among themselves in right of payment with all existing
unsecured Indebtedness of New Iusacell; and
- will be senior in right of payment to all existing and future
Subordinated Obligations of New Iusacell.
The notes will be effectively subordinated to any Secured Indebtedness of
New Iusacell to the extent of the value of the assets securing such Secured
Indebtedness, and to any Indebtedness of New Iusacell's subsidiaries. See Note
20 to the Audited Consolidated Financial Statements. The notes will also be
effectively subordinated to any obligations preferred under Mexican law.
At September 30, 1999, after giving effect to the issuance of the old notes
and the application of the proceeds thereof as described under "Use of Proceeds"
and the pro forma adjustments discussed under "Capitalization," New Iusacell and
its subsidiaries would have had Ps.7,795.2 million (U.S.$833.5 million)
Indebtedness outstanding. The outstanding Indebtedness of New Iusacell's
subsidiaries would have been Ps.4,522.0 million (U.S.$483.5 million). Although
the indenture governing the notes, the 1997 Indenture, the Eximbank Facility and
the Credit Facility contain limitations on the amount of additional Indebtedness
which New Iusacell and the Restricted Subsidiaries may Incur, the amount of such
additional Indebtedness could be substantial. See "-- Certain
Covenants -- Limitation on Indebtedness." At September 30, 1999, the pro forma
aggregate balance sheet liabilities (including trade payables and accrued
liabilities but excluding intercompany payables) of Subsidiaries of New Iusacell
was Ps.6,092.0 million (U.S.$651.4 million).
The notes will not be Guaranteed by any Subsidiary of New Iusacell.
CHANGE OF CONTROL
New Iusacell's owners may change. If that occurs, noteholders may require
New Iusacell or, in certain limited circumstances, New Iusacell and Bell
Atlantic, to repurchase the notes.
(1) Each of the following events is a Change of Control. Upon the
occurrence of any Change of Control, each Holder will have the right to require
New Iusacell to repurchase all or any part of that Holder's notes at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
A Change of Control occurs upon:
(A) (i) the earlier to occur of the time the Permitted Holders cease to
possess, or enter into any agreement, which is subject to no
condition other than the passage of time, pursuant to which they
would cease to possess, directly or indirectly, the power to elect
a majority of the members of the Board of Directors and thereby
direct or cause the direction of the management or policies of New
Iusacell, whether through the ownership of voting securities or by
contract, or
(ii) individuals elected by the Permitted Holders cease to constitute a
majority of the members of the Board of Directors;
(B) the earlier to occur of the time the Permitted Holders cease to be, or
enter into any agreement, which is subject to no condition other than
the passage of time, pursuant to which they would cease to be, the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of at least 30% in the aggregate
of the total voting power of the Voting Stock of New Iusacell, whether
as a result of issuance of securities of New Iusacell, any
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merger, consolidation, liquidation or dissolution of New Iusacell, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (2), the Permitted Holders shall
be deemed to own beneficially any Voting Stock of any entity (the
"specified entity") held by any other entity (the "parent entity") so
long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power
of the Voting Stock of the parent entity);
(C) (i) if any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is
or becomes the beneficial owner (as defined in clause (2) above,
except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than
30% of the total voting power of the Voting Stock of New Iusacell,
then a change of control shall occur upon
(ii) the earlier of the time the Permitted Holders "beneficially own"
(as defined in clause (2) above), directly or indirectly, or enter
into any agreement, which is subject to no condition other than the
passage of time, pursuant to which they would "beneficially own",
directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of New Iusacell than such
other person and do not (or would not) have the right or ability by
voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors (for the purposes of
this clause (C), such other person shall be deemed to own
beneficially any Voting Stock of a specified entity held by a
parent entity, if such other person "beneficially owns" (as defined
in this clause (C)), directly or indirectly, more than 30% of the
voting power of the Voting Stock of such parent entity and the
Permitted Holders "beneficially own" (as defined in clause (B)
above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent
entity and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority
of the board of directors of such parent entity);
(D) the sale, conveyance, transfer, lease or other disposition of all or
substantially all the assets of New Iusacell, whether in one or more
transaction or to one or more persons, other than a sale, conveyance,
transfer, lease or other disposition of all or substantially all the
assets of New Iusacell to a Person that is controlled by the Permitted
Holders; or
(E) a "Change of Control," within the meaning of the 1997 Indenture, shall
have occurred under the 1997 Indenture; or a change of control (or
similar event, however designated) of New Iusacell or any of its
Restricted Subsidiaries shall occur that gives the holder of any
Indebtedness of New Iusacell or any of its Restricted Subsidiaries
(including Indebtedness under the Credit Facility and the Eximbank
Financing) the right to require New Iusacell or any of its Restricted
Subsidiaries to repurchase or repay such Indebtedness or such
Indebtedness otherwise becomes due and payable as a result of such
change of control.
(2) In addition to the events constituting Changes of Control listed in (1)
above, if:
(A) in connection with any transaction or series of related transactions
involving a Change of Control, New Iusacell acquires or enters into any
agreement to acquire any direct or indirect equity interest in any
holder or licensee of a Cellular A-Band license in any one or more of
regions 1, 2, 3 or 4, as such regions are on the date hereof referred
to for Mexican regulatory purposes (each, a "Northern Region License
Holder"), or New Iusacell becomes or enters into any agreement to
become a Northern Region License Holder or an Affiliate of a Northern
Region License Holder; or
(B) at any time after acquiring or entering into any agreement to acquire
any direct or indirect equity interest in any Northern Region License
Holder, or becoming or entering into any agreement to
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become a Northern Region License Holder or an Affiliate of a Northern
Region License Holder, there shall occur a Change of Control in
connection with which a "person" (as that term is defined in Section
13(d) and 14(d) of the Exchange Act) other than a Permitted Holder
becomes the owner of more than 30% of the total voting power of the
Voting Stock of New Iusacell, and such person is or was a Northern
Region License Holder or an Affiliate thereof, or had entered into any
agreement or understanding to become a Northern Region License Holder
or an Affiliate thereof, or had entered into any agreement or
understanding to cause New Iusacell to acquire or become Affiliated
with or assist or facilitate New Iusacell in acquiring or becoming
Affiliated with any Northern Region License Holder,
THEN, if any such Change of Control referred to in (A) or (B) above occurs on or
before June 1, 2003, each Holder will have the right to require Bell Atlantic
Corporation, jointly and severally with New Iusacell, to purchase all or any
part of such Holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of the purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date)
UNLESS (i) upon the occurrence of such Change of Control and immediately after
giving pro forma effect to the transactions described in subclauses (Y) and (Z)
of clause (c) below, no Default shall have occurred and be continuing, and (ii)
each of the following conditions is satisfied at the time (the "Offer Time")
that the Offeror (as defined below) mails the Offer Notice (as defined below) in
accordance with the terms of this covenant:
(a) neither New Iusacell nor any of its Restricted Subsidiaries shall have
become obligated to purchase or to offer to purchase any other
Indebtedness by reason of the occurrence of such Change of Control;
provided that, if any such obligation shall have arisen, this condition
(a) shall nevertheless be deemed satisfied if prior to the Offer Time,
and prior to the time any such Indebtedness is purchased or otherwise
retired, such obligation shall cease to exist (it being understood that
this condition (a) shall remain unsatisfied until such obligation so
ceases to exist); and
(b) (W) except solely as a result of the passage of time, the weighted
average maturity of all Indebtedness of New Iusacell's Restricted
Subsidiaries shall be no shorter at the Offer Time than it was
immediately prior to the time such Change of Control was
consummated;
(X) the weighted average maturity of all Indebtedness of New Iusacell's
Restricted Subsidiaries shall not have been shortened in
contemplation of any transaction described in subclause (Y) or (Z)
of clause (c) below;
(Y) since the time such Change of Control was consummated, New
Iusacell's Restricted Subsidiaries shall not have agreed to amend
the terms of any such Indebtedness, or refinanced or agreed to
refinance any such Indebtedness, on terms (other than price terms)
that are less favorable to New Iusacell or any of its Restricted
Subsidiaries in any respect, including without limitation prepayment
or call terms, or terms that would limit the ability of a Restricted
Subsidiary to pay dividends or interest or to make loans or
advances; and
(Z) no such terms shall have been agreed to be so amended and no such
Indebtedness shall have been so refinanced or agreed to be so
refinanced in contemplation of any transaction described in
subclause (Y) or (Z) of clause (c) below; and
(c) prior to the Offer Time, each of Moody's Investors Service and Standard
& Poor's Ratings Services (each, a "Relevant Rating Agency") shall have
announced publicly either that (i) in light of the transactions
described in subclauses (Y) and (Z) below it has determined to affirm
or upgrade the rating accorded by it to New Iusacell and New Iusacell's
securities or (ii) it has determined that the transactions described in
subclauses (Y) and (Z) below will not cause it to, or not be a
contributing cause in its decision to, downgrade the rating accorded by
it to New Iusacell or any of its securities or change its outlook with
respect to New Iusacell or any of its
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securities to negative, or put New Iusacell or any of its securities on
"credit watch" with negative implications, or words with like effect.
The transactions referred to in the foregoing sentence are:
(Y) any actual or proposed Change of Control transaction or series of
transactions which is contemplated in clause (A) or clause (B) of
this covenant, or any transaction that would not have been entered
into in the absence of such Change of Control transaction, including
without limitation, the Incurrence or proposed Incurrence of any
Indebtedness in connection therewith; and
(Z) any actual or proposed transaction or series of transactions
involving the acquisition by or Affiliation with New Iusacell of any
Northern Region License Holder or any transaction that would not
have been entered into in the absence of such acquisition or
Affiliation transaction, including, without limitation, the
Incurrence or proposed Incurrence of any Indebtedness in connection
therewith; and
(d) prior to the Offer Time, there shall not have occurred (either before
or after such Change of Control) any downgrading or change in outlook
to negative, nor shall any notice have been given of any intended or
potential downgrading or change in outlook to negative, or of any
review for a possible change that does not indicate the direction of
the possible change (including, without limitation, any circumstance in
which New Iusacell or its securities have been put on "credit watch"
with negative implications, or words with like effect), in or with
respect to the rating accorded New Iusacell or any of its securities or
in the rating outlook for New Iusacell or any of its securities by any
"nationally recognized statistical rating organization," as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act
(including, without limitation, the Relevant Rating Agencies), which
actual, intended or potential downgrading or change is attributed, in
whole or in part, by at least one such organization as having occurred
in light of any transaction described in subclause (Y) or (Z) of clause
(c) above, and which actual, intended or potential downgrading or
change shall not have been reversed or retracted at or before the Offer
Time; and
(e) after giving pro forma effect to the transactions described in
subclauses (Y) and (Z) of clause (c) above, New Iusacell's Leverage
Ratio would be equal to or less than New Iusacell's Leverage Ratio,
without giving pro forma effect to such transactions, immediately prior
to both (i) the transactions described in subclause (Y) of clause (c)
above and (ii) the transactions described in subclause (Z) of clause
(c) above.
(3) Within 30 days following any Change of Control, New Iusacell shall mail
a notice (the "Offer Notice") to each Holder, with a copy to the Trustee;
provided that if Bell Atlantic Corporation shall then be obligated to make an
offer to purchase notes jointly and severally with New Iusacell, then Bell
Atlantic Corporation shall join in such Offer Notice, and shall explicitly state
therein that its obligations with respect to any required offer to purchase and
purchase of notes are joint and several with those of New Iusacell. In addition
Bell Atlantic shall state in any Offer Notice that, upon the closing of any such
purchase of notes, it will become a Holder of the notes. As used herein, the
term "Offeror" means New Iusacell and, if Bell Atlantic Corporation is required
to join in an offer to purchase notes, shall also include Bell Atlantic
Corporation.
The Offer Notice will state:
- that a Change of Control has occurred and that such Holder has the right
to require the Offeror to purchase such Holder's notes at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase (subject to the
right of Holders of record on a record date to receive interest on the
relevant interest payment date);
- the circumstances and relevant facts and financial information regarding
such Change of Control;
- the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such Offer Notice is mailed); and
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- the instructions determined by the Offeror, consistent with this
covenant, that a Holder must follow in order to have its notes purchased.
The Offeror will comply, to the extent applicable, with Section 14(e) of
the Exchange Act and any other securities laws or regulations in connection with
the repurchase of notes pursuant to this covenant. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, the Offeror will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
paragraph by virtue thereof.
Subject to the limitations discussed below, New Iusacell could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalization, that would not constitute a Change of Control under the
indenture, but that could increase the amount of indebtedness outstanding at
such time other otherwise affect New Iusacell's capital structure or credit
ratings.
The occurrence of certain of the events which would constitute a Change of
Control would also trigger prepayment obligations under the Credit Facility, the
Eximbank Facility and the 1997 Indenture. Future Indebtedness of New Iusacell
may contain prohibitions of certain events which would constitute a Change of
Control or require such Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require New Iusacell to
repurchase the notes could cause a default under other Indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on New Iusacell. Finally, New Iusacell's ability to pay cash to the
Holders upon a repurchase may be limited by New Iusacell's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the indenture. All
calculations required to be made pursuant to the Indenture will be made using
amounts determined according to GAAP and translated into Dollar Equivalents.
Limitation on Indebtedness.
The indenture contains certain covenants which, among other things,
restrict New Iusacell's ability to incur Indebtedness. These restrictions have
some important exceptions.
(1) New Iusacell will not, and will not permit any Restricted Subsidiary
to, Incur, directly or indirectly, any Indebtedness; provided, however,
that New Iusacell may Incur Indebtedness if on the date thereof (after
giving effect to such Incurrence and the application of the proceeds
thereof) New Iusacell's Leverage Ratio would be equal to or less than
7.5:1, if such Indebtedness is Incurred on or prior to December 31,
2001 and 6.5:1 if such Indebtedness is Incurred thereafter.
(2) Notwithstanding the foregoing paragraph (1), New Iusacell and its
Restricted Subsidiaries may Incur the following Indebtedness:
(A) Refinancing Indebtedness of Indebtedness under the Credit Facility
(as the same may be amended from time to time without increasing the
committed amount outstanding, except as otherwise permitted by this
covenant), including in connection with Permitted Securitization
Transactions, in an aggregate principal amount on the date of
Incurrence which, when added to all other Indebtedness Incurred
under the Credit Facility or pursuant to this clause (A) and then
outstanding, shall not exceed U.S.$225.0 million less the aggregate
amount of all prepayments and required payments of principal applied
to reduce the aggregate amount available to be borrowed under the
Credit Facility or any Refinancing Indebtedness with respect
thereto, including pursuant to "-- Limitation on Sales of Assets and
Subsidiary Stock";
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(B) Strategic Subordinated Indebtedness of New Iusacell, provided that
participation by the Peralta Group in such Strategic Subordinated
Indebtedness shall not exceed the percentage held by the Peralta
Group of the Capital Stock of New Iusacell that is held by the
Peralta Group and Bell Atlantic;
(C) Indebtedness of New Iusacell owing to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and
held by New Iusacell or any Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital
Stock or any other event that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to New Iusacell or a
Wholly Owned Subsidiary) will be deemed, in each case, to constitute
the Incurrence of such Indebtedness by the issuer thereof;
(D) Indebtedness represented by the notes, any Indebtedness (other than
the Indebtedness described in clauses (A) through (C) above)
outstanding on the Issue Date and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause
(D), clauses (G), (K) or (L) below or paragraph (1) above;
(E) Indebtedness:
(i) consisting of performance and other similar bonds and
reimbursement obligations Incurred by New Iusacell and its
Restricted Subsidiaries in the ordinary course of business
securing the performance of contractual, franchise, concession or
license obligations of New Iusacell or a Restricted Subsidiary;
and
(ii) under Currency Agreements and Interest Rate Agreements, in each
case entered into for bona fide hedging purposes of New Iusacell
in the ordinary course of business; provided, however, that such
Currency Agreements and Interest Rate Agreements do not increase
the Indebtedness of New Iusacell outstanding at any time other
than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder;
(F) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to paragraph (1) or any other clause of this paragraph (2))
in an aggregate principal amount on the date of Incurrence which,
when added to all other Indebtedness Incurred pursuant to this
clause (F) and then outstanding, will not exceed U.S.$25.0 million;
(G) Indebtedness Incurred in connection with New Iusacell making an
offer to purchase the notes pursuant to any Change of Control, as
described above under the heading "Change of Control" or under
comparable provisions in the 1997 Indenture; provided that 100% of
the proceeds of such Indebtedness shall be used to repurchase notes
or to pay expenses or fees of New Iusacell reasonably incurred in
connection therewith;
(H) Indebtedness Incurred in respect of Capitalized Lease Obligations,
Purchase Money Indebtedness and any Refinancing Indebtedness with
respect thereto, provided that:
(i) the principal amount of such Indebtedness does not exceed 100%
of the Fair Market Value of the property or assets subject to
such Capitalized Lease Obligations, Purchase Money Indebtedness
or Refinancing Indebtedness and
(ii) the aggregate principal amount of all Indebtedness Incurred
and then outstanding under this clause does not exceed
U.S.$125.0 million;
(I) Indebtedness Incurred by New Iusacell, all the proceeds of which
are promptly used by the trust administering New Iusacell's
executive employees' stock purchase plan to purchase from New
Iusacell shares of New Iusacell's Series V Common Stock, provided
that such Indebtedness is repaid in full within three Business
Days following the date of Incurrence;
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(J) $30.0 million in Attributable Debt related to Sale/Leaseback
Transactions involving wireless telecommunications towers;
provided that such Attributable Debt and the obligations related
thereto do not qualify as a capitalized lease for financial
reporting purposes in accordance with GAAP;
(K) the Incurrence by New Iusacell of Indebtedness not to exceed, at
any one time, 2.0 times the excess of the aggregate Net Cash
Proceeds received by New Iusacell from the issuance and sale of,
or capital contribution in respect of, its Capital Stock (other
than Disqualified Stock and other than an issuance or sale to a
Subsidiary of New Iusacell or an issuance or sale to an employee
stock ownership plan or to a trust established by New Iusacell or
any of its Subsidiaries for the benefit of their employees)
subsequent to the Issue Date over the amount of such proceeds used
to make Restricted Payments as provided in clause (I)(Z)(ii) or
(2)(A) of the covenant described under "-- Limitation on
Restricted Payments"; and
(L) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was
acquired by New Iusacell (other than Indebtedness Incurred in
connection with, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted
Subsidiary became a Subsidiary or was acquired by New Iusacell);
provided, however, that on the date of such acquisition and after
giving pro forma effect thereto, New Iusacell would have been able
to Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (1) of this covenant.
(3) Notwithstanding the foregoing in paragraph (2), neither New Iusacell
nor any Restricted Subsidiary may Incur any Indebtedness pursuant to
paragraph (2) above if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligation unless such Indebtedness:
(A) will be subordinated to the notes to at least the same extent as
such Subordinated Obligation,
(B) has a Stated Maturity no earlier than the Stated Maturity of such
Subordinated Obligation and
(C) has an Average Life at the time such Indebtedness is Incurred that
is equal to or greater than the Average Life of such Subordinated
Obligation.
(4) Notwithstanding any other provision of this covenant, neither New
Iusacell nor any Restricted Subsidiary shall be deemed to have Incurred
any Indebtedness solely as a result of fluctuations in the exchange
rates of currencies; provided, however, that to determine the amount of
Indebtedness outstanding at any time, the currency exchange rates in
effect at the time of such determination shall be used. For purposes of
determining the outstanding principal amount of Indebtedness Incurred
pursuant to this covenant:
(A) Indebtedness Incurred pursuant to the Credit Facility prior to or
on the date of the Indenture shall be treated as Incurred pursuant
to clause (A) of paragraph (2) above,
(B) Indebtedness permitted by this covenant need not be permitted
solely by reference to one provision permitting such Indebtedness
but may be permitted in part by one such provision and in part by
one or more other provisions of this covenant permitting such
Indebtedness and
(C) in the event that Indebtedness or any portion thereof meets the
criteria of more than one of the types of Indebtedness described
in this covenant, New Iusacell, in its sole discretion, shall
classify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses.
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Limitations on Issuances of Guarantees of Indebtedness by Subsidiaries
(1) New Iusacell will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee or secure the payment of any other
Indebtedness of New Iusacell or any of its Restricted Subsidiaries
(except Indebtedness of such Restricted Subsidiary or a Restricted
Subsidiary of such Restricted Subsidiary) unless:
(A) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for the Guarantee of the payment
of the notes by such Restricted Subsidiary and
(B) such Restricted Subsidiary waives and agrees not to in any manner
whatsoever claim or take the benefit or advantage of, either any
right to receive payment by way of subrogation against New
Iusacell or against any direct or indirect security for such
obligation, or any other right to be reimbursed, indemnified or
exonerated by or for the account of New Iusacell in respect
thereof or any right to receive payment, in the nature of
contribution or for any other reason, from any other Restricted
Subsidiary with respect to such payment, in each case so long as
any amount payable by New Iusacell under the indenture or under
the notes remains unpaid;
provided that this paragraph shall not be applicable to any Guarantee of
any Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or
Guarantees by a Restricted Subsidiary to secure Indebtedness under the
Credit Facility, the Eximbank Facility and the Grupo Iusacell Notes. Any
Guarantee required by this covenant to be issued will rank no less than
pari passu with the Guarantee the issuance of which gave rise to the
requirement under this covenant.
(2) Notwithstanding the foregoing paragraph (1), each Guarantee of the
notes by a Restricted Subsidiary will provide by its terms that it
shall be automatically and unconditionally released and discharged
upon:
(A) any sale, exchange or transfer, to any Person not an Affiliate of
New Iusacell, of all of New Iusacell's and each Restricted
Subsidiary's Capital Stock in such Restricted Subsidiary (provided
such sale, exchange or transfer is not prohibited by the
indenture),
(B) the release or discharge of the Guarantee which gave rise to the
requirements under this covenant, except a discharge or release by
or as a result of payment under such Guarantee and
(C) the designation of such Restricted Subsidiary as an Unrestricted
Subsidiary in accordance with terms of the indenture.
Limitation on Restricted Payments
Under the indenture, New Iusacell will be restricted in the type of and
amount of payments it can make. The restrictions are subject to some important
exceptions:
(1) New Iusacell will not, and will not permit its Restricted Subsidiaries
directly or indirectly to:
(A) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving New Iusacell) except
dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and except dividends or
distributions payable to New Iusacell or another Restricted
Subsidiary (and, if such Restricted Subsidiary is not wholly
owned, to its other shareholders on a pro rata basis),
(B) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of New Iusacell or any Restricted Subsidiary held by
Persons other than New Iusacell or a Wholly Owned Subsidiary,
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(C) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment
or scheduled sinking fund payment any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a
principal installment or final maturity, in each case due within
one year of the date of such purchase, repurchase or other
acquisition), or
(D) make any Investment (other than a Permitted Investment) in any
Person
(any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement, payment or Investment being
herein referred to as a "Restricted Payment")
if at the time New Iusacell or such Restricted Subsidiary makes such
Restricted Payment:
(X) a Default shall have occurred and be continuing (or would result
therefrom);
(Y) New Iusacell could not Incur at least U.S.$1.00 of additional
Indebtedness under paragraph (1) of the covenant described under
"-- Limitation on Indebtedness"; or
(Z) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors,
whose determination will be conclusive and evidenced by a
resolution of the Board of Directors) declared or made subsequent
to the Issue Date would exceed the sum of:
(i) the excess of:
(a) Cumulative EBITDA over
(b) the product of 1.5 and Cumulative Interest Expense;
(ii) the aggregate Net Cash Proceeds received by New Iusacell from
the issue or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale to a Subsidiary of New Iusacell or an
employee stock ownership plan or other trust established by
New Iusacell or any of its Subsidiaries, provided that Net
Cash Proceeds received by New Iusacell from payments in
respect of purchases of its Capital Stock by employees of New
Iusacell pursuant to its executive employees' stock purchase
plan shall be included in the calculation of the amount of Net
Cash Proceeds under this clause (ii) to the extent that such
payments are not financed, directly or indirectly, by New
Iusacell or any Subsidiary of New Iusacell);
(iii) the amount by which Indebtedness of New Iusacell or the
Restricted Subsidiaries is reduced on New Iusacell's balance
sheet upon the conversion or exchange (other than by a
Subsidiary of New Iusacell) subsequent to the Issue Date of
any Indebtedness of New Iusacell or the Restricted
Subsidiaries convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of New Iusacell (less the
amount of any cash or other property distributed by New
Iusacell or any Restricted Subsidiary upon such conversion or
exchange); and
(iv) the amount equal to the net reduction in Investments
(excluding any Joint Venture Investment) in any Person
resulting from:
(a) payments of dividends, repayments of the principal of loans
or advances or other transfers of assets to New Iusacell or
any Restricted Subsidiary from such Person or
(b) the designation of any Person as a Restricted Subsidiary
(valued in each case as provided in the definition of
"Investment") not to exceed the amount of Investments
previously made by New Iusacell or any Restricted Subsidiary
in such Person, which amount was included in the calculation
of the amount of Restricted Payments.
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(2) The provisions of the foregoing paragraph (1) will not prohibit:
(A) any purchase or redemption of Capital Stock of New Iusacell or
Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of
New Iusacell (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary or an employee stock ownership
plan or other trust established by New Iusacell or any of its
Subsidiaries); provided, however, that:
(i) such purchase or redemption will be excluded in the calculation
of the amount of Restricted Payments under clause (Z) of the
foregoing paragraph (1) and
(ii) the Net Cash Proceeds from such sale will be excluded from
clause (Z)(ii) of the foregoing paragraph (1) but only to the
extent of the Net Cash Proceeds applied to such purchase or
redemption;
(B) any purchase, repurchase or redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made
by exchange for, or out of the proceeds of the substantially
concurrent sale of Refinancing Indebtedness which is expressly
subordinated in right of payment to the notes, as the case may be,
to the same extent as the Subordinated Obligations to be purchased
or redeemed and is permitted to be Incurred pursuant to paragraph
(2) of the covenant described under "-- Limitation on Indebtedness";
provided, however, that such purchase or redemption will be excluded
in the calculation of the amount of Restricted Payments under clause
(Z) of the foregoing paragraph (1);
(C) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend will be
included in the calculation of the amount of Restricted Payments
under clause (Z) of the foregoing paragraph (1);
(D) Investments, not to exceed in the aggregate U.S.$10.0 million, by
New Iusacell or any Restricted Subsidiary in Persons engaged in
Related Businesses; provided, however, that the amount of such
Investments will be included in the calculation of the amount of
Restricted Payments under clause (Z) of the foregoing paragraph (1);
(E) the repurchase or other acquisition of shares of Capital Stock
(i) of New Iusacell for the purpose of granting purchase rights to
employees under employee stock ownership plans; provided that the
aggregate amount of such repurchases and other acquisitions shall
not exceed U.S.$5.0 million in any calendar year;
(ii) of Ownership Regulated Subsidiaries; and
(iii) of Old Iusacell;
provided that the aggregate amount of Restricted Payments under
(E)(ii) and (E)(iii) shall not exceed $25.0 million; and
provided, further, that such repurchases and other acquisitions shall
be included in the calculation of the amount of Restricted Payments
under clause (Z) of the foregoing paragraph (1);
(F) Restricted Payments made by New Iusacell or its Restricted
Subsidiaries in an amount not to exceed U.S.$5.0 million in the
aggregate; or
(G) payments or distributions to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with "-- Merger and
Consolidation," in an amount not to exceed U.S.$10.0 million.
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Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Under most circumstances, New Iusacell and most of its subsidiaries may not
make any distributions. There are important exceptions to this general
statement.
New Iusacell will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness owed to New Iusacell or any other Restricted
Subsidiary,
(2) make any loans or advances to New Iusacell or any other Restricted
Subsidiary or
(3) transfer any of its property or assets to New Iusacell or any other
Restricted Subsidiary,
EXCEPT:
(A) any encumbrance or restriction pursuant to an agreement as in effect at
the Issue Date, exclusive of any amendment, waiver or other
modification thereto entered into after the Issue Date;
(B) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by New Iusacell (other than Indebtedness
Incurred as consideration in, in contemplation of, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was otherwise
acquired by New Iusacell) and outstanding on such date;
(C) any encumbrance or restriction pursuant to an agreement constituting
Refinancing Indebtedness of Indebtedness Incurred pursuant to an
agreement referred to in clause (A) or (B) of this covenant or this
clause (C) or contained in any amendment to an agreement referred to in
clause (A) or (B) of this covenant or this clause (C); provided that no
encumbrance or restriction permitted by this clause (C) shall prevent
any Restricted Subsidiary of New Iusacell from paying dividends or
making distributions to New Iusacell or any Restricted Subsidiary, from
paying any Indebtedness owed to New Iusacell or any Restricted
Subsidiary, from making any loan or advance to New Iusacell or any
Restricted Subsidiary or from transferring any property or assets to
New Iusacell or any Restricted Subsidiary, in any case where proceeds
from such dividend, distribution, payment, loan, advance or transfer
are to be used, directly or indirectly, to make any payment of
principal, interest, premium or other payment on or with respect to the
notes or under the indenture and provided, further, that the
encumbrances and restrictions contained in any such refinancing
agreement or amendment are not materially less favorable to the
noteholders than encumbrances and restrictions contained in such
agreements;
(D) in the case of clause (3), any encumbrance or restriction that:
(i) restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease,
concession, permit, license or similar contract, or
(ii) contained in security agreements or mortgages permitted under the
indenture and securing Indebtedness of a Restricted Subsidiary to
the extent such encumbrance or restrictions restrict the transfer
of the property subject to such security agreements or mortgages;
(E) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(F) any restriction on the sale or other disposition of assets or property
securing Indebtedness as a result of a Permitted Lien on such assets or
property; and
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(G) any encumbrance or restriction existing under or by reason of
applicable law or regulations.
Limitation on Sales of Assets and Subsidiary Stock.
Generally, New Iusacell and its subsidiaries are not allowed to sell or
otherwise transfer the shares of subsidiaries, property or other assets. There
are important exceptions to this general statement.
(1) New Iusacell will not, and will not permit any Restricted Subsidiary
to, make any Asset Disposition unless:
(A) New Iusacell or such Restricted Subsidiary receives consideration
(including by way of relief from Senior Indebtedness at the time of
such Asset Disposition) at least equal to the Fair Market Value of
the shares, property and other assets subject to such Asset
Disposition,
(B) except in the case of a disposition of Capital Stock permitted by
clause (5) of the covenant described under "-- Limitation on the
Sale or Issuance of Capital Stock of Restricted Subsidiaries", 80%
of the consideration thereof received by New Iusacell or such
Restricted Subsidiary is in the form of cash, Temporary Cash
Investments or other assets of a type ordinarily used in a Related
Business that are to be used by New Iusacell or a Restricted
Subsidiary in the conduct of its business, and
(C) in the event and to the extent that the Net Available Cash received
by New Iusacell and its Restricted Subsidiaries from one or more
Asset Dispositions occurring on or after the Issue Date in any
period of 12 consecutive months exceeds U.S.$5.0 million, the
proceeds of such Asset Disposition are applied as set forth in the
remainder of this paragraph. An amount equal to 100% of the Net
Available Cash from such Asset Disposition may be applied by New
Iusacell (or such Restricted Subsidiary, as the case may be) within
365 days after the later of the date of such Asset Disposition or
the receipt of such Net Available Cash, to the extent New Iusacell
elects,
(i) to prepay, repay or purchase Senior Indebtedness (other than
Senior Indebtedness owed to New Iusacell or an Affiliate of New
Iusacell); provided, however, that in connection with any such
prepayment, repayment or purchase, New Iusacell or such
Restricted Subsidiary will permanently retire such Senior
Indebtedness and will cause the related loan commitment (if any)
to be permanently reduced in an amount equal to the principal
amount so prepaid, repaid or purchased or
(ii) to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by New Iusacell or another
Restricted Subsidiary).
Any Net Available Cash from an Asset Disposition that is not used in
accordance with the preceding sentence within 365 days from the later of
the date of such Asset Disposition or the receipt of Net Available Cash
relating thereto shall constitute "Excess Proceeds," When the aggregate
amount of Excess Proceeds exceeds U.S.$5.0 million (taking into account
income earned on such Excess Proceeds), New Iusacell shall make an Offer
(as defined below) to purchase notes (or other Senior Indebtedness)
pursuant to and subject to the conditions set forth in section (2) of
this covenant. To the extent that any portion of the Excess Proceeds
remains after compliance with the preceding sentence and provided that
all Holders have been given the opportunity to tender the notes for
repurchase in accordance with the indenture, New Iusacell or such
Restricted Subsidiary may use such remaining amount for any purpose not
prohibited by the indenture. Pending application of Net Available Cash
pursuant to this provision, such Net Available Cash shall be invested in
Temporary Cash Investments.
For the purposes of this covenant, the assumption of Senior Indebtedness
of New Iusacell (other than Disqualified Stock of New Iusacell) or any
Restricted Subsidiary and the release of New
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Iusacell or such Restricted Subsidiary from all liability on such Senior
Indebtedness in connection with such Asset Disposition and securities
received by New Iusacell or any Restricted Subsidiary from the
transferee that are promptly converted by New Iusacell or such
Restricted Subsidiary into cash shall be deemed to be "cash."
(2) In the event of an Asset Disposition that requires the purchase of
notes (and other Senior Indebtedness) pursuant to clause (1)(A) of this
covenant, New Iusacell will be required to use the Excess Proceeds to
purchase notes (and such other Senior Indebtedness) tendered pursuant
to an offer by New Iusacell for the notes and that other debt on a pro
rata basis (the "Offer") at a purchase price of 100% of their principal
amount plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date)
(or, in the event the notes or such other Senior Indebtedness was
issued with significant original issue discount, 100% of the accreted
value thereof) in accordance with the procedures (including
prorationing in the event of oversubscription) set forth in the
indenture.
(3) New Iusacell will comply, to the extent applicable, with Section 14(e)
of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of notes pursuant to this covenant. To
the extent that the provisions of any securities laws or regulations
conflict with provisions of this covenant, New Iusacell will comply
with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this covenant by virtue
thereof.
Limitation on Transactions with Affiliates.
Generally, if New Iusacell or its subsidiaries enter into a transaction
with an affiliate, the transaction must be at arms-length.
(1) New Iusacell will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into or conduct any transaction or
series of related transactions (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any
Affiliate of New Iusacell (an "Affiliate Transaction") on terms that:
(A) are less favorable to New Iusacell or such Restricted Subsidiary, as
the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not
such an Affiliate,
(B) in the event such Affiliate Transaction involves an aggregate amount
in excess of U.S.$1.0 million, have not been approved by a majority
of the members of the Board of Directors having no personal stake in
such Affiliate Transaction and
(C) that, in the event such Affiliate Transaction involves an amount in
excess of U.S.$5.0 million, have not been determined to be fair to
New Iusacell or such Restricted Subsidiary from a financial point of
view pursuant to the written opinion of an investment banking firm
of national standing or other recognized independent expert with
experience appraising the terms of the type of transaction or series
of related transactions.
(2) The provisions of the foregoing paragraph (1) will not apply to:
(A) any Restricted Payment permitted to be paid pursuant to the covenant
described under "-- Limitation on Restricted Payments,"
(B) the payment of reasonable fees to directors of New Iusacell and its
Subsidiaries who are not employees of New Iusacell or its
Subsidiaries,
(C) transactions pursuant to the Secondment Agreement, provided that, in
the event such transactions involve an incurrence in an aggregate
amount exceeding U.S.$10.0 million in any calendar year, such
transactions to the extent they exceed U.S.$10.0 million must be
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approved by a majority of the members of the Board of Directors
having no personal stake therein and must be determined to be fair
to New Iusacell and the applicable Restricted Subsidiaries from a
financial point of view pursuant to a written opinion of an
investment banking firm or other expert as provided in paragraph (1)
above,
(D) transactions pursuant to the Master Technical Services Agreement,
provided that, in the event such transactions involve an incurrence
in an aggregate amount exceeding U.S.$3.0 million in any calendar
year, such transactions to the extent they exceed U.S.$3.0 million
must be approved by a majority of the members of the Board of
Directors having no personal stake therein and, in the event such
transactions involve an aggregate amount exceeding U.S.$5.0 million
in any calendar year, such transactions to the extent they exceed
U.S.$5.0 million must be determined to be fair to New Iusacell and
the applicable Restricted Subsidiaries from a financial point of
view pursuant to a written opinion of an investment banking firm or
other expert as provided in paragraph (1) above,
(E) transactions pursuant to the terms of any Strategic Subordinated
Indebtedness,
(F) any transaction between New Iusacell and a Restricted Subsidiary or
between Restricted Subsidiaries,
(G) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by the Board of Directors; or any employment agreement
entered into by New Iusacell or any of its Restricted Subsidiaries
in the ordinary course of business,
(H) loans or advances to employees in the ordinary course of business in
accordance with the past practices of New Iusacell or its Restricted
Subsidiaries, but in any event not to exceed U.S.$3.0 million in the
aggregate outstanding at any one time,
(I) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of New Iusacell, or
(J) transactions pursuant to finance agreements or other banking,
finance or insurance arrangements, if the terms thereof are no less
favorable to New Iusacell than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who
is not an Affiliate.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. New Iusacell will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock (other than, if
necessary, shares of Capital Stock constituting directors' or other legally
required qualifying shares) except:
(1) to New Iusacell or a Wholly Owned Subsidiary,
(2) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Subsidiary of New
Iusacell,
(3) in respect of capital contributions to Restricted Subsidiaries which
are not Wholly Owned Subsidiaries,
(4) in connection with the capitalization of any Ownership Regulated
Subsidiary that results in Persons other than New Iusacell owning a
majority of the Voting Stock thereof but only to the extent that such
ownership is required by applicable law or regulation,
(5) if such sale of Capital Stock is made to a Person in exchange for a
contribution by such Person to a Restricted Subsidiary of Additional
Assets if, immediately after giving pro forma effect to such sale and
contribution, New Iusacell's Leverage Ratio would be equal to or better
than the Leverage Ratio of New Iusacell immediately prior to the
transaction, or
(6) if such Capital Stock or the proceeds from the sale thereof are
contributed to a Joint Venture Investment that is a Permitted
Investment.
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Any such sale or issuance permitted by clause (2), (3), (4) or (5) above will be
treated as an Asset Disposition and must comply with the terms of the covenant
described under "-- Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. New Iusacell will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien on any of its property or assets (including Capital Stock of Restricted
Subsidiaries), whether owned on the Issue Date or thereafter acquired, other
than Permitted Liens, securing any obligation unless contemporaneously therewith
(or prior thereto) effective provision is made to secure the notes on an equal
and ratable basis with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to the notes) such obligation.
Provision of Financial Information. So long as any notes are outstanding,
New Iusacell will file with the Trustee and provide Holders of notes:
(1) within 180 days after the end of each fiscal year of New Iusacell,
annual reports on Form 20-F (or any successor form) containing
information required to be contained therein (or required in such
successor form);
(2) within 60 days after the end of each of the first three fiscal quarters
of each fiscal year, reports on Form 6-K (or any successor form)
containing unaudited, consolidated financial statements for such
quarter; and
(3) promptly from time to time after the occurrence of an event required to
be therein reported, such other reports on Form 6-K (or any successor
form). At any time when New Iusacell is not required to be subject to
Section 13(a) or 15(d) of the Exchange Act (or any successor provision
thereto), New Iusacell will file with the Trustee and provide Holders
of notes:
(A) within 180 days after the end of each fiscal year of New Iusacell,
annual audited consolidated financial statements and
(B) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year, unaudited, consolidated financial
statements for such quarter, and, unless it is exempt from
reporting pursuant to Rule 12g3-2(b) under the Exchange Act, will
make available the information contemplated by Rule 144A(d)(4)
under the Securities Act upon the request of a Holder of a note to
such Holder or to a prospective purchaser of a note from such
holder. The financial statements referred to in this paragraph
will, unless otherwise required by applicable law or by the SEC,
be prepared in accordance with GAAP; provided that all annual,
audited consolidated financial statements will contain a
reconciliation to U.S. GAAP (as defined under "-- Certain
Definitions") of net income and stockholders' equity.
Limitation on Lines of Business. New Iusacell will not, and will not
permit any Restricted Subsidiary to, engage in any business other than a Related
Business.
Limitation on Sale/Leaseback Transactions. New Iusacell will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless:
(1) New Iusacell or such Restricted Subsidiary would be entitled to Incur
Indebtedness in an amount equal to the Attributable Debt with respect
to such Sale/Leaseback Transaction pursuant to the covenant described
under "-- Limitation on Indebtedness" and "-- Limitation on
Indebtedness of Subsidiaries" and
(2) New Iusacell or such Restricted Subsidiary would be entitled to create
a Lien on such property securing such Attributable Debt without
securing the notes, pursuant to the covenant described under
"-- Limitation on Liens" and
(3) the transfer of such property is permitted by, and New Iusacell applies
the proceeds of such transaction in compliance with, the covenant
described under "-- Limitation on Sale of Assets and Subsidiary Stock".
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MERGER AND CONSOLIDATION
New Iusacell will not consolidate with or merge with or into any Person, or
in one transaction or a series of transactions, sell, convey, transfer, lease or
dispose of all or substantially all its assets, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
will be a Person organized and existing under the laws of Mexico, the
United States of America, any State thereof or the District of Columbia
and the Successor Company (if not New Iusacell) will expressly assume,
by an indenture supplemental thereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of
New Iusacell, under the notes and the indenture;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of such transaction as having
been Incurred by the Successor Company or such Restricted Subsidiary at
the time of such transaction), no Default will have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional U.S.$1.00 of Indebtedness
under paragraph (1) of the covenant described under "-- Limitation on
Indebtedness";
(4) in the case of a conveyance, transfer, lease or disposition of all or
substantially all of New Iusacell's assets, such assets shall have been
transferred as an entirety or virtually as an entirety to one Person;
and
(5) New Iusacell will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with the indenture. In addition, New Iusacell shall deliver
to the Trustee:
(A) an Opinion of Counsel to the effect that Holders of the notes will
not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such transaction and will be subject to U.S.
Federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such transaction had
not occurred and
(B) an Opinion of Counsel in Mexico to the effect that Holders of the
notes will not recognize income, gain or loss for Mexican tax
purposes as a result of such transaction and will be subject to
Mexican taxes (including withholding taxes) on the same amounts, in
the same manner and at the same times as would have been the case if
such transaction had not occurred.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, New Iusacell, under the indenture, but the
predecessor company in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the notes.
Notwithstanding the foregoing clauses (2) and (3), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to New Iusacell.
DEFAULTS
An Event of Default is defined in the indenture as:
(1) a default in any payment of interest on any note when due, continued
for 30 days,
(2) a default in the payment of principal of any note when due at its
Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise,
(3) the failure by New Iusacell to comply with its obligations under the
covenant described under "-- Merger and Consolidation" above,
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(4) the failure by New Iusacell to comply for 30 days after notice with any
of its obligations under the covenants described under "-- Change of
Control," "-- Certain Covenants" or "-- Additional Amounts" above (in
each case, other than a failure to purchase notes),
(5) the failure by New Iusacell or Bell Atlantic to comply for 60 days
after notice with its other agreements contained in the notes or the
indenture,
(6) the failure by New Iusacell or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or
the acceleration of any such Indebtedness by the holders thereof
because of a default if the total amount of such Indebtedness unpaid or
accelerated exceeds U.S.$5.0 million or its foreign currency equivalent
(the "cross acceleration provision"),
(7) certain events of bankruptcy, suspensions of payments, insolvency or
reorganization of New Iusacell or a Significant Subsidiary (the
"bankruptcy provisions"),
(8) the rendering of any judgment or decree for the payment of money in
excess of U.S.$10.0 million or its foreign currency equivalent against
New Iusacell or a Significant Subsidiary if:
(A) an enforcement proceeding thereon is commenced or
(B) such judgment or decree remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed
within 10 days after receipt of the notice described below (the
"judgment default provision"), or
(9) the Lien created by the Security Agreement shall at any time fail to
constitute a valid and perfected Lien on all of the collateral
purported to be subject thereto, securing the obligations purported to
be secured thereby, with the priority required by the Security
Agreement, or New Iusacell shall so assert in writing.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (4), (5) or (8) will not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount of
the outstanding notes notify New Iusacell of the default and New Iusacell does
not cure such default within the time specified in clause (4), (5) or (8) after
receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of New Iusacell) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding notes by notice to New Iusacell may declare the principal of and
accrued but unpaid interest on all the notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of New Iusacell occurs, the principal of and interest on all the
notes will become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding notes may rescind
any such acceleration with respect to the notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to
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enforce the right to receive payment of principal, premium (if any) or interest
when due, no Holder may pursue any remedy with respect to the indenture or the
notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing,
(2) Holders of at least 25% in principal amount of the outstanding notes
have requested the Trustee to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and
(5) the Holders of a majority in principal amount of the outstanding notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each Holder notice of the Default within the earlier of 90
days after it occurs or 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any note, the Trustee
may withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the noteholders.
In addition, New Iusacell is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. New Iusacell
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action New Iusacell is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
(1) Subject to certain exceptions, the indenture may be amended with the
consent of the Holders of a majority in principal amount of the notes
then outstanding and any past default or compliance with any provisions
may be waived with the consent of the Holders of a majority in
principal amount of the notes then outstanding. However, without the
consent of each Holder of an outstanding note affected, no amendment or
waiver of the indenture may, among other things,
(A) reduce the amount of notes whose Holders must consent to an
amendment or waiver,
(B) reduce the rate of or extend the time for payment of interest on
any note,
(C) reduce the principal of or extend the Stated Maturity of any note,
(D) reduce the premium payable upon the redemption of any note or
change the time at which any note may be redeemed as described
under "Optional Redemption" and "-- Redemption for Tax Reasons"
above,
(E) make any note payable in money other than that stated in the note,
(F) impair the right of any Holder to receive payment of principal of
and interest on such Holder's notes on or after the due dates
therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's notes,
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(G) make any change in the amendment or waiver provisions which
require each Holder's consent or
(H) release any funds from the Security Account in a manner
inconsistent with the provisions of the Security Agreement as in
effect on the Issue Date or modify any provision of the Security
Agreement in a manner adverse to the Holders of the notes.
(2) Without the consent of any Holder, New Iusacell and Trustee may amend
the indenture to cure any ambiguity, omission, defect or inconsistency,
to provide for the assumption by a successor corporation of the
obligations of New Iusacell under the indenture (provided that New
Iusacell delivers to the Trustee:
(A) an Opinion of Counsel to the effect that Holders of the notes will
not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such assumption by a successor corporation
and will be subject to U.S. Federal income tax on the same amount
and in the same manner and at the same times as would have been
the case if such assumption had not occurred and
(B) an Opinion of Counsel in Mexico to the effect that Holders of the
notes will not recognize income, gain or loss for Mexican tax
purposes as a result of such assumption by a successor corporation
and will be subject to Mexican taxes (including withholding taxes)
on the same amounts, in the same manner and at the same times as
would have been the case if such assumption had not occurred), to
provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are
issued in registered form for purposes of Section 163(f) of the
Code or in a manner such that the uncertificated notes are
described in Section 163(f)(2)(B) of the Code) or to add
Guarantees with respect to the notes to secure the notes, to add
to the covenants of New Iusacell for the benefit of the
noteholders or to surrender any right or power conferred upon New
Iusacell, to make any change that does not adversely affect the
rights of any Holder or to comply with any requirement of the SEC
in connection with the qualification of the indenture under the
TIA.
The consent of the noteholders is not necessary under the indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, New Iusacell is
required to mail to noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A noteholder may transfer or exchange notes in accordance with the
indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a noteholder, among other things, to furnish appropriate endorsements
and transfer documents and New Iusacell may require a noteholder to pay any
taxes required by law or permitted by the indenture. New Iusacell is not
required to transfer or exchange any note selected for redemption or to transfer
or exchange any note for a period of 15 days prior to the mailing of notice of
notes to be redeemed. The notes will be issued in registered form and the
registered Holder of a note will be treated as the owner of such note for all
purposes.
DEFEASANCE
New Iusacell at any time may terminate all its obligations under the notes
and the indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes.
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New Iusacell at any time may also terminate its obligations under the
covenants described under "Certain Covenants", the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Subsidiaries
of New Iusacell, the judgment default provision described under "-- Defaults"
above and the limitations contained in clause (3) under "-- Merger and
Consolidation" above ("covenant defeasance").
New Iusacell may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If New Iusacell exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default with respect thereto. If New Iusacell exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default specified in clause (4), (5) with respect to Subsidiaries of
New Iusacell, (6), (7) with respect to Subsidiaries of New Iusacell, (8) under
"-- Defaults" above or because of the failure of New Iusacell to comply with
clause (3) under "-- Merger and Consolidation" above.
In order to exercise either defeasance option, New Iusacell must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of:
(1) an Opinion of Counsel to the effect that Holders of the notes will not
recognize income, gain or loss for Federal income tax purposes as a
result of such deposit and defeasance and will be subject to Federal
income tax on the same amount and in the same manner and at the same
time as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or
other change in applicable Federal income tax law) and
(2) an Opinion of Counsel in Mexico to the effect that Holders of the notes
will not recognize income, gain or loss for Mexican tax purposes as a
result of such deposit and defeasance and will be subject to Mexican
taxes (including withholding taxes) on the same amounts, in the same
manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the indenture. In addition, we
have appointed The Bank of New York as Registrar and Paying Agent with regard to
the notes. The Bank of New York is also serving as Security Agent under the
Security Agreement.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
None of our directors, officers, employees, incorporators or stockholders
will have any liability for any of our obligations under the notes or the
indenture or for any claim based on, in respect of, or by reason of those
obligations or their creation. Each Holder of the notes by accepting a note
waives and releases all such liability of our directors, officers, employees,
incorporators or stockholders. The waiver and release are part of the
consideration for issuance of the notes. Such waiver and release may not be
effective to waive liabilities under the U.S. federal securities laws, and it is
the view of the SEC that such a waiver is against public policy.
GOVERNING LAW
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Under the Mexican Monetary Law (Ley Monetaria de los Estados Unidos
Mexicanos), in the event that proceedings are brought in Mexico seeking to
enforce in Mexico our obligations under the notes, we would not be required to
discharge such obligations in Mexico in a currency other than Mexican currency.
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According to such law, an obligation in a currency other than Mexican currency,
which is payable in Mexico, may be satisfied in Pesos at the rate of exchange in
effect on the date and in the place payment occurs. The exchange rate is
currently determined by Banco de Mexico every business banking day in Mexico and
published the following business banking day in the Mexican Diario Oficial de la
Federacion.
CONSENT TO JURISDICTION AND SERVICE OF PROCESS
The indenture provides that we will irrevocably appoint CT Corporation
System as our agent for service of process in any suit, action or proceeding
with respect to the indenture or the notes brought in any Federal or state court
located in New York City and submit to the jurisdiction thereof.
CERTAIN DEFINITIONS
In this section "Description of Notes" certain words and terms have
specific meaning. The words and terms are described below.
"ADDITIONAL ASSETS" means:
(1) any property (other than cash, cash equivalents or securities) to be
owned by New Iusacell or a Restricted Subsidiary and used in a Related
Business,
(2) the costs of improving or developing any property owned by New Iusacell
or a Restricted Subsidiary which is used in a Related Business and
(3)Investments in any other Person engaged primarily in a Related Business
(including the acquisition from third parties of Capital Stock of such
Person) as a result of which such other Person becomes a Restricted
Subsidiary.
"AFFILIATE" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" and "-- Limitation on Transactions with Affiliates" only,
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis) of
New Iusacell or of rights or warrants to purchase such Voting Stock (whether or
not currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"ANNUALIZED EBITDA" means, with respect to any Person, such Person's Pro
Forma EBITDA for such Person's two most recent fiscal quarters ended at least 45
days prior to the determination date, multiplied by two.
"ASSET DISPOSITION" means any sale, lease, transfer, issuance or other
disposition of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by New Iusacell or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than:
(1) a disposition by a Restricted Subsidiary to New Iusacell or by New
Iusacell or a Restricted Subsidiary to a Restricted Subsidiary,
(2) a disposition of inventory (including sales of capacity and rights of
use in New Iusacell's network) in the ordinary course of business,
(3) for purposes of the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition subject to (and complying with) the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments",
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(4) Permitted Securitization Transactions,
(5) Joint Venture Investments to the extent permitted pursuant to clause
(ix) of the definition of "Permitted Investment,"
(6) a disposition of assets in one transaction or a series of related
transactions with a Fair Market Value of less than $250,000,
(7) an exchange of telecommunications assets where the Fair Market Value
of the telecommunications assets received is at least equal to the
Fair Market Value of the telecommunications assets disposed of or, if
less, the difference is received in cash, and such cash is Net
Available Cash,
(8) a disposition that is governed by the provisions described under
"-- Merger and Consolidation",
(9) dispositions resulting from the foreclosure of a Permitted Lien, and
(10) the sale or other disposition of cash or Temporary Cash Investments.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, as at
the time of determination:
(1) if such Sale/Leaseback Transaction is a Capitalized Lease Obligation,
the amount of Indebtedness represented thereby according to the
definition of "Capitalized Lease Obligation" and
(2) in all other instances, the present value (discounted at the interest
rate borne by the notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period
for which such lease has been extended).
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years (including fractions
thereof) from the date of determination to the dates of each successive
scheduled principal payment of such Indebtedness or redemption or
similar payment with respect to such Preferred Stock multiplied by the
amount of such payment by
(2) the sum of all such payments.
"BOARD OF DIRECTORS" means the Board of Directors of New Iusacell or any
committee thereof duly authorized to act on behalf of such Board.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State or in Mexico are authorized or
required by law to close.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"CAPITALIZED LEASE OBLIGATIONS" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"CONSOLIDATED CURRENT LIABILITIES" means, as of any date of determination,
the aggregate amount of liabilities of New Iusacell and its Consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating:
(1) all intercompany items between New Iusacell and any Restricted
Subsidiary and
(2) all current maturities of long-term Indebtedness.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of New Iusacell and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by New Iusacell or its Restricted Subsidiaries in such
period but not included in such interest expense:
(1) interest expense attributable to Capitalized Lease Obligations,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest,
(4) noncash interest expense,
(5) commissions, discounts and other fees and charges with respect to
letters of credit and bankers' acceptance financing,
(6) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by New Iusacell or any Restricted
Subsidiary; provided that payment of such amounts by New Iusacell or
any Restricted Subsidiary is being made to, or is sought by, the
holders of such Indebtedness pursuant to such Guarantee,
(7) net costs associated with Hedging Obligations (including amortization
of fees and premiums) permitted under the indenture,
(8) Preferred Stock dividends in respect of all Preferred Stock of
Subsidiaries of New Iusacell and Disqualified Stock of New Iusacell
held by Persons other than New Iusacell or a Restricted Subsidiary
(other than dividends payable solely in Capital Stock other than
Disqualified Stock); provided that to the extent a Restricted
Subsidiary is not a Wholly-Owned Subsidiary, a corresponding portion of
any such dividends paid to such Restricted Subsidiary shall be included
in Consolidated Interest Expense, and
(9) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than New Iusacell) in
connection with Indebtedness Incurred by such plan or trust;
provided, however, that Consolidated Interest Expense shall not include any
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by New Iusacell or any Restricted Subsidiary.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss) of
New Iusacell and its Consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that:
(A) subject to the limitations contained in clause (4) below, New
Iusacell's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person
during such period to New Iusacell or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend
or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (3) below) and
(B) New Iusacell's equity in a net loss of any such Person (other than
an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income;
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(2) any net income (loss) of any person acquired by New Iusacell or a
Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(3) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to New Iusacell (other than
restrictions contained in Specified Subsidiary Debt), except that:
(A) subject to the limitations contained in clause (4) below, New
Iusacell's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to New
Iusacell or another Restricted Subsidiary as a dividend (subject, in
the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause)
and
(B) New Iusacell's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (but not loss) realized upon the sale or other disposition of
any asset of New Iusacell or its Consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain
(but not loss) realized upon the sale or other disposition of any
Capital Stock of any Person;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
New Iusacell or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (Z)(iv) of paragraph (1) thereof.
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of determination,
the sum of the total assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) of New Iusacell and its Consolidated Restricted
Subsidiaries, after giving effect to purchase accounting and after deducting
therefrom Consolidated Current Liabilities and, to the extent otherwise
included, the amounts of (without duplication):
(1) the excess of cost over fair market value of assets or businesses
acquired;
(2) any revaluation or other write-up in book value of assets subsequent to
the last day of the fiscal quarter of New Iusacell immediately
preceding the Issue Date as a result of a change in the method of
valuation in accordance with GAAP;
(3) unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items;
(4) minority interests in Consolidated Subsidiaries held by Persons other
than New Iusacell or any Restricted Subsidiary;
(5) treasury stock;
(6) cash set aside and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and
(7) Investments in and assets of Unrestricted Subsidiaries.
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"CONSOLIDATION" means the consolidation of the amounts of each of the
Subsidiaries of a Person with those of such Person in accordance with GAAP
consistently applied; provided, however, that, in the case of New Iusacell,
"Consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of New Iusacell or any Restricted
Subsidiary in an Unrestricted Subsidiary will be accounted for as an investment.
The term "Consolidated" has a correlative meaning.
"CREDIT FACILITY" means the credit agreement dated as of July 25, 1997, as
amended, waived or otherwise modified from time to time, among Old Iusacell, the
lenders named therein and Chase, as administrative agent (except to the extent
that any such amendment, waiver or other modification thereto would be
prohibited by the terms of the indenture, unless otherwise agreed to by the
Holders of at least a majority in aggregate principal amount of notes at the
time outstanding).
"CUMULATIVE EBITDA" means, at any date of determination, the cumulative
EBITDA of New Iusacell from and after the first day of the fiscal quarter of New
Iusacell following the end of the most recent fiscal quarter of New Iusacell
preceding the Issue Date to the end of the most recent fiscal quarter of New
Iusacell ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made.
"CUMULATIVE INTEREST EXPENSE" means, at any date of determination, the
aggregate amount of Consolidated Interest Expense Incurred by New Iusacell from
and after the first day of the fiscal quarter of New Iusacell following the end
of the most recent fiscal quarter of New Iusacell preceding the Issue Date to
the end of the most recent fiscal quarter of New Iusacell ending at least 45
days prior to the taking of any action for the purpose of which the
determination is being made.
"CURRENCY AGREEMENT" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
which by its terms (or the terms of any security into which it is convertible or
for which it is exchangeable or exercisable) or upon the happening of any event:
(1) matures or is or could become mandatorily redeemable pursuant to a
sinking fund obligation or otherwise,
(2) is or could become convertible or exchangeable for Indebtedness or
Disqualified Stock, or
(3) is or could become redeemable at the option of the Holder thereof, in
whole or in part, in each case on or prior to the first anniversary of
the Stated Maturity of the notes.
"DOLLAR EQUIVALENT" means, with respect to any monetary amount in a
currency other than U.S. dollars, at any time for the determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the noon buying rate for the purchase of
U.S. dollars with the applicable foreign currency reported by the Federal
Reserve Bank of New York, or if no noon buying rate is so reported, at the spot
rate for the purchase of U.S. dollars with the applicable foreign currency as
quoted by The Chase Manhattan Bank in New York City at approximately 11:00 a.m.
(New York City time):
(1) with respect to the calculation of Leverage Ratio, Cumulative EBITDA
and Cumulative Interest Expense, as of the end of the most recent
fiscal quarter of New Iusacell ending at least 45 days prior to the
taking of any action for the purpose of which the determination is
being made or
(2) with respect to the monetary amount of a transaction occurring
subsequent to the end of such fiscal quarter, on the date two Business
Days prior to such determination.
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"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income:
(1) income and asset tax expense and employee profit sharing expense,
(2) Consolidated Interest Expense,
(3) depreciation expense,
(4) amortization expense,
(5) foreign exchange losses that are reported below the "Operating profit
(loss)" line on New Iusacell's consolidated income statements and
(6) all non-cash items that are reported below the "Operating profit
(loss)" line on New Iusacell's consolidated income statements,
including monetary losses (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP
to be, made), less the following to the extent included in calculating
such Consolidated Net Income:
(A) income and asset tax benefit,
(B) foreign exchange gains that are reported below the "Operating
profit (loss)" line on New Iusacell's consolidated statements of
income,
(C) all non-cash items that are reported below the "Operating profit
(loss)" line on New Iusacell's consolidated statements of income,
including monetary gains (other than items that will result in the
receipt of cash payments), in each case for such period, and
(D) all income and capital gain earned from the investment and
reinvestment of amounts in the Security Account.
In addition, the cost of handsets given to customers in such period shall
be deducted from EBITDA to the extent not already deducted in determining
Consolidated Net Income.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Subsidiary of New
Iusacell shall be added to Consolidated Net Income to compute EBITDA only to the
extent (and in the same proportion) that the net income (loss) of such
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to New Iusacell by such Subsidiary without prior approval (or with
approval that has been obtained), pursuant to the terms of its charter and all
agreements (other than Specified Subsidiary Debt), instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"EXIMBANK FACILITY" means the credit agreement dated as of March 3, 1999,
as amended, waived or otherwise modified from time to time, among Old Iusacell,
the guarantors named therein, UBS AG, as lender and collateral agent and
Export-Import Bank of the United States, and the commercial loan agreement dated
as of March 3, 1999, as amended, waived or otherwise modified from time to time,
among Old Iusacell, the guarantors named therein, Commerzbank AG, as commercial
lender, and UBS AG, as commercial lender and commercial agent and as collateral
agent (except in each case to the extent that any such amendment, waiver or
other modification thereto would be prohibited by the terms of the indenture,
unless otherwise agreed to by the Holders of at least a majority in aggregate
principal amount of notes at the time outstanding).
"FAIR MARKET VALUE" means, with respect to any property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided:
(1) if such property has a Fair Market Value equal to or less than
U.S.$10.0 million, by an Officer of New Iusacell or
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(2) if such Property has a Fair Market Value in excess of U.S.$10.0
million, by a majority of the Board of Directors and evidenced by a
resolution of the Board of Directors promptly delivered to the Trustee.
"GAAP" means generally accepted accounting principles in Mexico as in
effect as of the Issue Date. All ratios and computations based on GAAP contained
in the Indenture shall be computed in conformity with GAAP.
"GRUPO IUSACELL NOTES" means $150,000,000 10% Senior Notes of Old Iusacell
due 2004.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or
otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in
part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding
meaning.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a note is
registered on the Registrar's books.
"INCUR" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary; provided further, that solely for
purposes of determining compliance with "-- Certain Covenants -- Limitation on
Indebtedness," amortization of debt discount shall not be deemed to be the
Incurrence of Indebtedness; provided further, that in the case of Indebtedness
sold at a discount, the amount of such Indebtedness Incurred shall at all times
be the aggregate principal amount at Stated Maturity.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of indebtedness of
such Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments (other than (A) promissory notes or similar instruments
issued in the ordinary course of business to guarantee the payment of
Trade Payables, and (B) obligations entered into in the ordinary course
of business to the extent not drawn upon, or if drawn, such drawing is
reimbursed no later than the third Business Day following payment);
(3) all obligations of such Person in respect of letters of credit, surety
bonds or other similar instruments (including reimbursement obligations
with respect thereto) other than obligations entered into in the
ordinary course of business to the extent not drawn upon, or if drawn,
such drawing is reimbursed no later than the third Business Day
following payment;
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(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services (except Trade Payables), which purchase
price is due more than 270 days after the date of placing such property
in service or taking delivery and title thereto or the completion of
such services;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to New Iusacell, any Preferred Stock of the Restricted
Subsidiaries (but excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such
Person shall be the lesser of:
(A) the fair market value of such asset at such date of determination
and
(B) the amount of such Indebtedness of such other Persons;
(8) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and
(9) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations described above at such
date. The amount of Indebtedness with respect to Hedging Obligations shall be:
(A) zero, if such Hedging Obligation is permitted pursuant to clause
(2)(E)(ii) of "-- Certain Covenants -- Limitation on Indebtedness" or
(B) the notional amount of such Hedging Obligation, if such Hedging
Obligation is not so permitted.
"INTEREST RATE AGREEMENT" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"INVESTMENT" in any Person means any direct or indirect advance (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of the lender), loan or other extension
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "-- Certain Covenants-Limitation on Restricted
Payments,"
(1) "Investment" shall include the portion (proportionate to New Iusacell's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of New Iusacell at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, New Iusacell shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to:
(A) New Iusacell's "Investment" in such Subsidiary at the time of such
redesignation less
(B) the portion (proportionate to New Iusacell's equity interest in such
Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
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(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"ISSUE DATE" means the date on which the notes are originally issued.
"JOINT VENTURE INVESTMENT" means
(1) any sale, lease, transfer, issuance or other disposition of shares of
Capital Stock of a Subsidiary, property or other assets by New Iusacell
or any of the Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) which is
engaged in or used in, as applicable, a Related Business, in exchange
for which New Iusacell or a Restricted Subsidiary receives Capital
Stock of another Person (other than New Iusacell or a Restricted
Subsidiary) engaged primarily in a Related Business, provided that the
fair market value of such Capital Stock is at least equal to the fair
market value of such shares, property or assets that are the subject of
such disposition and
(2) any Investment in Iusacell PCS, S.A. de C.V.
"LEVERAGE RATIO" means the ratio of:
(1) the outstanding consolidated Indebtedness of a Person and its
Subsidiaries (or in the case of New Iusacell, the Restricted
Subsidiaries) divided by
(2) the Annualized EBITDA of such Person.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"MASTER TECHNICAL SERVICES AGREEMENT" means the Master Technical Services
Agreement by and between Bell Atlantic International, Inc. and Sistecel, S.A. de
CV, effective as of January 1, 1997, without giving effect to any amendment,
waiver or other modification thereof.
"NET AVAILABLE CASH" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a promissory note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the shares, properties or other assets that are the subject of such
Asset Disposition or received in any other noncash form) therefrom, in each case
net of
(1) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP,
as a consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which (unless it is Subordinated Debt) must
by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by New Iusacell or
any Restricted Subsidiary after such Asset Disposition.
"NET CASH PROCEEDS", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
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"1997 INDENTURE" means the indenture dated as of July 25, 1997 among Old
Iusacell C.V., certain subsidiary guarantors and First Union National Bank, as
trustee.
"OFFICER" of any Person means the Chairman of the Board, the Chief
Executive Officer, the Director General, the Chief Financial Officer, the Chief
Operating Officer, the President, any Vice President, the Treasurer or the
Secretary of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers of New
Iusacell.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to New
Iusacell or the Trustee.
"OWNERSHIP REGULATED SUBSIDIARIES" means each of Iusacell PCS, S.A. de C.V.
(personal communications services), Infotelecom, S.A. de C.V. (paging services),
Iusatel, S.A. de C.V. (long distance services), Iusatelecomunicaciones, S.A. de
C.V. (local wireless services), Punto-a-Punto Iusacell, S.A. de C.V. (certain
microwave operations) and any other Subsidiary of New Iusacell, in each case as
to which applicable law or regulation prohibits New Iusacell from owning a
majority of the Voting Stock thereof.
"PERALTA GROUP" means Carlos Peralta Quintero and his Affiliates (other
than New Iusacell and its Subsidiaries).
"PERMITTED HOLDERS" means Bell Atlantic and any Affiliate of Bell Atlantic.
"PERMITTED INVESTMENT" means an Investment by New Iusacell or any
Restricted Subsidiary in:
(1) New Iusacell, a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, New Iusacell or a Restricted
Subsidiary; provided, however, that such Person's primary business is a
Related Business;
(3) Temporary Cash Investments;
(4) receivables owing to New Iusacell or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade
terms as New Iusacell or any such Restricted Subsidiary deems
reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of business
consistent with past practices of New Iusacell or such Restricted
Subsidiary and not exceeding U.S.$3.0 million in the aggregate
outstanding at any one time;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to New Iusacell or
any Restricted Subsidiary or in satisfaction of judgments;
(8) any securities or other Investments received in compliance with the
covenant described under "-- Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock";
(9) Joint Venture Investments in an aggregate amount not to exceed the
greater of
(A) U.S.$50.0 million and
(B) 5% of Consolidated Net Tangible Assets, provided that the amount of
any such Joint Venture Investment shall be deemed to equal the Fair
Market Value at the time of
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disposition of the shares of Capital Stock, property or other assets
disposed of in connection with such Joint Venture Investment;
(10) Iusatelecomunicaciones, S.A. de C.V. as an Unrestricted Subsidiary in
an aggregate amount not to exceed U.S.$12.0 million;
(11) any purchases of Indebtedness, options, futures and other securities
in connection with Interest Rate Agreements or Currency Agreements
permitted to be incurred under "-- Certain covenants -- Limitation on
Indebtedness"; and
(12) Iusacell PCS, S.A. de C.V. in an amount not to exceed U.S.$70.0
million, the entire proceeds of which are immediately used by Iusacell
PCS, S.A. de C.V. to repay Indebtedness owing to Old Iusacell.
"PERMITTED LIENS" means, with respect to any Person:
(1) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness) or leases to which such Person is a party,
or deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety
bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each
case Incurred in the ordinary course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good
faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such
Person shall then be proceeding with an appeal or other proceedings for
review and 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 accounts or other funds maintained
with a creditor depository institution;
(3) Liens for taxes not yet due or payable or subject to penalties for
non-payment and which are being contested in good faith by appropriate
proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business;
(5) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real properties or Liens incidental
to the conduct of the business of such Person or to the ownership of
its properties which were not Incurred in connection with Indebtedness
and which do not in the aggregate materially adversely affect the value
of said properties or materially impair their use in the operation of
the business of such Person;
(6) Liens on property or assets that are the subject of Indebtedness
permitted under clause (H) of paragraph (2) under "-- Certain
Covenants -- Limitation on Indebtedness" (other than the Refinancing
Indebtedness referred to in such clause (H) which Refinancing
Indebtedness shall be the subject of clause (15) below); provided,
however, that:
(A) any such Lien is limited to the specific property or asset being
financed or, in the case of real property or fixtures, including
additions and improvements, the real property on which such asset is
attached,
(B) such Indebtedness is Incurred solely for the purpose of financing
the acquisition, construction or lease of such property or asset and
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(C) such Indebtedness is incurred within 365 days after the later of the
acquisition, completion of construction, repair, improvement or
addition or commencement of full operation of such property or asset
by New Iusacell or a Restricted Subsidiary;
(7) Liens existing on the Issue Date or required to be granted pursuant to
the terms of Indebtedness existing on the Issue Date as in effect on
the Issue Date;
(8) Liens on property of a Person at the time such Person becomes a
Subsidiary; provided, however, such Liens are not created, Incurred or
assumed in connection with, or in contemplation of, such Person
becoming such a Subsidiary of New Iusacell; provided further, however,
that such Liens may not extend to any other property owned by New
Iusacell or any Restricted Subsidiary (other than assets and property
affixed or appurtenant thereto);
(9) Liens on property at the time New Iusacell or a Restricted Subsidiary
acquired the property, including any acquisition by means of a merger
or consolidation with or into New Iusacell or any Restricted
Subsidiary; provided, however, that such Liens are not created,
Incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend
to any other property owned by New Iusacell or any Restricted
Subsidiary (other than assets and property affixed or appurtenant
thereto);
(10) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to New Iusacell or a Wholly Owned Subsidiary;
(11) Liens securing Hedging Obligations so long as the related Hedging
Obligations are permitted under clause (E)(ii) of paragraph (2) of the
covenant "-- Limitation on Indebtedness";
(12) Liens in an aggregate amount not in excess of U.S.$10.0 million or its
foreign currency equivalent at any time outstanding securing one or
more judgments or decrees against New Iusacell or one of its
Subsidiaries, so long all such judgments or decrees are being
contested in good faith and any appropriate legal proceedings which
may have been duly initiated for the review of any such judgment or
decree shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(13) leases and subleases of real property entered into in the ordinary
course of the business of New Iusacell or the applicable Restricted
Subsidiary which do not interfere with the ordinary conduct of the
business of New Iusacell or any Restricted Subsidiary, and which are
made on customary and usual terms applicable to similar properties;
(14) any interest or title by a lessor or sublessor, or any Lien in favor
of a landlord, arising under any real or personal property lease under
which New Iusacell or any of the Restricted Subsidiaries is a lessee,
sublessee or subtenant and which New Iusacell or such Restricted
Subsidiary entered into in the ordinary course of its business (other
than any Lien securing any Capitalized Lease Obligation, Purchase
Money Indebtedness or Sale/Leaseback Transaction);
(15) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions,
renewals or replacements) as a whole, or in part, of any Indebtedness
secured by any Lien referred to in the foregoing clauses (6), (7), (8)
and (9); provided, however, that:
(A) such new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements on such property)
and
(B) the Indebtedness secured by such Lien at such time is not increased
to any amount greater than the sum of:
(i) the outstanding principal amount or, if greater, committed amount
of the Indebtedness described under clause (6), (7), (8) or (9)
at the time the original Lien became a Permitted Lien under the
indenture and
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(ii) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension,
renewal or replacement.
(16) Liens Incurred in connection with Capitalized Lease Obligations
permitted under the indenture; provided that such Liens do not extend
or cover any property other than the property that is the subject of
the Capitalized Lease Obligation;
(17) Liens Incurred in the ordinary course of business of New Iusacell and
its Subsidiaries with respect to obligations that do not exceed
U.S.$10 million at any one time outstanding;
(18) Liens in favor of New Iusacell or any Restricted Subsidiary; and
(19) the Lien on the Security Account in favor of the Holders of the notes.
"PERMITTED SECURITIZATION TRANSACTION" means any sale, discount, conveyance
or other disposition of receivables generated through New Iusacell's
Consolidated operations:
(1) that is made without representation or warranty (except for
representations and warranties normally and customarily given by
sellers and servicers in connection with asset securitization
transactions),
(2) that is made pursuant to bona fide transactions with third parties for
Fair Market Value,
(3) in respect of which New Iusacell and the Restricted Subsidiaries
neither incur nor accept any risk other than risk in respect of the
representations and warranties as described in clause (1) above, risk
arising in connection with the obligation to service such receivables
and other risks normally and customarily incurred or accepted by
sellers and servicers and their affiliates in connection with asset
securitization transactions and
(4) that New Iusacell in good faith accounts for as, and intends that such
transactions will be characterized under U.S. GAAP (as defined below)
as, a "true sale" and not a liability.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"PRINCIPAL" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"PRO FORMA EBITDA" means for any Person, for any period, the EBITDA of such
Person as determined on a Consolidated basis in accordance with GAAP
consistently applied after giving effect to the following:
(1) if, during or after such period, such Person or any of its Subsidiaries
shall have made any disposition of any Person or business, Pro Forma
EBITDA of such Person and its Subsidiaries shall be computed so as to
give pro forma effect to such disposition as if such disposition
occurred at the beginning of such period,
(2) if, during or after such period, such Person or any of its Subsidiaries
completes an acquisition of any Person or business which immediately
after such acquisition is a Subsidiary of such Person or whose assets
are held directly by such Person or a Subsidiary of such Person, Pro
Forma EBITDA shall be computed so as to give pro forma effect to the
acquisition of such Person or business as if such acquisition occurred
at the beginning of such period and
(3) if during or after such period, such Person or any of its Subsidiaries
Incurs or repays any Indebtedness, Pro Forma EBITDA shall be computed
so as to give pro forma effect to such
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Incurrence or repayment; provided, however, that, with respect to New
Iusacell, all the foregoing references to "Subsidiary" or
"Subsidiaries" shall be deemed to refer only to "Restricted
Subsidiaries."
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
common stock of New Iusacell pursuant to an effective registration statement
under the Securities Act or in Mexico pursuant to the Mexican Securities Market
Law (Ley de Mercado de Valores) and the regulations of the CNBV.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness:
(1) consisting of the deferred purchase price of property (including,
without limitation, handset inventory), conditional sale obligations,
obligations under any title retention agreement and other purchase
money obligations, in each case where the maturity of such Indebtedness
does not exceed the anticipated useful life of the asset being
financed, and
(2) Incurred in the ordinary course of business solely to finance the
acquisition, construction or lease by New Iusacell or a Restricted
Subsidiary of such asset, including repairs, additions and improvements
thereto.
"REFINANCING INDEBTEDNESS" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances" and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of the indenture or
Incurred in compliance with the indenture (including Indebtedness of New
Iusacell that refinances Indebtedness of any Restricted Subsidiary (to the
extent permitted in the indenture) and Indebtedness of any Restricted Subsidiary
that refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being refinanced,
(3) the Refinancing Indebtedness shall not be senior in right of payment to
the Indebtedness being refinanced and
(4) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the sum of:
(A) the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced and
(B) the amount of prepayment premiums owed, if any, not in excess of the
amount provided for by the preexisting prepayment provisions of such
Indebtedness being refinanced; provided further, however, that
Refinancing Indebtedness shall not include:
(i) Indebtedness of a Restricted Subsidiary that refinances
Indebtedness of New Iusacell or
(ii) Indebtedness of New Iusacell or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary.
"RELATED BUSINESS" means any business related, ancillary or complementary
to the businesses of New Iusacell and the Restricted Subsidiaries on the Issue
Date.
"REPRESENTATIVE" means the trustee, agent or representative (if any) for an
issue of Designated Senior Indebtedness.
"RESTRICTED SUBSIDIARY" means any Subsidiary of New Iusacell other than an
Unrestricted Subsidiary.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby New Iusacell or a Restricted Subsidiary
transfers such property to a Person and New
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Iusacell or a Restricted Subsidiary leases it from such Person, other than
leases between New Iusacell and a Restricted Subsidiary or between Restricted
Subsidiaries.
"SECONDMENT AGREEMENT" means the Agreement for the Reimbursement of
Compensation Expense (Secondment Agreement) by and between Bell Atlantic
International, Inc. and Sistecel, S.A. de C.V., effective as of January 1, 1997,
without giving effect to any subsequent amendment, waiver or other modification
thereof.
"SECURITY ACCOUNT" means the security account created under the Security
Agreement.
"SECURITY AGREEMENT" means the agreement dated as of the Issue Date between
New Iusacell and The Bank of New York, as security agent.
"SECURED INDEBTEDNESS" means any Indebtedness of New Iusacell or a
Restricted Subsidiary secured by a Lien.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of New Iusacell within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"SPECIFIED SUBSIDIARY DEBT" means:
(1) the Grupo Iusacell Notes, the Credit Facility and the Eximbank
Facility, in each case as in effect on the Issue Date and
(2) any refinancing permitted under the indenture provided that the terms
of such debt refinancing are not more restrictive.
"STATED MATURITY" means, with respect to any security or Indebtedness, the
date specified in such security or credit document as the fixed date on which
the final payment of principal of such security or Indebtedness is due and
payable, including pursuant to any mandatory redemption or prepayment provision
(but excluding any provision providing for the repurchase of such security or
prepayment of such Indebtedness at the option of the holder thereof or creditor
thereunder upon the happening of any contingency beyond the control of the
issuer or borrower unless such contingency has occurred).
"STRATEGIC INVESTOR" means any Person beneficially owning at least 10% of
New Iusacell's outstanding Capital Stock (on a fully diluted basis) and any
Affiliate of such Person.
"STRATEGIC SUBORDINATED INDEBTEDNESS" means Indebtedness of New Iusacell
granted by Strategic Investors which by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is Incurred,
(1) is expressly made subordinate in right of payment to the notes on the
terms provided in the indenture and
(2) provides that no payment of principal, premium or interest on, or any
other payment with respect to, such Indebtedness may be made until one
year after the payment in full of all of New Iusacell's obligations
under the notes (other than for Mexican withholding taxes with respect
to interest paid in kind in the form of additional Strategic
Subordinated Indebtedness in an amount not to exceed 15% of the
aggregate principal amount of such additional Strategic Subordinated
Indebtedness).
"SUBORDINATED OBLIGATION" means
(1) any Strategic Subordinated Indebtedness and
(2) any Indebtedness (whether outstanding on the Issue Date or thereafter
Incurred) of New Iusacell or any Restricted Subsidiary that is
subordinate and junior in right of payment to the notes, as the case
may be, pursuant to a written agreement.
"SUBSIDIARY" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including
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partnership interests) 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:
(1) such Person or
(2) one or more Subsidiaries of such Person;
provided, however, that each Ownership Regulated Subsidiary shall be deemed to
be a Subsidiary of New Iusacell for so long as:
(A) New Iusacell beneficially owns a majority of the outstanding Capital
Stock thereof and
(B) applicable law or regulation prohibits New Iusacell from beneficially
owning a majority of the Voting Stock of such Ownership Regulated
Subsidiary.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(1) direct obligations of the United States of America or any agency or
instrumentality thereof with a maturity of 365 days or less from the
date of acquisition and other obligations issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof);
(2) demand deposits, certificates of deposit or Eurodollar deposits with a
maturity of 365 days or less from the date of acquisition of any
financial institution which at the date of acquisition has combined
capital and surplus and undivided profits of not less than U.S.$500.0
million (or any foreign currency equivalent thereof) and has
outstanding indebtedness rated at least A by Standard & Poor's Ratings
Group and at least A2 by Moody's Investors Service, Inc.;
(3) commercial paper, loan participation interests, medium term notes,
asset backed securities and other promissory notes, including floating
or variable rate obligations, issued by any Person other than New
Iusacell or an Affiliate of New Iusacell, with a remaining maturity of
365 days or less from the date of acquisition and rated at least A-1 or
A-, as applicable, by Standard & Poor's Rating Group and at least P-1
or A3, as applicable, by Moody's Investors Service, Inc.;
(4) repurchase agreements and reverse repurchase agreements relating to
marketable obligations directly or indirectly issued or unconditionally
guaranteed by the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition;
provided, however, that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository
Institutions with Securities Dealers and Others, as adopted by the
Comptroller of the Currency;
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated at
least A by Standard & Poor's Ratings Group or A2 by Moody's Investors
Service, Inc.;
(6) instruments backed by letters of credit of institutions satisfying the
requirements of clause (2) above;
(7) Certificados de la Tesoreria de la Federacion (Cetes), Bonos de
Desarrollo del Gobierno Federal (Bondes) or Bonos Ajustables del
Gobierno Federal (Ajustabonos), in each case, issued by the Mexican
government and having a maturity of 365 days or less from the date of
acquisition;
(8) any other instruments issued or guaranteed expressly by the Mexican
government and denominated and payable in pesos and having a maturity
of 365 days or less from the date of acquisition;
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(9) demand deposits, certificates of deposit and bankers' acceptances
denominated in pesos and issued by any of the five top-rated banks (as
evaluated by any internationally recognized rating agency) organized
under the laws of Mexico or any state thereof; and
(10) investment funds which invest solely in any of the instruments
described in clauses (1) through (9) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa-77bbbb) as in effect on the date of the indenture.
"TRADE PAYABLES" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"TRUSTEE" means the party named as such in the indenture until a successor
replaces it and, thereafter, means the successor.
"TRUST OFFICER" means any Officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"UNRESTRICTED SUBSIDIARY" means:
(1) Iusatelecomunicaciones, S.A. de C.V. (local wireless service),
(2) Iusacell PCS, S.A. de C.V. (PCS services),
(3) any Subsidiary of New Iusacell that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below and
(4) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of New Iusacell
(including any newly acquired or newly formed Subsidiary of New Iusacell) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any
property of, New Iusacell or any other Subsidiary of New Iusacell that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
either:
(A) the Subsidiary to be so designated has total consolidated assets of
U.S.$1,000 or less or
(B) if such Subsidiary has consolidated assets greater than U.S.$1,000,
then such designation would be permitted under "-- Certain
Covenants -- Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(i) New Iusacell could Incur U.S.$1.00 of additional Indebtedness under
paragraph (1) of "-- Certain Covenants -- Limitation on Indebtedness"
and
(ii) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board
of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
(1) in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) in such other statements by such other entity as approved by a
significant segment of the accounting profession, and
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(4) the rules and regulations of the SEC 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 SEC.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by New
Iusacell or another Wholly Owned Subsidiary.
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UNITED STATES TAXATION
GENERAL
This section summarizes the principal U.S. federal income tax consequences
of the acquisition, ownership and disposition of the exchange notes. It is based
upon the advice of Clifford Chance Rogers & Wells LLP, our special U.S. tax
counsel, regarding the application of the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, existing and proposed U.S.
Treasury regulations promulgated thereunder, published rulings by the U.S.
Internal Revenue Service ("IRS") and court decisions, all in effect as of the
date hereof, all of which authorities are subject to change or differing
interpretations, which changes or differing interpretations could apply
retroactively. This summary is limited to investors who hold the exchange notes
as "capital assets" within the meaning of section 1221 of the Code (i.e.,
generally, notes held for investment) and does not purport to deal with
investors in special tax situations, such as financial institutions, tax exempt
organizations, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding notes as a hedge against currency
risks or as a position in a "straddle," "conversion transaction," or
"constructive sale" transaction for tax purposes, or persons whose functional
currency (as defined in section 985 of the Code) is not the U.S. dollar. The
summary does not include any description of the tax laws of any state, local or
foreign governments that may be applicable to the notes or the holders thereof.
You should consult your own tax advisor concerning the application of U.S.
federal income tax laws and the Tax Treaty (as defined below) to your particular
situation as well as any consequences of the acquisition, ownership and
disposition of the exchange notes arising under the laws of any other taxing
jurisdiction.
As used in this prospectus, the term "U.S. Holder" means a beneficial owner
of a note who or which is
- a citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States or of any state thereof (including the District of Columbia);
- an estate the income of which is subject to U.S. federal income tax
regardless of its source;
- 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 U.S.
persons have authority to control all substantial decisions of the trust,
or the trust elects under U.S. Treasury regulations to be treated as a
U.S. person; or
- any other person who is subject to U.S. federal income taxation on a net
income basis with respect to the notes.
As used in this prospectus, the term "Non-U.S. Holder" means a beneficial
owner of a note that is not a U.S. Holder. In the case of a holder of notes that
is a partnership for U.S. federal income tax purposes, each partner will take
into account its allocable share of income or loss from the notes, and will take
such income or loss into account under the rules of taxation applicable to such
partner, taking into account the activities of the partnership and the partner.
EXCHANGE OFFER
The exchange of exchange notes for the old notes pursuant to the exchange
offer described in this prospectus will not constitute a taxable exchange. As a
result,
- a U.S. Holder will not recognize gain or loss as a result of exchanging
old notes for exchange notes pursuant to the exchange offer described in
this prospectus;
- the holding period of the exchange notes will include the holding period
of the old notes exchanged therefor; and
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- the adjusted tax basis of the exchange notes will be the same as the
adjusted tax basis of the old notes exchanged therefor immediately before
such exchange.
PAYMENTS OF INTEREST AND ADDITIONAL AMOUNTS
Generally, payments of interest and Additional Amounts on a note will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or received, in accordance with the U.S. Holder's regular method of
accounting for U.S. federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF A NOTE
Upon the sale, exchange, redemption, retirement or other disposition of a
note, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between
- the amount realized on the sale, exchange, redemption, retirement or
other disposition and
- such U.S. Holder's adjusted tax basis in the note.
A U.S. Holder's adjusted tax basis in a note generally will equal its
purchase price. Gain or loss recognized upon disposition of a note generally
will be long-term capital gain or loss if the note has been held for more than
one year at the time of such disposition. The maximum U.S. federal income tax
rate applicable to any such long-term capital gains realized by an individual
U.S. Holder is 20%. U.S. Holders that are corporations are taxed on their net
capital gains at the regular corporate income tax rates. The gain or loss
recognized by a U.S. Holder in connection with the disposition of notes will be
U.S. source.
FOREIGN TAX CREDIT
INTEREST AND ADDITIONAL AMOUNTS
Payments of interest and Additional Amounts will constitute income from
sources outside the U.S. and will generally be treated for U.S. foreign tax
credit purposes as "passive income," or in the case of certain U.S. Holders,
"financial services income." If the payments of interest and Additional Amounts
were to become subject to Mexican withholding tax at a rate of 5 percent or
more, the interest and Additional Amounts may be considered "high withholding
tax interest" for purposes of computing the U.S. foreign tax credit.
EFFECT OF MEXICAN WITHHOLDING TAXES
A U.S. Holder will be required to include the amount of Mexican withholding
taxes, if any, imposed on payments on a note (including any Additional Amounts
payable by us) in gross income as interest income. Such treatment will be
required regardless of whether, as will generally be true, we are required to
pay Additional Amounts so that the amount of Mexican withholding taxes does not
reduce the net amount actually received by a U.S. Holder of a note. For
information on the applicable rates of Mexican withholding taxes imposed on
payments received by a U.S. Holder on a note, see "Mexican Taxation -- Taxation
of Payments of Interest and Principal".
Subject to customary limitations, a U.S. Holder may be entitled to a credit
against its U.S. federal income tax liability, or a deduction in computing its
U.S. federal taxable income, for the amount of Mexican income taxes withheld by
us (which, as described above, would include amounts withheld on Additional
Amounts paid by us with respect to Mexican taxes). However, Mexican taxes may be
deducted from a U.S. Holder's taxable income only if such U.S. Holder does not
claim a credit for any Mexican or other foreign taxes paid or accrued in that
taxable year. A U.S. Holder may be required to provide the IRS with a certified
copy of the receipt evidencing payment of such withholding tax imposed in
respect of payments on the notes in order to claim a U.S. foreign tax credit in
respect of such Mexican withholding tax.
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TAX CONSEQUENCES TO NON-U.S. HOLDERS OF NOTES
In general, subject to the discussion below of special rules that may apply
to certain Non-U.S. Holders and the discussion below of backup withholding
- payments of principal, interest and any Additional Amounts by us or any
of our paying agents to a Non-U.S. Holder will not be subject to U.S.
federal income or withholding tax;
- gain realized by a Non-U.S. Holder on the sale, exchange, redemption,
retirement or other disposition of a note will not be subject to U.S.
federal income tax or withholding tax; and
- the notes will not be subject to U.S. federal estate tax, if beneficially
owned by an individual who is a Non-U.S. Holder at the time of his death.
Special rules may apply in the case of Non-U.S. Holders
- that are engaged in a United States trade or business;
- that are former citizens or long-term residents of the United States,
"controlled foreign corporations," "foreign personal holding companies,"
corporations which accumulate earnings to avoid U.S. federal income tax,
and certain foreign charitable organizations, each within the meaning of
the Code; or
- certain non-resident alien individuals who are present in the United
States for 183 days or more during a taxable year and meet certain other
conditions.
Such persons are urged to consult their own tax advisor as to the
consequences to them of the acquisition, ownership and disposition of the notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Treasury Department issued final regulations relating to information
reporting and backup withholding that, among other things, unify current
certification procedures and forms and clarify reliance standards (the
"Regulations"). The Regulations generally will be effective with respect to
payments made after December 31, 2000. Except as provided below, this section
describes rules applicable to payments made on or before December 31, 2000.
For each calendar year in which the notes are outstanding, each DTC
participant or indirect participant holding an interest in a note on behalf of a
beneficial owner of a note and each paying agent making payments in respect of a
note will generally be required to provide the IRS with certain information,
including such beneficial owner's name, address, taxpayer identification number
(either such beneficial owner's Social Security number, its employer
identification number or its IRS individual taxpayer identification number, as
the case may be), and the aggregate amount of principal, interest and any
Additional Amounts paid to such beneficial owner during the calendar year. These
reporting requirements, however, do not apply with respect to certain beneficial
owners, including Non-U.S. Holders (to the extent such Non-U.S. Holder complies
with the identification procedures contained in IRS Form W-8 as described
below), corporations, securities broker-dealers, other financial institutions,
tax-exempt organizations, qualified pension and profit sharing trusts and
individual retirement accounts.
In the event that a beneficial owner of a note fails to establish its
exemption from such information reporting requirements or is subject to the
reporting requirements described above and fails to supply its correct taxpayer
identification number in the manner required by applicable law, or underreports
its tax liability, as the case may be, the DTC participant or indirect
participant holding such interest on behalf of such beneficial owner or paying
agent making payments in respect of a note may be required to "backup" withhold
a tax equal to 31% of each payment of principal, interest and any Additional
Amounts with respect to a note. This backup withholding tax is not an additional
tax and may be credited against the beneficial owner's U.S. federal income tax
liability if the required information is furnished to the IRS. Compliance with
the identification procedures contained in IRS Form W-8 will establish an
exemption from information reporting and backup withholding for those Non-U.S.
Holders who are not exempt
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recipients. The Regulations impose certain certification and documentation
requirements on Non-U.S. Holders claiming an exemption from, information
reporting and backup withholding on principal, interest and any Additional
Amounts paid on the notes and on the proceeds of a disposition of the notes.
You are advised to consult your own tax advisor as to the consequences of
the acquisition, ownership and disposition of the notes, including, without
limitation
- the applicability and effect of any state, local or foreign tax laws to
which you may be subject, and of any legislative or administrative
changes in law;
- the applicability and effect, if any, of the Tax Treaty on your purchase,
ownership and disposition of the notes;
- the U.S. federal income tax consequences of Mexican withholding taxes
(and of the payment by us of Additional Amounts with respect thereto);
- the availability of a U.S. foreign tax credit or deduction for Mexican
withholding taxes; and
- the effect, if any, of the Regulations on your purchase, ownership and
disposition of the notes.
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MEXICAN TAXATION
GENERAL
The following is a summary of the principal consequences under Mexican
federal tax law in effect as of the date of this prospectus, and the Tax Treaty
(as defined below), of the purchase, ownership and disposition of the notes by a
purchaser that is a "Foreign Holder." A Foreign Holder is a holder who (i) is
not a resident of Mexico for tax purposes and (ii) does not hold notes or a
beneficial interest in notes in connection with the conduct of a trade or
business through a permanent establishment or a fixed base in Mexico. This
summary is based on the opinion of our special Mexican counsel, De Ovando y
Martinez del Campo, S.C.
Prospective investors are cautioned that this is not a complete technical
analysis or listing of all the potential Mexican federal income tax consequences
that may be relevant to holders of the notes. The statements of Mexican federal
income tax laws that we make below are based on the federal laws of Mexico,
their regulations and administrative rules issued by the Ministry of Finance and
Public Credit, and the Tax Treaty, all as in force as of the date of this
offering memorandum. Said statements are subject to changes in Mexican law or
regulation or the Tax Treaty, or the interpretation thereof, with such changes
possibly having retroactive effects. Whenever we mention Mexico we refer to the
United Mexican States.
You should consult your own tax advisor concerning the application of
Mexican laws, as well as the laws of any state, local, or foreign taxing
jurisdiction applicable to your particular situation.
For purposes of Mexican taxation, an individual is a resident of Mexico if
he has established his home in Mexico, unless he has resided in another country
for more than 183 days, whether consecutive or not, during a calendar year and
can demonstrate that he has become a resident of that other country for tax
purposes. An individual of Mexican nationality is presumed to be a resident of
Mexico unless he demonstrates that he has become a resident of another country
for tax purposes. In general, a legal entity established under Mexican law or
having its principal executive offices or management in Mexico is a resident of
Mexico. A person having a permanent establishment or a fixed base in Mexico will
be regarded as a resident of Mexico and will be required to pay taxes in Mexico
in accordance with applicable law in respect of all Mexican-source income,
attributable to such permanent establishment or fixed base.
UNITED STATES/MEXICO AND OTHER TAX TREATIES
The United States and Mexico have signed and ratified a Convention for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and a related Protocol thereto. We refer to this Convention
as the "Tax Treaty." The Tax Treaty is currently in effect and we summarize the
provisions of the Tax Treaty that may affect holders of the notes who are
residents of the United States (as defined in the Tax Treaty) below. The United
States and Mexico have also entered into an agreement for the exchange of
information with respect to tax matters.
Because the notes will not be considered to be regularly and substantially
traded over a recognized stock exchange (as required under the Tax Treaty), the
Tax Treaty is not expected to have any material effect on the Mexican taxation
of payments of interest and principal described in this offering memorandum to a
U.S. Holder of notes.
Mexico also has entered into several other similar tax treaties for the
avoidance of double taxation with other countries and is negotiating additional
treaties. Prospective purchasers of the notes should consult their own tax
advisors as to the tax consequences to them of those treaties, if applicable.
EXCHANGE OFFER
The exchange of exchange notes for the old notes pursuant to the exchange
offer will be tax-free under Mexican tax laws for holders of the old notes.
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TAXATION OF PAYMENTS OF INTEREST ON THE NOTES
Under general rules issued by the Ministry of Finance and Public Credit
(the "Reduced Rate Regulation"), payments of interest made by us to Foreign
Holders with respect to the notes will be subject to withholding taxes imposed
at a rate of 4.9% (the "Reduced Rate") until March 2000 (or thereafter if as has
been the case in the past, the effectiveness of a rule equivalent to the Reduced
Rate Regulation is extended), regardless of the place of residence or tax regime
applicable to the Foreign Holder recipient of the interest, if, as expected:
- the notes are (i) offered outside of Mexico through a bank or broker and
(ii) registered, as expected, with the Special Section of the National
Registry of Securities and Intermediaries;
- we file timely with the Ministry of Finance and Public Credit information
relating to the registration mentioned in (ii) in the preceding paragraph
and the issuance of the notes and this offering memorandum after the
closing of the offering of the notes; and
- we file timely each quarter of the calendar year with the Ministry of
Finance and Public Credit information representing that no "party
related" to us, directly or indirectly, is the effective beneficiary of
5% or more of the aggregate amount of the interest payment and we
maintain records evidencing compliance with this requirement, available
to such Ministry.
Under the Reduced Rate Regulation any of the following would be a "party
related" to us: (i) shareholders of New Iusacell that own, directly or
indirectly, individually or collectively with related persons (within the
meaning of the Reduced Rate Regulation), more than 10% of our voting stock or
(ii) corporations if more than 20% of their stock is owned directly or
indirectly, individually or collectively, by related persons of New Iusacell.
In the event the Reduced Rate Regulation is not in effect for payments made
after March 2000, under Mexico's Income Tax Law (the "Income Tax Law"), payments
of interest made by us to a Foreign Holder in respect of the notes would be
subject to Mexican withholding taxes imposed at a rate of 10%, provided that, as
expected, the notes are (i) offered outside of Mexico through a bank or broker
and (ii) registered, as expected, with the Special Section of the National
Registry of Securities and Intermediaries.
Prospective purchasers should consult their own tax advisors as to the
possible application, if any, of the Reduced Rate or any other reduced rate of
Mexican withholding tax on payments of interest made on a note.
Interest paid on notes held by a non-Mexican pension or retirement fund
will be exempt from Mexican withholding tax if the fund (i) has been duly
incorporated as a fund pursuant to the laws of its country of origin, (ii) is
the beneficiary of the interest paid, (iii) is registered with the Ministry of
Finance and Public Credit for that purpose, and (iv) is exempt from income
taxation in its country of origin.
TAXATION OF ADDITIONAL AMOUNTS
We have agreed, subject to specified exceptions, to pay Additional Amounts
to the holders of the notes in respect of the Mexican withholding taxes
mentioned above. See "Description of the Notes -- Additional Amounts." These
exceptions are summarized in the "Description of the Notes -- Additional
Amounts" section of this offering memorandum.
Payments of Additional Amounts with respect to the notes will be subject to
Mexican withholding tax at the same rate generally applicable to interest paid
in the notes.
TAXATION OF PRINCIPAL PAYMENTS ON THE NOTES
Under the Income Tax Law, payments of principal made by us in connection
with the notes to a Foreign Holder will not be subject to Mexican withholding or
similar taxes.
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TRANSFER AND OTHER TAXES
There are no Mexican stamp, registration, or similar taxes payable by a
Foreign Holder in connection with the purchase, ownership or disposition of the
notes. A Foreign Holder of notes will not be liable for Mexican estate, gift,
inheritance or similar tax with respect to the notes, although gratuitous
transfers of the notes may in some circumstances cause a Mexican income tax to
be imposed on the recipient.
BOOK ENTRY; DELIVERY AND FORM
The old notes were initially issued in the form of one or more registered
notes in global form without coupons. Each such global note was deposited with,
or on behalf of, The Depository Trust Company ("DTC") and registered in the name
of Cede & Co., as nominee of DTC, on December 16, 1999 and remains in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
Except as set forth in "-- Certificated Notes," it is expected that the
exchange notes issued in the exchange offer described in this prospectus will be
issued in global form (the "New Global Note").
DTC has advised Iusacell that it is
(i) a limited purpose trust company organized under the laws of the State
of New York,
(ii) a member of the Federal Reserve System,
(iii) a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
(iv) a "clearing agency" registered pursuant to Section 17A of the Exchange
Act. DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates.
DTC's Participants include securities brokers and dealers (including the
initial purchasers of the old notes), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Holders who are not Participants may beneficially own securities held by or on
behalf of DTC only through Participants or Indirect Participants.
Iusacell expects that, pursuant to procedures established by DTC,
(i) upon deposit of the New Global Note, DTC will credit the accounts of
Participants designated by the Initial Purchasers with an interest in the New
Global Note and
(ii) ownership of the exchange notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the interests of Participants), the Participants and the Indirect
Participants.
Transfers between participants in Euroclear or Clearstream will be effected
in the ordinary way in accordance with their respective rules and operating
procedures. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interest in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. Consequently, the ability to transfer
notes or to pledge the notes as collateral will be limited to such extent.
So long as DTC or its nominee is the registered owner of a New Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by the New Global Note for all purposes under
the indenture. Except as provided below, owners of beneficial interests in the
New Global Note will not be entitled to have notes represented by New Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of Certificated Securities (as
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defined below), and will not be considered the owners or holders thereof under
the indenture for any purpose, including with respect to the giving of any
directions, instruction or approval to the Trustee thereunder. As a result, the
ability of a person having a beneficial interest in exchange notes represented
by the New Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system, or to otherwise take action
with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in the New Global
Note must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such holder owns its interest (including Euroclear or Clearstream, if
applicable), to exercise any rights of a holder of exchange notes under the
indenture of the New Global Note. Iusacell understands that under existing
industry practice, in the event Iusacell requests any action of holders of
exchange notes, or a holder that is an owner of a beneficial interest in the New
Global Note desires to take any action that DTC, as the holder of the New Global
Note, is entitled to take, DTC would authorize the Participants to take such
action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither Iusacell nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of exchange notes by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such exchange notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any exchange notes represented by the New Global Note registered in
the name of DTC or its nominee on the applicable record date will be payable by
the Trustee to or at the direction of DTC or its nominee in its capacity as the
registered holder of the New Global Note representing such exchange notes under
the indenture. Under the terms of the indenture, Iusacell and the Trustee may
treat the persons in whose names the notes, including the New Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither Iusacell nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to owners of beneficial interests in the New Global Note (including
principal, premium, if any, and interest), or to immediately credit the accounts
of the relevant Participants with such payment, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the New
Global Note as shown on the records of DTC. Payments by the Participants and the
Indirect Participants to the owners of beneficial interests in the New Global
Note will be governed by standing instructions and customary industry practice
(and, in the case of Clearstream or Euroclear, in accordance with their
respective rules and procedures) and will be the responsibility of the
Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
Under certain circumstances, DTC will issue exchange notes in physical
certificated form ("Certificated Securities") to each person identified as the
beneficial owner of the exchange notes represented by the New Global Note. DTC
will issue Certificated Securities if:
(i) Iusacell notifies the Trustee in writing that DTC is no longer willing
or able to act as a depository or DTC ceases to be registered as a clearing
agency under the Exchange Act and Iusacell is unable to locate a qualified
successor within 90 days,
(ii) Iusacell, at its option, notifies the trustee in writing that it
elects to cause the issuance of notes in definitive form under the indenture or
(iii) upon the occurrence of certain other events.
Whenever Certificated Securities are issued, the Trustee is required to
register such Certificated Securities in the name of such person or persons (or
the nominee of any thereof) and cause the same to be delivered thereto.
Neither Iusacell nor the Trustee shall be liable for any delay by DTC or
any Participant (including Euroclear or Clearstream) or Indirect Participant in
identifying the beneficial owners of the related notes
162
<PAGE> 167
and each of Iusacell and the Trustee may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the exchange notes to be issued).
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes in the exchange offer for
old notes held for its own account must acknowledge that it will deliver a
prospectus in connection with any resale of those exchange notes. 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 that were acquired as a result of market-making
activities or other trading activities. We have agreed that until the close of
business on , 2000, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 2000, all dealers affecting
transaction in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. exchange notes received by 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 such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells 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 such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal that accompanies this prospectus states that by
acknowledging that it will deliver 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.
Until , 2000, we will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such document sin the letter of transmittal. We have
agreed to pay all expenses incident to the exchange offer and will indemnify the
holders of the notes against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for Iusacell by Clifford Chance
Rogers & Wells LLP, New York, New York, special United States counsel to
Iusacell, with respect to matters of New York law and United States federal law,
and by De Ovando y Martinez del Campo, S.C., Mexico, D.F., special Mexican
counsel to Iusacell, with respect to matters of Mexican law. Certain legal
matters relating to Bell Atlantic's joint and several obligation to repurchase
notes in certain circumstances will be passed upon for Bell Atlantic by Phillip
M. Huston, Jr., Counsel and Corporate Secretary (Acting) of Bell Atlantic. As of
February 8, 2000, Mr. Huston owned beneficially, and had options to acquire,
10,330 shares of Common Stock of Bell Atlantic.
INDEPENDENT ACCOUNTANTS
The Audited Consolidated Financial Statements of Iusacell included in this
registration statement have been so included in reliance on the report (which
contains explanatory paragraphs relating to the restatement for the
reclassification to operating expenses of an impairment charge and the
recognition of an impairment loss on the 450 MHz assets) of
PricewaterhouseCoopers, independent accountants given on the authority of said
firm as experts in auditing and accounting.
163
<PAGE> 168
With respect to the Unaudited Consolidated Financial Statements included in
this offering memorandum, PricewaterhouseCoopers reported that they have applied
limited procedures in accordance with professional standards for a review of
such information. However, their report included in this offering memorandum
states that they did not audit and they do not express an opinion on that
unaudited consolidated financial information. Accordingly, the degree of
reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied.
PricewaterhouseCoopers is not subject to the liability provisions of Section 11
of the Securities Act for their report on the Unaudited Consolidated Financial
Statements because that report is not a "report" or a "part" of the registration
statement prepared or certified by PricewaterhouseCoopers within the meaning of
Section 7 of the Securities Act.
The consolidated financial statements and consolidated financial statement
schedule incorporated in this prospectus and in the Registration Statement by
reference to the Annual Report on Form 10-K of Bell Atlantic Corporation for the
year ended December 31, 1998 have been so incorporated in reliance on the report
(which contains an explanatory paragraph stating that, in 1996, Bell Atlantic
changed its method of accounting for directory publishing revenues and expenses)
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of such firm as experts in auditing and accounting.
The consolidated financial statements included in GTE Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998, incorporated in this
prospectus by reference to the Joint Proxy Statement and Prospectus of Bell
Atlantic and GTE Corporation, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report thereon dated
January 28, 1999, and are incorporated herein by reference in reliance upon the
authority of said firm as experts in giving said reports.
EXPERT
The description of the appraisal of Iusacell's prior analog
telecommunications network described in this prospectus has been prepared by
Consultores y Valuadores de Empresas, S.C., an international property appraiser,
as indicated in their appraisal report. Description of the appraisal is included
in this prospectus in reliance upon such report and information given on the
authority of the firm as experts in property valuation.
PricewaterhouseCoopers LLP is not subject to the liability provisions of
Section 11 of the Securities Act for its report on the unaudited consolidated
financial information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by PricewaterhouseCoopers LLP with
the meaning of Sections 7 and 11 of the Securities Act.
164
<PAGE> 169
INDEX TO FINANCIAL STATEMENTS
The audited financial statements of New Iusacell have been excluded
because, at September 30, 1999, it had nominal assets and liabilities and no
operations, nor did it have any contingent liabilities or commitments. New
Iusacell currently owns 99.5% of the capital stock of Old Iusacell.
CONSOLIDATED FINANCIAL STATEMENTS OF NEW IUSACELL
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL FINANCIAL INFORMATION AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-4
Consolidated Income Statements for the years ended
December 31, 1998, 1997 and 1996....................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996... F-6
Consolidated Statements of Changes in Financial Position
for the years ended December 31, 1998, 1997 and 1996... F-7
Notes to the Consolidated Financial Statements............ F-8
INTERIM FINANCIAL INFORMATION
Review Report of Independent Accountants.................. F-64
Consolidated Balance Sheets as of September 30, 1999 and
1998 (unaudited)....................................... F-65
Consolidated Income Statements for the nine-month periods
ended September 30, 1999 and 1998 (unaudited).......... F-67
Consolidated Statements of Changes in Stockholders' Equity
for the nine-month periods ended September 30, 1999 and
1998 (unaudited)....................................... F-68
Consolidated Statements of Changes in Financial Position
for the nine-month periods ended September 30, 1999 and
1998 (unaudited)....................................... F-69
Notes to the Consolidated Financial Statements
(unaudited)............................................ F-70
</TABLE>
F-1
<PAGE> 170
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Grupo Iusacell, S. A. de C. V.:
We have audited the accompanying consolidated balance sheets of Grupo Iusacell,
S. A. de C. V. (the "Company") and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and changes in financial position for each of the three
years ended December 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing standards
in Mexico which are substantially similar, in all material respects, to United
States 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 and are prepared in
accordance with generally accepted accounting principles. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Grupo
Iusacell, S. A. de C. V. and subsidiaries as of December 31, 1998 and 1997, and
the consolidated results of its operations, changes in stockholders' equity and
changes in its consolidated financial position for each of the three years in
the period ended December 31, 1998, in conformity with accounting principles
generally accepted in Mexico.
Accounting principles generally accepted in Mexico vary in certain respects from
accounting principles generally accepted in the United States. In our opinion,
based on our audits, application of accounting principles generally accepted in
the United States would have affected the determination of the amount shown as
net loss for the years ended December 31, 1998, 1997 and 1996 and the total
amount of stockholders' equity as of December 31, 1998 and 1997 to the extent
summarized in Note 20 to the consolidated financial statements.
F-2
<PAGE> 171
[PRICEWATERHOUSECOOPERS LOGO]
As described in Note 22 as it relates to Mexican GAAP, the Company had
previously recorded an impairment charge related to the analog communications
network directly against stockholders' equity. The Company has reassessed this
accounting treatment and determined that the impairment charge should have been
recorded as an operating expense. Consequently, the accompanying consolidated
financial statements for the year ended December 31, 1997 have been restated
accordingly (see Note 22).
As described in Note 18, in 1998, the Company recorded an impairment loss
related to the 450 project assets amounting to Ps.1,077,473,612 as a result of a
decision by management to reevaluate the feasibility of the 450 MHz technology
as a fixed wireless service.
PricewaterhouseCoopers
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D. F., Mexico.
February 22, 1999 (except with
respect to the matters discussed
in Notes 13.b, 20, 21 and 22 for
which the date is May 21, 1999,
and to the matter discussed in
Note 13.e, for which the date is
June 25, 1999).
F-3
<PAGE> 172
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents Ps. 280,184 Ps. 152,993
------------- ------------
Accounts receivable:
Trade, net of Ps.73,794 and Ps.101,740 of
allowance for doubtful accounts in 1998
and 1997, respectively (Note 4.d) 332,793 266,296
Related parties (Note 5) 12,493 57,329
Recoverable taxes and other 647,000 294,383
------------- ------------
992,286 618,008
------------- ------------
Inventories (Note 6) 203,113 350,355
------------- ------------
Total current assets 1,475,583 1,121,356
INVESTMENT IN ASSOCIATED COMPANIES (Note 7) 17,032 23,152
PROPERTY AND EQUIPMENT, net (Note 8) 5,827,104 3,925,390
OTHER ASSETS, net (Note 9) 1,711,111 1,647,867
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES OVER
BOOK VALUE, net of accumulated amortization of
Ps.399,855 in 1998 and Ps.328,386 in 1997 (Note 4.i) 1,868,346 1,974,009
------------- ------------
Total assets Ps.10,899,176 Ps.8,691,774
============= ============
LIABILITIES
CURRENT:
Notes payable (Note 10) Ps. 814,944 Ps. 3,467
Trade accounts payable (Note 11) 958,571 916,697
Related parties (Note 5) 136,914 104,554
Taxes and other payables 831,341 424,214
Income tax (Note 12) 53,083 11,502
Employee profit sharing (Note 12) 5 102
------------- ------------
Total current liabilities 2,794,858 1,460,536
LONG-TERM DEBT (Note 10) 4,074,060 2,889,149
TRADE ACCOUNTS PAYABLE, LONG-TERM (Note 11) 2,316 5,260
COMMITMENTS AND CONTINGENCIES (Notes 4.k and 13) 2,806 2,992
------------- ------------
Total liabilities 6,874,040 4,357,937
------------- ------------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Notes 14 and 15):
Capital stock:
Nominal 3,998,608 2,979,286
Restatement 5,479,537 5,332,158
------------- ------------
9,478,145 8,311,444
------------- ------------
Capital contributed:
Nominal 18,655 18,655
Restatement 61,106 61,106
------------- ------------
79,761 79,761
------------- ------------
9,557,906 8,391,205
------------- ------------
EARNED CAPITAL (Note 16):
Accumulated losses:
Legal reserve 4,361 4,361
For prior years (3,367,411) (2,064,972)
For the year (1,424,112) (1,302,439)
------------- ------------
(4,787,162) (3,363,050)
------------- ------------
Deficit from restatement (746,499) (709,390)
------------- ------------
Total majority stockholders' equity 4,024,245 4,318,765
MINORITY INTEREST 891 15,072
------------- ------------
Total stockholders' equity 4,025,136 4,333,837
------------- ------------
Total liabilities and stockholders' equity Ps.10,899,176 Ps.8,691,774
============= ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE> 173
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
Restated
1998 1997 1996
------------- -------------- ------------
<S> <C> <C> <C>
REVENUES:
Services Ps. 2,688,655 Ps. 2,009,313 Ps.2,072,472
Telephone equipment sales and other 412,001 413,227 334,286
------------- -------------- ------------
3,100,656 2,422,540 2,406,758
------------- -------------- ------------
COST OF SALES:
Cost of services 841,354 669,559 759,818
Cost of telephone equipment sales and other 220,447 262,304 186,369
------------- -------------- ------------
1,061,801 931,863 946,187
------------- -------------- ------------
Gross profit 2,038,855 1,490,677 1,460,571
------------- -------------- ------------
OPERATING EXPENSES 1,183,165 968,473 1,053,025
DEPRECIATION AND AMORTIZATION 872,658 757,726 855,889
450 PROJECT NON CASH WRITEDOWN (Note 18) 1,077,473 - -
------------- -------------- ------------
Operating loss (1,094,441) (235,522) (448,343)
------------- -------------- ------------
OTHER INCOME, net 145,676 - -
------------- -------------- ------------
PROVISION FOR EQUIPMENT IMPAIRMENT (Notes 4.b and 22) - (1,208,352) -
------------- -------------- ------------
INTEGRAL FINANCING COST (GAIN):
Interest expense, net 245,200 323,181 397,887
Foreign exchange loss (gain), net 918,227 63,105 (87,932)
Gain from monetary position (745,336) (381,156) (493,053)
------------- -------------- ------------
418,091 5,130 (183,098)
------------- -------------- ------------
EQUITY PARTICIPATION IN NET GAIN OF
ASSOCIATED COMPANIES AND NET GAIN
ON SALE OF EQUITY INVESTMENTS (Note 7) (27,290) (205,326) (1,866)
------------- -------------- ------------
Loss from continuing operations before
assets tax, minority interest and
extraordinary item (1,339,566) (1,243,678) (263,379)
------------- -------------- ------------
PROVISIONS FOR ASSETS TAX 70,496 59,031 49,827
------------- -------------- ------------
Loss from continuing operations before
minority interest and extraordinary item (1,410,062) (1,302,709) (313,206)
MINORITY INTEREST 6,198 270 4,500
------------- -------------- ------------
Loss from continuing operations before
extraordinary item (1,403,864) (1,302,439) (308,706)
EXTRAORDINARY ITEM:
Group reorganization charge (Notes 2, 4.d and 8.b) - - -
------------- -------------- ------------
Net loss from continuing operations (1,403,864) (1, 302,439) (308,706)
LOSS FROM DISCONTINUED OPERATIONS (Net of Income tax) (Note 19) 20,248 - 205,537
------------- -------------- ------------
Net loss for the year (Ps.1,424,112) (Ps.1, 302,439) (Ps. 514,243)
============= ============== ============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (thousands) 1,121,396 1,070,825 981,624
============= ============== ============
LOSS PER SHARE BEFORE EXTRAORDINARY ITEM (pesos) (Ps. 1.25) (Ps. 1.22) (Ps. 0.31)
============= ============== ============
NET LOSS PER SHARE (pesos) (Ps. 1.26) (Ps. 1.22) (Ps. 0.52)
============= ============== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE> 174
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
Accumulated losses
Capital -----------------------
stock Capital Legal Prior
subscribed contributions reserve years
------------ ------------- -------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 Ps.7,401,924 Ps.79,761 Ps.4,361 (Ps. 461,766)
Application of 1995 net loss (1,088,963)
Recognition of inflation
effects on financial
information
Minority interest for the year
Net loss for the year
------------ ------------ -------- -------------
Balance at December 31, 1996 7,401,924 79,761 4,361 ( 1,550,729)
Application of 1996 net loss (514,243)
Increase in capital stock from
the capitalization of
stockholders' debt 799,288
Increase in capital stock
through the issuance of
shares under the Executive
Stock Purchase Plan 110,232
Minority interest for the year
Net loss for the year
------------ ------------ -------- -------------
Balance at December 31, 1997 8,311,444 79,761 4,361 (2,064,972)
Application of 1997 net loss (1,302,439)
Increase in capital stock from
the capitalization of
stockholders' debt 1,158,822
Increase in capital stock
through the issuance of
shares under the Executive
Stock Purchase Plan 7,879
Recognition of inflation effects
on financial information
Minority interest for the year
Net loss for the year
------------ ------------ -------- -------------
Balance at December 31, 1998 Ps.9,478,145 Ps.79,761 Ps.4,361 (Ps.3,367,411)
============ ============ ======== =============
</TABLE>
<TABLE>
<CAPTION>
(Deficit) Total
For the excess from Minority stockholders'
year restatement Interest equity
------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 (Ps.1,088,963) Ps. 312,677 (Ps.36,271) Ps.6,211,723
Application of 1995 net loss 1,088,963 -
Recognition of inflation
effects on financial
information (1,022,067) (1,022,067)
Minority interest for the year 44,146 44,146
Net loss for the year (514,243) (514,243)
------------- ------------- ----------- ------------
Balance at December 31, 1996 (514,243) (709,390) 7,875 4,719,559
Application of 1996 net loss 514,243 -
Increase in capital stock from
the capitalization of
stockholders' debt 799,288
Increase in capital stock
through the issuance of
shares under the Executive
Stock Purchase Plan 110,232
Minority interest for the year 7,197 7,197
Net loss for the year (1,302,439) (1,302,439)
------------- ------------- ----------- ------------
Balance at December 31, 1997 (1,302,439) (709,390) 15,072 4,333,837
Application of 1997 net loss 1,302,439 -
Increase in capital stock from
the capitalization of
stockholders' debt 1,158,822
Increase in capital stock
through the issuance of
shares under the Executive
Stock Purchase Plan 7,879
Recognition of inflation effects
on financial information (37,109) (37,109)
Minority interest for the year (14,181) (14,181)
Net loss for the year (1,424,112) (1,424,112)
------------- ------------- ----------- ------------
Balance at December 31, 1998 (Ps.1,424,112) (Ps. 746,499) Ps. 891 Ps.4,025,136
============= ============= =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE> 175
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Notes 1, 2, 3 and 4)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Loss from continuing operations before extraordinary item (Ps.1,403,864) (Ps.1,302,439) (Ps.308,706)
Items not requiring the use of resources:
Depreciation and amortization 872,658 757,726 855,889
450 Project non cash writedown 1,077,473 - -
Provision for equipment impairment - 1,208,352 -
Equity participation in net gain of associated
companies and net gain on sale of equity investments (27,290) (205,326) (1,866)
Minority interest (6,198) (270) (4,500)
------------ ------------ ----------
512,779 458,043 540,817
Resources (used for) provided by operating activities-
Trade accounts receivable (66,497) (67,600) 54,188
Related parties 77,199 (471,660) 465,580
Recoverable taxes and other (352,616) (172,635) (35,875)
Inventories 110,133 (199,680) 79,592
Trade accounts payable 38,930 253,904 (593,969)
Taxes and other payables 407,125 (96,448) 136,417
Income tax 41,581 2,290 7,459
Employee profit sharing (97) (84) (295)
Other (188) 141 83
------------ ------------ ----------
Resources provided by (used for) operating
activities before extraordinary item and
discontinued operations 768,349 (293,729) 653,997
Extraordinary item:
Group reorganization charge - - 205,535
Loss from discontinued operations 20,248 - -
------------ ------------ ----------
Resources provided by (used for) operating activities 748,101 (293,729) 448,462
------------ ------------ ----------
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,210,402 2,889,149 147,450
Principal payments on long-term debt (25,491) (934,713) (723,839)
Increase (decrease) in notes payable 811,475 (1,050,363) 81,962
Increase in capital stock from the capitalization of
stockholders' debt 1,158,822 799,288 -
Increase in capital stock through the issuance of shares
under the Executive Employee Stock Purchase Plan 7,879 110,232 -
------------ ------------ ----------
Resources provided by (used for) financing activities 3,163,087 1,813,593 (494,427)
------------ ------------ ----------
INVESTING ACTIVITIES:
Purchase of property and equipment (2,587,295) (920,600) (359,399)
Sale of common stock of associated companies 12,055 314,556 40,184
Purchase of PCS frequencies (541,349) - -
Increase in telephones to be amortized (606,760) (220,519) (59,748)
(Purchase) disposal of other assets (60,648) (677,269) 309,764
------------ ------------ ----------
Resources used for investing activities (3,783,997) (1,503,832) (69,199)
------------ ------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 127,191 16,032 (115,164)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF
THE YEAR 152,993 136,961 252,125
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR Ps. 280,184 Ps. 152,993 Ps.136,961
============ ============ ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE> 176
GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998, 1997 AND 1996
(Except as otherwise noted, adjusted for price-level changes and expressed
in thousands of constant Mexican pesos as of September 30, 1999
Amounts expressed in U.S. Dollars are in thousands.)
1. Entity and Nature of Business
Grupo Iusacell, S.A. de C.V. (the "Company") is a holding company
incorporated on October 6, 1992. Its subsidiaries are primarily
engaged in the wireless telecommunications business and hold
concessions to operate cellular telephone systems in four
contiguous market areas ("Regions") in central Mexico. The Company
and its subsidiaries are referred to collectively herein as the
"Group" or "Grupo Iusacell".
In October 1995, a subsidiary of the Company received a concession
from the Mexican government to operate as a long distance carrier
and began offering long distance service in August 1996. During
1996, the Company also signed a joint venture agreement for the
operation of a business to provide nationwide and international
paging services. The joint venture began to provide paging services
in August 1996. In May 1998, a subsidiary of the Company acquired
frequencies through auctions conducted by the Mexican government to
provide personal communication wireless services (PCS) in Regions 1
and 4 in northern Mexico.
Affiliated companies of each of Carlos Peralta (together with Carlos
Peralta, the "Peralta Group") and Bell Atlantic Corporation ("Bell
Atlantic") hold substantial ownership interests (direct or
indirect) in the Company.
Based on a definitive agreement between the Company's principal
stockholders and approval by the Mexican government, in February
1997 Bell Atlantic assumed management control of the Company from
the Peralta Group.
Summary
-------
The subsidiaries of the Company which are included in the consolidated
financial statements are as follows:
<TABLE>
<CAPTION>
Economic
interest
(direct or
indirect)
as of
December 31
------------
Subsidiary 1998 1997
- - ------------------------------------------ ---- ----
<S> <C> <C>
S.O.S. Telecomunicaciones, S.A. de C.V. (Region 9) 100% 100%
Iusacell, S.A. de C.V. 100% 100%
Sistecel, S.A. de C.V. 100% 100%
Comunicaciones Celulares de Occidente, S.A. de C.V. (Region 5) 100% 100%
Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. (Region 6) 100% 100%
</TABLE>
F-8
<PAGE> 177
<TABLE>
<CAPTION>
Economic
interest
(direct or
indirect)
as of
December 31
------------
Subsidiary 1998 1997
- - ------------------------------------------ ---- ----
<S> <C> <C>
Telecomunicaciones del Golfo, S.A. de C.V. (Region 7) 100% 100%
Inflight Phone de Mexico, S.A de C.V. 100% 100%
GMD Comunicaciones, S.A. de C.V. -- 100%
Hermes Telecomunicaciones, S.A. de C.V. -- 100%
Inmobiliaria Montes Urales 460, S.A. de C.V. 100% 100%
Portaserv, S.A. de C.V. -- 100%
Mexican Cellular Investments, Inc. 100% 100%
Iusanet, S.A. de C.V. 100% 100%
Promotora Celular, S.A. de C.V. 100% 100%
Renta-Cell, S.A. de C.V. 100% 100%
Iusatelecomunicaciones, S.A. de C.V. 95% 100%
Iusatel, S.A. de C.V. 95% 100%
Grupo Iusacell Nicaragua, S.A 100% 100%
Compania Colombiana de Telefonia Celular, S.A. 70% 70%
Cellular Solutions de Mexico, S.A. de C.V. 100% 68%
Satelitron, S.A. de C.V. 65% 65%
Infotelecom, S.A. de C.V. 49% 51%
Punto a Punto Iusacell, S.A. de C.V. 95% 95%
Iusacell PCS, S.A. de C.V. (Regions 1 and 4) 95% --
</TABLE>
2. Acquisitions, Group Structure and Group Reorganization
Acquisitions of Regions 5, 6 and 7
----------------------------------
In 1993, the Company obtained 100% ownership of Sistemas Telefonicos
Portatiles Celulares, S.A. de C.V. ("Portacel") and majority
ownership of Telecomunicaciones del Golfo, S.A. de C.V.
("Telgolfo").
Portacel and Telgolfo hold the non-wireline cellular concessions for
Region 6 (Leon) and Region 7 (Puebla), respectively. The cost
incurred in 1993 to acquire control of Portacel and Telgolfo
amounted to Ps.1,204,093, of which Ps.1,027,191 represented the
excess of investment cost over the book value. In 1994, the Group
purchased the remaining minority ownership interest of Telgolfo
for Ps.73,390, of which Ps.68,311 represented the excess of
investment cost over the book value.
In 1993, the Company acquired 67% of Hermes Telecomunicaciones, S.A.
de C.V. ("Hermes"), which owns 51% of Comunicaciones Celulares de
Occidente, S.A. de C.V. ("Comcel"). Comcel holds the non-wireline
cellular concession for Region 5 (Guadalajara). In December 1993,
the Company reached an agreement for the Group to purchase the
remaining interests in both Comcel and Hermes. The Group's cost of
acquiring Comcel and Hermes totaled Ps.1,572,296, of which
Ps.1,274,659 represented the excess of investment cost over the
book value.
F-9
<PAGE> 178
Other acquisitions and subsidiaries
-----------------------------------
In 1994, the Company acquired 51% of Telecomunicaciones Digitales
Internacionales, S.A. de C.V. (later renamed Iusatel Chile, S.A.
de C.V.). The Company purchased this ownership interest for
Ps.28,920, which was the book value of the shares acquired. During
1996, the Company increased its ownership interest in Iusatel
Chile, S.A. de C.V. from 51% to 100% through the payment of $100
U.S. Dollars to the minority stockholders in connection with the
settlement of litigation among the Company, Iusatel Chile, S.A. de
C.V. and such minority stockholders. In December 1996, the Company
sold its debt and equity investments in Iusatel Chile, S. A. de C.
V. for $5,000 U.S. Dollars. Payment was received in the form of
three promissory notes which matured between March and July 1997.
Full payment of such notes was made in December 1997.
In 1994, the Company increased its ownership in Compania Colombiana
de Telefonia Celular, S.A. ("Telecel") from 28.5% to 63.25%, by
acquiring an additional 34.75% interest from another Telecel
shareholder. The cost to acquire this interest was Ps.46,516 of
which Ps.32,953 represented the excess of investment cost over the
book value. In 1995, the Company increased its ownership interest
in Telecel from 63.25% to 70.14% through a capital contribution of
Ps.1,092, Telecel had a minority ownership in Ecuadorian cellular
and paging companies, which was sold in September 1997 (see Note
7). Telecel is currently in the process of being liquidated and no
gain or loss is anticipated in such liquidation.
In 1994, the Company acquired 99.9% of Inmobiliaria Montes Urales
460, S.A. de C.V.. The cost was Ps. 100,845 of which Ps. 18,950
represented the excess of investment cost over the book value.
In March 1997, the Company signed an agreement under which the assets
of this subsidiary were to be sold to a third party for
approximately $8,275 U.S. Dollars (see Note 13.f).
In 1995, the Company incorporated a new subsidiary, Grupo Iusacell de
Nicaragua, S.A. This subsidiary owns 100% of the shares of Radio
Telefonia Rural de Nicaragua, S.A. As of December 31, 1998, the
Company had not made any investment in this project and has no
commitments for any such investments.
In January 1996, the Group increased its ownership in Renta-Cell,
S.A. de C.V. ("Renta-Cell"), which rents cellular phones, from
33.33% to 70% through the acquisition of an additional 36.67%
interest from the other Renta-Cell shareholders. The cost to
acquire this interest was Ps.4,931. Starting in January 1996, the
Company consolidated the assets, liabilities and operating results
of this subsidiary. In November 1997, in connection with the
resolution of various matters, the Group increased its ownership
in Renta-cell from 70% to 100% through the acquisition of the
remaining 30% interest from the other Renta-Cell shareholders. The
cost to acquire the remaining interest was Ps.24,089, all of which
represented the excess of investment cost over book value. Such
amount was charged to operations during the year ended December
31, 1997.
In December 1998, the Company increased its ownership in Cellular
Solutions de Mexico, S.A. de C.V. ("Cellular Solutions") from 68%
to 100% through the acquisition of an additional 32% interest from
the other shareholder, an alternate director of the Company. Such
interest was acquired in anticipation of the disposition of
Cellular Solutions (see Note 19). The cost to acquire this
interest was Ps.3,843, all of which represented the excess of
investment cost over book value. The amount of such excess was
included in the loss from discontinued operations of Cellular
Solutions for the year ended December 31, 1998.
F-10
<PAGE> 179
Group Structure
---------------
Under the laws established by the Mexican government related to
Bell Atlantic's assumption of management control, the Company may
not own the majority of the voting stock of companies that hold
concessions to provide telecommunications services other than
cellular service. In November 1998, the Company and Jose Ramon
Elizondo, a director of the Company (herein referred to as the
"Mexican National"), entered into a joint venture formation
agreement ("the Agreement") pursuant to which they agreed to
participate together in the microwave frequencies leasing, long
distance, local telephony, PCS and paging businesses. The Company
and the Mexican National agreed that the Company would own 94.9%
of the economic interest and 49% of the voting shares of Iusatel,
S.A. de C.V., the Company's long distance concessionaire
("Iusatel"), Iusatelecomunicaciones, S.A. de C.V., the Company's
fixed wireless local telephony operation
("Iusatelecomunicaciones"), Punto-a-Punto Iusacell, S.A. de C.V.,
a microwave frequencies concessionaire ("Punto-a-Punto Iusacell"),
and Iusacell PCS, S.A. de C.V., which holds concessions for 1.9GHz
(PCS) frequencies in Regions 1 and 4 ("Iusacell PCS"). The Mexican
National would own 5.1% of the economic interest and 51% of the
voting shares of these companies. In addition, the Mexican
National agreed to purchase a 2% economic and voting interest in
Infotelecom, S.A. de C.V., a paging company ("Infotelecom"), at
cost, from the Company, which would continue to hold a 49%
economic and voting interest in such company. The Mexican National
completed this purchase in December 1998 for Ps. 25,877.
In December 1995, the Company signed a joint venture agreement
with Infomin, S.A. de C.V., a Mexican company which holds a
fifteen-year concession to provide nationwide and international
paging services through July 2009. Pursuant to this agreement, in
March 1996, the Company and Infomin established a joint venture
company, Infotelecom. As of December 31, 1998, Infotelecom is
owned 49%, 49% and 2%, by the Company, Infomin and the Mexican
National, respectively. Under the joint venture agreement for
Infotelecom, the Company committed to contribute up to $10,500
U.S. Dollars; as of December 31, 1998 and 1997, the Company had
invested $9,032 and $8,500 U.S. Dollars, respectively, in this
joint venture. The joint venture agreement establishes the
individual and joint responsibilities of the partners. In case a
partner does not fulfill its responsibilities, sanctions could
cause such partner to lose its investment and incur up to $1,000
U.S. Dollars as a penalty.
In October 1997, the Company and the Mexican National incorporated
Punto a Punto Iusacell, a company engaged in the participation in
government auctions for microwave frequencies and to operate any
concessions acquired in those auctions. Punto a Punto Iusacell
acquired three concessions in the short haul microwave frequencies
auction concluded in October 1997 and is also participating in the
long haul microwave frequencies auctions.
In June 1998, the Company and the Mexican National incorporated
Iusacell PCS, a company formed to participate in government
auctions for frequencies in the 1.9 GHz band. Iusacell PCS
acquired concessions in Regions 1 and 4 in such auctions, which
were concluded in May 1998.
In November 1998, pursuant to the Agreement, both Iusatel and
Iusatelecomunicaciones were reorganized, as described above,
whereby 51% of the respective voting shares were subscribed to by
the Mexican National for Ps. 24,561 and Ps. 8,402, respectively.
F-11
<PAGE> 180
The shares acquired by the Mexican National of the five entities
subject to the Agreement are or will be illiquid. As a result, the
Company agreed to grant the Mexican National, from and after June
30, 2002 (or sooner under certain circumstances), the right to put
all, but not less than all, shares in any one or more of these
five joint venture investments to the Company for an amount equal
to his investment in the corresponding joint venture company or
companies, his cost of money to finance such investment or
investments plus, for each year of his investment, 4% of the
corresponding investment amount, grossed up with respect to any
applicable Mexican income taxes. In return, the Agreement also
contains a call option which provides the Company the right at any
time to call the Mexican National's interest in these companies at
the same price as if the put were exercised, subject to any legal
requirement to have another Mexican national as the purchaser of
the shares subject to the call option.
The Mexican National does not have the unilateral right to approve
actions at the shareholder or board level of these five companies.
Under each such company's by-laws, all shareholder or board action
must also be approved by the majority of the shares held by the
Company or a majority of the board members designated by the
Company, respectively.
The Agreement, together with each joint venture company's by-laws,
enable the Company to have management control over the day-to-day
operations and financial administration of Infotelecom, Punto a
Punto Iusacell, Iusacell PCS, Iusatel and Iusatelecomunicaciones
(see Note 7). The Mexican National, among other things, cannot
alone select, terminate or determine the compensation of
management and cannot alone establish operating and capital
decisions in the ordinary course of business.
Consequently, the Company consolidates these subsidiaries in
accordance with Mexican GAAP Bulletin B-8, which provides that, in
the event that majority ownership of a company's voting shares
does not exist, control over the day-to-day operations and
financial administration of that company may be achieved by other
means. Since the Company has such other arrangements in place with
the majority shareholder, the Mexican GAAP requirement for
consolidation is satisfied.
Group reorganization
--------------------
As a part of the reorganization of the Company during 1996, the
respective stockholders of Hermes, GMD Comunicaciones, S.A. de
C.V., and Portaserv, S.A. de C.V., voted to dissolve these
companies. From such date, these three companies have not engaged
in any business. On December 31, 1998 these subsidiaries were
liquidated.
Additionally, the reorganization plan, approved by the Company's
Executive Committee, included a reduction in facilities, the
replacement of certain top-level management and a general head
count reduction.
F-12
<PAGE> 181
In connection with the reorganization plan and the change in
managerial and administrative control of the Group (see Note 14),
the Company established a reserve of Ps.205,537 on December 31,
1996 for the above expenses. This reserve, due to its
characteristics of being nonrecurring and unusual, is classified
as an extraordinary item in the consolidated statements of income.
As a result of a misclassification and further analysis of the
amounts previously reported for employee severance and
consolidation of facilities, the components of the restructuring
reserve have been reclassified as follows:
<TABLE>
<CAPTION>
Originally
Reported Reclassified
---------- ------------
<S> <C> <C>
Employee severance (1) Ps.108,038 Ps.130,252
Provision for consolidation of
facilities (2) 40,080 17,866
Fixed assets obsolescence reserve (3) 49,723 49,723
Change in estimate of allowance for
doubtful accounts (4) 7,696 7,696
---------- ----------
Ps.205,537 Ps.205,537
========== ==========
</TABLE>
(1) The reserve for employee severance, as originally reported,
was understated. The reclassified amount is comprised of an
estimate of severance payments to be made to (i) approximately 400
mid-level management and non-management employees pursuant to
Mexican Labor Law and (ii) 3 senior management employees pursuant
to the terms of their respective individual employment contracts.
These severance payments do not: a) relate to prior employee
service; b) have any related contingencies; or c) require that
employees provide future services.
(2) As a result of the decision to dispose of its corporate
headquarters building ("Montes Urales"), the Company recorded an
impairment loss to adjust the book value of Montes Urales to its
fair value less costs to sell based on an agreement to sell Montes
Urales (see note 13.f). The provision for consolidation of
facilities, as originally reported, was overstated. The
reclassified amount considers the book value of Montes Urales and
the agreed upon sales price.
(3) The fixed assets obsolescence reserve relates to certain spare
parts for the analog communications equipment that were purchased
at values over the minimum amount under the Company's
capitalization policy for fixed assets and have average lives of
approximately 12 years. As a result of a detailed review by the
Company's engineers in November 1996, the equipment was determined
to be obsolete. Consequently, the Company recorded an impairment
provision to adjust such assets to their estimated salvage value.
(4) During 1996, the Company began to fully reserve accounts
receivable over 90 days past due, based on a change in estimate of
the probable loss inherent in the accounts receivable. Previously,
the Company's policy involved reserving such balances over 120
days past due. This change in estimate in the allowance for
doubtful accounts represents the Company's estimate of the
probable loss inherent in all accounts receivable considering (i)
general historical trends of customer performance and (ii) factors
surrounding the credit risk of specific customers.
F-13
<PAGE> 182
3. Basis of presentation
a) Basis of presentation
------------------------
The Group's consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in
Mexico ("Mexican GAAP"). The consolidated financial statements
have been presented in thousands of constant Mexican pesos as of
September 30, 1999 as required by Bulletin B-10, "Recognition of
the Effects of Inflation on Financial Information", as amended,
issued by the Mexican Institute of Public Accountants ("Bulletin
B-10").
The 1997 financial statements have been restated, as mentioned in
Note 4 b) below.
b) Consolidated financial statements
------------------------------------
Those companies in which the Company holds 50% or more of the capital
stock and/or exercises control over operating and financing
activities are included in the consolidated financial statements.
The Company also consolidates Iusatel, Iusatelecomunicaciones,
Infotelecom, Punto a Punto Iusacell and Iusacell PCS, over which
the Company owns less than 50% of the voting common stock, but
exercises management control over their day-to-day operations and
financial administration by appointment of the shareholders and
other arrangements (see Note 2). All significant inter-company
balances and transactions have been eliminated in consolidation.
c) 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 dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
4. Accounting Policies
A summary of the Group's significant accounting policies is as follows:
a) Monetary unit
----------------
The financial statements are presented in Mexican pesos, the currency
that, based on Mexican laws, must be used to prepare the
accounting records of the Company and its Mexican subsidiaries.
F-14
<PAGE> 183
b) Effects of inflation on the
financial statements
------------------------------
The consolidated financial statements of the Group have been prepared
in accordance with Bulletin B-10. The Third Amendment of Bulletin
B-10, effective for fiscal years beginning January 1, 1990,
requires the restatement of all comparative financial statements
to constant Mexican pesos as of the date of the most recent
balance sheet presented. Accordingly, the consolidated financial
statements have been restated as follows:
- The balance sheet amounts as of December 31,1997 presented in
the consolidated financial statements have been restated to
constant Mexican pesos as of September 30, 1999 based on the
National Consumer Price Index ("NCPI") published by Banco de
Mexico (the "Mexican Central Bank").
- Consolidated income statements for the current and prior years
have been restated to constant Mexican pesos as of September
30, 1999 using the NCPI from the periods in which the
transactions (income and expenses) occurred.
- Bulletin B-12, "Statement of Changes in Financial
Information", issued by the Mexican Institute of Public
Accountants ("Bulletin B-12"), addresses the presentation of
the statement of changes in financial position when financial
statements have been restated to constant Mexican pesos as of
the latest balance sheet date. Bulletin B-12 identifies the
origination and application of resources representing
differences between beginning and ending balance sheet
balances in constant Mexican pesos, excluding the effect of
holding non-monetary assets. Bulletin B-12 also provides that
monetary and foreign exchange gains and losses should not be
eliminated from resources provided by operating nor financing
activities.
The items that originate from the recognition of effects of
inflation on financial information are as follows:
Restatement of non-monetary assets:
Inventories are valued at the average price of the purchases made
during the period, and are restated using the NCPI, without
exceeding net realizable value.
Based on the Fifth Amendment of Bulletin B-10, effective January 1,
1997, property and equipment, net, and depreciation for the year,
are restated using the NCPI, without exceeding net realizable
value.
Restatement of 1997:
In October 1997, the Group recorded an impairment loss to reduce the
value of the investment in its analog communications equipment to
fair value. The valuation of the analog equipment was determined
based on an appraisal performed by independent appraisers
registered with the Comision Nacional Bancaria y de Valores in
order to comply with Bulletin B-10, which requires non-monetary
assets to be as close as possible to, but not higher than, their
fair market value. In 1997 such impairment loss was charged to the
deficit from holding non-monetary assets restatement account in
stockholders' equity.
F-15
<PAGE> 184
In December 1997, as further described in Note 13.d the Company
signed an agreement with Lucent Technologies ("Lucent") to
purchase digital communications equipment, primarily to address
(i) customer requirements for better voice quality, (ii) a need to
increase network capacity to handle rapidly growing subscriber
levels, and (iii) a need to remain competitive, particularly in
view of the government's auction of digital wireless concessions
to other carriers. In 1998, based on further analysis of the
accounting effects of the contract with Lucent, the Company
reconsidered the appropriate presentation of the impairment loss
described in the preceding paragraph and decided to charge it
directly against income, thus restating the 1997 financial
statements herein.
Property and equipment are depreciated using the straight-line
method, based on the restated values. The average annual rates of
depreciation used by the Company are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Buildings and facilities 4% 3%
Communications equipment 9% 9%
Furniture and fixtures 9% 9%
Transportation equipment 18% 17%
Computer equipment 21% 21%
Cellular rental telephones 25% 25%
</TABLE>
Investments in associated companies are accounted for using the
equity method based on the investees' equity and are adjusted for
the effects of inflation in accordance with Bulletin B-10.
Restatement of stockholders' equity:
The contributed and earned capital accounts include the effect of
restatement determined by applying the NCPI factor from the date
capital was contributed or earned. The restatement represents the
amount required to maintain the contributions and accumulated
results in constant Mexican pesos as of September 30, 1999.
The excess or deficit from restatement of capital account is an
element of stockholders' equity that includes surplus or deficit
from holding non-monetary assets, which represents the excess or
deficit in specific values of net non-monetary assets in
comparison with the increase attributable to general inflation as
measured by the NCPI.
Integral financing (gain) cost:
Integral financing (gain) cost is comprised of net interest expense,
foreign exchange gains and losses, and gains and losses from net
monetary position.
Foreign exchange gains and losses on transactions denominated in
currencies other than Mexican pesos result from fluctuations in
exchange rates between the date transactions are recorded and the
date of settlement or period end.
Gains and losses from net monetary position represent the effects of
inflation, as measured by the NCPI, on the Group's monetary assets
and liabilities at the beginning of each month. If monetary
liabilities exceed monetary assets, there is a gain from monetary
position. If monetary liabilities are less than monetary assets,
there is a resulting loss from monetary position.
F-16
<PAGE> 185
c) Cash and cash equivalents
----------------------------
Cash and short-term investments consist primarily of short-term,
fixed rate investments and bank deposits. The Group invests its
excess cash in deposits with major banks. The investments are
carried at cost plus accrued interest, which approximates market
value. These investments are highly liquid cash equivalents,
having a maturity of ninety days or less when acquired.
d) Allowance for doubtful
accounts
-------------------------
The Group cancels service to customers with invoices that are 60 days
past due. The allowance for doubtful accounts represents the
Company's estimate of the probable loss inherent in all accounts
receivable considering (i) general historical trends of customer
performance and (ii) factors surrounding the credit risk of
specific customers. During 1998, 1997 and 1996, the Group wrote
off accounts receivable for Ps.58,161, Ps.84,761 and Ps.129,029,
respectively. The charge to income for the year, to increase the
allowance for doubtful accounts, amounted to Ps.30,213, Ps.47,429
and Ps.100,382, in 1998, 1997 and 1996, respectively.
e) Investment in associated
companies
----------------------------
The Group carries long-term investments in associated companies in
which the Group owns between 20% and 50% of the entity's voting
common stock and over which the Group can exercise significant
influence. Such investments are accounted for using the equity
method. As described in Note 2, the Company has consolidated
Iusatel, Iusatelecomunicaciones, Infotelecom, Punto a Punto
Iusacell and Iusacell PCS, in which the Company owns less than 50%
of the voting common stock, but exercises management control over
the day-to-day operations and financial administration. Under the
equity method such investments are carried at cost adjusted for
the Company's share of the net income or losses of these companies
and the effects of restatement of non-monetary assets in the
associated companies. The effects of transactions with such
associated companies are eliminated before applying the equity
method.
f) Cellular Telephones
----------------------
The cost of cellular telephones given to customers under exclusive
service contracts is amortized based on the nature and terms of
the service contracts to match costs with the timing of revenues
earned. The costs of such telephones are included in other assets,
net of accumulated amortization, not to exceed market value.
At the end of the contract term, the cellular telephone is given to
the customer. In the event of an early termination of an exclusive
service contract, the customer either (a) is required to return
the phone to the Group or (b) acquires the telephone at its book
value on the date of termination.
The cost of cellular telephones sold to customers is recorded as cost
of sales based on the average cost of such telephones. Telephones
leased to customers are included in fixed assets and are
depreciated over the initial lease period, generally two years.
F-17
<PAGE> 186
g) Concessions
---------------
Costs related to the acquisition of concessions granted by the
Mexican government to provide cellular telephone services have
been capitalized and are included in other assets. Such costs are
amortized on a straight-line basis over the initial terms of the
respective concession. The Mexican government requires the Group
to comply with the specific terms of each concession. The Group
has substantially complied with such requirements through December
31, 1998, except for certain informational requirements of the
Mexican authorities. The Group believes that such noncompliance
does not expose the Group to any type of regulatory risk such as
concession forfeiture.
h) Advertising
--------------
Advertising costs are expensed as incurred. The cost of prepaid media
advertising (including television air time, magazine, directory
and other print media) is deferred and recorded in other assets
until the advertising airtime or space is used, at which time such
cost is recognized as an operating expense. Advertising expense
amounted to Ps.198,546, Ps.139,869 and Ps.161,813 for 1998, 1997
and 1996, respectively.
i) Excess of cost of investment
in subsidiaries over book value
-----------------------------------
The excess of cost over the book value of net assets of acquired
subsidiaries is amortized on a straight-line basis over twenty
years. Amortization expense was Ps.119,038, Ps.121,554 and
Ps.131,499 in 1998, 1997 and 1996, respectively.
The carrying amount of such excess cost applicable to each acquired
subsidiary is reviewed if the facts and circumstances suggest that
it might be impaired.
j) Income taxes and employee
profit sharing
----------------------------
Income taxes are computed in accordance with the partial liability
method, as required by Bulletin D-4, "Accounting Treatment for
Income Tax and Employee Profit Sharing", issued by the Mexican
Institute of Public Accountants ("Bulletin D-4"), under which
deferred income tax provisions are recorded for identifiable,
non-recurring temporary differences (i.e., those expected to
reverse over a definite period of time) at rates in effect at the
time such differences arise, and reversed at the rates in effect
at the time such differences reverse.
In accordance with Bulletin D-4, the Group did not record a
provision for deferred taxes as of December 31, 1998 and 1997.
Employee profit sharing is a statutory labor obligation payable to
employees which is determined on the basis of each subsidiary's
pretax income as adjusted in accordance with the provisions of
Mexican labor law and Mexican tax law.
F-18
<PAGE> 187
k) Seniority premiums
---------------------
In accordance with Mexican labor law, the Group's employees are
entitled to seniority premiums after 15 years of service or upon
dismissal, disability or death. The Group follows Bulletin D-3,
"Labor Obligations", issued by the Mexican Institute of Public
Accountants ("Bulletin D-3"). Under Bulletin D-3, the actuarially
determined projected benefit obligation is computed using
estimates of salaries that will be in effect at the time of
payment.
Personnel not yet eligible for seniority premiums are also included
in the determination of the obligation with necessary adjustments
made in accordance with the probability that these employees will
reach the required seniority. At December 31, 1998, the average
seniority of the eligible employees is less than 4 years. The
Group's liability and related costs for seniority premiums are
immaterial for all periods presented.
In accordance with Mexican labor law, the Group is liable for
severance payments to employees who are dismissed under certain
circumstances. Such compensation is expensed when paid.
The Group has no employee pension plans and does not provide for
post retirement benefits.
l) Earnings (loss) per share
----------------------------
Effective January 1, 1997, Bulletin B-14 "Earnings per Share" issued
by the Mexican Institute of Public Accountants ("Bulletin B-14"),
requires disclosure in the income statement of the net earnings
(loss) per share, and the per share effect of any extraordinary
item affecting the net profit or loss for the year. Such per share
amounts must be calculated based on the weighted average number of
shares of common and/or preferred stock outstanding.
m) Revenue recognition
----------------------
Cellular air time is recorded as revenue as service is provided
except for revenue from the sale of prepay cards which is
recognized at the date of sale. The Company recognizes the revenue
on the sale of prepay cards at the date of sale rather than on a
deferred basis because the length of the average consumption
period for such prepay cards is not significant, i.e.,
approximately 1.2 months or less, and it is not material to
results of operations for all periods presented. Sales of
equipment and related services are recorded when goods and
services are delivered. Cellular access charges are billed in
advance and recognized when the services are provided. Other
revenues, mainly from paging and long distance services, are
recognized on provision of these services.
n) Foreign currency transactions
--------------------------------
Foreign currency transactions are recorded at the exchange rates in
effect at the transaction date. Assets and liabilities denominated
in foreign currencies are translated to Mexican pesos using the
exchange rates in effect at the time of settlement or valuation at
each balance sheet date, with the resulting exchange differences
being recognized as exchange gains or losses.
F-19
<PAGE> 188
5. Related parties
Affiliates of the Peralta Group and Bell Atlantic hold substantial
ownership interests in the Company. In addition, the Peralta Group
holds ownership interests in various other entities, primarily
Industrias Unidas, S.A. de C.V. ("IUSA") and related entities,
which are customers of or suppliers to the Group.
A summary of related party accounts and notes receivable,
including interest, as of December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Punto a Punto Iusacell, S.A. de C.V. Ps. - Ps.47,440
IUSA and related entities 12,493 9,889
--------- ---------
Total Ps.12,493 Ps.57,329
========= =========
</TABLE>
Accounts receivable result from the financing of related parties'
operations, the sale of cellular telephone services and operating
lease contracts.
Accounts and notes payable to related parties, including interest,
as of December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
IUSA and related entities Ps. - Ps. 4,660
Bell Atlantic 136,914 99,894
---------- ----------
Total Ps.136,914 Ps.104,554
========== ==========
</TABLE>
Accounts payable result from the leasing of certain facilities and
services received.
During 1997, the Company had notes payable and interest of $57,900
U.S. Dollars (Ps.503,899) due to Bell Atlantic, of which $25,000
U.S. Dollars (Ps.217,573) were repaid and $32,900 U.S. Dollars
(Ps.286,326) were converted to equity (see Note 14).
The $25,000 U.S. Dollars of borrowings were repaid prior to the
stated maturity date as part of the debt restructuring program
described in Note 10. There was no gain (loss) recognized by the
Company related to the early repayment.
Following is an analysis of the related party transactions
described above for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service revenue Ps.16,071 Ps.11,507 Ps.14,054
Lease income 12,191 2,629 2,989
--------- --------- ---------
Total income Ps.28,262 Ps.14,136 Ps.17,043
========= ========= =========
</TABLE>
F-20
<PAGE> 189
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Commission expenses Ps. - Ps. 117 Ps. 4,652
Technical expenses 48,333 39,606 89,620
Lease expenses 2,778 4,669 8,995
Interest expense 12,334 29,004 44,592
Operating expenses - - 9,543
--------- --------- ----------
Total expenses Ps.63,445 Ps.73,396 Ps.157,402
========= ========= ==========
</TABLE>
6. Inventories
As of December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cellular telephones and accessories Ps.161,440 Ps.330,249
Less: Allowance for obsolete and
slow-moving inventories (12,342) (38,215)
---------- ----------
Net 149,098 292,034
Advances to suppliers 54,015 58,321
---------- ----------
Total inventories Ps.203,113 Ps.350,355
========== ==========
</TABLE>
7. Investment in associated companies
On September 30, 1997, the Group sold the direct and indirect
interests of its Ecuadorian cellular and paging companies,
Consorcio Ecuatoriano de Telecomunicaciones, S. A. (CONECEL) and
Corptilor, S.A. In 1997, the Group received $29,400 U.S. Dollars
in cash consideration for its direct interests in CONECEL,
resulting in a gain of Ps.204,234. At December 31, 1997, the gain
on sale of the Company's indirect interest in CONECEL by its
Colombian subsidiary was deferred as a result of an uncertainty as
to the timing and, given some of the capital markets legislation
emerging from Colombia at that time, even the possibility of
repatriation of the proceeds from Colombia, the Company believed
that sale recognition was not appropriate.
The Group received $2,000 U.S. Dollars, net of taxes, in respect
to its indirect interests during 1998, resulting in a gain of
Ps.17,778.
As of December 31, the Group's investment in associated companies is
as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
Entity Ownership Investment Ownership Investment
------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Editorial Celular, S.A.
de C.V. 40.00% Ps. 7,353 40.00% Ps. 4,976
Punto a Punto Iusacell,
S. A. de C. V. - - 94.90% 63
Other 9,679 18,113
--------- ---------
Ps.17,032 Ps.23,152
========= =========
</TABLE>
F-21
<PAGE> 190
As of December 31, 1998 the investment of the Company in Punto a
Punto Iusacell was consolidated (see Note 2).
Summarized financial information for these associated companies
accounted for by the equity method as of December 31, 1998, 1997
and 1996 and for the years ended December 31, 1998, 1997 and 1996,
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Total assets Ps.13,498 Ps. 58,843 Ps.676,526
Total liabilities 2,773 52,472 358,748
Revenues 37,841 35,342 368,110
Gross profit 19,173 16,819 19,131
Net income 7,133 2,731 8,018
Group's share of net earnings 2,853 1,092 1,866
Gain on sale of equity investments 24,437 204,234 -
</TABLE>
8. Property and equipment, net
a) At December 31, property and equipment, net consisted of:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Buildings and facilities Ps. 1,366,875 Ps. 1,367,826
Communications equipment 3,554,328 3,170,524
Furniture and fixtures 143,056 119,833
Transportation equipment 52,480 50,448
Computer equipment 312,695 292,219
Cellular rental telephones 2,412 34,657
------------- -------------
5,431,846 5,035,507
Accumulated depreciation (3,386,432) (2,042,229)
------------- -------------
2,045,414 2,993,278
Land 49,625 47,599
Construction in progress 3,627,754 579,496
Advances to suppliers 104,311 305,017
------------- -------------
Ps. 5,827,104 Ps. 3,925,390
============= =============
</TABLE>
b) Depreciation expense was Ps.371,510, Ps.430,954 and Ps.430,632
for 1998, 1997 and 1996, respectively. In addition, as described
in Note 18, the charge for the write-down of the 450 MHz project
fixed assets was Ps.314,072 and is included in the caption
entitled 450 MHz project non-cash write-down in the accompanying
income statement.
F-22
<PAGE> 191
9. Other assets
a) At December 31, other assets consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Concessions Ps. 812,189 Ps. 253,320
Cellular telephones to be amortized 334,518 109,869
Prepaid expenses 167,350 126,346
Advance payments 270,039 388,026
Project 450 pre-operating expenses and
capitalized interest (Note 18) - 662,923
Pre-operating expenses, other 48,002 30,256
Other 79,013 77,127
------------ ------------
Ps.1,711,111 Ps.1,647,867
============ ============
</TABLE>
b) Concessions and cellular telephone amortization expense was
Ps.382,110, Ps.205,218 and Ps.293,757 in 1998, 1997 and 1996,
respectively. In addition, in 1998 the charge for the write-down
of the 450 MHz project pre-operating expenses and capitalized
interest, as described in Note 18, was Ps.763,401 and is included
in the caption entitled 450 MHz project non-cash asset write-down
in the accompanying income statement.
10. Notes payable and long-term debt
During the year ended December 31, 1997, the Company completed a
$150,000 U.S. Dollars offering of long-term, unsecured senior
notes and borrowed $125,000 U.S. Dollars under a long-term bank
loan. Proceeds were used to repay certain short-term notes, and
short-term and long-term loans, including the loan from Bell
Atlantic. As a part of this arrangement, the Company obtained a
revolving credit line of $100,000 U.S. Dollars. During 1998, the
Company borrowed the total amount available under this revolving
credit line.
As of December 31, 1998 and 1997, the long-term debt of the Group
consisted of the following:
<TABLE>
<CAPTION>
Mexican Pesos
---------------------------
U.S.Dollars 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Long-term bank loan U.S.$125,000 Ps.1,358,020 Ps.1,313,249
Unsecured senior notes 150,000 1,629,625 1,575,900
Revolving credit facility 100,000 1,086,415 -
------------ ------------ ------------
U.S.$375,000 Ps.4,074,060 Ps.2,889,149
============ ============ ============
</TABLE>
Long-term bank loan and revolving credit facility
-------------------------------------------------
The long-term bank loan and revolving credit facility bear interest
at a variable rate equal to the lower of (i) LIBOR plus 1.75% or
(ii) the higher of the loan agent's prime rate, the reserve
adjusted secondary market rate for certificates of deposit plus 1%
or the Federal Funds effective rate plus 0.5%. Interest is payable
quarterly.
F-23
<PAGE> 192
Unsecured senior notes
----------------------
On July 25, 1997 the Company completed an offering of long-term,
unsecured senior notes due July 15, 2004 for $150,000 U.S.
Dollars, bearing interest at a fixed rate of 10%, payable
semi-annually starting January 15, 1998 (the "notes"). The notes
are redeemable at the option of the Company, in whole or in part,
at any time on or after July 15, 2001 starting at a redemption
price of 105.0% of principal amount plus accrued interest, if any,
declining to 102.5% after July 15, 2002, and finally to 100.0%
after July 15, 2003.
In addition, at any time prior to July 15, 2000 the Company may
redeem in the aggregate up to 35% of the original aggregate
principal amount of the notes with proceeds of a public equity
offering by the Company at a redemption price of 110.0% of
principal amount plus accrued interest, if any. The notes may also
be redeemed at a price equal to 100.0% of principal amount plus
accrued interest, if any, in the case of legal changes affecting
the treatment of the withholding taxes on payments to holders of
the notes.
Amortization and collateral
---------------------------
The long term bank loan and revolving credit facility have payment
requirements of $33,750 U.S. Dollars in 2000, $92,250 U.S. Dollars
in 2001 and $99,000 U.S. Dollars in 2002. The U.S. $150,000 of
unsecured senior notes are due in 2004.
The long-term bank loan, revolving credit facility and unsecured
senior notes contain certain restrictive covenants, including the
maintenance of certain financial ratios, restrictions on incurring
additional debt, limitations on capital expenditures and
restrictions on the sale or lease of the Group's assets. As of
December 31, 1998, the Group had complied with such covenants
except for the limitation on 1998 capital expenditures for which
the Company has received a waiver from the banks which extended
for a period of more than twelve months beyond the balance sheet
date.
As of December 31, 1998 and 1997, assets collateralizing all
long-term debt include substantially all assets used in Grupo
Iusacell's cellular business (including the cellular concessions),
as well as other property and equipment.
Bell Atlantic Subordinated Convertible Debt Facility
----------------------------------------------------
In July 1997, Bell Atlantic committed to provide the Company with
subordinated convertible financing in an aggregate amount up to
$150,000 U.S. Dollars. Borrowings under the facility bear interest
at an annual rate of LIBOR plus 5.0%. The availability of funds
under this facility expires on June 30, 1999. At the option of
Bell Atlantic, borrowings under the facility are convertible into
Series A shares of the Company at a conversion price of $0.70 U.S.
Dollars per share. During the year ended December 31, 1998, the
Company borrowed $101,500 U.S. Dollars (Ps.1,158,822) under the
facility, which were converted into Series A common shares (see
Note 14). As of December 31, 1998, no borrowings were outstanding
under this facility and $48,500 U.S. Dollars were available for
further borrowing.
F-24
<PAGE> 193
Notes payable
-------------
As of December 31, 1998 and 1997, notes payable consisted of the
following:
<TABLE>
<CAPTION>
Mexican Pesos
---------------------
U.S. Dollars 1998 1997
------------ ---------- --------
<S> <C> <C> <C>
Short-term loan bearing interest at a
variable rate of LIBOR plus 2.5%
maturing on April 30, 1999 U.S.$52,000 Ps.564,938 Ps. -
Short-term loan bearing interest at a
variable rate of LIBOR plus 2.5%
maturing on April 30, 1999 23,000 249,876 -
Other - 130 3,468
----------- ---------- --------
Total U.S.$75,000 Ps.814,944 Ps.3,468
=========== == ======== ========
</TABLE>
The Company is currently negotiating a long-term refinancing of the
$75,000 U.S. Dollars in short-term loans.
The Group leases certain communications equipment and transportation
equipment under agreements which are classified as capital leases.
Most of these leases have purchase options at the end of the
original lease term. Leased capital assets included in property
and equipment at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----- ---------
<S> <C> <C>
Leased equipment Ps. - Ps.25,491
Accumulated depreciation - (7,285)
----- ---------
Ps. - Ps.18,206
===== =========
</TABLE>
11. Trade accounts payable
As of December 31, trade accounts payable consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current accounts Ps.830,528 Ps.907,174
Short-term notes payable 128,043 9,523
---------- ----------
Total Ps.958,571 Ps.916,697
========== ==========
Long-term notes payable Ps. 2,316 Ps. 5,260
========== ==========
</TABLE>
F-25
<PAGE> 194
On August 14, 1997, the Company and Telmex entered into a settlement
agreement with respect to the fees charged by Telmex to Iusacell
through May 31, 1997 for interconnection services, switched long
distance services and certain other services billed by Telmex as
of the date of the settlement agreement. The Company paid Telmex
Ps.221,357, of which Ps.28,906 constituted value-added tax and
Ps.37,239 was accounted for as interest expense.
In September 1997, the Company and Telmex amended such
interconnection agreement, requiring the Company to pay Telmex an
interim interconnection rate of 31 centavos per minute retroactive
to June 1, 1997 and that Telmex extend to the Company a 38%
discount available to other large business consumers for use of
its long distance network.
In December 1998, COFETEL reached an agreement on various outstanding
interconnection issues, including a reduction in the rate charged
for calls terminated by Telmex from 31 centavos per minute to
approximately 26 centavos per minute, effective October 1, 1998
(such rate being subject to inflation adjustments).
12. Income Tax, Net Assets Tax and Employee Profit Sharing
The Company has filed annual consolidated income tax returns since
the tax year beginning January 1, 1994.
The income tax rate in Mexico is 34%. The provision for income tax
differs from the statutory income tax rate due to temporary and
permanent differences in the determination of income for tax
reporting and financial reporting purposes. The most significant
temporary differences are the tax deduction for inventory
purchases and certain liability accruals which are deductible only
when paid for tax purposes. The most significant permanent
differences are the differences between book and tax depreciation,
goodwill amortization and non-deductible expenses. In accordance
with Mexican accounting principles, no deferred taxes have been
provided for temporary differences since such differences are of a
recurring nature and their realization does not occur over a
defined time period.
The 1.8% net assets tax is calculated on the average value of
substantially all assets less certain liabilities. This tax is
required to be paid if this computation exceeds the amount of
income tax. The 1.8% net assets tax paid may be utilized as a
credit against future income tax in the years in which the Group
generates an income tax in excess of the assets tax. The assets
tax is available as a carry forward for up to ten years and is
subject to restatement based on the NCPI when used. As of December
31, 1998, the net assets tax available as carry forward was
Ps.241,952.
At December 31, 1998, the Group had the following net operating
losses for income tax purposes that may be carried forward and
applied against future taxable earnings:
<TABLE>
<CAPTION>
Year of Amount Expiration
loss of loss year
------- ------------ ----------
<S> <C> <C>
1991 Ps. 12,268 2001
1993 218,394 2003
1994 1,251,235 2004
1995 646,527 2005
1996 17,940 2006
1997 518,254 2007
1998 218,269 2008
</TABLE>
F-26
<PAGE> 195
These losses are indexed for inflation from the year incurred to the
sixth month of the year utilized. Accordingly, these amounts
include inflation up to June 1998. Losses include Ps.223,221 and
Ps.335,967 of capital stock issuance costs expensed for tax
purposes in 1994 and 1993, respectively. Such amounts were charged
against stockholders' equity in the financial statements.
Employee profit sharing, generally 10%, is computed on taxable
income, with adjustments to exclude inflationary effects and the
restatement of depreciation expense. In the year ended December
31, 1998, there was a provision for profit sharing for Ps.518. In
the year ended December 31, 1997 there was no provision for profit
sharing.
The effective rate reconciliation as of December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income tax benefit at statutory rate (Ps.455,454) (Ps.422,849) (Ps. 89,548)
Add (deduct):
Inventory purchases less cost of sales 246,821 (99,326) (47,811)
Depreciation and amortization 8,670 (144,801) (142,506)
Provision for equipment impairment - 410,837 -
Project 450 non-cash write-down 366,342 - -
Differences between interest and
inflationary gains or losses (123,297) 137,584 215,879
Net assets tax 70,496 59,031 49,827
Income tax loss carryforwards 74,211 176,206 6,100
Provision for doubtful accounts (113,382) 11,197 (3,951)
Telephones to be amortized 129,917 69,774 99,876
Goodwill amortized 40,473 41,329 44,710
Other (174,301) (179,951) (82,749)
----------- ------------ -----------
Effective income tax expense at
effective rate Ps. 70,496 Ps. 59,031 Ps. 49,827
=========== =========== ===========
</TABLE>
13. Commitments and contingencies
As of December 31, 1998, the Group had the following commitments and
contingent liabilities:
a) The Group has entered into operating lease agreements for
administrative offices, sales branches and service facilities.
Such lease agreements expire at various dates through 2007.
Some agreements contain options for renewal. Rental expense was
Ps.108,106, Ps.80,946 and Ps.70,846 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Future annual minimum rental payments under existing leases
with terms in excess of one year as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999 Ps.105,567
2000 93,166
2001 80,917
2002 66,190
Thereafter 42,833
----------
Ps.388,673
==========
</TABLE>
F-27
<PAGE> 196
b) The Group may have contingent liabilities for taxes and
penalties that the tax authorities may assess based on audit of
prior years' tax returns. During 1997, the Mexican tax
authorities completed an audit of three companies of the Group
(Grupo Iusacell, S.A. de C.V., Iusacell, S.A. de C.V. and SOS
Telecomunicaciones, S.A. de C.V.), resulting in claims of
Ps.7,989, including penalties and surcharges. These differences
were paid in 1997 and are classified as a part of the provision
for taxes in the income statement for that year. Further in
1999, as a result of those investigations, the Company was
assessed a Ps.21,881 penalty by the tax authorities under the
claim that it had incorrectly deducted for income tax purposes
certain interest expense. The Company plans to challenge this
penalty as it believes it has strong legal grounds to overcome
the assessment.
c) Mitsubishi Electronics America Inc. ("MELA") filed a
complaint in the United States on July 18, 1996 against Grupo
Iusacell, Bell Atlantic Corporation and Bell Atlantic Latin
America Holdings Inc., an affiliate of Bell Atlantic.
Essentially, MELA alleges that it had a contract with Grupo
Iusacell for the sale of telephone terminals and that Grupo
Iusacell has breached the contract by not purchasing the
terminals. MELA alleges the contract was for the sale of 60,000
units at a unit cost of $0.510 U.S. Dollars. The lawsuit is
currently in the discovery stage. Management believes the
lawsuit has no basis as no contract was ever signed and that,
at trial, no material damages will result in favor of MELA.
Based on external counsel's opinion it is too early to evaluate
the extent of the Company's exposure to loss by judgement at
trial.
d) In December 1997, the Company signed an agreement with
Lucent Technologies with a commitment to purchase CDMA digital
wireless equipment for $188,000 U.S. Dollars to install its
digital cellular network. In connection with this contract,
Lucent will issue trade-in credits to the Company for
approximately $93,000 U.S. Dollars, representing the net
replacement cost of the network equipment being displaced. The
trade-in credits are deducted from each purchase invoice
proportionally to the total equipment purchased. As of December
31, 1998 the Company had purchased equipment priced at
approximately $120,000 U.S. Dollars under this agreement.
e) In February 1998, the Company's former advertising agency sued
the Company for Ps.23,000, alleging improper termination of its
contract. The Company won the lawsuit during 1998 without any
damages in favor of such former advertising agency and also won
a first appeal. The Company's former advertising agency has
recently filed a second and final appeal. Management believes
the lawsuit has no basis and does not anticipate that any
significant damages in favor of such former advertising agency
will result at the end of the lawsuit. In June 1999, Mexican
Supreme Court found the Company in breach of its contract with
the Company's former advertising agency and found further that
the advertising agency suffered Ps.23,000 in damages.
Subsequently, another tribunal confirmed the breach of contract
finding, but ruled that the damages suffered by the agency were
only Ps.16,000. The Company intends to file an injunctive
action (amparo) against this sentence on the basis that the
tribunal exceeded the scope of its review and also assessed
damages incorrectly.
f) As a result of delays in the construction of the new corporate
headquarters, the sale of Montes Urales did not take place
during the year ended December 31, 1997. In April 1998, the
Company learned that the property was subject to two liens from
the former owner that, until removed, prohibited the Company
from transferring the title of Montes Urales to the prospective
buyer. Such liens were not identified when the Company acquired
the stock of the Corporation which owned Montes Urales in 1994,
nor was the Company notified of such liens subsequent to the
acquisition. The Company is currently analyzing the matter and
the actions it needs to pursue to remove such liens. There can
be no assurance, however, that the Company will be able to
remove the liens from such property and realize any value from
such assets.
F-28
<PAGE> 197
g) The Company has certain commitments derived from its joint
venture agreement with Infomin, S.A. de C.V. (see Note 2).
14. Contributed capital
As stated in Note 1, in December 1996, the Company's principal
stockholders signed an agreement to transfer management control of
Grupo Iusacell to Bell Atlantic. Following execution of the
agreement, at an extraordinary shareholders' meeting, the
Company's shareholders approved the following modifications of the
Company's estatutos sociales (by-laws):
1) Series A shares may be acquired by Mexicans and/or foreigners.
2) The conversion of 200,000,000 Series B shares and 166,769,760
Series D shares held by Bell Atlantic into 366,769,760 Series A
shares.
3) The conversion of 100,000,000 Series A shares held by the
Peralta Group into 100,000,000 Series D shares.
These modifications were subject to the receipt of authorizations
from the National Foreign Investment Commission and the Federal
Competition Commission. On February 10 and 12, 1997, Grupo
Iusacell's new share ownership and management control structure
received the required Mexican government authorizations.
Based on the above mentioned authorizations and the adoption of
such resolutions, the total authorized fixed portion of capital
stock was increased by Ps.937,512 through the authorization of up
to 74,163,591 Series A shares and up to 54,407,837 Series D
shares.
At the same shareholders' meeting, an Executive Employee Stock
Purchase Plan for the Company's executive employees (the "Stock
Purchase Plan") was approved (see Note 15). As part of this plan,
the total authorized fixed portion of capital stock was increased
by Ps.130,210 through the issuance of up to 15,625,000 Series L
shares (to be made available under the Stock Purchase Plan and to
provide for the exercise of preemptive stockholder rights).
On February 28, 1997 the Company's Board of Directors ratified a
capital increase of Ps.799,288. The shares were offered for
subscription and payment in the following way:
a) Bell Atlantic subscribed for 47,017,491 Series A shares through
the conversion of certain debt (Note 5).
b) FIUSA Pasteje, S.A. de C.V. subscribed for 4,390,619 Series A
shares and 48,754,000 Series D shares through the
capitalization of certain liabilities.
c) Preemptive stockholder rights were exercised for the amount of
265 Series D shares and 92,564 Series L shares.
Additionally, 7,812,500 of the 15,625,000 previously authorized
Series L shares were kept in the Company's treasury available for
the Stock Purchase Plan; the balance of 7,719,916 Series L shares
were cancelled. During 1997, 7,549,834 of these shares were
subscribed by employees, as follows:
F-29
<PAGE> 198
On April, 17, 1997, the Technical Committee of the trust
administrating the Stock Purchase Plan ("Technical Committee")
approved the subscription of 4,719,560 Series L shares for the
Stock Purchase Plan. The subscription price for those shares was
Ps.56,497.
On June 6, 1997, the Technical Committee approved the subscription
of 1,272,200 Series L shares for the Stock Purchase Plan. The
subscription price for those shares was Ps.24,379.
On September 30, 1997 the Technical Committee approved the
subscription of 1,558,074 Series L shares for the Stock Purchase
Plan. The subscription price for those shares was Ps.29,356.
On April 17, 1998, 262,666 Series L shares which had not been
subscribed for under the Stock Purchase Plan were automatically
canceled.
At a shareholders' meeting in June 1998, the total authorized fixed
portion of capital stock was increased by Ps.33,457 through the
issuance of up to 2,000,000 Series L shares under the Stock
Purchase Plan.
From June 30 to July 14, 1998, preemptive stockholder rights related
to the new authorization of Series L shares for the Stock Purchase
Plan were exercised for 40 Series L shares in the amount of
Ps.0.59. The balance of 812,460 Series L shares were cancelled.
During June 1998, 1,187,500 of the 2,000,000 previously authorized
Series L shares were added to the Company's treasury available for
the Stock Purchase Plan. During 1998, 1,117,496 of these new
shares made available under the Stock Purchase Plan were
subscribed by employees, as follows:
On September 2, 1998, the Technical Committee approved the
subscription of 582,456 Series L shares for the Stock Purchase
Plan. The subscription price for those shares was Ps.4,719.
On October 2, 1998, the Technical Committee approved the
subscription of 535,040 Series L shares for the Stock Purchase
Plan. The subscription price for those shares was Ps.3,159.
As of December 31, 1998, 70,004 Series L shares remained available
in the Company's treasury for issuance under the Stock Purchase
Plan.
On November 17, 1998 the Company's Board of Directors ratified a
capital stock increase of Ps.836,145 by the issuance of
102,142,857 Series A shares which were subscribed through the
conversion of debentures issued by the Company under the Bell
Atlantic Subordinated Convertible Debt Facility (see Note 10). The
convertible debentures were issued and converted as follows:
On August 19, 1998, the Company issued debentures in a principal
amount of Ps.293,317 ($25,200 U.S. Dollars), which were converted
into 36,000,000 Series A shares on the same date.
On September 29, 1998, the Company issued debentures in a
principal amount of Ps.543,204 ($46,300 U.S. Dollars), which were
converted into 66,142,857 Series A shares on the same date.
F-30
<PAGE> 199
On December 21, 1998 the Board of Directors of the Company ratified a
capital increase of Ps.322,302 by the issuance of 42,857,142
Series A shares. The increase was subscribed through the
conversion of debentures issued by the Company under the Bell
Atlantic Subordinated Convertible Debt Facility, in an aggregate
principal amount of $30,000 U.S. Dollars. The 42,857,142 Series A
shares were initially subscribed by Bell Atlantic, of which 50%,
or 21,428,571, of such shares, were then sold to the Peralta
Group. There was no gain or loss recognized from the sale.
The changes in the number of shares of common stock for the period
January 1, 1996 through December 31, 1998 are analyzed as follows:
<TABLE>
<CAPTION>
Number of shares
----------------
<S> <C>
January 1, 1996 balance 981,624,430
No changes -
-------------
December 31, 1996 balance 981,624,430
February 28, 1997 - issuance of common
stock through the capitalization of debt 100,162,110
February 28, 1997 - issuance of common stock
upon exercise of preemptive stockholder rights 92,829
April 17, 1997 - issuance of common
stock for the Stock Purchase Plan 4,719,560
June 6, 1997 - issuance of common
stock for the Stock Purchase Plan 1,272,200
September 30, 1997 - issuance of
common stock for the Stock
Purchase Plan 1,558,074
-------------
December 31, 1997 balance 1,089,429,203
July 14, 1998 - issuance of common
stock upon exercise of preemptive
stockholder rights 40
September 2, 1998 - issuance of common
stock for the Stock Purchase Plan 582,456
October 2, 1998 - issuance of common
stock for the Stock Purchase Plan 535,040
November 17, 1998 - issuance of common
stock through the capitalization of debt 102,142,857
December 21, 1998 - issuance of common
stock through the capitalization of debt 42,857,142
-------------
December 31, 1998 balance 1,235,546,738
=============
</TABLE>
F-31
<PAGE> 200
At December 31, 1998 and 1997, the issued and outstanding shares of
common stock of the Company, without par value, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Series A 891,753,409 746,753,410
Series B 5,562,450 5,562,450
Series D 186,904,725 186,904,725
Series L 151,326,154 150,208,618
------------- -------------
Total 1,235,546,738 1,089,429,203
============= =============
</TABLE>
Series A, B and D represent shares entitling the holder of each
share to one vote at the Company's stockholders' meetings. The
holders of Series L shares may vote only in limited circumstances
as described in the Company's bylaws. Stockholder actions on
certain matters require approval by both Series A and Series B
stockholders.
Series A shares must always represent no less than 51% of the
capital stock with full voting rights and may be acquired by
Mexicans or foreigners. Series B, D and L shares may also be
acquired by foreigners or Mexicans.
Series B shares cannot exceed 29.1% of the total capital stock and
Series D shares cannot exceed 19.9% of the total capital stock.
Series L shares cannot exceed 19% of the total capital stock.
On August 26, 1998 the Company announced a recapitalization and
restructuring plan. Under this plan a new holding company, Nuevo
Grupo Iusacell, S.A. de C.V. ("Nuevo Iusacell") has been created.
Nuevo Iusacell will offer to exchange, on a one for one basis,
Nuevo Iusacell Series V shares for outstanding Series B, D and L
shares and for some Series A shares, and will offer to exchange,
on a one for one basis, Nuevo Iusacell Series A shares for all
other Series A shares. All Nuevo Iusacell shares will have full
voting rights.
15. Executive Employee Stock Purchase Plan
In March 1997, the Company adopted the Stock Purchase Plan. The
Stock Purchase Plan is administrated by a management trust with
the assistance of the trust division of a Mexican Bank. Under the
Stock Purchase Plan, the Technical Committee, which is composed of
certain executive officers of the Company, determines the
executive employees to whom Series L shares of the Company will be
offered for purchase. The Technical Committee also determines the
number of Series L shares to be offered for purchase to such
executive employees, the purchase price per share for such
purchase rights, the vesting schedule for such purchase rights,
the payment terms and all other terms and conditions therefor.
The number of Series L shares that may be subject to purchase rights
granted under the Stock Purchase Plan cannot exceed 4.9% of the
aggregate number of issued and outstanding Company shares.
During 1997, the Technical Committee granted purchase rights with
respect to a total of 7,549,834 Series L shares. All such purchase
rights vest either in three equal annual installments commencing
on April 17, 1998, June 6, 1998 or September 30, 1998 or in their
entirety on April 17, 1999 or June 6, 1999 (see Note 14).
F-32
<PAGE> 201
During 1998, the Technical Committee granted purchase rights with respect
to a total of 2,199,600 Series L shares through the issuance of
1,117,516 Series L shares and the reassignment of 1,082,084 Series L
shares. All such purchase rights vest either in three equal annual
installments commencing on September 1, 1999 or commencing on October
1, 1999 (see Note 14).
16. Earned Capital
Under Mexican law, a legal reserve must be created, and annually
increased by 5% of the annual net earnings until it reaches 20% of
the nominal amount of its capital stock. This reserve is not
available for dividends, but may be used to reduce a deficit or may
be transferred to capital.
Under the Federal income tax law, a tax on dividends is calculated based
on the paid dividends which exceed taxable net income. The
accumulated taxable net income of the Company as of December 31, 1998
is approximately Ps.114,131. The Company cannot pay dividends under
the covenants for the senior notes and bank loans.
The earned capital accounts consist of the following:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------
Accumulated
Historical adjustments for
value inflation Total
------------- ------------ ------------
<S> <C> <C> <C>
Legal reserve Ps. 1,499 Ps. 2,862 Ps. 4,361
Accumulated losses from
prior years (1,839,161) (1,528,250) (3,367,411)
Net loss for the year (1,464,050) 39,938 (1,424,112)
Deficit from restatement -- (746,499) (746,499)
------------ ------------ ------------
Total (Ps.3,301,712) (Ps.2,231,949) (Ps.5,533,661)
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------
Accumulated
Historical adjustments for
value inflation Total
------------- ------------- ------------
<S> <C> <C> <C>
Legal reserve Ps. 1,499 Ps. 2,862 Ps. 4,361
Accumulated losses from
prior years (1,646,797) (418,175) (2,064,972)
Net loss for the year (192,364) (1,110,075) (1,302,439)
Deficit from restatement -- (709,390) (709,390)
------------ ------------ ------------
Total (Ps.1,837,662) (Ps.2,234,778) (Ps.4,072,440)
============ ============ ============
</TABLE>
F-33
<PAGE> 202
17. Foreign Currency Position
The balance sheet as of December 31 includes assets and liabilities
denominated in U.S. Dollars, as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Monetary assets U.S.$ 46,331 U.S.$ 52,166
Monetary liabilities 574,489 360,775
--------------- --------------
Net monetary liability position
in U.S. Dollars U.S.$ 528,158 U.S.$ 308,609
=============== ==============
Equivalent in nominal
Mexican pesos Ps. 5,226,810 Ps. 2,489,888
=============== ==============
</TABLE>
As of December 31, 1998 and 1997, most of the communications equipment
and inventories of cellular telephones and accessories are of
foreign origin (see Notes 6 and 8).
During 1998 and 1997, interest expense and interest income on assets and
liabilities denominated in U.S. Dollars were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Interest income U.S.$ 494 U.S.$ 386 U.S.$ 18,298
Interest expense 16,419 15,994 52,011
------------- ------------- -------------
Net interest expense U.S.$ 15,925 U.S.$ 15,608 U.S.$ 33,713
============= ============= ==============
Equivalent in nominal Mexican
Pesos Ps. 157,599 Ps. 125,927 Ps. 264,057
============= ============= ==============
</TABLE>
Operating results for the years ended December 31, 1998 and 1997, include
depreciation and amortization expenses, originated by fixed assets
and inventories of foreign origin.
The exchange rate as of December 31, 1998 and 1997 was Ps.9.8963 and
Ps.8.0681, per 1 U.S. Dollar, respectively. At the issuance date of
these financial statements, February 22, 1998, the exchange rate in
effect was Ps. 9.9333 per 1 U.S. Dollar
18. Project 450
During 1994, the Company created a subsidiary to provide fixed wireless
local telephony services using the 450 MHz frequency band ("Project
450"). At December 31, the Company's investment in Project 450
consisted of the following assets:
F-34
<PAGE> 203
<TABLE>
<CAPTION>
1998 1997
--------- ------------
<S> <C> <C>
Fixed assets Ps.44,635 Ps. 530,868
Capitalized interest (Note 9) -- 350,161
Inventory of handsets 19,967 28,256
Pre-operating expenses (Note 9) -- 312,762
--------- ------------
Total Ps.64,602 Ps.1,222,047
========= ============
</TABLE>
On June 10, 1997, the Mexican Ministry of Communications and Transport
("SCT") and the Company reached an agreement on a process whereby
the Company could obtain concessions issued by the SCT to provide
local wireless service in the 450 MHz frequency band. While
awaiting the Mexican Government's resolution on coverage, spectrum
clearing and other requirements which may cause management to
reconsider the feasibility of fully deploying the 450 MHz
technology, the Group began its overlay of CDMA digital technology
in the 800 MHz frequency band.
Given the capabilities of CDMA technology and the success the Group has
had thus far with its deployment, the Group is exploring
alternatives for providing local telephony service, including fixed
or limited zone wireless service in the 800 MHz and 1.9 GHz bands.
The Group has not made a decision as to whether it will pursue its
right of first refusal to acquire the above-mentioned 450 MHz
concessions, or whether it will pursue an alternative means to
provide local telephony services.
During September 1998, the Group made the decision to write-down the
carrying value of the assets supporting its Project 450 MHz assets as
the Group believes there has been an impairment of its investment in
this technology. During 1998 an impairment charge for Ps.1,077,474
was recorded, and represented 100% of the pre-operating expenses and
90% of the fixed assets deployed in this project.
19. Discontinued Operations
In December 1998, the Company decided to discontinue the operations of
its subsidiary, Cellular Solutions, basically the selling of
accessories for cellular handsets. Cellular Solutions transferred
all its existing inventories as of December 31, 1998 to another
subsidiary of the Company and terminated all its employees during
January and February 1999.
Financial information regarding Cellular Solutions as of December 31 was
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ----------
<S> <C> <C> <C>
Current assets Ps. 3,917 Ps.8,955 Ps. 5,691
Total assets 5,406 10,399 7,810
Total liabilities 39,980 9,549 8,322
Revenues 19,578 23,851 15,888
Gross Profit 4,302 6,827 5,609
Loss from operations before income taxes (8,622) (7,179) (18,023)
Provision for income taxes 99 184 202
Loss on disposal, including provision of
Ps. 1,042 for operating losses during
phase-out period (no applicable taxes) (11,527) -- --
--------- -------- ----------
Net (loss) profit (Ps.20,248) (Ps.7,363) (Ps. 18,225)
========= ======== ==========
</TABLE>
F-35
<PAGE> 204
20. Differences between Mexican and United States Generally Accepted
Accounting Principles
The Company's consolidated financial statements are prepared based on
accounting principles generally accepted in Mexico ("Mexican
GAAP"), which differ in certain significant respects from United
States generally accepted accounting principles ("U.S. GAAP").
The following reconciliation to U.S. GAAP does not include the reversal
of the adjustments to the financial statements for the effects of
inflation required under Mexican Bulletin B-10. The application of
Bulletin B-10 represents a comprehensive measure of the effects of
price-level changes in the financial statements based on historical
cost for Mexican and U.S. accounting purposes. The principal
differences, other than inflation accounting, between Mexican and
U.S. GAAP are listed below, together with an explanation where
appropriate, of the adjustments that affect consolidated net income
and stockholders' equity for each of the years ended December 31,
1998, 1997 and 1996.
a) Deferred income taxes and employee profit sharing
Under Mexican GAAP, deferred income taxes are provided for identifiable,
non-recurring timing differences (those expected to reverse over a
definite period of time) at rates in effect at the time such
differences originate. Benefits from loss carryforwards are not
allowed to be recognized before the period in which the carryforward
is utilized. For purposes of this reconciliation to U.S. GAAP, the
Company has applied Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes"("SFAS 109"), for all
periods presented.
SFAS 109 requires an asset and liability method of accounting whereby
deferred taxes are recognized for the tax consequences of all
temporary differences between the financial statement carrying
amounts and the related tax bases of assets and liabilities. Under
U.S. GAAP, the effect on deferred taxes of a change in tax rate is
recognized in income in the period that includes the enactment date.
SFAS 109 requires deferred tax assets to be reduced by a valuation
allowance if, based on the weight of available evidence, including
cumulative losses in recent years, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
As described in Note 12, Mexican tax law requires payment of a 1.8% tax
on the Company's net assets which may be used to offset future income
tax obligations. Under Mexican GAAP, the net asset tax is charged to
the provision for income taxes. Under SFAS 109, such amounts are
treated as a deferred tax benefit and offset by a valuation
allowance, if required.
Employee profit sharing expense, which is based on each subsidiary's
taxable income after certain statutory adjustments, is included in
the income tax provision under Mexican GAAP. The provision for
employee profit sharing is charged to operations for U.S. GAAP
purposes.
F-36
<PAGE> 205
b) Preoperating costs
Under Mexican GAAP, the Company capitalized certain pre-operating costs,
primarily related to Project 450. Under US GAAP, pre-operating
costs are expensed as incurred. During 1998, the Company recorded a
write-down related to its investment in Project 450 for Mexican
GAAP purposes and consequently, wrote-off all capitalized
pre-operating costs as of that date.
c) Restatement related to the provision for consolidation of facilities
As described in Note 2, during the year ended December 31, 1996, the
Company originally recorded a provision for consolidation of
facilities related to Montes Urales under both Mexican and US GAAP.
The Company has reassessed this accounting treatment under U.S.
GAAP and determined that, as management did not have the ability to
remove Montes Urales from operations in December 1996, Montes
Urales did not qualify as an asset held to be disposed of at such
date and consequently, should have been accounted for as an asset
to be held and used pursuant to the provisions of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." As a result, under U.S. GAAP,
an impairment charge would not have been recorded at December 31,
1996 related to Montes Urales. The effect of this restatement on
U.S. GAAP net loss and basic and diluted net loss per share is as
follows:
<TABLE>
<CAPTION>
For the year ended December 31, 1996
As previously reported As restated
---------------------- -----------------
<S> <C> <C>
Net loss under U.S. GAAP (Ps. 200,646) (Ps. 183,684)
Basic and diluted net loss per share
under U.S. GAAP (Pesos) (Ps. 0.20) (Ps. 0.19)
</TABLE>
The effect of the additional depreciation on Montes Urales related to
the 1996 restatement was immaterial for 1998 and 1997.
Consequently, the Company has not revised the financial statements
for such periods.
d) Minority interest
Under Mexican GAAP, the minority interest in consolidated subsidiaries is
presented as a separate component within the stockholders' equity
section of the consolidated balance sheet. For U.S. GAAP purposes,
minority interest is not included in stockholders' equity and
accordingly is deducted as a reconciling item to arrive at U.S.
GAAP equity.
F-37
<PAGE> 206
e) Basic and fully diluted loss per share
As of January 1, 1997, Mexican GAAP requires the disclosure of
earnings (loss) per share for public companies. Under U.S. GAAP,
disclosure of basic earnings (loss) per share and diluted earnings
(loss) per share is required for public companies in accordance
with SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per
share is computed by dividing income (loss) available to common
shareholders by the weighted average number of common shares
outstanding for the year. The computation of diluted earnings
(loss) per share is similar to basic earnings (loss) per share,
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potentially dilutive common shares had been issued. Diluted
earnings (loss) per share is equal to basic earnings (loss) per
share for the years ended December 31, 1998 and 1997 as the
drawdowns and conversions under the subordinated convertible
facility with Bell Atlantic (Note 10) and the shares subject to
rights under the Stock Purchase Plan (see Note 15) are excluded
from the computation of diluted earnings (loss) per share because
to do so would have been anti-dilutive for the periods presented.
For the years ended December 31, 1998 and 1997, the number of
potentially dilutive shares that were excluded from the computation
of diluted earnings (loss) per share for the drawdowns and
conversions under the facility with Bell Atlantic were 69,285,714
and 214,285,714 shares, respectively, and for the shares subject to
rights under the Stock Purchase Plan 332,650 and 262,666 shares,
respectively. Diluted earnings (loss) per share is equal to basic
earnings (loss) per share for the year ended December 31, 1996 as
the Company did not have any potentially dilutive securities.
f) Effect of inflation accounting on U.S. GAAP adjustments
In order to determine the net effect on the financial statements of
recognizing certain of the adjustments described above, it is
necessary to recognize the effects of applying the Mexican GAAP
inflation accounting principles (described in Note 4) to such
adjustments.
g) Comprehensive income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes guidelines for the
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. The statement, however, does not address
recognition or measurement issues. The adoption of SFAS No. 130 had
no impact on net loss or shareholders' equity. The Company has
presented comprehensive loss and accumulated comprehensive loss
under U.S. GAAP for each of the three years ended December 31, 1998
in Note 20 j) below.
F-38
<PAGE> 207
h) Interest rate collar
Effective July 30, 1998, in connection with the $225,000 U.S. Dollars
credit agreement (see Note 10), the Company was required to enter
into an interest rate collar agreement designated as a hedge of a
portion of the Company's floating rate debt. The interest rate
collar limits the Company's exposure to fluctuations in short-term
interest rates by locking in a range of interest rates on $35,000
U.S. Dollars of its floating rate debt. The cap rates range from
6.12% to 7.12% above six-month LIBOR with the floor rates ranging
from 5.30% to 6.12% above six-month LIBOR. The interest rate collar
matures on July 30, 2002.
Under Mexican GAAP, the interest rate collar agreement is recorded on a
cash basis. Under U.S. GAAP, the differential to be paid or
received as interest rates change is accrued and recognized as an
adjustment of interest expense at the balance sheet date.
Additionally, the related amount payable or receivable from
counter-parties is included in accrued other expenses at the
balance sheet date.
The $35,000 U.S. Dollar million notional amount of the interest rate
collar agreement does not quantify risk or represent assets or
liabilities of the Company, but is used in the determination of
cash settlements under the agreement. The Company is exposed to
credit loss from counterparty nonperformance, but does not
anticipate any such loss from the interest rate collar agreement,
which is with a major financial institution.
The fair value of the interest rate collar agreement is Ps.11,786
($1,085 U.S. Dollars) as of December 31, 1998, and is estimated
based on current market settlement prices of comparable contracts
obtained from dealer quotes. The Company does not hold or issue
derivative financial instruments for trading purposes.
i) Gain from the exchange of non-monetary assets
In December, 1998, the Company entered into a fiber optic cable swap
agreement with Bestel to exchange certain long-distance fiber optic
cables for a contract amount of Ps.210,217. Under Mexican GAAP, the
Company recorded the transaction as both an acquisition and sale of
fixed assets based on the contract amount, resulting in a gain on
the sale of Ps.183,065 which was recorded as other income. Under
U.S. GAAP, because the assets exchanged are similar productive
assets and, on a net basis, no cash was exchanged, the transaction
does not result in the recognition of earnings. Consequently, under
U.S. GAAP, the acquisition and sale would not have been recorded.
j) Net loss and stockholders' equity under U.S. GAAP
The following is a summary of net loss and stockholders' equity adjusted
to take into account certain material differences between Mexican
GAAP and U.S. GAAP:
F-39
<PAGE> 208
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
Restated
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Net loss as reported under Mexican GAAP (Ps.1,424,112) (Ps.1,302,439) (Ps.514,243)
Deferred income taxes 55,311 482,155 254,351
Pre-operating costs 174,350 (83,599) (90,751)
Interest rate collar (11,786) -- --
Gain from the exchange of non-monetary assets (183,065) -- --
Provision for consolidation of facilities -- -- 16,963
Effect of inflation accounting on U.S. GAAP adjustments (25,490) 19,717 149,996
------------ ------------ ----------
Net loss under U.S. GAAP (1,414,792) (884,166) (183,684)
============ ============ ==========
Weighted average number of shares outstanding
(thousands) 1,121,396 1,070,825 981,624
============ ============ ==========
Basic and diluted net loss per share (pesos) (Ps. 1.26) (Ps. 0.82) (Ps. 0.19)
============ ============ ==========
</TABLE>
Comprehensive income:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net loss under U.S. GAAP (Ps.1,414,792) (Ps. 884,166) (Ps. 183,684)
Inflation effects for the period (11,619) (19,717) (1,172,062)
Deferred income taxes -- -- 383,677
------------- ------------ ------------
Comprehensive loss (1,426,411) (903,883) (972,069)
============= ============ ============
Accumulated comprehensive loss (Ps. 6,318,819) (Ps.4,892,408) (Ps.3,988,525)
============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Stockholders' equity under Mexican GAAP Ps.4,025,136 Ps.4,333,837
Minority interest (891) (15,072)
Deferred income taxes 181,117 125,805
Pre-operating costs -- (174,350)
Interest rate collar (11,786) --
Gain from the exchange of non-monetary assets (183,065) --
Provision for consolidation of facilities 16,963 16,963
------------ ------------
Stockholders' equity as reported under U.S. GAAP Ps.4,027,474 Ps.4,287,183
============ ============
</TABLE>
F-40
<PAGE> 209
The following is the Statement of Stockholders' Equity under US GAAP
for each of the two years ended December 31, 1998:
<TABLE>
<CAPTION>
Contributed Accumulated Loss for
Capital Losses the year Total
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Balances as of 12/31/96 Ps.7,481,685 (Ps.3,016,456) (Ps. 183,684) Ps.4,281,545
Application of 1996 net loss (183,684) 183,684 --
Increase in capital stock 909,521 909,521
Effects of inflation (19,717) (19,717)
Net loss for the year (884,166) (884,166)
------------ ------------ ------------- ------------
Balances as of 12/31/97 Ps.8,391,206 (Ps.3,219,857) (Ps. 884,166) Ps.4,287,183
Application of 1997 net loss (884,166) 884,166 --
Increase in capital stock 1,166,702 1,166,702
Effects of inflation (11,619) (11,619)
Net loss for the year (1,414,792) (1,414,792)
------------ ------------ ------------- ------------
Balances as of 12/31/98 Ps.9,557,908 (Ps.4,115,642) (Ps. 1,414,792) Ps.4,027,474
============ ============ ============= ============
</TABLE>
k) Provision for impairment of analog equipment
As mentioned in Note 4.b, during the year ended December 31, 1997,
changes in circumstances indicated that the carrying amount of the
Group's analog telecommunications network might not be recoverable.
These circumstances included: (i) customer and marketing
requirements for better voice quality, more and improved value
added services and reduction of wireless fraud, all of which were
more viable with a digital platform. Hence, these requirements
accelerated the adoption of digital technology in the Mexican
wireless market. (ii) the view of Bell Atlantic, which obtained
management control of the Company in 1997, that the Company would
need to adopt digital technology in order to remain competitive and
that CDMA was the best technology available to the Company. (iii)
the plans, developed in 1997 by other wireless carriers, to launch
digital technology in Mexico in 1998. (iv) the Company's decision
to participate in the digital PCS auctions that were announced in
November 1997 (v) an increase in the Company's subscriber base
during 1997, such that the analog network was operating at close to
full capacity by November 1997. The CDMA digital network has the
potential to increase capacity by a six to eight multiples compared
with analog. Consequently, under U.S. GAAP, the Company evaluated
the analog equipment for impairment using the criteria of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
In December 1997, the future estimated cashflows (undiscounted and
without interest) of the analog equipment, considering the
disposition of the equipment under the terms of the agreement with
Lucent Technologies (see Note 13), were less than the book value.
Consequently, the Company recorded an impairment charge of
Ps.1,208,352 to adjust the carrying amount of the analog equipment
to its fair value, amounting to Ps.3,170,524, based on an
independent appraisal performed by Consultores y Valuadores de
Empresas, S.C.
Under U.S. GAAP, this impairment charge is reflected as a component of
operating loss for the year ended December 31, 1997.
F-41
<PAGE> 210
l) Employee severance
The Group is required to pay certain severance benefits only to employees
that are dismissed without proper cause. Since during the normal
course of operations, it is impracticable to estimate the number of
employees that will be dismissed in the future, under U.S. GAAP,
severance payments made to employees during the normal course of
operations are expensed when paid. As of December 31, 1998 and 1997
severance accruals recorded were immaterial.
m) Supplementary U.S. GAAP disclosures
1) Cash flow information
SFAS No.95, "Statement of Cash Flows" ("SFAS 95"), does not provide any
specific guidance with respect to inflation adjusted financial
statements. For U.S. GAAP purposes, the following cash flow
statement is presented, using U.S. GAAP balance sheets restated for
inflation. Monetary gains and losses, and unrealized foreign
exchange gains and losses have been included as operating cash flow
reconciling items. Other items have been included based on their
cash flows, adjusted by inflation.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net loss under U.S. GAAP (Ps.1,414,792) (Ps. 884,166) (Ps. 183,684)
Adjustments to reconcile net loss to cash
(used in) provided by operating activities:
Depreciation 371,510 430,954 430,632
Amortization 501,147 326,772 425,257
450 Project non-cash write-down 903,124 -- --
Equity in loss (earnings) of associated
companies (2,853) (1,092) (1,866)
Gain on sale of equity investments (24,437) (204,234) --
Increase in allowance for doubtful accounts 30,213 47,429 100,382
(Decrease) / Increase in allowance for
obsolete and slow-moving inventories -- 20,186 5,816
Fixed assets impairment charge -- 1,208,352 --
Minority interest (6,199) (270) (4,500)
Deferred income taxes and employee
profit sharing 15,185 (423,123) (204,525)
Gain on net monetary position and
foreign exchange losses 198,381 (425,603) (861,456)
Reorganization reserve -- -- 205,535
</TABLE>
F-42
<PAGE> 211
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable (Ps. 569,635) (Ps.142,168) (Ps.122,917)
Inventories 110,133 (219,864) 73,778
Trade accounts payable and related parties 1,284,286 680,291 (95,448)
Taxes and other payable 505,180 (314,882) 114,007
Income tax (29,011) 3,387 7,165
Other (186) 447 91
------------- ---------- ----------
Net cash provided by (used in) operating activities 1,872,046 102,416 (111,733)
Investing activities:
Purchase of property and equipment, net (2,404,230) (882,632) (299,047)
Proceeds from sales of investments in asso-
ciated companies 12,055 322,021 40,184
Purchase of other assets (1,208,755) (771,789) 449,096
------------ ---------- ----------
Net cash (used in) provided by investing
activities (3,600,930) (1,332,400) 190,233
------------ ---------- ----------
Financing activities:
Proceeds from notes payable and long-term debt 1,873,687 3,120,505 195,758
Payments of notes payable and long-term debt (25,491) (1,984,722) (389,423)
Increase of capital stock 7,879 110,233 --
------------ ---------- ----------
Net cash provided by (used in) financing
Activities 1,856,075 1,246,016 (193,665)
------------ ---------- ----------
Net increase (decrease) in cash and cash
equivalents Ps. 127,191 Ps. 16,032 (Ps.115,165)
Cash and cash equivalents at beginning of year 152,993 136,961 252,126
------------- ---------- ----------
Cash and cash equivalents at the end of year Ps. 280,184 Ps.152,993 Ps.136,961
============= ========== ==========
Interest expense paid Ps. 337,774 Ps.241,421 Ps.325,364
============= ========== ==========
Income tax paid Ps. 35,985 Ps. 42,450 Ps. 30,257
============= ========== ==========
</TABLE>
Supplemental disclosures of non-cash activities:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1998 1997 1996
------------- ----------- ----------
<S> <C> <C> <C>
Sales of investment in Iusatel Chile in
exchange for notes receivable (Note 2) Ps. -- Ps. -- Ps.58,788
Conversion of debt to equity 1,158,822 799,288 --
</TABLE>
F-43
<PAGE> 212
2) The provision for income taxes for the years ended December 31, 1998,
1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Asset tax not offset by current
taxes Ps.70,496 Ps.59,031 Ps.49,827
Deferred tax (55,311) (482,155) (254,351)
----------- ------------ ------------
Tax charge (benefit) Ps.15,185 (Ps.423,124) (Ps.204,524)
=========== ============ ============
</TABLE>
3) Deferred income taxes
For Mexican tax purposes, inventories are expensed when purchased and
consequently, result in the recognition of a deferred tax
liability.
Significant components of deferred income taxes under U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP U.S. GAAP
balances adjustments Total
-------------- ------------- -------------
<S> <C> <C> <C>
Deferred liabilities:
Inventories Ps. 69,058 Ps.-- Ps. 69,058
Property and equipment 253,531 -- 253,531
Cellular telephones to be amortized 113,736 -- 113,736
Concessions 2,915 -- 2,915
-------------- ------------- -------------
Deferred tax liabilities Ps.439,240 Ps.-- Ps.439,240
-------------- ------------- -------------
Deferred assets:
Allowance for doubtful accounts Ps. 25,090 Ps. -- Ps. 25,090
Net operating loss carryforwards and tax credits 1,222,133 -- 1,222,133
Reorganization reserve 22,246 -- 22,246
Interest rate collar -- 4,008 4,008
Gain from the exchange of non-monetary
assets -- 62,242 62,242
Valuation allowance (649,112) (66,250) (715,362)
-------------- ------------- -------------
Deferred tax assets 620,357 -- 620,357
-------------- ------------- -------------
Net deferred tax assets (Ps. 181,117) Ps. -- (Ps. 181,117)
============== ============= =============
</TABLE>
F-44
<PAGE> 213
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP U.S. GAAP
balances adjustments Total
-------------- ------------- -------------
<S> <C> <C> <C>
Deferred liabilities:
Inventories Ps. 119,120 Ps. -- Ps. 119,120
Property and equipment 342,111 -- 342,111
Cellular telephones to be amortized 37,356 -- 37,356
Concessions 2,728 -- 2,728
-------------- ------------- -------------
Deferred tax liabilities Ps. 501,315 Ps. -- Ps. 501,315
-------------- ------------- -------------
Deferred assets:
Allowance for doubtful accounts Ps. 34,592 Ps. -- Ps. 34,592
Net operating loss carryforwards and tax credits 1,165,386 -- 1,165,386
Reorganization reserve 26,385 -- 26,385
Preoperating expenses -- 28,423 28,423
Valuation allowance (599,243) (28,423) (627,666)
-------------- ------------- -------------
Deferred tax assets 627,120 -- 627,120
-------------- ------------- -------------
Net deferred tax assets (Ps. 125,805) Ps. -- (Ps. 125,805)
============== ============= =============
</TABLE>
Under U.S GAAP, the effect of the restatement of non-monetary assets is
recorded directly to stockholders' equity. Accordingly, the
deferred taxes related to such assets would be reflected directly
in equity under U.S. GAAP. Deferred taxes recorded directly to
stockholders' equity relating to the restatement of non-monetary
assets were Ps.383,677 for the year ended December 31, 1996 (not
applicable thereafter).
The Company has recorded a deferred tax asset of Ps.1,222,133 reflecting
the benefit of tax loss carryforwards, which expire in varying
amounts between 2001 and 2008. Realization is dependent on
generating sufficient taxable income prior to expiration of the
loss carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the net deferred
tax asset at December 31, 1998 will be realized based on the
following:
(i) the net deferred tax asset amounting to Ps.181,117 represents
only the tax loss carryforwards (which are subject to
indexation) of 1997 and 1998 which have expiration periods of
9 and 10 years, respectively, and
(ii) although the Group has generated operating losses for the past
five years, it believes that it is more likely than not that
the net deferred tax asset will be realized based on Group's
business plan based estimate of future taxable income over the
next five years in an amount sufficient to utilize the net
deferred tax losses recorded as of December 31, 1998.
F-45
<PAGE> 214
The Group's estimate of future taxable income is based primarily on and
supported by (i) management's expectations of the Company's growth
and profitability over the next 5 years, and (ii) the significant
improvement in operating performance from February 1997 through
December 1998, as evidenced by the success of the implementation of
the Bell Atlantic wireless business model. This model has produced
strong subscriber growth in excess of 80% year over year, improved
revenues (based on customer growth and price increases), and lower
network and operating costs, resulting in an operating profit in
the first two quarters of 1998 and, excluding the Project 450
write-down, also in the third quarter of 1998, as compared to an
operating loss during 1997 and (iii) the effects of cost-cutting
measures achieved as a result of the restructuring completed during
1997 and 1998, primarily related to a 15% reduction in headcount
and elimination of duplicate administrative costs.
The amount of the deferred tax asset considered realizable could be
reduced in the near term if estimates of future taxable income
during the carryforward periods are reduced (See Note 12.)
The effective rate reconciliation under US GAAP as of December 31, is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Income tax benefit at statutory rate (Ps. 471,090) (Ps.444,569) (Ps. 63,638)
Add (deduct):
Inventory purchases less cost of sales 196,759 (31,435) (74,873)
Depreciation and amortization 286,431 (252,865) (142,506)
Differences between interest and
inflationary gains or losses (123,297) 137,584 215,879
Net assets tax 70,496 59,031 49,827
Income tax loss carryforwards 67,335 109,784 (42,014)
Provision for doubtful accounts (103,880) 24,248 3,780
Telephones to be amortized 206,297 61,442 20,314
Goodwill amortized 40,473 41,329 44,710
Pre-operating expenses (59,278) 28,423 30,854
Other (95,061) (156,096) (246,857)
----------- ---------- ----------
Effective income tax benefit at effective rate Ps. 15,185 (Ps.423,124) (Ps.204,524)
=========== ========== ==========
</TABLE>
4) Fair values of financial instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments at
December 31, 1998 and 1997.
Cash and cash equivalents: The carrying amount reported in the balance
sheet approximates fair value due to its short-term nature.
Long term debt: The Company's long-term debt, except for the unsecured
senior notes, bear interest at variable rates and consequently, the
carrying value approximates fair value. As of December 31, 1998 and
1997, the carrying value of the unsecured senior notes was
Ps.1,629,625 and Ps.1,575,900 and the fair value was Ps.1,412,069
and Ps.1,575,900, respectively.
F-46
<PAGE> 215
5) Economic environment
The Company is a Mexican corporation with substantially all its
operations situated in Mexico and approximately 99.5% of its
revenues in 1998 generated within Mexico. Accordingly, the economic
environment within Mexico, which is significantly affected by the
actions taken by the Mexican government, can be expected to have a
significant impact on the Company's financial condition and results
of operations and on the Company's ability to meet its future
obligations. The Company imports (and purchases in U.S. dollars)
handsets, equipment for cellular sites and other telecommunications
equipment, while prices and revenues are generated in Mexican pesos.
6) Disclosure of certain significant risks and uncertainties:
a) Year 2000 compliance:
All external and internal costs specifically associated with modifying
internal-use software for the Year 2000 are charged to expenses as
incurred by the Company. As of December 31, 1998, the amounts
incurred by the Company, related to its Year 2000 compliance costs,
were approximately $2,800 U.S. Dollars. Amounts incurred as of
December 31, 1997 were immaterial.
b) Foreign Currency Exchange Risk
A substantial amount of the Company's debt obligations, including the
long-term bank loan and unsecured senior notes, are denominated in
U.S. Dollars while the Company generates revenues in Mexican Pesos.
Therefore, the Company is exposed to currency exchange rate risks
that could significantly affect the Company's ability to meet its
obligations. The Company currently does not plan to enter into
hedging transactions with respect to these foreign currency risks,
but continues to consider the appropriateness of this option. The
exchange rate of Mexican Pesos to the U.S. Dollar is a freely
floating rate which has declined in recent years. Any significant
decrease in the value of the Mexican Peso relative to the U.S.
Dollar in the near term may have a material adverse effect on the
Company and on its ability to meet its long-term debt obligations.
c) Working capital deficiency
The Company's consolidated financial statements for year ended December
31, 1998 have been prepared on a going concern basis which
contemplates the realization of assets and settlement of
liabilities in the normal course of business. Under US GAAP, the
Company incurred a net loss of Ps.1,414,792 for the year ended
December 31, 1998, which included a Ps. 1,077,473 non cash expense
for the write down of its investment in the 450 MHz project. In
addition, under US GAAP, the Company had negative working capital
of Ps.1,482,751 at December 31, 1998. The continuation of the
Company as a going concern is dependent upon its ability to
generate sufficient cash from operations and financing activities.
In this regard, management expects operational cash flows in the
coming years, and its plans include raising additional financing to
develop PCS and to fully develop digital CDMA based wireless
services.
F-47
<PAGE> 216
7) Stock Purchase Plan
As mentioned in Note 15, the Company has a fixed stock option plan,
the Stock Purchase Plan. This plan grants options to purchase
Iusacell common stock at a price equal to the market price of the
stock at the date of the grant. The Company applies Accounting
Principles Board Opinion No.25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its plan.
The Company has adopted the disclosure-only provisions of SFAS
No.123 "Accounting for Stock based Compensation". The Company
recognizes no compensation expense for its Stock Purchase Plan. If
the Company had elected to recognize compensation expense based on
the fair value at the grant dates for 1997 and subsequent fixed
plan awards consistent with the provisions of SFAS No.123, net
income and earnings per share would have been changed to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C> <C>
Under Mexican GAAP
Net loss As reported (Ps. 1,424,112) (Ps. 1,302,439)
Pro forma (1,432,756) (1,346,237)
Basic and
fully diluted As reported (Ps. 1.27) (Ps. 1.22)
loss per share Pro forma (1.28) (1.26)
Under U.S. GAAP:
Net loss As reported (Ps.1,414,792) (Ps. 884,166)
Pro forma (1,423,436) (927,966)
Basic and
fully diluted As reported (Ps. 1.26) (Ps. 0.82)
loss per share Pro forma (1.27) (0.87)
</TABLE>
These results may not be representative of the effects on pro forma net
income for future years.
The Company determined the pro forma amounts using the Black-Scholes
option-pricing model based on the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 67% 45%
Risk-free interest rate 25% 23%
Expected lives (in years) 2.7 2.7
</TABLE>
The weighted average value of options granted during 1998 and 1997 was
Ps.3.93 and Ps.4.85, respectively.
F-48
<PAGE> 217
This table is a summary of the status of the Stock Purchase Plan:
<TABLE>
<CAPTION>
Weighted
Average
Stock Options Exercise Price
------------- --------------
<S> <C> <C>
Granted 8,571,311 Ps. 10.28
Exercised -- --
Canceled/forfeited 1,021,477 8.48
Outstanding December 31, 1997 7,549,834 10.52
Granted 2,199,600 6.47
Exercised 967,460 8.20
Canceled/forfeited 1,082,084 9.63
Outstanding December 31, 1998 7,699,890 9.78
</TABLE>
As of December 31, 1998, 5,500,290 shares were exercisable; none were
exercisable at December 31, 1997. The following table summarizes
information about Stock Purchase Plan options outstanding as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Range Weighted
of Remaining Average
Exercise Contractual Exercise
Prices Shares Life Price
----------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
1997 Ps. 8.48 to 14.00 7,549,834 2 Ps. 10.52
1998 Ps. 5.16 to 14.00 7,699,890 2 Ps. 9.78
</TABLE>
8) Capitalized interest
As of December 31, 1998, 1997 and 1996, capitalized interest amounted
to Ps.135,763, Ps.341,391 and Ps.218,407, respectively. For the
years ended December 31, 1998, 1997 and 1996 interest expensed
amounted to Ps. 358,918, Ps.300,054 and Ps.471,174, respectively.
9) New Accounting Pronouncements
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities"
is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Derivative financial
instruments are currently used by the Company to manage interest
rate risk on certain long-term debt. The Company has not yet
determined the impact that the adoption of SFAS 133 will have on
its financial position or results of operations.
F-49
<PAGE> 218
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective for
fiscal years beginning after December 15, 1998, provides guidance
on accounting for the costs of computer software developed or
obtained for internal use. This SOP requires that only certain
costs of acquiring or developing internal-use software be
capitalized and amortized to expense over the expected useful life
of the software. The Company is currently assessing the impact of
the adoption of this SOP on its results of operations, financial
position and cash flows.
SOP 98-5, "Reporting on the Costs of Start-Up Activities", effective for
fiscal years beginning after December 15, 1998, requires costs of
start-up activities and organization costs to be expensed as
incurred. Under US GAAP, the Company expenses costs of start-up
activities as incurred and, consequently, the Company believes that
the adoption of this SOP will not have a material impact on its
results of operations, financial position or cash flows.
10) Restructuring Reserve
As described in Note 2, a restructuring reserve associated with the
Company's reorganization plan was recorded during the year ended
December 31, 1996. Under U.S. GAAP, the components of the
restructuring reserve were recorded as operating expenses. The
following are additional disclosures as required by U.S. GAAP,
including a detail of the changes in components of the reserve for
the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Original Cash Non-cash Remaining Remaining
reserve outlays adjustments reserve Activity reserve
12/31/96 (a) 1997 1997 12/31/97 1998 12/31/98
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee severance
accrual Ps.130,252 (Ps.71,975) (Ps.58,277) Ps. -- -- --
Fixed assets
obsolescence 49,723 -- -- -- -- --
-------------------------------------------------------------------------------
Total restructuring
reserve Ps.179,975 (Ps.71,975) (Ps.58,277) Ps. -- Ps. -- Ps. --
===============================================================================
</TABLE>
(a) Under Mexican GAAP the Company recorded Ps. 205,537 as a
restructuring reserve as of December 31, 1996. Under U.S. GAAP the
reserve amounted to Ps.179,975 as a result of (i) the consolidation
of facilities reserve was not recorded under U.S. GAAP (see Note
20.c) and (ii) the change in estimate of allowance for doubtful
accounts is excluded from the restructuring reserve under U.S.
GAAP.
F-50
<PAGE> 219
Employee severance accrual
The replacement of certain top-level management and a general
headcount reduction was completed during the year ended December 31,
1997.
As a result of (i) negotiations with top-level management during
1997 and (ii) an actual headcount reduction of 371 employees, which
was lower than the original estimate of 400 employees, actual
severance benefits paid of Ps.71,975 were less than the amount
originally accrued, and consequently, the Company reversed the
remaining original liability amounting to Ps.58,277 into income in
1997.
Fixed assets obsolescence reserve
The fixed assets obsolescence reserve relates to certain spare parts
related to the analog communications equipment that, as a result of
a detailed review by the Company's engineers in November 1996, were
determined to be obsolete.
For US GAAP purposes, such equipment was classified as assets to be
disposed of as of December 31, 1996. The Company recorded an
impairment provision to adjust such assets to their respective
estimated salvage value, amounting to Ps.14,323, based on
information provided by the engineers and ceased the recording of
depreciation expense.
11) Project 450 non-cash write-down
As described in Note 18, during the year ended December 31, 1998, the
Company recorded an impairment charge to write-down the Project 450
assets to their fair value. Under U.S. GAAP, the impairment charge
was determined in accordance with SFAS 121 as follows:
During the third quarter of 1998, changes in circumstances indicated that
the carrying amount of the Project 450 assets might not be
recoverable. These circumstances included: the successful
deployment of more attractive alternative technology, the
availability of 450 Mhz handsets at substantially lower costs had
not occurred, the Mexican government had not issued the coverage
and investment requirements for the 450 Mhz licenses, nor had the
government provided any indications on timing and means to clear
the contaminated frequencies in the northern regions.
In view of these circumstances, the Company decided not to fully
continue Project 450, given that it was becoming less operationally
and technically feasible. At such time, the undiscounted future
cash flows were less than the carrying value of the Project 450
assets. As a result, in September 1998, the Company's Board of
Directors resolved to writedown the Project 450 assets. An
impairment charge of Ps.1,077,473 was recorded to reduce the
Project 450 assets to their fair value, amounting to Ps. 44,635.
Even though there was no market for the 450 Mhz network equipment,
the Company's operations group determined that certain of these
assets, representing about 10% of the related fixed assets, could
be re-deployed in the mobile wireless network. Therefore, a full
provision for impairment was recorded for all other assets
associated with the project.
12) Segment Information
In 1998, the Company adopted Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 establishes standards for
the way that public enterprises must determine and report
information about operating segments in their annual and interim
reports.
F-51
<PAGE> 220
The "management approach" designates the internal organization that is
used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. The
adoption of SFAS 131 did not affect results of operations or
financial position.
The Company has three reportable segments that it operates and manages as
strategic business units that offer different products and
services. The Company measures its reportable segments based on
operating income (loss), that includes intersegment revenues and
corporate expenses that are allocated to the operating segments and
excludes any non-recurring items. Intersegment transactions are
accounted for at current market prices. The Company evaluates the
performance of its segments and allocates resources to them based
on earnings before interest, taxes, depreciation and amortization
(EBITDA) and operating income (loss). The Company is not dependent
on any single customer. The accounting policies underlying the
reported segment data are the same as those described in the
summary of significant accounting policies (see Note 4).
The Company's three reportable segments and their principal activities
are:
Cellular - The Company operates and provides wireless cellular telephone
services in four out of the nine Regions that exist in the Mexican
market. The Company serves customers in large metropolitan areas
such as Mexico City, Guadalajara, Leon and Puebla. The Company's
services include "value added services" such as voice mail and
caller identification of incoming calling numbers.
Long Distance- The Company provides long distance services, for which
its first natural market is its cellular subscriber base. The
Company is also providing this type of service to residential and
commercial entities. The Company uses its own switches and
transmission equipment and a combination of fiber optic lines,
microwave links, satellite transmission and lines leased from
Telmex to provide these services.
Other Businesses The Company provide paging, local telephony and data
transmission services. It has concessions for PCS services and
microwave links, which are in a preoperating stage.
The table below presents information about reported segments for the year
ended December 31, 1998 under Mexican GAAP measurement, using the
presentation required by SFAS 131. The Company has not provided
information for the years ending December 31, 1997 and 1996 as it
was impracticable to prepare such information.
<TABLE>
<CAPTION>
Long Other Total Reconciling Total
Cellular Distance Businesses Segments Items (2) Consolidated
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues- third party Ps.2,875,398 Ps.60,409 Ps.173,852 Ps.3,109,659 (Ps. 9,003) Ps. 3,100,656
Revenues- affiliates 1,224,044 198,993 488,802 1,911,839 (1,911,839) --
Depreciation and
amortization 827,562 24,790 22,239 874,591 (1,933) 872,658
Operating income
(loss) 58,725 (142,805) (16,675) (100,755) (993,686) (1,094,441)
EBITDA (1) 886,286 (118,016) 5,563 773,833 81,857 855,690
Total assets 13,448,006 1,083,849 1,312,895 15,844,750 (4,945,574) 10,899,176
Capital expenditures 3,059,602 472,809 20,865 3,553,276 -- 3,553,276
</TABLE>
F-52
<PAGE> 221
(1) EBITDA as used by the Company is operating profit (loss) plus the sum
of depreciation and amortization. The Company's reconciliation of
EBITDA to consolidated net loss under Mexican GAAP as of December
31, 1998 is as follows:
<TABLE>
<S> <C>
EBITDA Ps. 855,690
Depreciation and amortization (872,658)
Project 450 non-cash write-down (1,077,473)
Other income, net 145,676
Integral cost of financing (418,091)
Equity participation in net gain of associated
companies and net gain on sale of equity investments 27,290
Assets tax (70,496)
Minority interest 6,198
Loss from discontinued operations (20,248)
------------
Net loss for the year (Ps.1,424,112)
------------
</TABLE>
(2) Reconciling items primarily reflect intersegment eliminations and
certain non-recurring items, including a gain on sale of Ps.
183,065 related to a fiber optic cable agreement (see Note 20.i)
and a non-cash write-down of Ps. 1,077,473 in connection with the
Project 450 (see Notes 18 and 20.b).
n) Discontinued Operations
As described in Note 19, in December 1998, the Company decided to
discontinue the operations of its subsidiary, Cellular Solutions de
Mexico, which was in the business of selling accessories for
cellular handsets, and consequently, recognize a loss from
discontinued operations amounting to Ps.20,248. Under U.S. GAAP the
loss from discontinued operations is recorded as an operating
expense.
21. Condensed Consolidating Financial Information
As mentioned in Note 10, in July 1997, the Company issued $150,000
U.S. Dollars of senior unsecured notes (the "Notes") as part of its
refinancing program. The Notes are guaranteed on a senior
subordinated, unsecured basis pursuant to guarantees by most of the
Company's subsidiaries both directly and indirectly wholly-owned
("Guarantor Subsidiaries"). The subsidiary guarantees are full,
unconditional, joint and several.
Presented below is condensed consolidating financial information as of
December 31, 1998 and 1997 and for the three years ended December
31, 1998 for i) the parent company; ii) the combined Guarantor
Subsidiaries; iii) the combined non-Guarantor Subsidiaries; iv)
eliminations; and v) the Company's consolidated financial
statements.
Where applicable, the equity method has been used by the parent company
with respect to its investments in certain subsidiaries for the
respective periods presented.
The Company has not presented separate financial statements and other
disclosures concerning each of the Guarantor Subsidiaries because
management has determined that such information is not material to
investors.
F-53
<PAGE> 222
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------- -------------- -------------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and short-term
investments Ps. 248,705 (Ps. 27,870) Ps. 58,516 Ps. 833 Ps. 280,184
-------------- ------------- -------------- -------------- --------------
Accounts receivable:
Trade 320,544 368,723 12,019 (368,493) 332,793
Related parties 1,199,188 687,769 -- (1,874,464) 12,493
Recoverable taxes and other -- 128,153 426,087 92,760 647,000
-------------- ------------- -------------- -------------- --------------
1,519,732 1,184,645 438,106 (2,150,197) 992,286
-------------- ------------- -------------- -------------- --------------
Inventories 5,016 182,259 25,135 (9,297) 203,113
-------------- ------------- -------------- -------------- --------------
Total current assets 1,773,453 1,339,034 521,757 (2,158,661) 1,475,583
Investment in associated companies 2,082,169 174,784 -- (2,239,921) 17,032
Property and equipment, net 4,031,565 1,111,790 742,729 (58,980) 5,827,104
Other assets 298,699 675,611 95,652 641,149 1,711,111
Excess of investment cost over
book value 1,837,076 31,270 -- -- 1,868,346
-------------- ------------- -------------- -------------- --------------
Total assets Ps. 10,022,962 Ps. 3,332,489 Ps. 1,360,138 (Ps. 3,816,413) Ps. 10,899,176
============== ============= ============= ============== ==============
LIABILITIES
Current liabilities:
Notes payable Ps. 814,944 Ps. -- Ps. -- Ps. -- Ps. 814,944
Trade accounts payable 520,383 425,526 341,178 (328,516) 958,571
Related parties - -- 1,292,520 (1,155,606) 136,914
Taxes and other payable 538,853 200,851 149,594 (57,957) 831,341
Income tax 50,474 1,345 1,269 -- 53,088
-------------- ------------- -------------- -------------- --------------
Total current liabilities 1,924,654 627,722 1,784,561 (1,542,079) 2,794,858
Long-term debt 4,074,060 -- -- -- 4,074,060
Trade accounts payable, long-term -- 2,316 -- -- 2,316
Commitments and contingencies -- 2,749 57 -- 2,806
-------------- ------------- -------------- -------------- --------------
Total liabilities 5,998,714 632,787 1,784,618 (1,542,079) 6,874,040
-------------- ------------- -------------- -------------- --------------
</TABLE>
F-54
<PAGE> 223
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY
Stockholders' equity:
Capital contributions 9,539,461 5,264,831 1,079,757 (6,326,143) 9,557,906
Earned capital (5,515,213) (2,565,129) (1,504,237) 4,050,918 (5,533,661)
Minority interest -- -- -- 891 891
-------------- ------------- -------------- -------------- --------------
Total stockholders' equity 4,024,248 2,699,702 (424,480) (2,274,334) 4,025,136
-------------- ------------- -------------- -------------- --------------
Total liabilities and
stockholders' equity Ps. 10,022,962 Ps. 3,332,489 Ps. 1,360,138 (Ps. 3,816,413) Ps. 10,899,176
============== ============= ============= ============== ==============
Total stockholders' equity
under Mexican GAAP Ps. 4,024,248 Ps. 2,699,702 (Ps. 424,477) (Ps. 2,274,337) Ps. 4,025,136
Minority interest -- -- -- (891) (891)
Deferred income taxes 181,474 11,221 15,096 (26,674) 181,117
Interest rate collar (11,786) -- -- -- (11,786)
Gain from exchange of non-mone-
tary assets -- -- (183,065) -- (183,065)
Provision for consolidation
of facilities 16,963 -- -- -- 16,963
-------------- ------------- -------------- -------------- --------------
Total stockholders' equity
under U.S. GAAP Ps. 4,210,899 Ps. 2,710,923 (Ps. 592,446) (Ps. 2,301,902) Ps. 4,027,474
============== ============= ============= ============== ==============
</TABLE>
F-55
<PAGE> 224
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
---------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps. 263,477 Ps. 4,404,226 Ps. 353,796 (Ps. 1,920,843) Ps. 3,100,656
Total cost of sales 20,870 1,828,591 304,812 (1,092,472) 1,061,801
---------------- ------------- --------------- -------------- --------------
Gross profit 242,607 2,575,635 48,984 (828,371) 2,038,855
Operating expenses 60,247 1,818,874 129,686 (825,642) 1,183,165
Depreciation and amortization 331,657 509,821 33,154 (1,975) 872,657
450 Project non-cash write-down -- -- 1,077,474 -- 1,077,474
---------------- ------------- --------------- -------------- --------------
Operating profit (loss) (149,297) 246,940 (1,191,330) (754) (1,094,441)
--------------- ------------- --------------- -------------- --------------
Other income -- -- 145,676 -- 145,676
--------------- ------------- --------------- -------------- --------------
Integral financing result:
Interest expense, net (261,072) 178,248 256,312 71,712 245,200
Foreign exchange loss, net 819,767 94,159 4,301 -- 918,227
Gain from monetary position (343,978) (103,339) (212,171) (85,848) (745,336)
--------------- ------------- --------------- -------------- --------------
214,717 169,068 48,442 (14,136) 418,091
--------------- ------------- --------------- -------------- --------------
Equity participation in net (gain)
loss of associated companies 1,025,560 (28,255) -- (1,024,595) (27,290)
Provision for assets tax 30,694 38,360 1,442 -- 70,496
Minority interest -- -- -- 6,198 6,198
Loss from discontinued operations 3,844 16,404 -- -- 20,248
--------------- ------------- --------------- -------------- --------------
Net loss for the year (Ps. 1,424,112) Ps. 51,363 (Ps. 1,095,538) Ps. 1,044,175 (Ps.1,424,112)
=============== ============= ============== ============== =============
Net loss for the year under
Mexican GAAP (Ps. 1,424,112) Ps. 51,363 (Ps. 1,095,539) Ps. 1,044,176 (Ps.1,424,112)
Deferred income taxes 56,107 (25,269) 17,143 7,330 55,311
Pre-operating costs -- -- 174,350 -- 174,350
Interest rate collar (11,786) -- -- -- (11,786)
Gain from exchange of non-mone-
tary assets -- (183,065) -- (183,065)
Effect of inflation on U.S. GAAP
adjustments (25,857) 11,644 (7,901) (3,376) (25,490)
-------------- ------------- -------------- -------------- --------------
Net loss for the year under U.S.
GAAP (Ps. 1,405,648) Ps. 37,738 (Ps. 1,095,012) Ps. 1,048,130 (Ps. 1,414,792)
============== ============= ============== ============== ==============
</TABLE>
F-56
<PAGE> 225
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss for the year (Ps. 1,405,648) Ps. 37,738 (Ps. 1,095,012) Ps. 1,048,130 (Ps. 1,414,792)
Adjustments to reconcile net
loss to cash provided by
(used in) operating activities:
Depreciation and amortization 331,657 509,821 33,155 (1,976) 872,657
450 Project non cash write-down -- -- 903,124 -- 903,124
Equity in net loss (earnings) of
associated companies and net
gain on sale of equity investments 1,174,150 -- -- (1,201,440) (27,290)
Increase in allowance for
doubtful accounts 29,102 33,475 1,090 (33,454) 30,213
Minority interest -- -- -- (6,199) (6,199)
Deferred income taxes and emplo-
yee profit sharing (25,413) 63,629 (15,702) (7,329) 15,185
Gain on net monetary position and
foreign exchange losses 501,645 (20,825) (199,972) (82,467) 198,381
Changes in operating assets and
liabilities:
Accounts receivable (423,365) 36,747 (294,198) 111,181 (569,635)
Inventories 13,386 108,757 23,839 (35,849) 110,133
Trade accounts payable and related
parties 1,991,912 (72,457) 771,813 (1,406,982) 1,284,286
Taxes and other payable 443,189 (33,123) 200,928 (105,814) 505,180
Income Tax 11,282 (39,743) (1,494) 944 (29,011)
Other -- (44) (142) -- (186)
-------------- ----------- -------------- ------------- --------------
Net cash provided by (used in)
operating activities 2,641,897 623,975 327,429 (1,721,255) 1,872,046
-------------- ----------- -------------- ------------- --------------
Investing activities:
Purchase of property and equipment,
net (2,221,346) (357,343) (1,000,372) 1,174,831 (2,404,230)
Investment in associated
companies, net cash acquired (2,123,315) (161,135) 10,832 2,285,673 12,055
Purchase of other assets (43,683) (140,526) 719,126 (1,743,672) (1,208,755)
-------------- ----------- -------------- ------------- --------------
Net cash (used in) provided
by investing activities (4,388,344) (659,004) (270,414) 1,716,832 (3,600,930)
-------------- ----------- -------------- ------------- --------------
Financing activities:
Proceeds from notes payable and
long-term debt 1,873,687 -- -- -- 1,873,687
Payments of notes payable and
long-term debt (30,751) -- -- 5,260 (25,491)
Increase of capital stock 7,879 -- -- -- 7,879
-------------- ----------- -------------- ------------- --------------
Net cash provided by (used in)
financing activities 1,850,815 -- -- 5,260 1,856,075
-------------- ----------- -------------- ------------- --------------
Net increase (decrease) in cash 104,368 (35,029) 57,015 837 127,191
Cash at beginning of year 144,336 7,160 1,497 -- 152,993
-------------- ----------- -------------- ------------- --------------
Cash at the end of year Ps. 248,704 (Ps. 27,869) Ps. 58,512 Ps. 837 Ps. 280,184
============== ============ ============== ============= ==============
</TABLE>
F-57
<PAGE> 226
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments Ps. 144,336 Ps. 7,161 Ps. 1,496 Ps. -- Ps. 152,993
-------------- -------------- -------------- -------------- -------------
Accounts receivable:
Trade -- 278,519 27,988 (40,211) 266,296
Related parties 4,962,376 -- -- (4,905,047) 57,329
Recoverable taxes and other 42,160 155,280 112,668 (15,725) 294,383
-------------- -------------- -------------- -------------- -------------
5,004,536 433,799 140,656 (4,960,983) 618,008
-------------- -------------- -------------- -------------- -------------
Inventories 18,401 291,017 48,976 (8,039) 350,355
-------------- -------------- -------------- -------------- -------------
Total current assets 5,167,273 731,977 191,128 (4,969,022) 1,121,356
Investment in associated companies 1,170,114 13,648 10,831 (1,171,441) 23,152
Property and equipment, net 1,993,238 1,264,275 669,921 (2,044) 3,925,390
Other assets 294,665 538,415 814,787 -- 1,647,867
Excess of investment cost over
book value 1,946,066 27,943 -- -- 1,974,009
-------------- -------------- -------------- -------------- -------------
Total assets Ps. 10,571,356 Ps. 2,576,258 Ps. 1,686,667 (Ps. 6,142,507) Ps. 8,691,774
============== ============== ============== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable Ps. 3,467 Ps. -- Ps. -- Ps. -- Ps. 3,467
Trade accounts payable 507,009 372,437 45,288 (8,037) 916,697
Related parties 2,679,977 683,589 1,646,031 (4,905,043) 104,554
Taxes and other payable 159,226 257,666 64,361 (57,039) 424,214
Income tax 8,499 2,729 1,321 (945) 11,604
-------------- -------------- -------------- -------------- -------------
Total current liabilities 3,358,178 1,316,421 1,757,001 (4,971,064) 1,460,536
Long-term debt 2,889,149 -- -- -- 2,889,149
Trade accounts payable, long-term 5,260 -- -- -- 5,260
Commitments and contingencies -- 2,792 200 -- 2,992
-------------- -------------- -------------- -------------- -------------
Total liabilities 6,252,587 1,319,213 1,757,201 (4,971,064) 4,357,937
-------------- -------------- -------------- -------------- -------------
Stockholders' equity:
Capital contributions 8,391,207 3,689,721 394,460 (4,084,183) 8,391,205
Earned capital (4,072,438) (2,432,676) (464,994) 2,897,668 (4,072,440)
Minority interest -- -- -- 15,072 15,072
-------------- -------------- -------------- -------------- -------------
Total stockholders' equity 4,318,769 1,257,045 (70,534) (1,171,443) 4,333,837
-------------- --------------- -------------- -------------- -------------
Total liabilities and
stockholders' equity Ps. 10,571,356 Ps. 2,576,258 Ps. 1,686,667 (Ps. 6,142,507) Ps. 8,691,774
============== ============== ============== ============== =============
Total stockholders' equity
under Mexican GAAP Ps. 4,318,769 Ps. 1,257,045 (Ps. 70,534) (Ps. 1,171,443) Ps.4,333,837
Minority interest -- -- -- (15,072) (15,072)
Deferred income taxes 125,365 36,489 (2,046) (34,003) 125,805
Pre-operating costs -- (174,350) -- -- (174,350)
Provision for consolidation
of facilities 16,963 -- -- -- 16,963
-------------- -------------- -------------- --------------------------------
Total stockholders' equity
under U.S. GAAP Ps. 4,461,097 Ps. 1,119,184 (Ps. 72,580) (Ps.1,220,518) Ps.4,287,183
============== ============== ============== ============= =============
</TABLE>
F-58
<PAGE> 227
CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps. 477,888 Ps. 3,464,036 Ps. 292,145 (Ps. 1,811,529) Ps. 2,422,540
Total cost of sales 27,513 1,600,409 259,323 (955,382) 931,863
-------------- -------------- ------------ -------------- --------------
Gross profit 450,375 1,863,627 32,822 (856,147) 1,490,677
Operating expenses 78,316 1,683,719 225,215 (1,018,777) 968,473
Depreciation and amortization 361,574 373,823 22,329 -- 757,726
-------------- -------------- ------------ -------------- --------------
Operating profit (loss) 10,485 (193,915) (214,722) 162,630 (235,522)
-------------- -------------- ------------ -------------- --------------
Provision for equipment impairment (739,376) (468,976) -- -- (1,208,352)
-------------- -------------- ------------ -------------- --------------
Integral financing result:
Interest expense, net 18,568 39,090 177,308 88,215 323,181
Foreign exchange loss, net 54,359 8,048 698 -- 63,105
Gain from monetary position (126,939) (43,870) (146,638) (63,709) (381,156)
-------------- -------------- ------------ -------------- --------------
(54,012) 3,268 31,368 24,506 5,130
-------------- -------------- ------------ -------------- --------------
Equity participation in net (gain)
loss of associated companies 617,362 -- -- (822,688) (205,326)
Provision for assets tax 10,198 42,551 423 5,859 59,031
Minority interest -- -- -- 270 270
-------------- -------------- ------------ -------------- --------------
Net loss for the year (Ps. 1,302,439) (Ps. 708,710) (Ps. 246,513) Ps. 955,223 (Ps. 1,302,439)
============== ============== ============ ============== ==============
Net loss for the year under
Mexican GAAP (Ps. 1,302,439) (Ps. 708,710) (Ps. 246,513) Ps. 955,223 (Ps. 1,302,439)
Deferred income taxes 282,794 120,127 79,234 -- 482,155
Pre-operating costs -- (83,599) -- -- (83,599)
Effect of inflation on U.S. GAAP
adjustments 11,566 4,912 3,239 -- 19,717
-------------- -------------- ------------ -------------- --------------
Net loss for the year under U.S.
GAAP (Ps. 1,008,079) (Ps. 667,270) (Ps. 164,040) Ps. 955,223 (Ps. 884,166)
============== ============== ============ ============== ==============
</TABLE>
F-59
<PAGE> 228
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss for the year (Ps. 1,008,079) (Ps. 667,270) (Ps. 164,040) Ps. 955,223 (Ps. 884,166)
Adjustments to reconcile net
loss to cash provided by
(used in) operating activities:
Depreciation and amortization 361,574 373,823 22,329 -- 757,726
Provision for equipment impairment 739,376 468,976 -- -- 1,208,352
Equity in net loss (earnings) of
associated companies and net gain
on sale of equity investments 617,362 -- -- (822,688) (205,326)
Increase in allowance for
doubtful accounts -- 48,389 (960) -- 47,429
Increase in allowance for obsolete
and slow-moving inventories (70) 20,425 (169) -- 20,186
Minority interest -- -- -- (270) (270)
Deferred income taxes and employee
profit sharing (272,597) (77,574) (78,812) 5,860 (423,123)
Gain on net monetary position and
foreign exchange losses (79,147) (125,926) (153,524) (67,006) (425,603)
Changes in operating assets and
liabilities:
Accounts receivable (23,825) (153,673) 38,860 (3,530) (142,168)
Inventories (3,945) (222,123) (9,404) 15,608 (219,864)
Trade accounts payable and related
parties (973,312) 939,306 688,340 25,957 680,291
Taxes and other payable (95,838) (171,181) 36,479 (84,342) (314,882)
Income Tax (316) 2,608 1,047 48 3,387
Other -- 79 140 228 447
-------------- ------------ ------------ ----------- ------------
Net cash provided by (used in)
operating activities (738,817) 435,859 380,286 25,088 102,416
-------------- ------------ ------------ ----------- ------------
Investing activities:
Purchase of property and
equipment, net (778,093) (4,571) 7,408 (107,376) (882,632)
Investment in associated
companies, net cash acquired (148,390) 20,366 (10,832) 460,877 322,021
Purchase of other assets 367,002 (79,991) (381,701) (677,099) (771,789)
-------------- ------------ ------------ ----------- ------------
Net cash (used in) provided
by investing activities (559,481) (64,196) (385,125) (323,598) (1,332,400)
-------------- ------------ ------------ ----------- ------------
Financing activities:
Proceeds from notes payable and
long-term debt 2,271,826 (301,645) (698) 1,151,022 3,120,505
Payments of notes payable and
long-term debt (1,050,365) (78,670) -- (855,687) (1,984,722)
Increase of capital stock 110,246 -- -- (13) 110,233
-------------- ------------ ------------ ----------- ------------
Net cash provided by (used in)
financing activities 1,331,707 (380,315) (698) 295,322 1,246,016
-------------- ------------ ------------ ----------- ------------
Net increase (decrease) in cash 33,409 (8,652) (5,537) (3,188) 16,032
Cash at beginning of year 110,926 15,814 7,032 3,189 136,961
-------------- ------------ ------------ ----------- ------------
Cash at the end of year Ps. 144,335 Ps. 7,162 Ps 1,495 Ps. -- Ps. 152,993
============== ============ ============ =========== ============
</TABLE>
F-60
<PAGE> 229
CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps. 441,671 Ps.3,395,943 Ps. 128,638 (Ps.1,559,494) Ps.2,406,758
Total cost of sales 7,696 1,519,545 94,930 (675,984) 946,187
----------- ------------ ----------- ------------- ------------
Gross profit 433,975 1,876,398 33,708 (883,510) 1,460,571
Operating expenses 104,669 1,666,654 60,242 (778,540) 1,053,025
Depreciation and amortization 348,729 505,550 1,610 -- 855,889
----------- ------------ ----------- ------------- ------------
Operating profit (loss) (19,423) (295,806) (28,144) (104,970) (448,343)
----------- ------------ ----------- ------------- ------------
Integral financing result:
Interest expense, net 150,493 43,532 116,861 87,001 397,887
Foreign exchange loss, net (84,704) (1,490) (1,738) -- (87,932)
Gain from monetary position (214,123) (80,870) (115,488) (82,572) (493,053)
----------- ------------ ----------- ------------- ------------
(148,334) (38,828) (365) 4,429 (183,098)
----------- ------------ ----------- ------------- ------------
Equity participation in net (gain)
loss of associated companies 415,701 -- -- (417,567) (1,866)
Provision for assets tax 29,611 72,011 251 (52,046) 49,827
Minority interest -- -- -- (4,500) (4,500)
Group reorganization reserve 197,842 7,695 -- -- 205,537
----------- ------------ ----------- ------------- ------------
Net loss for the year (514,244) (Ps. 514,243) (Ps.336,684) (Ps.28,030) Ps. 364,714 (Ps. 514,243)
=========== ============ =========== ============= ============
Net loss for the year under
Mexican GAAP (Ps. 514,243) (Ps.336,684) (Ps.28,030) Ps.364,714 (Ps. 514,243)
Deferred income taxes 117,998 136,353 -- -- 254,351
Pre-operating costs -- (90,751) -- -- (90,751)
Provision for consolidation
of facilities 16,963 -- -- -- 16,963
Effect of inflation on U.S. GAAP
adjustments (200,334) 350,330 -- -- 149,996
----------- ------------ ----------- ------------- ------------
Net loss for the year under U.S.
GAAP (Ps. 579,616) Ps. 59,248 (Ps. 28,030) Ps. 364,714 (Ps.183,684)
=========== ============ =========== ============= ============
</TABLE>
F-61
<PAGE> 230
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss for the year (Ps.579,616) Ps.59,248 (Ps.28,030) Ps.364,714 (Ps.183,684)
Adjustments to reconcile net
loss to cash provided by
(used in) operating activities:
Depreciation and amortization 348,729 505,550 1,610 -- 855,889
Equity in net loss (earnings)
of associated companies and net
gain on sale of equity investments 415,701 -- -- (417,567) (1,866)
Increase in allowance for
doubtful accounts -- 98,081 17,359 (15,058) 100,382
Increase in allowance for obsolete
and slow-moving inventories 555 3,448 1,520 293 5,816
Minority interest -- -- -- (4,500) (4,500)
Deferred income taxes and emplo-
yee profit sharing (88,387) (64,344) 250 (52,044) (204,525)
Gain on net monetary position and
foreign exchange losses (98,492) (432,690) (117,226) (213,048) (861,456)
Group reorganization reserve 197,842 7,695 -- (2) 205,535
Changes in operating assets and
liabilities:
Accounts receivable (12,834) (93,909) (39,241) 23,067 (122,917)
Inventories 14,790 66,652 875 (8,539) 73,778
Trade accounts payable and re-
lated parties (360,010) (160,679) 343,086 82,155 (95,448)
Taxes and other payable (88,683) 24,774 (938) 178,854 114,007
Income Tax 7,393 (8,483) (2,172) 10,427 7,165
Other -- 888 (906) 109 91
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities (243,012) 6,231 176,187 (51,139) (111,733)
-------- -------- -------- -------- --------
Investing activities:
Purchase of property and
equipment, net (178,513) (58,498) 87,408 (149,444) (299,047)
Investment in associated
companies, net cash acquired 692,550 99,478 26,524 (778,368) 40,184
Purchase of other assets (575,594) 438,197 (231,358) 817,851 449,096
-------- -------- -------- -------- --------
Net cash (used in) provided
by investing activities (61,557) 479,177 (117,426) (109,961) 190,233
-------- -------- -------- -------- --------
Financing activities:
Proceeds from notes payable and
long-term debt 424,203 -- 109,783 (338,228) 195,758
Payments of notes payable and
long-term debt (198,326) (526,487) (173,802) 509,192 (389,423)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 225,877 (526,487) (64,019) 170,964 (193,665)
-------- -------- -------- -------- --------
Net increase (decrease) in cash (78,691) (41,079) (5,258) 9,864 (115,164)
Cash at beginning of year 189,617 56,891 12,289 (6,672) 252,125
-------- -------- -------- -------- --------
Cash at the end of year Ps.110,926 Ps.15,812 Ps.7,031 Ps.3,192 Ps.136,961
======== ======== ======== ======== ========
</TABLE>
F-62
<PAGE> 231
22. Restatement of 1997 Financial Statements
As described in Note 4.b, the Company had previously recorded an
impairment charge related to the analog communications network
directly against stockholders` equity.
The Company has reassessed this accounting treatment and determined
that the impairment charge should have been recorded as operating
expense. Consequently, the financial statements for the year ended
December 31, 1997 have been restated. The effect of the
restatement is as follows:
<TABLE>
<CAPTION>
For the year ended,
December 31, 1997
--------------------------------------
As previously
reported As restated
------------- -------------
<S> <C> <C>
Consolidated Income statement:
Net loss (Ps. 94,088) (Ps.1,302,440)
Net loss per share (Ps. 0.08) (Ps. 1.22)
</TABLE>
- - - - - - - - - - - - - - - - - - - - - -
F-63
<PAGE> 232
[PRICEWATERHOUSECOOPERS LETTERHEAD]
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated interim financial statements of
Nuevo Grupo Iusacell, S.A. de C.V. and subsidiaries (successor entity to Grupo
Iusacell, S.A. de C.V. and subsidiaries) as of September 30, 1999 and 1998, and
for the nine-month periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with the standards for review established
by the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with generally accepted accounting principles in Mexico.
PricewaterhouseCoopers
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D.F., Mexico.
November 19, 1999 (except
for the matters discussed in
Notes 7.d and 8 for which
the date is December 23, 1999).
F-64
<PAGE> 233
[PRICEWATERHOUSECOOPERS LETTERHEAD]
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated interim financial statements of
Nuevo Grupo Iusacell, S.A. de C.V. and subsidiaries (successor entity to Grupo
Iusacell, S.A. de C.V. and subsidiaries) as of September 30, 1999 and 1998, and
for the nine-month periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with the standards for review established
by the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with generally accepted accounting principles in Mexico.
PricewaterhouseCoopers
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D.F., Mexico.
November 19, 1999 (except
for the matters discussed
in Notes 7.d and 8 for which
the date is December 23, 1999).
F-64
<PAGE> 234
NUEVO GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS (unaudited)
AS OF SEPTEMBER 30, 1999 AND 1998
(Notes 1 and 2)
(Adjusted for price-level changes and expressed in thousands of
constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
1999 1998*
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents Ps. 137,824 Ps. 166,232
------------- -------------
Accounts receivable:
Trade, net of allowance for doubtful accounts 467,440 298,258
Related parties 11,452 17,624
Recoverable taxes and other 688,625 475,189
------------- -------------
1,167,517 791,071
------------- -------------
Inventories 289,661 278,322
------------- -------------
Total current assets 1,595,002 1,235,625
INVESTMENT IN ASSOCIATED COMPANIES 182,743 17,827
PROPERTY AND EQUIPMENT, net 6,488,285 5,154,715
OTHER ASSETS, net 1,851,665 1,714,199
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES
OVER BOOK VALUE 1,824,086 1,906,323
------------- -------------
Total assets Ps.11,941,781 Ps.10,028,689
============= =============
</TABLE>
*The figures of 1998 represent Grupo Iusacell, S.A. de C.V. and Subsidiaries
(see Note 1)
The accompanying notes are an integral part of these unaudited consolidated
interim financial statements.
F-65
<PAGE> 235
NUEVO GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS (unaudited)
AS OF SEPTEMBER 30, 1999 AND 1998
(Notes 1 and 2)
(Adjusted for price-level changes and expressed in thousands of
constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
1999 1998*
------------- -------------
<S> <C> <C> <C>
LIABILITIES
CURRENT:
Notes payable (Note 3) Ps. 435,688 Ps. 623,892
Trade accounts payable 1,077,814 719,739
Related parties 126,148 155,369
Taxes and other payables 948,909 738,769
Income tax 4,572 38,176
Employee profit sharing 875 6
------------- -------------
Total current liabilities 2,594,006 2,275,951
LONG-TERM DEBT (Note 3) 3,942,205 4,399,608
TRADE ACCOUNTS PAYABLE, LONG-TERM -- 1,469
COMMITMENTS AND CONTINGENCIES (Note 4) 2,291 2,740
------------- --------------
Total liabilities 6,538,502 6,679,768
------------- --------------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Note 5):
Capital stock 4,610,629 9,187,481
Capital contributed 144,856 79,761
------------- --------------
4,755,485 9,267,242
------------- --------------
EARNED CAPITAL :
Accumulated losses:
Legal reserve -- 4,361
For prior years -- (3,367,411)
Net income (loss) for the period 619,322 (1,768,748)
------------- --------------
619,322 (5,131,798)
------------- --------------
DEFICIT FROM RESTATEMENT -- (761,154)
------------- --------------
Total majority stockholders' equity 5,374,807 3,374,290
MINORITY INTEREST 28,472 (25,369)
------------- --------------
Total stockholders' equity 5,403,279 3,348,921
------------- --------------
Total liabilities and stockholders' equity Ps.11,941,781 Ps.10,028,689
============= ==============
</TABLE>
*The figures of 1998 represent Grupo Iusacell, S.A. de C.V. and Subsidiaries
(see Note 1)
The accompanying notes are an integral part of these unaudited consolidated
interim financial statements.
F-66
<PAGE> 236
NUEVO GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED INTERIM INCOME STATEMENTS (unaudited)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(Notes 1 and 2)
(Adjusted for price-level changes and expressed in thousands of
constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
1999 1998*
-------------- ----------------
<S> <C> <C>
REVENUES:
Services Ps. 2,626,137 Ps. 1,954,419
Telephone equipment sales and other 282,369 322,965
-------------- ----------------
2,908,506 2,277,384
-------------- ----------------
COST OF SALES:
Cost of services 778,668 591,172
Cost of telephone equipment and other 163,129 174,991
-------------- ----------------
941,797 766,163
-------------- ----------------
Gross profit 1,966,709 1,511,221
-------------- ----------------
OPERATING EXPENSES 963,442 886,412
DEPRECIATION AND AMORTIZATION 967,396 615,617
450 PROJECT NON CASH WRITEDOWN -- 986,396
-------------- ----------------
Operating income (loss) 35,871 ( 977,204)
-------------- ----------------
INTEGRAL FINANCING (GAIN) COST:
Interest expense, net 162,751 198,070
Foreign exchange (gain) loss, net ( 325,293) 1,011,283
Gain from monetary position ( 519,605) ( 432,489)
-------------- ----------------
( 682,147) 776,864
-------------- ----------------
EQUITY PARTICIPATION IN NET GAIN OF
ASSOCIATED COMPANIES ( 2,587) ( 20,252)
-------------- ----------------
Income (loss) before assets tax, profit sharing and
minority interest 720,605 ( 1,733,816)
PROVISIONS FOR:
Assets tax 111,609 38,271
Profit sharing 373 --
-------------- ----------------
Income (loss) before minority interest 608,623 ( 1,772,087)
MINORITY INTEREST ( 10,699) ( 3,339)
-------------- ----------------
Net income (loss) for the period Ps. 619,322 (Ps. 1,768,748)
============== ================
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING (thousands) 1,269,997 1,095,646
============== ================
NET INCOME (LOSS) PER SHARE (pesos) Ps. 0.49 (Ps. 1.61)
============== ================
</TABLE>
*The figures of 1998 represent Grupo Iusacell, S.A. de C.V. and Subsidiaries
(see Note 1)
The accompanying notes are an integral part of these unaudited consolidated
interim financial statements.
F - 67
<PAGE> 237
NUEVO GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(Notes 1 and 2)
(Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
Accumulated losses
----------------------------------
Capital Capital Legal For prior Net (loss) income
stock contributed reserve years for the year
------------- ------------ --------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997* Ps.8,311,444 Ps. 79,761 Ps. 4,361 (Ps.2,064,972) (Ps.1,302,439)
Application of 1997 net loss -- -- -- (1,302,439) 1,302,439
Increase in capital stock 876,037 -- -- -- --
Recognition of the effects of inflation
on the financial statements -- -- -- -- --
Minority interest for the period -- -- -- -- --
Net loss for the period -- -- -- -- (1,768,748)
------------- ------------ --------- -------------- --------------
Balance at September 30, 1998* Ps. 9,187,481 Ps. 79,761 Ps. 4,361 (Ps.3,367,411) (Ps.1,768,748)
------------- ------------ --------- -------------- --------------
Balance at December 31, 1998* Ps. 9,478,145 Ps. 79,761 Ps. 4,361 (Ps.3,367,411) (Ps.1,424,112)
Application of 1998 net loss -- -- -- (1,424,112) 1,424,112
Effect of reorganization (9,478,091) (79,761) (4,361) 4,791,523 --
Effect of primary and rights offerings 4,610,575 144,856 -- -- --
Minority interest for the period -- -- -- -- --
Net profit for the period -- -- -- -- 619,322
------------- ------------ --------- ------------- -------------
Balance at September 30, 1999 Ps. 4,610,629 Ps. 144,856 Ps. -- Ps. -- Ps. 619,322
============= ============ ========= ============= =============
</TABLE>
<TABLE>
<CAPTION>
(Deficit) Total
from Minority stockholders'
restatement interest equity
----------- ----------- ------------
<S> <C> <C> <C>
Balance at December 31, 1997* (Ps.709,390) Ps. 15,072 Ps.4,333,837
Application of 1997 net loss -- -- --
Increase in capital stock -- -- 876,037
Recognition of the effects of inflation
on the financial statements (51,764) -- (51,764)
Minority interest for the period -- (40,441) (40,441)
Net loss for the period -- -- (1,768,748)
----------- ----------- ------------
Balance at September 30, 1998* (Ps.761,154) (Ps. 25,369) Ps.3,348,921
----------- ----------- ------------
Balance at December 31, 1998* (Ps.746,499) Ps. 891 Ps.4,025,136
Application of 1998 net loss -- -- --
Effect of reorganization 746,499 (891) (4,025,082)
Effect of primary and rights offerings -- -- 4,755,431
Minority interest for the period -- 28,472 28,472
Net profit for the period -- -- 619,322
----------- ---------- ------------
Balance at September 30, 1999 Ps. -- Ps. 28,472 Ps.5,403,279
========== ========== ============
</TABLE>
*The figures of 1998 and 1997 represent Grupo Iusacell, S.A. de C.V. and
Subsidiaries (see Note 1)
The accompanying notes are an integral part of these unaudited consolidated
interim financial statements.
F-68
<PAGE> 238
NUEVO GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN FINANCIAL POSITION (unaudited)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(Notes 1 and 2)
(Adjusted for price-level changes and expressed in thousands of
constant Mexican pesos as of September 30, 1999)
<TABLE>
<CAPTION>
1999 1998*
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) for the period Ps.619,322 (Ps.1,768,748)
Items not requiring the use of resources:
Depreciation and amortization 967,396 615,617
450 Project non cash writedown -- 986,396
Equity participation in net gain of associated companies ( 2,587) ( 20,252)
Minority interest ( 10,699) ( 3,339)
------------ -------------
1,573,432 ( 190,326)
Resources provided by (used for) operating activities-
Trade accounts receivable ( 134,647) ( 30,973)
Recoverable taxes and other ( 41,624) ( 179,711)
Related parties ( 9,725) 90,348
Inventories 1,276 73,335
Trade accounts payable 29,104 ( 204,177)
Taxes and other payables 117,568 312,975
Income tax ( 48,511) 26,632
Employee profit sharing 870 ( 96)
Other ( 515) ( 265)
------------ -------------
Resources provided by (used for) operating activities 1,487,228 ( 102,258)
------------ -------------
FINANCING ACTIVITIES:
(Decrease) increase in long-term debt ( 131,855) 1,499,718
(Decrease) increase in notes payable ( 379,255) 620,412
Increase of capital stock -- 876,037
Effect of reorganization ( 4,024,194) --
Effect of primary and rights offering 4,755,431 --
------------ -------------
Resources provided by financing activities 220,127 2,996,167
------------ -------------
INVESTING ACTIVITIES:
Purchases of property and equipment ( 1,241,723) ( 2,455,987)
Sale of common stock of associated companies ( 163,125) 25,664
Purchase of other assets ( 425,168) ( 413,190)
Increase (decrease) in minority interest 38,281 ( 37,157)
Purchase of Infotelecom ( 57,980) --
------------ -------------
Resources used for investing activities ( 1,849,715) ( 2,880,670)
------------ -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 142,360) 13,239
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 280,184 152,993
------------ -------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD Ps.137,824 Ps. 166,232
============ =============
</TABLE>
*The figures of 1998 represent Grupo Iusacell, S.A. de C.V. and Subsidiaries
(see Note 1)
The accompanying notes are an integral part of
these unaudited consolidated interim financial statements.
F - 69
<PAGE> 239
NUEVO GRUPO IUSACELL, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (unaudited)
(Adjusted for price-level changes and expressed in thousands
of constant Mexican pesos as of September 30, 1999 and
thousands of U.S. Dollars)
1. Entity and nature of business
As a part of a recapitalization and restructuring plan, a new holding
company, Nuevo Grupo Iusacell, S.A. de C.V. ("Nuevo Iusacell"), was
incorporated on August 6, 1998 to acquire and hold all of the
outstanding shares of Grupo Iusacell, S.A. de C.V.. In July 1999, Nuevo
Iusacell initiated an offer to exchange its two classes of common stock
for the four classes of common stock of Grupo Iusacell, S.A. de C.V.
then outstanding on a one for one basis. As a result of the exchange,
Nuevo Iusacell acquired 99.5% of Grupo Iusacell, S.A. de C.V. shares
when the offer expired on August 4, 1999. Mexican law requires Nuevo
Iusacell to make a repurchase offer for the remaining shares of Grupo
Iusacell, S.A. de C.V., which it expects to complete by the end of
February, 2000.
Prior to the exchange offer, Nuevo Iusacell had nominal assets and
liabilities and no operations. Nuevo Iusacell also did not have any
contingent liabilities or commitments. For accounting purposes. Nuevo
Iusacell is the successor business to Grupo Iusacell, S.A. de C.V..
Immediately after the exchange offer, Nuevo Iusacell completed both a
rights offer of 18,405,490 shares of its series V common stock, raising
U.S.$12,884 in proceeds, and a primary offer of 23,596,783 shares of
its series V common stock, raising U.S.$23,847 in net proceeds (after
commissions). Nuevo Iusacell's principal shareholders sold an
aggregate of 101,403,217 shares of its series V common stock, resulting
in 40.4% ownership interest for each such shareholder.
Grupo Iusacell, S.A. de C.V. is a holding company incorporated on
October 6, 1992. Its subsidiaries are primarily engaged in the
wireless telecommunications business and hold concessions to operate
cellular telephone systems in four contiguous market areas
("Regions") in central Mexico. Grupo Iusacell, S.A. de C.V. and its
subsidiaries are referred to collectively herein as the "Group" or
"Grupo Iusacell".
In October 1995, a subsidiary of Grupo Iusacell received a concession from
the Mexican government to operate as a long distance carrier and began
offering long distance service in August 1996. During 1996, the Company
also signed a joint venture agreement for the operation of a business
to provide nationwide and international paging services. The joint
venture began to provide paging services in August 1996. In May 1998, a
subsidiary of Grupo Iusacell acquired frequencies through auctions
conducted by the Mexican government to provide personal communication
wireless services (PCS) in Regions 1 and 4 in northern Mexico.
F-70
<PAGE> 240
Carlos Peralta and companies affiliated with him (together with Carlos
Peralta, the "Peralta Group") and Bell Atlantic Corporation ("Bell
Atlantic") each hold directly or indirectly 40.4% equity ownership
interests in Nuevo Iusacell.
Based on an agreement between Grupo Iusacell's principal stockholders
and approval by the Mexican government, Bell Atlantic assumed
management control of Grupo Iusacell from the Peralta Group in February
1997.
2. Basis of presentation
a) Basis of Presentation
Prior to the reorganization described in note 1, the interim
consolidated financial statements of Nuevo Iusacell reflect the
operations of Grupo Iusacell and its subsidiaries, the predecessor
entity. For the purposes of the interim consolidated financial
statements both Nuevo Iusacell and Grupo Iusacell are referred to as
the "Company."
The Company's consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in Mexico
("Mexican GAAP").
The consolidated financial statements for the interim nine-month periods
have been presented in thousands of constant Mexican pesos as of
September 30, 1999 as required by Bulletin B-10, "Recognition of the
Effects of Inflation on Financial Information", as amended, issued by
the Mexican Institute of Public Accountants ("Bulletin B-10"). All
amounts presented in U.S. Dollars are in thousands.
The amounts as of September 30, 1999 and 1998, presented in the
financial statements and in the notes, have been restated using
inflation rates based on the National Consumer Price Index (NCPI)
published by Banco de Mexico (Mexican Central Bank) in order to
present them in Mexican pesos of purchasing power as of September 30,
1999.
In management's opinion, the accompanying interim consolidated financial
statements include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of results for
such interim periods. Certain information and note disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
omitted; however, management believes that the disclosures made are
adequate to make the information presented not misleading.
The interim results for the nine-month periods ended September 30, 1999
and 1998 are not necessarily indicative of the results for the full
calendar year. These financial statements should be read in
conjunction with the audited consolidated financial statements as of
December 31, 1998 and 1997 of Grupo Iusacell and subsidiaries and for
the three years in the period ended December 31, 1998 and footnotes
thereto (the "Audited Financial Statements"). Refer to Notes 3 and 4
to the Audited Financial Statements for a discussion of Grupo
Iusacell's significant accounting policies.
F-71
<PAGE> 241
b) Consolidated financial
statements
Those companies in which the Company holds 50% or more of the capital
stock and/or exercises control over day-to-day operating and financial
administration activities ("effective management control") are
included in the consolidated financial statements. Grupo Iusacell
consolidates Iusatel, S.A de C.V., Iusatelecomunicaciones, S.A. de
C.V., Infotelecom, S.A. de C.V., Punto a Punto Iusacell, S.A. de C.V.
and Iusacell PCS, S.A. de C.V., in which Grupo Iusacell owns less than
50% of the voting common stock, but exercises management control over
the day-to-day operations and financial administration by appointment
of the shareholders and other arrangements.
All significant intercompany balances and transactions have been
eliminated in consolidation.
c) 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 the disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
3. Long term debt and notes payable
As of September 30, the long-term debt of the Company consisted of the
following:
<TABLE>
<CAPTION>
U.S. Dollars Mexican Pesos
------------ ---------------------------
1999 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Long-term bank loan U.S.$125,000 Ps.1,168,537 Ps. 1,466,536
Unsecured senior notes due 2004 150,000 1,402,245 1,759,843
Revolving credit facility 100,000 934,830 1,173,229
Long-term U.S. Eximbank loan 57,192 534,631 --
Long-term commercial bank loan 22,117 206,754 --
Handset facility 4,000 37,392 --
------------ ------------ -------------
Total debt U.S.$458,309 Ps.4,284,389 Ps. 4,399,608
Less: short term portion 36,417 342,184 --
------------ ------------ -------------
Long term debt US. $421,704 Ps.3,942,205 Ps. 4,399,608
============ ============ =============
</TABLE>
F-72
<PAGE> 242
Long-term bank loan and revolving credit facility
The long-term bank loan and revolving credit facility bear interest at a
variable rate equal to the lower of (i) LIBOR plus 1.75% or (ii) the
higher of the loan agent's prime rate, the reserve adjusted secondary
market rate for certificates of deposit plus 1% or the Federal Funds
effective rate plus 0.5%. Interest is payable quarterly.
Unsecured senior notes
On July 25, 1997 the Company completed an offering of long- term, unsecured
senior notes due July 15, 2004 for $150,000 U.S. Dollars, bearing
interest at a fixed rate of 10%, payable semi-annually starting January
15, 1998 (the "notes"). The notes are redeemable at the option of the
Company, in whole or in part, at any time on or after July 15, 2001
starting at a redemption price of 105.0% of principal amount plus
accrued interest, if any, declining to 102.5% after July 15, 2002, and
finally to 100.0% after July 15, 2003.
In addition, at any time prior to July 15, 2000 the Company may redeem in
the aggregate up to 35% of the original aggregate principal amount of
the notes with proceeds of a public equity offering by the Company at a
redemption price of 110.0% of principal amount plus accrued interest, if
any. The notes may also be redeemed at a price equal to 100.0% of
principal amount plus accrued interest, if any, in the case of legal
changes affecting the treatment of the withholding taxes on payments to
holders of the notes.
Eximbank Financing
On July 15,1999, Grupo Iusacell consummated a financing to acquire cellular
infrastructure equipment manufactured in the U.S.A. The financing
consists of a five-year senior secured term facility provided by UBS AG
in the principal amount of approximately $72,500 U.S. dollars, which is
guaranteed by the Export-Import Bank of the United States, and a
two-year senior secured term facility provided by UBS AG and Commerzbank
AG in the principal amount of approximately $25,700 U.S. dollars, which
is not guaranteed by the Export-Import Bank of the United States. As of
September 30, 1999, $79,300 US dollars of this facility had been drawn
down , of which $75,000 U.S. dollars had been used to refinance a
short-term bridge facility which expired on July 15, 1999. The majority
of the equipment secures the loan.
Loans outstanding under the Eximbank facilities bear interest at a rate per
annum equal to 0.20% per annum above six-month LIBOR, in case of the
facility guaranteed by the Export-Import Bank of the United States, and
1.75% per annum above six-month LIBOR, in the case of the unguaranteed
commercial facility.
The long-term bank loan, the revolving credit facility and the long-term
unsecured senior notes impose certain restrictive covenants such as
maintenance of certain financial ratios, restrictions on incurring
additional debt, limitations on capital expenditures and restrictions on
the sale or lease of the Grupo Iusacell assets. As of September 30,
1999, as a result of certain waivers and consents obtained from the bank
syndicate which extend for a period of more than twelve months beyond
the balance sheet date, Grupo Iusacell had complied with all such
covenants.
As of September 30, 1999 and 1998, Grupo Iusacell assets collateralizing
long-term debt include substantially all assets used in the cellular
business (including the cellular concessions) and shares in certain
subsidiaries.
F-73
<PAGE> 243
At September 30, 1999, the Company's long-term debt matures as follows:
<TABLE>
<CAPTION>
Years ended September 30, U.S. Dollars Mexican Pesos
------------------------- ------------ -------------
<S> <C> <C>
2000 U.S. 36,417 Ps. 342,184
2001 127,138 1,188,524
2002 110,438 1,032,408
2003 11,438 106,926
2004 and thereafter 172,878 1,614,347
------------- --------------
Total U.S. 458,309 Ps. 4,284,389
============= ==============
</TABLE>
Bell Atlantic Subordinated Convertible Debt Facility
In July 1997, Bell Atlantic committed to provide Grupo Iusacell with
subordinated convertible financing in an aggregate amount of $150,000
U.S. Dollars, bearing interest at an annual rate of LIBOR plus 5.0%. At
the option of Bell Atlantic, borrowings under the facility were
convertible into Series A shares at a conversion price of $0.70 U.S.
Dollars per share. During the nine-month period ended September 30,
1999, $31,000 U.S. Dollars were borrowed under the facility, which
amount was immediately converted to Series A shares (see Note 5). As of
September 30, 1999, no borrowings were outstanding under this facility
because all borrowings had been converted into Series A shares and the
facility expired as of June 30,1999.
Notes payable
As of September 30, notes payable consisted of the following:
<TABLE>
<CAPTION>
U.S. Dollars Mexican Pesos
------------ --------------------------
1999 1999 1998
------------ --------- ----------
<S> <C> <C> <C>
Handset facility bearing interest at a
variable rate of LIBOR plus 1.5%,
maturing on April 21, 2000 10,000 93,489 --
Bridge loan facility bearing interest
at a variable rate of LIBOR plus
1.0% with maturity date of December 1998,
extended to July 1999. -- -- 621,811
Other -- -- 2,081
----------- ---------- ----------
Total U.S.$10,000 Ps. 93,489 Ps.623,892
=========== ========== ==========
</TABLE>
In January 1999, the Company obtained a handset facility from UBS AG,
which consists of a 360-day senior unsecured credit facility in the
principal amount of U.S.$10,000. Loans outstanding under this facility
bear interest at an annual rate equal to 1.50% above LIBOR. The Company
drew down the entire U.S.$10,000 available under this facility in April
1999.
F-74
<PAGE> 244
Interest rate collar
In July 1998, the Company entered into an interest rate collar agreement
on a notional amount of U.S. $35,000 until July 30, 2002. The collar
agreement limits the maximum effective LIBOR cost to 6.12% if six-month
LIBOR is lower than 7.12% and 7.12% if LIBOR equals or exceeds that level.
On February 26, 1999, Grupo Iusacell entered into an interest rate collar
agreement with The Chase Manhattan Bank to limit the maximum interest rate
which must be paid on U.S.$ 15,000 of its floating rate debt. Under the
terms of this collar agreement, the maximum effective LIBOR cost is
limited to 5.82% if six-month LIBOR is lower than 6.82% and, if six-month
LIBOR equals or goes above 6.82%, then the maximum effective LIBOR cost is
limited to 6.82%.
4. Commitments and contingencies
As of September 30, 1999, Nuevo Iusacell and Grupo Iusacell have the
following commitments and contingent liabilities:
a) Grupo Iusacell has entered into operating lease agreements for
administrative offices, sales branches, and service facilities. Such
lease agreements expire at various dates through 2007. Some
agreements contain options for renewal.
b) Mitsubishi Electronics America Inc. ("MELA") filed a complaint in the
United States on July 18, 1996 against Grupo Iusacell, Bell Atlantic
and Bell Atlantic Latin American Holdings Inc., an affiliate of Bell
Atlantic. Essentially, MELA alleges that it had a contract with Grupo
Iusacell for the sale of telephone terminals and that Grupo Iusacell
had breached the contract or defrauded MELA by not purchasing the
terminals. MELA alleges the contract was for the sale of 60,000 units
at a unit cost of $0.510 U.S. Dollars. The lawsuit is currently in
the discovery stage. Management believes the lawsuit has no basis
since no contract was ever signed and that, at trial, no material
damages will result in favor of MELA. Based on external counsel's
opinion it is too early to evaluate the extent of Grupo Iusacell's
exposure to loss by judgment at trial.
c) In December 1997, Grupo Iusacell signed an agreement with Lucent
Technologies to purchase CDMA-based wireless equipment for $188,000
U.S. Dollars and to install its digital cellular network. In
connection with this contract, Lucent issued trade-in credits for
approximately $93,000 U.S. Dollars, representing the net replacement
cost of the analog network equipment being replaced. The trade-in
credits are deducted from each purchase invoice proportionally to the
cost of the total equipment purchased.
F-75
<PAGE> 245
d) In February 1998, Grupo Iusacell's former advertising agency sued the
company for Ps.23,000, alleging improper termination of its contract.
Grupo Iusacell won the lawsuit in trial court during 1998 without any
damages in favor of such former advertising agency and also won a
first appeal. The advertising agency filed a second and final appeal
and, in June 1999, the Mexican Supreme Court found Grupo Iusacell in
breach of its contract with the advertising agency and found further
that the advertising agency suffered Ps.23,000 in damages.
Subsequently, another tribunal confirmed the breach of contract
finding, but ruled that the damages suffered by the agency were only
Ps.16,000. Grupo Iusacell has filed an injunctive action (amparo)
with the Mexican Supreme Court against this sentence on the basis
that this tribunal and the Mexican Supreme Court exceeded the scope
of their review and also assessed damages incorrectly.
e) In April 1998, Grupo Iusacell learned that the Montes Urales property
was subject to two liens. Such liens were not identified when
Inmobiliaria Montes Urales was acquired in 1994, nor was Grupo
Iusacell notified of such liens subsequent to acquisition. To date,
the liens have not been removed and it is uncertain as to when the
removal will take place.
f) Pursuant to the joint venture agreement signed between Grupo Iusacell
and Infomin, S.A. de C.V. in 1996 to provide paging services, Grupo
Iusacell committed to contribute up to $10,500 U.S. Dollars. During
1998, $9,032 U.S. Dollars were contributed. The joint venture
agreement establishes the individual and joint responsibilities of
the partners. In case a partner does not fulfill its
responsibilities, sanctions could cause such partner to lose its
investment and incur up to $ 1,000 U.S. Dollars as a penalty.
5. Contributed capital
At September 30, 1999 and 1998, the issued and outstanding shares of common
stock of the Company, without par value, were as follows:
<TABLE>
<CAPTION>
1999 1998*
-------------- --------------
<S> <C> <C>
Series A 736,830,745 848,896,267
Series B -- 5,562,450
Series D -- 186,904,725
Series L -- 150,791,114
Series V 578,200,864 --
------------- -------------
Total 1,315,031,609 1,192,154,556
============= =============
</TABLE>
* Represent capital structure of Grupo Iusacell prior to recapitalization
and restructure plan.
As described in Note 1, the Company completed on August 1999 a
reorganization whereby the capital stock of Nuevo Iusacell was exchanged
for the capital stock of Grupo Iusacell on a one-for-one basis.
Consequently, the issued and outstanding shares of common stock as of
September 30, 1999 and as of September 30, 1998 reflect the common stock
of Nuevo Iusacell and Grupo Iusacell, respectively.
F-76
<PAGE> 246
6. Foreign Currency Position
The balance sheet as of September 30 includes assets and liabilities
denominated in U.S. Dollars, as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Monetary assets U.S.$ 47,327 U.S.$ 37,198
Monetary liabilities 603,831 518,781
-------------- --------------
Net monetary liability position
in U.S. Dollars U.S$ 556,504 U.S.$ 481,583
============== ==============
Equivalent in nominal
Mexican pesos Ps. 5,202,350 Ps. 4,866,976
============== ==============
</TABLE>
The exchange rate as of September 30, 1999 and 1998 was Ps. 9.3483 and
Ps. 10.1062 per 1 U.S. Dollar, respectively.
7. Subsequent Events and Commitments
a) In October 1999, Grupo Iusacell drew down the remaining U.S. $18,900
available under the Eximbank loan facility and, in November 1999,
repaid a U.S. $7,200 amortization installment under the same
facility. In November 1999, in connection with a program to migrate
its analog contract customers to digital service, Grupo Iusacell
agreed to guarantee up to U.S. $6,200 in loans to be made by Banco
Bilbao Vizcaya to its customers for the purchase of digital handsets.
b) Grupo Iusacell failed to pay U.S. $63,000 to Lucent Technologies for
network equipment that it had purchased under a contract requiring
payment on September 30 and October 31, 1999. In addition, Grupo
Iusacell is obligated to pay U.S. $28,000 to Lucent Technologies on
November 30 and December 31, 1999. A portion of the proceeds of Nuevo
Iusacell's U.S.$ 350,000 senior notes offering, if completed
successfully , will be used to satisfy all or a portion of these
obligations (see Note 7.d)
c) In October 1999, Old Iusacell exceeded the capital expenditure
limitation for 1999 under the long-term bank loan, the revolving
credit facility and the two U.S. Eximbank loan facilities. Old
Iusacell also had not registered the mortgage securing the long-term
bank loan and the revolving credit facility with respect to a single
parcel of real property in Leon (in Region 6) with an estimated
market value of Ps.15,900 (approximately U.S.$1,700) because it
believed the amount of the mortgage registration fee excessive and
unreasonable compared to the value of the property. These defaults
triggered cross-defaults among these credit facilities and in its
Ps.93,489 (U.S.$10,000) handset facility. In December 1999, Old
Iusacell obtained irrevocable and unconditional waivers of all these
defaults and a modification of the restrictive covenant under the
long-term bank loan, revolving credit facility and the two U.S.
Eximbank loan facilities to enable it to make capital expenditures in
excess of the maximum amount permitted for 1999 and to increase the
maximum amount of capital expenditures permitted for 2000. Old
Iusacell paid customary fees to receive these waivers.
F-77
<PAGE> 247
d) On December 16, 1999, Nuevo Grupo Iusacell completed an offering of
U.S.$ 350,000 Senior Notes due 2006, bearing interest at a fixed rate
of 14.25%. The obligations that were past due referred to in Note 7.b
were paid.
8. Differences between Mexican and United States Generally Accepted Accounting
Principles
The Company's consolidated financial statements are prepared based on
accounting principles generally accepted in Mexico ("Mexican GAAP"),
which differ in certain significant respects from United States
generally accepted accounting principles ("U.S. GAAP").
The following reconciliation to U.S. GAAP does not include the reversal
of the adjustments to the financial statements for the effects of
inflation required under Mexican Bulletin B-10.
The application of Bulletin B-10 represents a comprehensive measure of
the effects of price-level changes in the financial statements based
on historical cost for Mexican and U.S. accounting purposes. The
principal differences, other than inflation accounting, together with
an explanation where appropriate, of the adjustments that affect
stockholders' equity, consolidated net income and consolidated
comprehensive income as of September 30, 1999 and 1998 and for each
of the nine-month periods ended September 30, 1999 and 1998 are as
follows:
a) Deferred income taxes and employee profit sharing
------------------------------------------------------------------
Under Mexican GAAP, deferred income taxes are provided for
identifiable, non-recurring timing differences (those expected
to reverse over a definite period of time) at rates in effect
at the time such differences originate. Benefits from loss
carryforwards are not allowed to be recognized before the
period in which the carryforward is utilized. For purposes of
this reconciliation to U.S. GAAP, the Company has applied
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes "("SFAS 109"), for all periods
presented.
SFAS109 requires an asset and liability method of accounting
whereby deferred taxes are recognized for the tax consequences
of all temporary differences between the financial statement
carrying amounts and the related tax bases of assets and
liabilities. Under U.S. GAAP, the effect on deferred taxes of
a change in tax rate is recognized in income in the period
that includes the enactment date.
SFAS109 requires deferred tax assets to be reduced by a valuation
allowance if, based on the weight of available evidence,
including cumulative losses in recent years, it is more likely
than not that some portion or all of the deferred tax assets
will not be realized.
Mexican tax law requires payment of a 1.8% tax on the Company's
net assets which may be used to offset future income tax
obligations. Under Mexican GAAP, the net asset tax is charged
to the provision for income taxes. Under SFAS 109, such
amounts are treated as a deferred tax benefit and offset by a
valuation allowance, if required.
F-78
<PAGE> 248
Employee profit sharing expense, which is based on each
subsidiary's taxable income after certain statutory
adjustments, is included in the income tax provision under
Mexican GAAP. The provision for employee profit sharing is
charged to operations for U.S. GAAP purposes.
b) Pre-operating costs
--------------------------
Under Mexican GAAP, the Company capitalized certain pre-operating
costs, primarily related to Project 450. On September 30,
1998, the Company recorded a write-down related to its
investment in Project 450 for Mexican GAAP purposes and
consequently, wrote-off all capitalized pre-operating costs as
of that date.
Under U.S. GAAP, pre-operating costs are expensed as incurred. The
Mexican GAAP adjustment for the nine-month period ended
September 30, 1998 represents the pre-operating costs that
were originally written off for US GAAP purposes.
c) Minority interest
-----------------------
Under Mexican GAAP, the minority interest in consolidated
subsidiaries is presented as a separate component within the
stockholders' equity section of the consolidated balance
sheet. For U.S. GAAP purposes, minority interest is not
included in stockholders' equity and accordingly is deducted
as a reconciling item to arrive at U.S. GAAP equity.
d) Basic and fully diluted loss per share
------------------------------------------------
Mexican GAAP requires the disclosure of earnings (loss) per share
for public companies. Under U.S. GAAP, disclosure of basic
earnings (loss) per share and diluted earnings (loss) per
share is required for public companies in accordance with SFAS
No. 128, "Earnings per Share."
Basic earnings (loss) per share is computed by dividing income
(loss) available to common shareholders by the weighted
average number of common shares outstanding for the year. The
computation of diluted earnings (loss) per share is similar to
basic earnings (loss) per share, except that the denominator
is increased to include the number of additional common shares
that would have been outstanding if the potentially dilutive
common shares had been issued. Diluted earnings (loss) per
share is equal to basic earnings (loss) per share for the
nine-month periods ended September 30, 1999 and 1998 as the
drawdowns and conversions under the facility with Bell
Atlantic and the shares subject to the Stock Purchase Plan are
excluded from the computation of diluted earnings (loss) per
share because to do so would have been antidilutive for the
periods presented.
F-79
<PAGE> 249
e) Effects of inflation accounting on U.S. GAAP adjustments
--------------------------------------------------------------------
In order to determine the net effect on the financial statements
of recognizing certain of the adjustments described above, it
is necessary to recognize the effects of applying the Mexican
GAAP inflation accounting principles to such adjustments.
f) Comprehensive income
------------------------------
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes guidelines for
the reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full
set of general purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized
under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The
statement, however, does not address recognition or
measurement issues. The adoption of SFAS No. 130 had no impact
on net loss or shareholders' equity. The Company has presented
comprehensive income under U.S. GAAP for the nine-month
periods ended September 30, 1999 and 1998 in Note 8 h) below.
g) Interest rate collar
------------------------
Effective July 30, 1998, in connection with the $225,000 U.S.
Dollars credit agreement (see Note 3), the Company was
required to enter into an interest rate collar agreement
designated as a hedge of a portion of the Company's floating
rate debt. The interest rate collar limits the Company's
exposure to fluctuations in short-term interest rates by
locking in a range of interest rates on $35,000 U.S. Dollars
of its floating rate debt. The cap rates range from 6.12% to
7.12% above six-month LIBOR with the floor rates ranging from
5.30% to 6.12% above six-month LIBOR. The interest rate collar
matures on July 30, 2002.
On February 26, 1999, the Company entered into another interest
rate collar agreement to limit the maximum interest rate which
must be paid on U.S.$15,000 of its floating rate debt. Under
the terms of this collar agreement, the maximum effective
LIBOR cost is limited to 5.82% if six-month LIBOR is lower
than 6.82% and, if six-month LIBOR equals or goes above 6.82%,
then the maximum effective LIBOR cost is limited to 6.82%.
Under Mexican GAAP, the interest rate collar agreements are
recorded on a cash basis. Under US GAAP, the differential to
be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense at the balance
sheet date. Additionally, the related amount payable or
receivable is included in accrued other expenses at the
balance sheet date.
F-80
<PAGE> 250
The $50,000 U.S. Dollar million notional amount of the interest
rate collar agreements does not quantify risk or represent
assets or liabilities of the Company, but is used in the
determination of cash settlements under the agreement. The
Company is exposed to credit loss from counterparty
nonperformance, but does not anticipate any such loss from the
interest rate collar agreements, which are with a major
financial institution.
The fair value of the interest rate collar agreement is Ps.1,847
($198 U.S. Dollars) and Ps.15,912 ($1,385 U.S. Dollars) as of
September 30, 1999 and 1998, respectively, and is estimated
based on current market settlement prices of comparable
contracts obtained from dealer quotes. The Company does not
hold or issue derivative financial instruments for trading
purposes.
h) Net income (loss) and stockholders' equity under U.S. GAAP
-------------------------------------------------------------
The following is a summary of net income (loss) and stockholders'
equity adjusted to take into account certain material
differences between Mexican GAAP and U.S. GAAP:
<TABLE>
<CAPTION>
Nine-month periods
-----------------------------------
ended September 30,
-----------------------------------
1999 1998
---------- -------------
<S> <C> <C>
Net income (loss) as reported under
Mexican GAAP Ps.619,322 (Ps.1,768,748)
Deferred income taxes (18,870) 4,274
Pre-operating expenses -- 174,996
Effect of inflation accounting on US GAAP
adjustments (16,027) (10,144)
Interest rate collar (1,847) (15,912)
---------- ----------
Net income (loss) under U.S. GAAP Ps.582,578 (Ps.1,615,534)
========== ==============
Weighted average number of
shares outstanding (thousands) 1,269,997 1,095,646
========== ==========
Basic and diluted net income (loss)
per share (pesos) Ps.0.46 (Ps.1.47)
========== ==========
</TABLE>
Comprehensive loss:
<TABLE>
<CAPTION>
Nine-month periods
-------------------------------------
ended September 30,
--------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net income (loss) under U.S. GAAP Ps.582,578 (1,615,534)
Inflation effects for the period 16,027 (41,620)
-------------- --------------
Comprehensive loss Ps.598,605 (Ps.1,657,154)
============== =============
Accumulated comprehensive loss (Ps.5,720,214) (Ps.6,549,562)
============== =============
</TABLE>
F-81
<PAGE> 251
<TABLE>
<CAPTION>
Nine-month periods
-------------------------------
ended September 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Stockholders' equity under Mexican GAAP Ps.5,403,279 Ps.3,348,921
Minority interest (28,472) 25,369
Deferred income taxes (18,870) 147,688
Interest rate collar (1,847) (15,912)
------------ ------------
Stockholders' equity as reported under U.S. GAAP Ps.5,354,090 Ps.3,506,066
============ ============
</TABLE>
Changes in Stockholders' equity under US GAAP are as follows:
<TABLE>
<CAPTION>
Contributed Accumulated Loss for
Capital Losses The year Total
---------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Balances as of 12/31/97 8,391,205 (3,219,856) (884,166) 4,287,183
Application of 1997
net loss (884,166) 884,166 --
Increase in capital stock 876,037 876,037
Effects of inflation (41,620) (41,620)
Net income for the
period (1,615,534) (1,615,534)
---------- ---------- ---------- ----------
Balances as of 9/30/98 9,267,242 (4,145,642) (1,615,534) 3,506,066
========== ========== ========== ==========
Balances as of 12/31/98 9,557,908 (4,115,642) (1,414,792) 4,027,474
Application of 1998
net loss (1,414,792) 1,414,792 --
Effect of reorganization (5,530,434) 5,530,434 --
Effect of primary and
rights offerings 728,011 728,011 --
Effects of inflation 16,027 16,027
Net loss for the period
582,578 582,578
---------- ---------- ---------- ----------
Balances as of 9/30/99
4,755,485 16,027 582,578 5,354,090
========== ========== ========== ==========
</TABLE>
F-82
<PAGE> 252
i) Supplementary U.S. GAAP disclosures
---------------------------------------------------
1) Cash flow information
Since Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows" ("SFAS 95") does not provide any
specific guidance with respect to inflation adjusted financial
statements for U.S. GAAP purposes, the following cash flow
statement is presented, using U.S. GAAP balance sheets
restated for inflation.
Monetary gains and losses and unrealized foreign exchange gains
and losses have been included as operating cash flow
reconciling items. Other items have been included based on
their cash flows, adjusted by inflation.
<TABLE>
<CAPTION>
Nine-month periods ended
------------------------------
September 30,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) under U.S. GAAP Ps.582,578 (Ps.1,615,534)
Adjustments to reconcile net income (loss) to
cash used in operating activities:
Depreciation and amortization 967,396 1,427,017
Equity in earnings of associated companies (2,587) (20,252)
Increase in allowance for doubtful accounts 47,338 33,217
Increase in allowance for obsolete and
slow-moving inventories 3,394 6,140
Minority interest (10,699) (3,339)
Deferred income taxes and employee profit sharing 130,852 33,997
(Gain) loss on net monetary position and foreign
exchange losses (828,871) 588,939
Changes in operating assets and liabilities:
Accounts receivable (289,599) (303,583)
Inventories (2,118) 45,571
Trade accounts payable and related parties 119,408 (717,475)
Taxes and other payable 195,817 370,064
Income tax (159,623) (8,140)
Other (515) (265)
---------- ----------
Cash provided (used) by operating activities 752,771 (163,644)
---------- ----------
Investing activities:
Purchase of property and equipment, net (1,241,723) (2,455,987)
Investment in associated companies, net of cash
acquired (159,899) (11,493)
Purchase of other assets (444,867) (382,861)
---------- ----------
Total cash used in investing activities (1,846,489) (2,850,342)
---------- ----------
</TABLE>
F-83
<PAGE> 253
<TABLE>
<CAPTION>
Nine-month periods ended
September 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Financing activities:
Proceeds from notes payable and long-term debt 515,259 3,036,254
Payments of notes payable and long-term debt ( 291,912) ( 9,029)
Effects of primary and rights offering 728,011 -
------------- -------------
Total cash provided by financing activities 951,358 3,027,224
------------- -------------
Net (decrease) increase in cash and cash equivalents ( 142,360) 13,239
Cash and cash equivalents at beginning of period 280,184 152,993
------------- -------------
Cash and cash equivalents at the end of period Ps. 137,824 Ps. 166,232
== ========== =============
Supplemental disclosure of non-cash activities:
Conversion of debt under the Bell Atlantic facility Ps. - Ps. 741,201
============= =============
</TABLE>
2) The provision for income taxes for the nine-month periods ended
September 30, was as follows:
<TABLE>
<CAPTION>
Nine-month periods ended
September 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Asset tax not offset by current
taxes Ps. 111,982 Ps. 38,271
Deferred taxes 18,870 ( 4,274)
------------- -------------
Tax expense Ps. 130,852 Ps. 33,997
============= =============
</TABLE>
3) Deferred income taxes
Significant components of deferred income taxes under U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP US GAAP Total
balances adjustments
-------------- ------------- -------------
<S> <C> <C> <C>
Deferred liabilities:
Inventories Ps. 98,485 Ps. - Ps. 98,485
Property and equipment 253,531 - 253,531
Cellular telephones to be
amortized 113,736 - 113,736
Concessions 2,915 - 2,915
-------------- ------------- -------------
Deferred tax liabilities 468,667 - 468,667
-------------- ------------- -------------
</TABLE>
F-84
<PAGE> 254
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP US GAAP Total
balances adjustments
-------------- ------------- -------------
<S> <C> <C> <C>
Deferred assets:
Allowance for doubtful
accounts 35,647 - 35,647
Net operating loss carryforward
and tax credits 1,222,133 - 1,222,133
Reorganization reserve 22,246 - 22,246
Interest rate collar - 628 628
Allowance for deferred
tax assets ( 649,112) ( 628) ( 649,740)
-------------- ------------- -------------
Deferred tax assets 630,914 - 630,914
-------------- ------------- -------------
Net deferred tax assets Ps. 162,247 Ps. - Ps. 162,647
============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
-------------------------------------------------
SFAS 109 SFAS 109
applied to applied to
Mexican GAAP US GAAP Total
balances adjustments
-------------- ------------- -------------
<S> <C> <C> <C>
Deferred liabilities:
Inventories Ps. 94,629 Ps. - Ps. 94,629
Property and equipment 258,934 - 258,934
Cellular telephones to be
amortized 114,263 - 114,263
Concessions 2,599 - 2,599
-------------- ------------- -------------
Deferred tax liabilities 470,425 - 470,425
-------------- ------------- -------------
Deferred assets:
Allowance for doubtful accounts 34,768 - 34,768
Net operating loss carryforwards
and tax credits 1,169,717 - 1,169,717
Reorganization reserve 26,483 - 26,483
Allowance for deferred
tax assets ( 629,999) - ( 629,999)
-------------- ------------- -------------
Deferred tax assets 600,969 - 600,969
-------------- ------------- -------------
Net deferred tax assets Ps. 130,544 Ps. - Ps. 130,544
============== ============= =============
</TABLE>
F-85
<PAGE> 255
The Company has recorded a deferred tax asset of Ps.1,222,133
reflecting the benefit of tax loss carryforwards, which expire in
varying amounts between 2001 and 2008. Realization is dependent on
generating sufficient taxable income prior to expiration of the
loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the net
deferred tax asset at September 30, 1999 will be realized based on
the following:
(i) the net deferred tax asset amounting to Ps.162,247 represents only the
tax loss carryforwards (which are subject to indexation) of 1997 and 1998
which have expiration periods of 9 and 10 years, respectively, and
(ii) although the Group has generated operating losses for the past five
years, it believes that it is more likely than not that the net deferred
tax asset will be realized based on Group's business plan based estimate
of future taxable income over the next five years in an amount sufficient
to utilize the net deferred tax losses recorded as of September 30, 1999.
4) Disclosure of certain risks and uncertainties:
a) Foreign currency risk
A substantial amount of the Company's debt obligations, including
the long-term bank loan and unsecured senior notes, are
denominated in U.S. Dollars, while the Company generates revenues
in Pesos. Therefore, the Company is exposed to currency exchange
rate risks that could significantly affect the Company's ability
to meet its obligations. The exchange rate of Pesos to the U.S.
Dollar is a freely floating rate, which has declined in recent
years. Any significant decrease in the value of the Peso relative
to the U.S. Dollar in the near term may have a material adverse
effect on the Company and on its ability to meet its short-term
foreign debt and its long-term debt obligations. The Company does
not currently have in place hedging arrangements with respect to
this foreign currency risk. However, the Company expects to hedge
utilizing forward-rate contracts, its exchange rate exposure for
up to 50% of the principal and interest payments coming due over
the next 18 months. The Company is also considering limited
hedging alternatives for up to an additional 50% of the remaining
outstanding principal and interest obligations coming due over the
next 18 months.
b) Working capital deficiency
The Company's consolidated financial statements for the nine-month
period ended September 30, 1999 have been prepared on a going
concern basis which contemplates the realization of assets and
settlement of liabilities in the normal course of business. Under
US GAAP, the Company had negative working capital of Ps.1,188,967
at September 30, 1999. The continuation of the Company as a going
concern is dependent upon its ability to generate sufficient cash
from operations and financing activities. In this regard,
management expects operational cash flows in the coming years, and
its plans include raising additional financing to fully develop
digital CDMA based wireless and PCS services. As mentioned in Note
7.d, the Company completed the offering of U.S.$350,000 Senior
Notes due 2006 (see Note 7.d).
F-86
<PAGE> 256
12. Condensed financial information
Presented below is condensed consolidating financial information for i) the
parent company; ii) the combined guarantor subsidiaries; iii) the combined
non-guarantor subsidiaries; iv) eliminations; and v) the Company's
consolidated financial statements. The subsidiary guarantees are full,
unconditional, joint and several.
Where applicable, the equity method has been used by the parent Company
with respect to its investments in subsidiaries for the respective
periods presented.
The Company has not presented separate financial statements and other
disclosures concerning each of the subsidiary guarantors because
management believes that such information is not material to
investors.
F-87
<PAGE> 257
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments Ps. 4,659 Ps. 31,083 Ps. 913 Ps. 101,169 Ps. 137,824
-------------- -------------- -------------- -------------- --------------
Accounts receivable:
Trade - 515,817 17,462 ( 65,839) 467,440
Related parties 1,663,091 910,099 - ( 2,561,738) 11,452
Recoverable taxes
and other 314,518 253,958 188,455 ( 68,306) 688,625
-------------- -------------- --------------- -------------- --------------
1,977,609 1,679,874 205,917 ( 2,695,883) 1,167,517
-------------- -------------- --------------- -------------- --------------
Inventories 62,269 264,088 21,688 ( 58,384) 289,661
-------------- -------------- --------------- -------------- --------------
Total current assets 2,044,537 1,975,045 228,518 ( 2,653,098) 1,595,002
Investment in associated
companies 1,857,490 320,953 - ( 1,995,700) 182,743
Property and equipment,
net 4,916,238 859,295 732,109 ( 19,357) 6,488,285
Other assets 348,937 699,101 103,709 699,918 1,851,665
Excess of investment
cost over book value 1,794,365 29,721 - - 1,824,086
-------------- -------------- --------------- -------------- --------------
Total assets Ps. 10,961,567 Ps. 3,884,115 Ps. 1,064,336 (Ps.3,968,237) Ps. 11,941,781
============== ============== =============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable Ps. 225,341 Ps. - Ps. - Ps. 210,347 Ps. 537,421
Trade accounts payable 904,622 248,995 25,254 ( 101,057) 1,077,814
Related parties - - 1,539,891 ( 1,413,743) 126,148
Taxes and other payable 299,675 540,464 870 107,900 948,909
Income tax 4,571 5 153,213 ( 152,342) 5,447
-------------- -------------- -------------- -------------- --------------
Total current liabilities 1,434,209 789,464 1,719,228 ( 1,348,895) 2,594,006
Long-term debt 4,152,551 - - ( 210,346) 3,942,205
Commitments and
contingencies - 2,233 58 - 2,291
-------------- -------------- -------------- -------------- --------------
Total liabilities 5,586,760 791,697 1,719,286 ( 1,559,241) 6,538,502
-------------- -------------- -------------- -------------- --------------
Stockholders' equity:
Capital contributions 4,755,485 5,269,565 1,077,660 ( 6,347,225) 4,755,485
Earned capital 619,322 ( 2,188,050) ( 1,732,610) 3,920,660 619,322
Minority interest - 10,903 - 17,569 28,472
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity 5,374,807 3,092,418 ( 654,950) ( 2,408,996) 5,403,279
-------------- -------------- -------------- -------------- --------------
Total liabilities and
stockholders' equity Ps. 10,961,567 Ps. 3,884,115 Ps. 1,064,336 (Ps. 3,968,237) Ps. 11,941,781
============== ============== ============== ============== ==============
Total stockholders'
equity under Mexican GAAP Ps. 5,374,807 Ps. 3,092,418 (Ps. 654,950) (Ps. 2,408,996) Ps. 5,403,279
Minority interest - ( 10,903) - ( 17,569) ( 28,472)
Deferred income taxes ( 6,326) ( 15,179) ( 1,809) 4,444 ( 18,870)
Interest rate collar ( 1,847) - - - ( 1,847)
-------------- -------------- -------------- -------------- --------------
Total stockholders'
equity under US GAAP Ps. 5,366,634 Ps. 3,066,336 (Ps. 656,759) (Ps. 2,422,121) Ps. 5,354,090
============== ============== =============== ============== ==============
</TABLE>
F-88
<PAGE> 258
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps. 347,368 Ps. 4,037,177 Ps. 382,605 (Ps. 1,858,644) Ps. 2,908,506
Total cost of sales 15,599 1,580,795 290,218 ( 944,815) 941,797
-------------- -------------- -------------- -------------- --------------
Gross profit 331,769 2,456,382 92,387 ( 913,829) 1,966,709
Operating expenses 42,246 1,718,709 147,094 ( 944,607) 963,442
Depreciation and
amortization 434,720 494,702 41,687 ( 3,713) 967,396
-------------- -------------- -------------- -------------- --------------
Operating profit (loss) ( 145,197) 242,791 ( 96,394) 34,491 35,871
-------------- -------------- -------------- -------------- --------------
Integral financing cost
(gain):
Interest expense, net ( 88,470) ( 97,336) 233,721 114,836 162,751
Foreign exchange loss, net ( 274,742) ( 51,807) 1,254 2 ( 325,293)
Gain from monetary
position ( 351,185) 71,025 ( 121,374) ( 118,071) ( 519,605)
-------------- -------------- -------------- -------------- --------------
714,397 ( 78,118) 113,601 ( 3,233) ( 682,147)
-------------- -------------- -------------- -------------- --------------
Equity participation in net
(gain) loss of associated
companies 2,587 - - - 2,587
Provision for assets tax 67,858 22,805 ( 65) 21,384 111,982
Minority interest 12,169 1,470 - - 10,699
-------------- -------------- -------------- -------------- --------------
Net (loss ) profit
for the year Ps 516,098 Ps. 296,814 (Ps. 209,930) Ps. 16,340 Ps. 619,322
============== ============== ============== ============== ==============
Net loss for the year under
Mexican GAAP Ps. 516,098 Ps. 296,814 (Ps. 209,930) Ps. 16,340 Ps. 619,322
Deferred income taxes ( 6,326) ( 15,179) ( 1,809) 4,444( 18,870)
Interest rate collar ( 1,847) - - - ( 1,847)
Gain on net monetary
Position ( 5,373) ( 12,892) ( 1,536) 3,774 ( 16,027)
-------------- -------------- -------------- -------------- --------------
Net (loss) profit for the
year under US GAAP Ps. 502,552 Ps. 268,743 (Ps. 213,275) Ps. 24,558 Ps. 582,578
============== ============== =============== =============== ==============
</TABLE>
F-89
<PAGE> 259
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW FOR THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net profit (loss)
for the year Ps. 502,552 Ps. 268,743 (Ps. 213,275) Ps. 24,558 Ps. 582,578
Adjustments to reconcile
cash provided by (used in)
operating activities:
Depreciation and
amortization 434,720 494,702 41,687 ( 3,713) 967,396
Equity in net (earnings) of
Associated companies ( 2,587) - - - ( 2,587)
Increase in allowance
for doubtful accounts - 52,237 1,768 ( 6,667) 47,338
Increase in allowance for
obsolete and slow-moving
inventories 730 3,094 254 ( 684) 3,394
Minority interest ( 12,169) 1,470 - - ( 10,699)
Deferred income taxes and
employee profit sharing 74,184 37,984 1,744 16,940 130,852
Gain on net monetary
position and foreign
exchange losses ( 620,554) 32,110 ( 118,584) ( 121,843) ( 828,871)
Changes in operating
assets and liabilities:
Accounts receivable ( 38,574) ( 387,605) 213,906 ( 77,325) ( 289,599)
Inventories ( 57,983) ( 84,923) 3,193 137,595 ( 2,118)
Trade accounts payable
and related parties ( 12,057) ( 396,253) 55,724 471,994 119,408
Taxes and other payable ( 186,292) 377,940 ( 136,366) 140,535 195,817
Income tax ( 113,761) ( 24,145) 152,009 ( 173,726) ( 159,623)
Other - ( 516) 1 - ( 515)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used
in) operating activities ( 31,792) 374,838 2,061 407,664 752,771
-------------- -------------- -------------- -------------- --------------
Financing activities:
Proceeds from notes payable
and long-term debt 378,091 - - 137,168 515,259
Payments of notes payable
and long-term debt ( 337,321) - - 45,409 ( 291,912)
Effects of primary and
rights Offerings 834,461 84,999 ( 20,540) ( 170,909) 728,011
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used
in) financing activities 875,231 84,999 ( 20,540) 14,894 951,358
-------------- -------------- -------------- -------------- --------------
Investing activities:
Purchase of property and
equipment, net ( 1,319,393) ( 244,207) ( 31,067) 350,944 ( 1,241,723)
Investment in associated
companies, net of cash
acquired 239,435 ( 136,736) - ( 262,598) ( 159,899)
Purchase of other assets ( 7,527) ( 21,941) ( 8,057) ( 407,342) ( 444,867)
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided
by investing activities ( 1,087,485) ( 400,884) ( 39,124) ( 318,996) ( 1,846,489)
-------------- -------------- -------------- -------------- --------------
Net increase (decrease)
in cash ( 244,046) 58,953 ( 57,603) 100,336 ( 142,360)
Cash at beginning of year 248,705 ( 27,870) 58,516 833 280,184
-------------- -------------- -------------- -------------- --------------
Cash at the end of year Ps. 4,659 Ps. 31,083 Ps. 913 Ps. 101,169 Ps. 137,824
============== ============== ============== ============== ==============
</TABLE>
F-90
<PAGE> 260
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term
investments Ps. 125,773 (Ps. 2,239) Ps. 40,998 Ps. 1,700 Ps. 166,232
-------------- -------------- -------------- -------------- --------------
Accounts receivable:
Trade - 336,172 16,563 ( 54,476) 298,258
Related parties 2,759,646 - - ( 2,742,023) 17,624
Recoverable taxes and
other 176,293 127,180 105,442 66,273 475,189
-------------- -------------- -------------- -------------- --------------
2,935,939 463,352 122,005 ( 2,730,226) 791,071
-------------- -------------- -------------- -------------- --------------
Inventories 120,025 140,382 48,343 ( 30,428) 278,322
-------------- -------------- -------------- -------------- --------------
Total current assets 3,181,738 601,495 211,346 ( 2,758,954) 1,235,625
Investment in associated
companies 1,676,672 49,236 - ( 1,708,081) 17,827
Property and equipment,
net 3,489,133 1,221,408 514,297 ( 70,123) 5,154,715
Other assets 296,432 703,451 92,560 621,756 1,714,199
Excess of investment
cost over book value 1,874,192 31,899 - 232 1,906,323
-------------- -------------- -------------- -------------- --------------
Total assets Ps. 10,518,166 Ps.2,607,489 Ps. 818,203 (Ps. 3,915,170) Ps. 10,028,689
============== ============== ============== ============== ==============
LIABILITIES
Current liabilities:
Notes payable Ps. 623,892 Ps. - Ps. - Ps. - Ps. 623,892
Trade accounts payable 468,362 193,336 88,469 ( 30,427) 719,739
Related parties - 863,419 1,341,890 ( 2,049,940) 155,369
Taxes and other payable 564,474 211,374 90,001 ( 127,080) 738,769
Income tax 38,162 20 - - 38,182
-------------- -------------- -------------- -------------- --------------
Total current liabilities 1,694,890 1,268,150 1,520,360 ( 2,207,448) 2,275,951
Long-term debt 4,399,608 - - - 4,399,608
Trade accounts payable,
long-term 1,469 - - - 1,469
Commitments and
contingencies - 2,687 52 - 2,740
-------------- -------------- -------------- -------------- --------------
Total liabilities 6,095,966 1,270,837 1,520,412 ( 2,207,448) 6,679,768
-------------- -------------- -------------- -------------- --------------
Stockholders' equity:
Capital contributions 9,245,843 3,703,417 939,413 ( 4,621,431) 9,267,242
Earned capital ( 4,783,091) (2,381,715) ( 1,641,622) 2,913,476 ( 5,892,952)
Minority interest ( 40,551) 14,950 - 232 ( 25,369)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity 4,422,200 1,336,652 ( 702,209) ( 1,707,723) 3,348,921
-------------- -------------- -------------- -------------- --------------
Total liabilities and
stockholders' equity Ps. 10,518,166 Ps. 2,607,489 Ps. 818,203 (Ps. 3,915,170) Ps. 10,028,689
============== ============== ============== ============== ==============
</TABLE>
F-91
<PAGE> 261
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total stockholders'
equity under Mexican GAAP Ps.4,422,200 Ps.1,336,652 (Ps.702,209) (Ps.1,707,723) Ps.3,348,921
Minority interest 40,319 (14,950) - - 25,369
Deferred income taxes 18,241 (14,068) 25,358 118,157 147,688
Interest rate collar (15,912) - - - (15,912)
------------ ------------ ----------- ------------- ------------
Total stockholders'
equity under US GAAP Ps.4,464,849 Ps.1,307,634 (Ps.676,851) (Ps.1,589,566) Ps.3,506,066
============ ============ =========== ============ ============
</TABLE>
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues Ps.203,361 Ps.3,080,921 Ps.290,363 (Ps.1,297,260) Ps.2,277,384
Total cost of sales 14,641 1,290,029 239,143 (777,651) 766,163
---------- ---------- ---------- ---------- ----------
Gross profit 188,719 1,790,891 51,220 (519,610) 1,511,221
Operating expenses 44,521 1,213,406 147,668 (519,182) 886,412
Depreciation and
Amortization 249,321 344,123 22,207 (34) 615,617
450 Project write-down -- -- 986,396 -- 986,396
---------- ---------- ---------- ---------- ----------
Operating profit (loss) (105,122) 233,362 (1,105,050) (394) (977,204)
---------- ---------- ---------- ---------- ----------
Integral financing result:
Interest expense, net (139,720) 147,357 162,013 28,421 198,070
Foreign exchange loss,
net 911,295 94,617 5,371 -- 1,011,283
0Gain from monetary
position (172,695) (71,402) (159,813) (28,578) (432,489)
---------- ---------- ---------- ---------- ----------
598,879 170,571 7,571 (157) 776,864
---------- ---------- ---------- ---------- ----------
Equity participation in net
(gain) loss of associated
companies 2,476 17,694 -- 81 20,252
Provision for assets tax 27,816 10,301 154 -- 38,271
Minority interest 4,661 (1,322) -- -- 3,339
---------- ---------- ---------- ---------- ----------
Net (loss) profit
for the year Ps. 724,680 Ps.68,862 (Ps.1,112,775) (Ps.155) (Ps.1,768,748)
========== ========== ============ ========== ============
Net (loss) profit
for the year under
Mexican GAAP (Ps.724,680) Ps.68,862 (Ps.1,112,774) (Ps.155) (Ps.1,768,748)
Deferred income taxes (67,229) (43,988) 12,759 102,731 4,274
Preoperating costs -- 174,996 -- -- 174,996
Interest rate collar (15,912) -- -- -- (15,912)
Loss on net monetary
position (6,011) (3,093) 209 (1,249) (10,144)
---------- ---------- ---------- ---------- ----------
Net (loss) profit for the
year under US GAAP (Ps.813,832) Ps.196,778 (Ps.1,099,805) Ps.101,327 (Ps.1,615,534)
========== ========== ============ ========== ============
</TABLE>
F-92
<PAGE> 262
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net gain (loss)
for the year (Ps.813,832) Ps. 196,778 (Ps.1,099,805) Ps.101,327 (Ps.1,615,534)
Adjustments to reconcile
net cash provided
by (used in) operating
activities:
Depreciation and
amortization 249,321 169,127 22,207 (34) 440,621
450 Project write down -- -- 986,396 -- 986,396
Equity in net loss (earnings)
of associated companies (2,476) (17,694) -- (81) (20,252)
Increase in allowance for
doubtful accounts -- 37,267 1,621 (5,671) 33,217
Increase in allowance for
obsolete and slow-moving
inventories 2,648 3,097 1,067 (672) 6,140
Minority interest (4,661) 1,322 -- -- (3,339)
Deferred income taxes and
employee profit sharing 95,046 54,288 12,606 (102,732) 33,997
Gain on net monetary
position and foreign
exchange losses 744,611 26,307 (154,652) (27,328) 588,939
Changes in operating
assets and liabilities:
Accounts receivable (143,610) (106,179) 3,610 (57,404) (303,583)
Inventories (104,204) 148,621 (252) 1,406 45,571
Trade accounts payable
and related parties (638,329) (4,366) (109,149) 34,370 (717,475)
Taxes and other payable 435,504 (28,559) 35,686 (72,567) 370,064
Income Tax 3,982 (13,018) (1,480) 2,377 (8,140)
Other -- 121 (147) (238) (265)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities (176,001) 467,111 (327,505) (127,247) (163,643)
---------- ---------- ---------- ---------- ----------
Financing activities:
Proceeds from notes payable
and long-term debt 2,345,009 -- -- 691,245 3,036,254
Payments of notes payable
and long-term debt (9,029) -- -- -- (9,029)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities 2,335,979 -- -- 691,245 3,027,224
---------- ---------- ---------- ---------- ----------
</TABLE>
F-93
<PAGE> 263
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investing activities:
Purchase of property and
equipment, net (1,737,805) (296,555) (369,128) (52,499) (2,455,987)
Investment in associated
companies, net of cash
acquired (535,391) (4,214) 10,873 517,239 (11,493)
Purchase of other assets 78,205 (175,770) 725,256 (1,010,553) (382,861)
---------- ---------- ---------- ---------- ----------
Net cash (used in)
provided by investing
activities (2,194,990) (476,539) 367,001 (Ps.545,813) (2,850,342)
---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash (19,100) (9,427) 39,496 18,184 13,240
Cash at beginning of year 144,873 7,187 1,501 (569) 152,993
---------- ---------- ---------- ---------- ----------
Cash at the end of year Ps.125,773 (Ps.2,239) Ps.40,997 Ps.17,616 Ps.166,233
========== ========== ========== ========== ==========
</TABLE>
- - - - - - - - - - - - - - - - - - - -
F-94
<PAGE> 264
ANNEX A
GLOSSARY OF TELECOMMUNICATIONS TERMS
analog: A transmission method employing a continuous electrical
signal that varies in amplitude or frequency in response to
changes in sound, light, position, etc., impressed on a
transducer in the sending device.
band: A range of frequencies between two defined limits.
CDMA: Code Division Multiple Access, a standard of digital cellular
technology which provides more call carrying capacity than
analog or TDMA.
Cellular A-Band: The range of frequencies used to provide cellular wireless
service between 825-835 MHz and between 870-880 MHz of the
radio spectrum.
Cellular B-Band: The range of frequencies used to provide cellular wireless
service between 835-845 MHz and between 880-890 MHz of the
radio spectrum.
channel: A pathway for the transmission of information between a
sending point and a receiving point.
COFETEL: Comision Federal de Telecomunicaciones, the Mexican Federal
Telecommunications Commission.
Covered POPs: The number of POPs in a defined area for whom a cellular
signal is accessible.
digital: 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.
hertz: The unit measuring the frequency with which an alternating
electromagnetic signal cycles through the zero-value state
between lowest and highest states. One hertz (abbreviated Hz)
equals one cycle per second. KHz (kilohertz) stands for
thousands of hertz; MHz (megahertz) stands for millions of
hertz and GHz (gigahertz) stands for billions of hertz.
IMTS: Improved mobile telephone service; IMTS systems are analog
mobile telephone systems that employ a single powerful radio
base station to communicate with IMTS mobile telephones that
are within approximately a 25-mile-wide radius.
LATA: Local Access and Transport Area; an area in which a local
exchange carrier is permitted to provide service as
designated by the 1982 United States federal court decree
resulting from antitrust litigation brought by the United
States Department of Justice against AT&T Corporation.
PCS: Personal Communications Services; PCS has come to represent
tow things: first, a digital wireless communications service
operating over the 1.9 GHz band; and second, more
generically, a wireless communications service utilizing a
digital network that offers typical features such as voice,
video and data applications, short messaging, voicemail,
caller identification, call conferencing and call forwarding.
Generic PCS suppliers promote this service on the ability of
its features to be customized, or "bundled," to the needs of
the individual customers.
PCS A-Band: The range of frequencies used to provide PCS wireless
services between 1.850-1.865 GHz and between 1.930-1.945 GHz
of the radio spectrum.
PCS B-Band: The range of frequencies used to provide PCS wireless
services between 1.870-1.885 GHz and between 1.950-1.965 GHz
of the radio spectrum.
A-1
<PAGE> 265
PCS D-Band: The range of frequencies used to provide PCS wireless
services between 1.865-1.870 GHz and between 1.945-1.950 GHz
of the radio spectrum.
PCS E-Band: The range of frequencies used to provide PCS wireless
services between 1.885-1.890 GHz and between 1.965-1.970 GHz
of the radio spectrum.
Penetration rate: A cellular operator's subscribers within a defined area
divided by total POPs within that area.
POPs: The population for a particular area based on the 1990
Mexican census. Population figures for 1994, 1995, 1996, 1997
and 1998 have been calculated by applying the forecast annual
population growth rate for 1992 and 1995, as published by the
Instituto Nacional de Estadistica, Geografia e Informatica
(the National Institute of Statistics, Geography and Data
Processing, "INEGI") to the official 1990 census figures.
Where the population information is set forth without
reference to a year, the information given is as of December
31, 1998. The SCT divides Mexico into nine geographic regions
for the provision of cellular service (individually a
"Region" and collectively the "Regions"). Information
regarding the numbers of POPs within a given region has been
calculated using the national population growth rate, as
published by INEGI. Information regarding the number of POPs
within a given city has been calculated using the growth rate
for that city, as published by INEGI, which may not be the
same as the national growth rate published by INEGI. The
number of POPs in any region or other geographic area should
not be confused with the current number of users of wireless
services in that region or other geographic area and is not
indicative of the number of users of wireless services in the
future.
Region 1: Consists of the states of Baja California Norte and Baja
California Sur and the municipality of San Luis Rio Colorado
in northwestern Sonora. Major cities in the region include
Tijuana, Mexicali, Ensenada, Tecate and La Paz.
Region 2: Consists of the states of Sonora and Sinaloa (except for the
municipality of San Luis Rio Colorado in northwestern
Sonora). Major cities in the region include Hermosillo,
Ciudad Obregon, Culiacan and Mazatlan.
Region 3: Consists of the states of Chihuahua and Durango and the
municipalities of Torreon, Francisco I. Madero, Matamoros,
San Pedro and Viesca in the state of Coahuila. Major cities
in the region include Ciudad Juarez, Chihuahua, Durango,
Gomez Palacio and Torreon.
Region 4: Consists of the states of Tamaulipas, Nuevo Leon and, with
the exception of the municipalities of Torreon, Francisco I.
Madero, Matamoros, San Pedro and Viesca, the state of
Coahuila. Major cities in the region include Monterrey,
Saltillo, Ciudad Victoria, Tampico, Reynosa and Matamoros.
Region 5: Consists of the states of Colima, Jalisco, Michoacan and
Nayarit (except for twelve municipalities in northeastern
Jalisco). Major cities in the region include Guadalajara
(population 1.8 million), Mexico's second largest city,
Morelia, Tepic, Colima and Manzanillo.
Region 6: Consists of the states of Aguascalientes, Guanajuato,
Queretaro, San Luis Potosi, Zacatecas and twelve
municipalities in northeastern Jalisco. Major cities in the
region include Leon, Queretaro, San Luis Potosi,
Aguascalientes and Zacatecas.
Region 7: Consists of the states of Guerrero, Oaxaca, Puebla, Tlaxcala
and Veracruz. Major cities in the region include Puebla,
Acapulco, Veracruz and Oaxaca.
A-2
<PAGE> 266
Region 8: Consists of the states of Yucatan, Quintana Roo, Campeche,
Chiapas and Tabasco. Major cities in the region include
Merida, Cancun, Villahermosa, Campeche, Tuxtla Gutierrez and
San Cristobal de las Casas.
Region 9: Consists of the states of Mexico, Hidalgo and Morelos and the
Federal District. Major cities in the region include Mexico
City, one of the world's most populous cities, Toluca,
Cuernavaca and Pachuca.
roaming: A service offered by mobile communications providers which
allows a subscriber to use his or her telephone while in the
service area of another carrier.
SCT: Secretaria de Comunicaciones y Transportes, the Mexican
Telecommunications and Transportation Secretariat.
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.
TDMA: Time Division Multiple Access, a standard of digital cellular
technology, which provides more call carrying capacity than
analog, but less than CDMA.
A-3
<PAGE> 267
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
With respect to Nuevo Grupo Iusacell
Under Mexican law, when an officer of a corporation such as Iusacell acts
within the scope of his authority, the corporation will answer for any resulting
liabilities or expenses.
With respect to Bell Atlantic Corporation
Section 145 of the Delaware General Corporation Law ("DGCL") permits a
corporation to indemnify any of its directors or officers who was or is a party
or is threatened to be made a party to any third party proceeding by reason of
the fact that such person is or was a director or officer of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action or proceeding, if such person acted in good faith and in a manner
such person reasonably believed to be in, or not opposed to, the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reason to believe that such person's conduct was unlawful. In a derivative
action, i.e., one by, or in the right of, the corporation, the corporation is
permitted to indemnify directors and officers against expenses (including
attorney's fees) actually and reasonably incurred by them in connection with the
defense or settlement of an action or suit if they acted in good faith and in a
manner that they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors or officers are fairly
and reasonably entitled to indemnity for such expenses despite such adjudication
of liability.
Article 7 of the Bell Atlantic Restated Certificate of Incorporation makes
mandatory the indemnification expressly authorized under the DGCL, except that
the Certificate of Incorporation only provides for indemnification in derivative
actions, suits or proceedings initiated by a director or officer if the
initiation of such action, suit or proceeding was authorized by the Board of
Directors.
Pursuant to Section 7.8 of the Amended and Restated Agreement and Plan of
Merger dated as of April 21, 1996 by and between NYNEX Corporation ("NYNEX") and
Bell Atlantic, Bell Atlantic has agreed for a period of six years following the
Effective Time to (a) cause NYNEX to maintain in effect the provisions regarding
indemnification of officers and directors contained in the NYNEX Certificate of
Incorporation and Bylaws and the certificates of incorporation and bylaws of
each of its subsidiaries or in director, officer or employee indemnification
agreements of NYNEX and its subsidiaries, (b) maintain in effect, and cause
NYNEX to, maintain in effect current policies of directors' and officers'
liability insurance and fiduciary liability insurance with respect to claims
arising prior to the Effective Time, and (c) indemnify, and cause NYNEX to
indemnify, the directors and officers of Bell Atlantic and NYNEX respectively,
to the fullest extent permitted under their respective certificates of
incorporation and bylaws and applicable law. In addition, Bell Atlantic has
agreed to unconditionally and irrevocably guarantee for the benefit of such
directors, officers and employees the obligations of NYNEX under its
indemnification arrangements.
The Certificate of Incorporation of Bell Atlantic limits the personal
liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by the Delaware General Corporation Law.
The directors and officers of Bell Atlantic are insured against certain
liabilities, including certain liabilities arising under the Securities Act,
which might be incurred by them in such capacities and against which they cannot
be indemnified by Bell Atlantic.
II-1
<PAGE> 268
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <C> <S>
1.1 -- Form of Exchange Agent Agreement.
3.1 -- By-laws (estatutos) of Nuevo Grupo Iusacell, S.A. de C.V.*
4.1 -- Indenture dated December 16, 1999 among Nuevo Grupo
Iusacell, S.A. de C.V., Bell Atlantic Corporation and The
Bank of New York as Trustee.
4.2 -- Form of Note.**
4.3 -- Exchange and Registration Rights Agreement dated December
16, 1999 among Nuevo Grupo Iusacell, S.A. de C.V., Bell
Atlantic Corporation, Grupo Iusacell, S.A. de C.V., Chase
Securities, Inc. and Salomon Smith Barney, Inc.
4.4 -- Security Agreement dated December 16, 1999 among Nuevo Grupo
Iusacell, S.A. de C.V., The Bank of New York and the holders
from time to time of the notes.
5.1 -- Opinion of De Ovando y Martinez del Campo, S.C., special
Mexican counsel to the Nuevo Grupo Iusacell, S.A. de C.V.,
regarding the validity of the notes registered hereby.
5.2 -- Opinion of Clifford Chance Rogers & Wells LLP special U.S.
counsel to Nuevo Grupo Iusacell, S.A. de C.V., regarding the
validity of the notes registered hereby.
5.3 -- Opinion of Phillip M. Huston, Jr., counsel to Bell Atlantic
Corporation regarding the validity of the put option to Bell
Atlantic Corporation.
8.1 -- Opinion of De Ovando y Martinez del Campo, S.C., special
Mexican counsel to the Registrant, regarding tax matters.
8.2 -- Opinion of Clifford Chance Rogers & Wells LLP, special U.S.
counsel to Nuevo Grupo Iusacell, S.A. de C.V., regarding tax
matters.
12.1 -- Computation of Ratio of Earnings to Fixed Charges
15.1 -- Acknowledgement of PricewaterhouseCoopers, independent
accountants to Nuevo Grupo Iusacell, S.A. de C.V.
21.1 -- List of subsidiaries of Nuevo Grupo Iusacell, S.A. de C.V.*
23.1 -- Consent of PricewaterhouseCoopers LLP, independent
accountants to Nuevo Grupo Iusacell, S.A. de C.V.
23.2 -- Consent of PricewaterhouseCoopers LLP, independent public
accountants to Bell Atlantic Corporation
23.3 -- Consent of Arthur Andersen LLP, independent accountants to
GTE Corporation.
23.4 -- Consent of De Ovando y Martinez del Campo, S.C., special
Mexican counsel to Nuevo Grupo Iusacell, S.A. de C.V.
(contained in Exhibit 5.1).
23.5 -- Consent of Clifford Chance Rogers & Wells LLP, special U.S.
counsel to the Nuevo Grupo Iusacell, S.A. de C.V. (contained
in Exhibit 5.2 and 8.2).
23.6 -- Consent of Phillip M. Huston, Jr., counsel to Bell Atlantic
Corporation (contained in Exhibit 5.3).
23.7 -- Consent of Consultores y Valuadores de Empresas, S.C.,
independent property appraiser.
24.1 -- Powers of attorney for Nuevo Grupo Iusacell, S.A. de C.V.
(included on signature page to Registration Statement).
24.2 -- Powers of attorney for Bell Atlantic Corporation.
25.1 -- Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 of The Bank of New York on Form T-1
pursuant to the Indenture dated December 16, 1999.
99.1 -- Form of Letter of Transmittal for the Notes.
99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
II-2
<PAGE> 269
<TABLE>
<C> <C> <S>
99.3 -- Form of Letter to DTC Participants.
99.4 -- Form of Letter to Clients.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts.
- - ---------------
* Filed on Registration Statement of New Iusacell on Form F-4, as amended (File
No. 333-10504).
** Filed as a part of Exhibit 4.1 (see Exhibit b to the Indenture).
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be a part
of this Registration Statement as of the time it was declared
effective.
(3) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
(4) The undersigned Registrant hereby undertakes (i) to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of Form F-4 or S-4, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means; and (ii)
to arrange or provide for a facility in the United States for the
purpose of responding to such requests. The undertaking in subparagraph
(i) above includes information contained in documents filed subsequent
to the effective date of this Registration Statement through the date
of responding to the request.
(5) The undersigned Registrant hereby undertakes 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 this Registration Statement when it became
effective.
(6) For purposes of determining any liability under the Securities Act,
each filing of Bell Atlantic Corporation's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bonafide offering thereof.
II-3
<PAGE> 270
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Nuevo Grupo Iusacell, S.A. de C.V. certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form F-4
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Mexico, Mexico, on
February 18, 2000.
NUEVO GRUPO IUSACELL, S.A. DE C.V.
By: /s/ WILLIAM S. ROBERTS
------------------------------------
William S. Roberts
Executive Vice President, and
Chief Financial Officer Designate
By: /s/ RUBEN G. PERLMUTTER
------------------------------------
Ruben G. Perlmutter
Vice President, Mergers and
Acquisitions, and
General Counsel
II-4
<PAGE> 271
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Nuevo Grupo Iusacell, S.A. de
C.V., do hereby constitute and appoint William S. Roberts, Executive Vice
President, and Chief Financial Officer, Ruben G. Perlmutter, Vice President,
Mergers and Acquisitions, and General Counsel, and Adolfo Alaniz Ramirez, Legal
Director and each of them, our true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution in each of them, to do any
and all acts and things in our respective names and on our respective behalves
in the capacities indicated below that William S. Roberts and Ruben G.
Perlmutter, or any one of them, may deem necessary or advisable to enable Nuevo
Grupo Iusacell, S.A. de C.V. to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for us in our
respective names in the capacities indicated below any and all amendments
(including post-effective amendments) hereto and to file the same, with all
exhibits thereto and other documents therewith, with the Securities and Exchange
Commission; and we do hereby ratify and confirm all that William S. Roberts and
Ruben G. Perlmutter, or any of them, shall do or cause to be done by virtue
hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Nuevo Grupo
Iusacell, S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere
y designamos a William S. Roberts, Vice Presidente Ejecutivo y Ejecutivo
Financiero Principal, a Ruben G. Perlmutter, Vice Presidente de Fusiones y
Adquisiciones y Juridico, y a Adolfo Alaniz Ramirez, Director Juridico para que
ellos, o cualquiera de ellos, actuen como nuestros apoderados y mandatarios, con
plenos poderes de sustitucion y delegacion para que realicen todos y
cualesquiera actos, por cuenta y a nombre nuestro en el caracter que se indica
mas adelante, que William S. Roberts y Ruben G. Perlmutter, o cualquiera de
ellos, consideren necesario o conveniente para los fines de que Nuevo Grupo
Iusacell, S.A. de C.V. cumpla con todos los requisitos del "Securities Act of
1933," segun texto vigente, y todas las normas, reglamentos y requisitos de;
"Securities and Exchange Commission," en relacion con esta Declaracion de
Registro, incluyendo especificamente, pero no limitado a, poder y autorizacion
para firmar por todos y cada uno de nosotros en el caracter indicado mas
adelante, todas y cada una de las enmiendas a la Declaracion de Registro
(incluyendo enmiendas posteriores a la aceptacion por la autoridad mencionada) y
para que interpongan y registren la Declaracion de Registro, con todos sus
anexos y otra documentacion necesaria por ante el "Securities and Exchange
Commission;" y en el presente acto ratificamos y confirmamos todos los actos que
William S. Roberts y Ruben G. Perlmutter, o cualquiera de ellos, realicen por
virtud del presente poder.
II-5
<PAGE> 272
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS A. BARTLETT Chief Executive Officer (Principal February 18, 2000
- - --------------------------------------------- Executive Officer) and Director,
Thomas A. Bartlett Iusacell
/s/ FULVIO V. DEL VALLE President, Director General and February 18, 2000
- - --------------------------------------------- Director, Iusacell
Fulvio V. del Valle
/s/ WILLIAM S. ROBERTS Executive Vice President and Chief February 18, 2000
- - --------------------------------------------- Financial Officer (Principal
William S. Roberts Financial and Accounting Officer),
Iusacell
/s/ LAWRENCE T. BABBIO, JR. Chairman of the Board of February 18, 2000
- - --------------------------------------------- Directors, Iusacell
Lawrence T. Babbio, Jr.
Director, Iusacell February 18, 2000
- - ---------------------------------------------
Carlos Peralta Quintero
Director, Iusacell February 18, 2000
- - ---------------------------------------------
Ernesto Canales Santos
/s/ MARY CUMMINGS Director, Iusacell February 18, 2000
- - ---------------------------------------------
John Chynoweth By Mary Cummings Alternate
Director
Director, Iusacell February 18, 2000
- - ---------------------------------------------
Jose Ramon Elizondo Anaya
Director, Iusacell February 18, 2000
- - ---------------------------------------------
Rodolfo Garcia Muriel
Director, Iusacell February 18, 2000
- - ---------------------------------------------
Luis Felipe Gonzalez Munoz
/s/ STEPHEN B. HEIMANN Director, Iusacell February 18, 2000
- - ---------------------------------------------
Stephen B. Heimann
/s/ FERNANDO DE OVANDO Director, Iusacell February 18, 2000
- - ---------------------------------------------
Fernando de Ovando
/s/ DENNIS F. STRIGL Director, Iusacell February 18, 2000
- - ---------------------------------------------
Dennis F. Strigl
By: /s/ DONALD J. PUGLISI Authorized Representative in the February 18, 2000
---------------------------------------- United States of Nuevo Grupo
Donald J. Puglisi Iusacell, S.A. de C.V
</TABLE>
II-6
<PAGE> 273
Pursuant to the requirements of the Securities Act of 1933, as amended,
Bell Atlantic Corporation certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-4 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in The City of New York, State of New York, on
February 18, 2000.
BELL ATLANTIC CORPORATION
By: /s/ DOREEN A. TOBEN
------------------------------------
Doreen A. Toben
Vice President -- Comptroller
II-7
<PAGE> 274
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons and by
Doreen A. Toben, as attorney-in-fact for the specified persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Lawrence T. Babbio, Jr.
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Richard L. Carrion
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
James G. Cullen
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Lodewijk J.R. deVink
Director, Bell Atlantic , 2000
- - ---------------------------------------------
James H. Gilliam, Jr.
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Stanley P. Goldstein
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Helene L. Kaplan
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Thomas H. Kean
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Elizabeth T. Kennan
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
John F. Maypole
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Joseph Neubauer
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Thomas H. O'Brien
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Eckhard Pfeiffer
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Hugh B. Price
</TABLE>
II-8
<PAGE> 275
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Rozanne L. Ridgway
* Director and Senior Executive Vice February 18, 2000
- - --------------------------------------------- President and Chief Financial
Frederic V. Salerno Officer/Strategy and Business
Development, Bell Atlantic
(principal financial officer)
* Director, Chairman and Chief February 18, 2000
- - --------------------------------------------- Executive Officer, Bell Atlantic
Ivan G. Seidenberg (principal executive officer)
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Walter V. Shipley
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
John R. Stafford
* Director, Bell Atlantic February 18, 2000
- - ---------------------------------------------
Shirley Young
/s/ DOREEN A. TOBEN Vice President-Comptroller February 18, 2000
- - --------------------------------------------- (principal accounting officer)
Doreen A. Toben
*By /s/ DOREEN A. TOBEN February 18, 2000
- - ---------------------------------------------
Individually and as Attorney-in-fact
</TABLE>
II-9
<PAGE> 276
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
1.1 -- Form of Exchange Agent Agreement.
4.1 -- Indenture dated December 16, 1999 among Nuevo Grupo
Iusacell, S.A. de C.V., Bell Atlantic Corporation and The
Bank of New York as Trustee.
4.3 -- Exchange and Registration Rights Agreement dated December
16, 1999 among Nuevo Grupo Iusacell, S.A. de C.V., Bell
Atlantic Corporation, Grupo Iusacell, S.A. de C.V., Chase
Securities, Inc. and Salomon Smith Barney, Inc.
4.4 -- Security Agreement dated December 16, 1999 among Nuevo Grupo
Iusacell, S.A. de C.V., The Bank of New York and the holders
from time to time of the notes.
5.1 -- Opinion of De Ovando y Martinez del Campo, S.C., special
Mexican counsel to the Nuevo Grupo Iusacell, S.A. de C.V.,
regarding the validity of the notes registered hereby.
5.2 -- Opinion of Clifford Chance Rogers & Wells LLP special U.S.
counsel to Nuevo Grupo Iusacell, S.A. de C.V., regarding the
validity of the notes registered hereby.
5.3 -- Opinion of Phillip M. Huston, Jr., counsel to Bell Atlantic
Corporation regarding the validity of the put option to Bell
Atlantic Corporation.
8.1 -- Opinion of De Ovando y Martinez del Campo, S.C., special
Mexican counsel to the Registrant, regarding tax matters.
8.2 -- Opinion of Clifford Chance Rogers & Wells LLP, special U.S.
counsel to Nuevo Grupo Iusacell, S.A. de C.V., regarding tax
matters.
12.1 -- Computation of Ratio of Earnings to Fixed Charges
15.1 -- Acknowledgement of PricewaterhouseCoopers, independent
accountants to Nuevo Grupo Iusacell, S.A. de C.V.
23.1 -- Consent of PricewaterhouseCoopers LLP, independent
accountants to Nuevo Grupo Iusacell, S.A. de C.V.
23.2 -- Consent of PricewaterhouseCoopers LLP, independent public
accountants to Bell Atlantic Corporation
23.3 -- Consent of Arthur Andersen LLP, independent accountants to
GTE Corporation.
23.7 -- Consent of Consultores y Valuadores de Empresas, S.C.,
independent property appraiser.
24.2 -- Powers of attorney for Bell Atlantic Corporation.
25.1 -- Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 of The Bank of New York on Form T-1
pursuant to the Indenture dated December 16, 1999.
99.1 -- Form of Letter of Transmittal for the Notes.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to DTC Participants.
99.4 -- Form of Letter to Clients.
</TABLE>
<PAGE> 277
[PRICEWATERHOUSECOOPERS LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Grupo Iusacell, S. A. de C. V.:
We have audited the consolidated balance sheets of Grupo Iusacell, S. A. de C.
V. (the "Company") and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity, and
changes in financial position for each of the three years ended December 31,
1998 and have issued our report thereon dated February 22, 1999, except with
respect to certain matters discussed in Notes 13.b, 20, 21 and 22 for which the
date is May 21, 1999, and to the matter discussed in Note 13.e, for which the
date is June 25, 1999, included elsewhere in this Registration Statement on Form
F-4/S-4. Our audits also included the financial statements schedule listed in
Item 19 of this Registration Statement on Form F-4/S-4. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial schedule based on our audit.
In our opinion, the financial statements schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
PricewaterhouseCoopers
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D. F., Mexico.
February 18, 2000
S-1
<PAGE> 278
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(THOUSANDS OF MEXICAN PESOS WITH PURCHASING POWER AS OF SEPTEMBER 30, 1999)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COST AND CHARGED TO AT THE END
PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
------------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for obsolete and slow-
moving inventories............. 73,862 5,816 -- 31,151 48,527
Allowance for doubtful
accounts....................... 167,722 100,382 -- 129,128 138,976
Allowance for obsolete fixed
assets......................... -- 67,589 -- -- 67,589
Group reorganization charge...... -- 130,252 -- -- 130,252
YEAR ENDED DECEMBER 31, 1997
Allowance for obsolete and slow-
moving inventories............. 48,527 20,186 -- 30,498 38,215
Allowance for doubtful
accounts....................... 138,976 47,429 -- 84,665 101,740
Allowance for obsolete fixed
assets......................... 67,589 -- -- 67,589 --
Group reorganization charge...... 130,252 -- -- 130,252 --
YEAR ENDED DECEMBER 31, 1998
Allowance for obsolete and slow-
moving inventories............. 38,215 -- -- 25,873 12,342
Allowance for doubtful
accounts....................... 101,740 30,213 -- 58,159 73,794
</TABLE>
S-2
<PAGE> 1
EXHIBIT 1.1
___________, 20__
[FORM OF EXCHANGE AGENT AGREEMENT]
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Ladies and Gentlemen:
___________________________ a ________ corporation (the
"Company") proposes to make an offer (the "Exchange Offer") to exchange all of
its outstanding ___________________________ (the "Old Securities") for its
___________________________ (the "New Securities"). The terms and conditions of
the Exchange Offer as currently contemplated are set forth in a prospectus,
dated ___________ (the "Prospectus"), proposed to be distributed to all record
holders of the Old Securities. The Old Securities and the New Securities are
collectively referred to herein as the "Securities".
The Company hereby appoints The Bank of New York to act as
exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company
on or about _____________. The Letter of Transmittal accompanying the Prospectus
(or in the case of book-entry securities, the Automated Tender Offer Program
("ATOP") of the Book-Entry Transfer Facility (as defined below)) is to be used
by the holders of the Old Securities to accept the Exchange Offer and contains
instructions with respect to the delivery of certificates for Old Securities
tendered in connection therewith.
The Exchange Offer shall expire at 5:00 p.m., New York City
time, on _________ or on such subsequent date or time to which the Company may
extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the right
to extend the Exchange Offer from time to time and may extend the Exchange Offer
by giving oral (promptly confirmed in writing) or written notice to you before
9:00 a.m., New York City time, on the business day following the previously
scheduled Expiration Date.
[The Company expressly reserves the right to amend or
terminate the Exchange Offer, and not to accept for exchange any Old Securities
not theretofore accepted for exchange, upon the occurrence of any of the
conditions of the Exchange
<PAGE> 2
Offer specified in the Prospectus under the caption ["The Exchange Offer --
Certain Conditions to the Exchange Offer."] The Company will give oral (promptly
confirmed in writing) or written notice of any amendment, termination or
nonacceptance to you as promptly as practicable.]
In carrying out your duties as Exchange Agent, you are to act
in accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned ["The Exchange
Offer"] or as specifically set forth herein; provided, however, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You will establish a book-entry account with respect to the
Old Securities at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Exchange Offer within two business days after the
date of the Prospectus, and any financial institution that is a participant in
the Book-Entry Transfer Facility's systems may make book-entry delivery of the
Old Securities by causing the Book-Entry Transfer Facility to transfer such Old
Securities into your account in accordance with the Book-Entry Transfer
Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and
certificates for Old Securities (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility) and any other documents
delivered or mailed to you by or for holders of the Old Securities to ascertain
whether: (i) the Letters of Transmittal and any such other documents are duly
executed and properly completed in accordance with instructions set forth
therein; and (ii) the Old Securities have otherwise been properly tendered. In
each case where the Letter of Transmittal or any other document has been
improperly completed or executed or any of the certificates for Old Securities
are not in proper form for transfer or some other irregularity in connection
with the acceptance of the Exchange Offer exists, you will endeavor to inform
the presenters of the need for fulfillment of all requirements and to take any
other action as may be reasonably necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of the [President], [Senior Vice
President], [Executive Vice President], or any [Vice President] of the Company
(such approval, if given orally, to be promptly confirmed in writing) or any
other party designated in writing, by such an officer, you are authorized to
waive any irregularities in connection with any tender of Old Securities
pursuant to the Exchange Offer.
5. Tenders of Old Securities may be made only as set forth in
the Letter of Transmittal and in the section of the Prospectus captioned ["The
Exchange Offer -- Procedures for Tendering Old Securities"], and Old Securities
shall be considered properly tendered to you only when tendered in accordance
with the procedures set forth therein.
- 2 -
<PAGE> 3
Notwithstanding the provisions of this Section 5, Old
Securities which the [President], [Senior Vice President], [Executive Vice
President], or any [Vice President] of the Company shall approve as having been
properly tendered shall be considered to be properly tendered (such approval, if
given orally, shall be promptly confirmed in writing).
6. You shall advise the Company with respect to any Old
Securities received subsequent to the Expiration Date and accept its
instructions with respect to disposition of such Old Securities.
7. You shall accept tenders:
(a) in cases where the Old Securities are registered in two
or more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old
Securities, provided that customary transfer requirements, including payment of
any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Old Securities where so
indicated and as permitted in the Letter of Transmittal and deliver certificates
for Old Securities to the registrar for split-up and return any untendered Old
Securities to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will notify you (such notice, if given orally, to be
promptly confirmed in writing) of its acceptance, promptly after the Expiration
Date, of all Old Securities properly tendered and you, on behalf of the Company,
will exchange such Old Securities for New Securities and cause such Old
Securities to be cancelled. Delivery of New Securities will be made on behalf of
the Company by you at the rate of $1,000 principal amount of New Securities for
each $1,000 principal amount of the corresponding series of Old Securities
tendered promptly after notice (such notice if given orally, to be promptly
confirmed in writing) of acceptance of said Old Securities by the Company;
provided, however, that in all cases, Old Securities tendered pursuant to the
Exchange Offer will be exchanged only after timely receipt by you of
certificates for such Old Securities (or confirmation of book-entry transfer
into your account at the Book-Entry Transfer Facility), a properly completed and
duly executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantees and any other required documents. You shall
issue New Securities only in denominations of $1,000 or any integral multiple
thereof.
- 3 -
<PAGE> 4
9. Tenders pursuant to the Exchange Offer are irrevocable,
except that, subject to the terms and upon the conditions set forth in the
Prospectus and the Letter of Transmittal, Old Securities tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old
Securities tendered if any of the conditions set forth in the Exchange Offer are
not met. Notice of any decision by the Company not to exchange any Old
Securities tendered shall be given (if given orally, to be promptly confirmed in
writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not
accept for exchange all or part of the Old Securities tendered because of an
invalid tender, the occurrence of certain other events set forth in the
Prospectus under the caption ["The Exchange Offer -- Certain Conditions to the
Exchange Offer"] or otherwise, you shall as soon as practicable after the
expiration or termination of the Exchange Offer return those certificates for
unaccepted Old Securities (or effect appropriate book-entry transfer), together
with any related required documents and the Letters of Transmittal relating
thereto that are in your possession, to the persons who deposited them.
12. All certificates for reissued Old Securities, unaccepted
Old Securities or for New Securities shall be forwarded by first-class mail.
13. You are not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, bank or
other persons or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall not be liable for any action or omission to act
unless the same constitutes your own gross negligence, willful misconduct or bad
faith, and in no event shall you be liable to a securityholder, the Company or
any third party for special, indirect or consequential damages, or lost profits,
arising in connection with this Agreement.
(b) shall have no duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in writing
between you and the Company;
(c) will be regarded as making no representations and
having no responsibilities as to the validity, sufficiency, value or genuineness
of any of the certificates or the Old Securities represented thereby deposited
with you pursuant to the Exchange Offer, and will not be required to and will
make no representation as to the validity, value or genuineness of the Exchange
Offer;
- 4 -
<PAGE> 5
(d) shall not be obligated to take any legal action
hereunder which might in your judgment involve any expense or liability, unless
you shall have been furnished with indemnity satisfactory to you;
(e) may conclusively rely on and shall be protected in
acting in reliance upon any certificate, instrument, opinion, notice, letter,
telegram or other document or security delivered to you and believed by you to
be genuine and to have been signed or presented by the proper person or persons;
(f) may act upon any tender, statement, request, document,
agreement, certificate or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or presented by the proper
person or persons;
(g) may conclusively rely on and shall be protected in
acting upon written or oral instructions from any authorized officer of the
Company;
(h) may consult with counsel of your selection with respect
to any questions relating to your duties and responsibilities and the advice or
opinion of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted to be taken by you hereunder
in good faith and in accordance with the advice or opinion of such counsel; and
(i) shall not advise any person tendering Old Securities
pursuant to the Exchange Offer as to the wisdom of making such tender or as to
the market value or decline or appreciation in market value of any Old
Securities.
15. You shall take such action as may from time to time be
requested by the Company (and such other action as you may deem appropriate) to
furnish copies of the Prospectus, Letter of Transmittal and the Notice of
Guaranteed Delivery (as defined in the Prospectus) or such other forms as may be
approved from time to time by the Company, to all persons requesting such
documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents on your request. All
other requests for information relating to the Exchange Offer shall be directed
to the Company, Attention: ____________________.
16. You shall advise by facsimile transmission _____, the
_____ of the Company (at the facsimile number _____), and such other person or
persons as the Company may request, daily (and more frequently during the week
immediately preceding the Expiration Date if requested) up to and including the
Expiration Date, as to the number of Old Securities which have been tendered
pursuant to the Exchange Offer and the items received by you pursuant to this
Agreement, separately reporting and
- 5 -
<PAGE> 6
giving cumulative totals as to items properly received and items improperly
received. In addition, you will also inform, and cooperate in making available
to, the Company or any such other person or persons upon oral request made from
time to time prior to the Expiration Date of such other information as they may
reasonably request. Such cooperation shall include, without limitation, the
granting by you to the Company and such person as the Company may request of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Old
Securities tendered, the aggregate principal amount of Old Securities accepted
and deliver said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery
shall be stamped by you as to the date and, after the expiration of the Exchange
Offer, the time, of receipt thereof and shall be preserved by you for a period
of time at least equal to the period of time you preserve other records
pertaining to the transfer of securities. You shall dispose of unused Letters of
Transmittal and other surplus materials by returning them to the Company.
18. For services rendered as Exchange Agent hereunder, you
shall be entitled to such compensation as set forth on Schedule I attached
hereto. The provisions of this section shall survive the termination of this
Agreement.
19. You hereby acknowledge receipt of the Prospectus and the
Letter of Transmittal. Any inconsistency between this Agreement, on the one
hand, and the Prospectus and the Letter of Transmittal (as they may be amended
from time to time), on the other hand, shall be resolved in favor of the latter
two documents, except with respect to your duties, liabilities and
indemnification as Exchange Agent.
20. The Company covenants and agrees to fully indemnify and
hold you harmless against any and all loss, liability, cost or expense,
including attorneys' fees and expenses, incurred without gross negligence or
willful misconduct on your part, arising out of or in connection with any act,
omission, delay or refusal made by you in reliance upon any signature,
endorsement, assignment, certificate, order, request, notice, instruction or
other instrument or document believed by you to be valid, genuine and sufficient
and in accepting any tender or effecting any transfer of Old Securities believed
by you in good faith to be authorized, and in delaying or refusing in good faith
to accept any tenders or effect any transfer of Old Securities. In each case,
the Company shall be notified by you, by letter or facsimile transmission, of
the written assertion of a claim against you or of any other action commenced
against you, promptly after you shall have received any such written assertion
or shall have been served with a summons in connection therewith. The Company
shall be entitled to participate at its own expense in the defense of any such
claim or other action and, if the Company so elects, the Company
- 6 -
<PAGE> 7
shall assume the defense of any suit brought to enforce any such claim. In the
event that the Company shall assume the defense of any such suit, the Company
shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you, so long as the Company shall retain counsel
satisfactory to you to defend such suit, and so long as you have not determined,
in your reasonable judgment, that a conflict of interest exists between you and
the Company. The provisions of this section shall survive the termination of
this Agreement.
21. You shall arrange to comply with all requirements under
the tax laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service.
22. You shall deliver or cause to be delivered, in a timely
manner to each governmental authority to which any transfer taxes are payable in
respect of the exchange of Old Securities, the Company's check in the amount of
all transfer taxes so payable; provided, however, that you shall reimburse the
Company for amounts refunded to you in respect of your payment of any such
transfer taxes, at such time as such refund is received by you.
23. This Agreement and your appointment as Exchange Agent
hereunder shall be construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of law principles, and shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.
24. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
25. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
26. This Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by a written instrument signed by a duly authorized representative of the party
to be charged. This Agreement may not be modified orally.
27. Unless otherwise provided herein, all notices, requests
and other communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party, addressed to it,
at its address or telecopy number set forth below:
- 7 -
<PAGE> 8
If to the Company:
---------------------------
---------------------------
---------------------------
Facsimile:
------------------
Attention:
------------------
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
28. Unless terminated earlier by the parties hereto, this
Agreement shall terminate 90 days following the Expiration Date. Notwithstanding
the foregoing, Sections 18 and 20 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
the Company any certificates for Securities, funds or property then held by you
as Exchange Agent under this Agreement.
29. This Agreement shall be binding and effective as of the
date hereof.
- 8 -
<PAGE> 9
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
------------------------------
By:
--------------------------
Name:
Title:
Accepted as of the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:
----------------------------------
Name:
Title:
- 9 -
<PAGE> 10
SCHEDULE I
COMPENSATION OF EXCHANGE AGENT:
[$5,000] PLUS $500 PER EXTENSION OF OFFER
PLUS OUT-OF POCKET EXPENSES, INCLUDING WITHOUT
LIMITATION, LEGAL FEES AND EXPENSES.
<PAGE> 1
Exhibit 4.1
================================================================================
Nuevo Grupo Iusacell, S.A. de C.V.
14 1/4% Senior Notes due 2006
-----------------------------------------------------
INDENTURE
Dated as of December 16, 1999
-----------------------------------------------------
THE BANK OF NEW YORK,
Trustee
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions..................................................................... 1
SECTION 1.02. Other Definitions............................................................... 36
SECTION 1.03. Incorporation by Reference of Trust Indenture Act............................... 37
SECTION 1.04. Rules of Construction........................................................... 37
SECTION 1.05. GAAP; Dollar Equivalents........................................................ 38
ARTICLE 2 THE SECURITIES
SECTION 2.01. Form and Dating................................................................. 38
SECTION 2.02. Execution and Authentication.................................................... 40
SECTION 2.03. Registrar and Paying Agent...................................................... 41
SECTION 2.04. Paying Agent to Hold Money in Trust............................................. 41
SECTION 2.05. Securityholder Lists............................................................ 42
SECTION 2.06. Transfer and Exchange........................................................... 42
SECTION 2.07. Replacement Securities.......................................................... 43
SECTION 2.08. Outstanding Securities.......................................................... 44
SECTION 2.09. Temporary Securities............................................................ 44
SECTION 2.10. Cancellation.................................................................... 44
SECTION 2.11. Defaulted Interest.............................................................. 45
SECTION 2.12. CUSIP Numbers................................................................... 45
SECTION 2.13. Book-entry Provisions for Global Securities..................................... 45
SECTION 2.14. Special Transfer Provisions..................................................... 46
ARTICLE 3 REDEMPTION
SECTION 3.01. Notices to Trustee.............................................................. 49
SECTION 3.02. Selection of Securities to Be Redeemed.......................................... 49
SECTION 3.03. Notice of Redemption............................................................ 49
SECTION 3.04. Effect of Notice of Redemption.................................................. 50
SECTION 3.05. Deposit of Redemption Price..................................................... 50
SECTION 3.06. Securities Redeemed in Part..................................................... 51
SECTION 3.07. Optional Redemption............................................................. 51
SECTION 3.08. Redemption for Tax Reasons...................................................... 51
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 4 COVENANTS
SECTION 4.01. Payment of Securities............................................................ 52
SECTION 4.02. Provision of Financial Information............................................... 53
SECTION 4.03. Limitation on Indebtedness....................................................... 54
SECTION 4.04. Limitation on Issuances of Guarantees of Indebtedness by
Subsidiaries.......................................................................... 58
SECTION 4.05. Limitation on Restricted Payments................................................ 59
SECTION 4.06. Limitation on Restrictions on Distributions from Restricted
Subsidiaries.......................................................................... 63
SECTION 4.07. Limitation on Sales of Assets and Subsidiary Stock............................... 65
SECTION 4.08. Limitation on Transactions with Affiliates....................................... 68
SECTION 4.09. Change of Control................................................................ 71
SECTION 4.10. Compliance Certificate........................................................... 75
SECTION 4.11. Further Instruments and Acts..................................................... 75
SECTION 4.12 Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries............................................................... 76
SECTION 4.13. Limitation on Liens.............................................................. 76
SECTION 4.14. Limitation on Sale/Leaseback Transactions........................................ 77
SECTION 4.15. Limitation on Lines of Business.................................................. 77
SECTION 4.16. Additional Amounts............................................................... 77
ARTICLE 5 SUCCESSOR COMPANY; SUCCESSOR TO BAC
SECTION 5.01. When Company May Merge or Transfer Assets........................................ 78
SECTION 5.02. When BAC May Merge or Transfer Assets............................................ 79
ARTICLE 6 DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default................................................................ 80
SECTION 6.02. Acceleration..................................................................... 83
SECTION 6.03. Other Remedies................................................................... 83
SECTION 6.04. Waiver of Past Defaults.......................................................... 84
SECTION 6.05. Control by Majority.............................................................. 84
SECTION 6.06. Limitation on Suits.............................................................. 84
SECTION 6.07. Rights of Holders to Receive Payment............................................. 85
SECTION 6.08. Collection Suit by Trustee....................................................... 85
SECTION 6.09. Trustee May File Proofs of Claim................................................. 85
SECTION 6.10. Priorities....................................................................... 85
SECTION 6.11. Undertaking for Costs............................................................ 86
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6.12. Waiver of Stay or Extension Laws................................................. 86
ARTICLE 7 TRUSTEE
SECTION 7.01. Duties of Trustee................................................................ 86
SECTION 7.02. Rights of Trustee................................................................ 88
SECTION 7.03. Individual Rights of Trustee..................................................... 89
SECTION 7.04. Trustee's Disclaimer............................................................. 89
SECTION 7.05. Notice of Defaults............................................................... 89
SECTION 7.06. Reports by Trustee to Holders.................................................... 90
SECTION 7.07. Compensation and Indemnity....................................................... 90
SECTION 7.08. Replacement of Trustee........................................................... 91
SECTION 7.09. Successor Trustee by Merger...................................................... 92
SECTION 7.10. Eligibility; Disqualification.................................................... 93
SECTION 7.11. Preferential Collection of Claims Against Company................................ 93
SECTION 7.12. Appointment of Co-Trustee....................................................... 93
ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Securities; Defeasance................................. 95
SECTION 8.02. Conditions to Defeasance......................................................... 96
SECTION 8.03. Application of Trust Money....................................................... 97
SECTION 8.04. Repayment to Company............................................................. 97
SECTION 8.05. Indemnity for Government Obligations............................................. 98
SECTION 8.06. Reinstatement.................................................................... 98
ARTICLE 9 AMENDMENTS
SECTION 9.01. Without Consent of Holders....................................................... 98
SECTION 9.02. With Consent of Holders.......................................................... 99
SECTION 9.03. Compliance with Trust Indenture Act............................................. 100
SECTION 9.04. Revocation and Effect of Consents and Waivers................................... 100
SECTION 9.05. Notation on or Exchange of Securities........................................... 101
SECTION 9.06. Trustee to Sign Amendments and Waivers.......................................... 101
SECTION 9.07. Payment for Consent............................................................. 102
ARTICLE 10 SECURITY
Section 10.01. Security....................................................................... 102
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 11 INTENTIONALLY OMITTED
ARTICLE 12 INTENTIONALLY OMITTED
ARTICLE 13 MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls................................................... 104
SECTION 13.02. Notices........................................................................ 104
SECTION 13.03. Communication by Holders with Other Holders.................................... 105
SECTION 13.04. Certificate and Opinion as to Conditions Precedent............................. 105
SECTION 13.05. Statements Required in Certificate or Opinion.................................. 106
SECTION 13.06. When Securities Disregarded.................................................... 106
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar................................... 106
SECTION 13.08. Legal Holidays................................................................. 107
SECTION 13.09. Governing Law.................................................................. 107
SECTION 13.10. Waiver of Immunities........................................................... 107
SECTION 13.11. Consent to Jurisdiction; Appointment of Agent for Service
of Process; Judgment Currency.................................................. 107
SECTION 13.12. No Recourse Against Others..................................................... 109
SECTION 13.13. Successors..................................................................... 109
SECTION 13.14. Multiple Originals............................................................. 110
SECTION 13.15. Table of Contents; Headings.................................................... 110
</TABLE>
iv
<PAGE> 6
Exhibit A - Form of Face of Initial Security
Exhibit B - Form of Face of Registered Exchange Security
Exhibit C - Form of Face of Private Exchange Security
Exhibit D - Form of Letter of Representation to be Delivered in
Connection with Transfers Pursuant to Regulation D
Exhibit E - Form of Letter to be Delivered in Connection with
Transfers Pursuant to Rule 144A
Exhibit F - Form of Letter to be Delivered in Connection with
Transfers Pursuant to Regulation S
v
<PAGE> 7
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
INDENTURE
TIA SECTION SECTION
- - --------------- -------
<S> <C>
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.05
(b) .............................. 13.03
(c) .............................. 13.03
313(a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. 7.06
(c) .............................. 7.06
(d) .............................. 7.06
314(a) .............................. 4.02; 4.10; 13.02
(b) .............................. N.A.
(c)(1) .............................. 13.04
(c)(2) .............................. 13.04
(c)(3) .............................. N.A.
</TABLE>
vi
<PAGE> 8
<TABLE>
<CAPTION>
INDENTURE
TIA SECTION SECTION
- - --------------- -------
<S> <C>
(d) .............................. N.A.
(e) .............................. 13.05
(f) .............................. 4.13
315(a) .............................. 7.01
(b) .............................. 7.05; 13.02
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316(a) (last .............................. 13.06
sentence)
(a)(1)(A) .............................. 6.05
(a)(1)(B) .............................. 6.04
(a)(2) .............................. N.A.
(b) .............................. 6.07
317(a)(1) .............................. 6.08
(a)(2) .............................. 6.09
(b) .............................. 2.04
318(a) .............................. 13.01
</TABLE>
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
vii
<PAGE> 9
INDENTURE dated as of December 16, 1999, between Nuevo Grupo Iusacell,
S.A. de C.V., a limited liability stock corporation organized under the laws of
Mexico (the "Company"), Bell Atlantic Corporation, a Delaware corporation
("BAC"), and The Bank of New York, a New York banking corporation (the
"Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's 14 1/4% Senior
Notes due 2006 (the "Initial Securities") and, when and if issued pursuant to an
exchange for Initial Securities, the Exchange Securities (as defined).
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"ADDITIONAL ASSETS" means:
(1) any property (other than cash, cash equivalents or securities) to
be owned by the Company or a Restricted Subsidiary and used in a
Related Business,
(2) the costs of improving or developing any property owned by the
Company or a Restricted Subsidiary which is used in a Related Business
and
(3) Investments in any other Person engaged primarily in a Related
Business (including the acquisition from third parties of Capital Stock
of such Person) as a result of which such other Person becomes a
Restricted Subsidiary.
"AFFILIATE" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 4.07 and 4.08 only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting
<PAGE> 10
Stock (whether or not currently exercisable) and any Person who would be an
Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"ANNUALIZED EBITDA" means, with respect to any Person, such Person's
Pro Forma EBITDA for such Person's two most recent fiscal quarters ended at
least 45 days prior to the determination date, multiplied by two.
"ASSET DISPOSITION" means any sale, lease, transfer, issuance or other
disposition of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than:
(1) a disposition by a Restricted Subsidiary to the Company or
by the Company or a Restricted Subsidiary to a Restricted Subsidiary,
(2) a disposition of inventory (including sales of capacity
and rights of use in the Company's network) in the ordinary course of
business,
(3) for purposes of the provisions of Section 4.07 only, a
disposition subject to (and complying with) Section 4.05,
(4) Permitted Securitization Transactions,
(5) Joint Venture Investments to the extent permitted pursuant
to clause (9) of the definition of "Permitted Investment,"
(6) a disposition of assets in one transaction or a series of
related transactions with a Fair Market Value of less than $250,000,
(7) an exchange of telecommunications assets where the Fair
Market Value of the telecommunications assets received is at least
equal to the Fair Market Value of the telecommunications assets
disposed of or, if less, the difference is received in cash, and such
cash is Net Available Cash,
(8) a disposition that is governed by the provisions of
Section 5.01,
(9) dispositions resulting from the foreclosure of a Permitted
Lien, and
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<PAGE> 11
(10) the sale or other disposition of cash or Temporary Cash
Investments.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means,
as at the time of determination:
(1) if such Sale/Leaseback Transaction is a Capitalized Lease
Obligation, the amount of Indebtedness represented thereby according to
the definition of "Capitalized Lease Obligation" and
(2) in all other instances, the present value (discounted at
the interest rate borne by the Securities, compounded annually) of the
total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been extended).
"AVERAGE LIFE" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years (including
fractions thereof) from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by
(2) the sum of all such payments.
"BAC" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which banking institutions in New York State or in Mexico are authorized or
required by law to close.
"CAPITAL STOCK" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
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<PAGE> 12
"CAPITALIZED LEASE OBLIGATIONS" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"CHANGE OF CONTROL" means the occurrence of any of the following
events:
(1) (A) the earlier to occur of the time the Permitted
Holders cease to possess, or enter into any
agreement, which is subject to no condition other
than the passage of time, pursuant to which they
would cease to possess, directly or indirectly,
the power to elect a majority of the members of
the Board of Directors and thereby direct or cause
the direction of the management or policies of the
Company, whether through the ownership of voting
securities or by contract, or
(B) individuals elected by the Permitted Holders
cease to constitute a majority of the members of
the Board of Directors;
(2) the earlier to occur of the time the Permitted Holders
cease to be or enter into any agreement, which is subject to no
condition other than the passage of time, pursuant to which they would
cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of at least 30% in the
aggregate of the total voting power of the Voting Stock of the Company,
whether as a result of issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (2), the Permitted Holders shall
be deemed to own beneficially any Voting Stock of an entity (the
"specified entity") held by any other entity (the "parent entity") so
long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power
of the Voting Stock of the parent entity);
(3) (A) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than
one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (2) above,
except that
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<PAGE> 13
such person shall be deemed to have "beneficial
ownership" of all shares that any such person has
the right to acquire, whether such right is
exercisable immediately or only after the passage
of time), directly or indirectly, of more than 30%
of the total voting power of the Voting Stock of
the Company and
(B) the earlier to occur of the time the Permitted
Holders "beneficially own" (as defined in clause
(2) above), directly or indirectly, or enter into
any agreement, which is subject to no condition
other than the passage of time, pursuant to which
they would "beneficially own", directly or
indirectly in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the
Company than such other person and do not (or
would not) have the right or ability by voting
power, contract or otherwise to elect or designate
for election a majority of the Board of Directors
(for the purposes of this clause (3), such other
person shall be deemed to own beneficially any
Voting Stock of a specified entity held by a
parent entity, if such other person "beneficially
owns" (as defined in this clause (3)), directly or
indirectly, more than 30% of the voting power of
the Voting Stock of such parent entity and the
Permitted Holders "beneficially own" (as defined
in clause (2) above), directly or indirectly, in
the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent entity
and do not have the right or ability by voting
power, contract or otherwise to elect or designate
for election a majority of the board of directors
of such parent entity);
(4) the sale, conveyance, transfer, lease or other disposition
of all or substantially all the assets of the Company, whether in one
or more transactions or to one or more Persons, other than a sale,
conveyance, transfer, lease or other disposition of all or
substantially all the assets of the Company to a Person that is
controlled by the Permitted Holders; or
(5) a "Change of Control," within the meaning of the 1997
Indenture, shall have occurred under the 1997 Indenture; or a change of
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<PAGE> 14
control (or similar event, however designated) of the Company or any of
its Restricted Subsidiaries shall occur that gives the holder of any
Indebtedness of the Company or any of its Restricted Subsidiaries
(including Indebtedness under the Credit Facility and the Eximbank
Facility) the right to require the Company or any of its Restricted
Subsidiaries to repurchase or repay such Indebtedness or such
Indebtedness otherwise becomes due and payable as a result of such
change of control.
"COMPANY" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"CONSOLIDATED CURRENT LIABILITIES" means, as of any date of
determination, the aggregate amount of liabilities of the Company and its
Consolidated Restricted Subsidiaries which may properly be classified as current
liabilities (including taxes accrued as estimated), after eliminating:
(1) all intercompany items between the Company and any
Restricted Subsidiary and
(2) all current maturities of long-term Indebtedness.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total
interest expense of the Company and its Consolidated Restricted Subsidiaries,
plus, to the extent Incurred by the Company or its Restricted Subsidiaries in
such period but not included in such interest expense:
(1) interest expense attributable to Capitalized Lease
Obligations,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest,
(4) noncash interest expense,
(5) commissions, discounts and other fees and charges with
respect to letters of credit and bankers' acceptance financing,
(6) interest accruing on any Indebtedness of any other Person
to the extent such Indebtedness is Guaranteed by the Company or any
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<PAGE> 15
Restricted Subsidiary; provided that payment of such amounts by the
Company or any Restricted Subsidiary is being made to, or is sought by,
the holders of such Indebtedness pursuant to such Guarantee,
(7) net costs associated with Hedging Obligations (including
amortization of fees and premiums) permitted under this Indenture,
(8) Preferred Stock dividends in respect of all Preferred
Stock of Subsidiaries of the Company and Disqualified Stock of the
Company held by Persons other than the Company or a Restricted
Subsidiary (other than dividends payable solely in Capital Stock other
than Disqualified Stock); provided that to the extent a Restricted
Subsidiary is not a Wholly-Owned Subsidiary, a corresponding portion of
any such dividends paid to such Restricted Subsidiary shall be included
in Consolidated Interest Expense, and
(9) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such
plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or
trust;
provided, however, that Consolidated Interest Expense shall not include any
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss)
of the Company and its Consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not
a Restricted Subsidiary, except that:
(A) subject to the limitations contained in clause (4)
below, the Company's equity in the net income of
any such Person for such period shall be included
in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by
such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend
or other distribution to a Restricted Subsidiary,
to the limitations contained in clause (3) below)
and
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<PAGE> 16
(B) the Company's equity in a net loss of any such
Person (other than an Unrestricted Subsidiary) for
such period shall be included in determining such
Consolidated Net Income;
(2) any net income (loss) of any person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
(3) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions
by such Restricted Subsidiary, directly or indirectly, to the Company
(other than restrictions contained in Specified Subsidiary Debt),
except that:
(A) subject to the limitations contained in clause (4)
below, the Company's equity in the net income of
any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income
up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary
during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in
the case of a dividend that could have been made
to another Restricted Subsidiary, to the
limitation contained in this clause) and
(B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be
included in determining such Consolidated Net
Income;
(4) any gain (but not loss) realized upon the sale or other
disposition of any asset of the Company or its Consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction)
that is not sold or otherwise disposed of in the ordinary course of
business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting
principles.
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<PAGE> 17
Notwithstanding the foregoing, for the purpose of
Section 4.05 only, there shall be excluded from Consolidated
Net Income any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such Section pursuant to
clause (C)(iv) of paragraph (a) thereof.
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of
determination, the sum of the total assets (less accumulated depreciation and
amortization, allowances for doubtful receivables, other applicable reserves and
other properly deductible items) of the Company and its Consolidated Restricted
Subsidiaries, after giving effect to purchase accounting and after deducting
therefrom Consolidated Current Liabilities and, to the extent otherwise
included, the amounts of (without duplication):
(1) the excess of cost over fair market value of assets or
businesses acquired;
(2) any revaluation or other write-up in book value of assets
subsequent to the last day of the fiscal quarter of the Company
immediately preceding the Issue Date as a result of a change in the
method of valuation in accordance with GAAP;
(3) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, licenses, organization or developmental
expenses and other intangible items;
(4) minority interests in Consolidated Subsidiaries held by
Persons other than the Company or any Restricted Subsidiary;
(5) treasury stock;
(6) cash set aside and held in a sinking or other analogous
fund established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and
(7) Investments in and assets of Unrestricted Subsidiaries.
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<PAGE> 18
"CONSOLIDATION" means the consolidation of the amounts of each of the
Subsidiaries of a Person with those of such Person in accordance with GAAP
consistently applied; provided, however, that, in the case of the Company,
"Consolidation" shall not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of the Company or any Restricted
Subsidiary in an Unrestricted Subsidiary shall be accounted for as an
investment. The term "Consolidated" has a correlative meaning.
"CREDIT FACILITY" means the credit agreement dated as of July 25, 1997,
as amended, waived or otherwise modified from time to time, among Grupo
Iusacell, S.A. de C.V., the lenders named therein and Chase Manhattan Bank, as
administrative agent (except to the extent that any such amendment, waiver or
other modification thereto would be prohibited by the terms of this Indenture,
unless otherwise agreed to by the Holders of at least a majority in aggregate
principal amount of Securities at the time outstanding).
"CUMULATIVE EBITDA" means, at any date of determination, the cumulative
EBITDA of the Company from and after the first day of the fiscal quarter of the
Company following the end of the most recent fiscal quarter of the Company
preceding the Issue Date to the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made.
"CUMULATIVE INTEREST EXPENSE" means, at any date of determination, the
aggregate amount of Consolidated Interest Expense Incurred by the Company from
and after the first day of the fiscal quarter of the Company following the end
of the most recent fiscal quarter of the Company preceding the Issue Date to the
end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made.
"CURRENCY AGREEMENT" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"DEPOSITARY" means, with respect to the Securities issuable or issued
in whole or in part in global form, the Person specified in Section 2.03 as the
Depositary with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.
10
<PAGE> 19
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock which by its terms (or the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event:
(1) matures or is or could become mandatorily redeemable
pursuant to a sinking fund obligation or otherwise,
(2) is or could become convertible or exchangeable for
Indebtedness or Disqualified Stock, or
(3) is or could become redeemable at the option of the Holder
thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Securities.
"DOLLAR EQUIVALENT" means, with respect to any monetary amount in a
currency other than U.S. dollars, at any time for the determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the noon buying rate for the purchase of
U.S. dollars with the applicable foreign currency reported by the Federal
Reserve Bank of New York, or if no noon buying rate is so reported, at the spot
rate for the purchase of U.S. dollars with the applicable foreign currency as
quoted by The Chase Manhattan Bank in New York City at approximately 11:00 a.m.
(New York City time):
(1) with respect to the calculation of Leverage Ratio,
Cumulative EBITDA and Cumulative Interest Expense, as of the end of the
most recent fiscal quarter of the Company ending at least 45 days prior
to the taking of any action for the purpose of which the determination
is being made or
(2) with respect to the monetary amount of a transaction
occurring subsequent to the end of such fiscal quarter, on the date two
Business Days prior to such determination.
"EBITDA" for any period means the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income:
(1) income and asset tax expense and employee profit sharing
expense,
(2) Consolidated Interest Expense,
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<PAGE> 20
(3) depreciation expense,
(4) amortization expense,
(5) foreign exchange losses that are reported below the
"Operating profit (loss)" line on the Company's consolidated income
statements and
(6) all non-cash items that are reported below the "Operating
profit (loss)" line on the Company's consolidated income statements,
including monetary losses (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP
to be, made), less the following to the extent included in calculating
such Consolidated Net Income:
(A) income and asset tax benefit,
(B) foreign exchange gains that are reported below the
"Operating profit (loss)" line on the Company's
consolidated statements of income,
(C) all non-cash items that are reported below the
"Operating profit (loss)" line on the Company's
consolidated statements of income, including
monetary gains (other than items that will result
in the receipt of cash payments), in each case for
such period, and
(D) all income and capital gain earned from the
investment and reinvestment of amounts in the
Security Account.
In addition, the cost of handsets given to customers
in such period shall be deducted from EBITDA to the extent not
already deducted in determining Consolidated Net Income.
Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation
and amortization of, a Subsidiary of the Company shall be
added to Consolidated Net Income to compute EBITDA only to the
extent (and in the same proportion) that the net income (loss)
of such Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the
Company by such
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<PAGE> 21
Subsidiary without prior approval (or with approval that has
been obtained), pursuant to the terms of its charter and all
agreements (other than Specified Subsidiary Debt),
instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its
stockholders.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AND REGISTRATION RIGHTS AGREEMENT" means the Exchange and
Registration Rights Agreement dated as of the Issue Date by and among the
Initial Purchasers, the Company and the Initial Guarantors, as such agreement
may be amended, modified, or supplemented from time to time in accordance with
the terms thereof.
"EXCHANGE SECURITIES" means the Registered Exchange Securities and the
Private Exchange Securities, collectively.
"EXIMBANK FACILITY" means the credit agreement dated as of March 3,
1999, as amended, waived or otherwise modified from time to time, among Grupo
Iusacell, S.A. de C.V., the guarantors named therein, UBS AG, as lender and
collateral agent and Export-Import Bank of the United States and the commercial
loan agreement dated as of March 3, 1999, as amended, waived or otherwise
modified from time to time, among Grupo Iusacell, S.A. de C.V., the guarantors
named therein, Commerzbank AG, as commercial lender, and UBS AG, as commercial
lender and commercial agent and as collateral agent (except in each case to the
extent that any such amendment, waiver or other modification thereto would be
prohibited by the terms of this Indenture, unless otherwise agreed to by the
Holders of at least a majority in aggregate principal amount of notes at the
time outstanding).
"FAIR MARKET VALUE" means, with respect to any property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided:
(1) if such property has a Fair Market Value equal to or less
than U.S.$10.0 million, by an Officer of the Company or
(2) if such Property has a Fair Market Value in excess of
U.S.$10.0 million, by a majority of the Board of Directors and
evidenced by a resolution of the Board of Directors promptly delivered
to the Trustee.
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<PAGE> 22
"GAAP" means generally accepted accounting principles in Mexico as in
effect as of the Issue Date. All ratios and computations based on GAAP contained
in this Indenture shall be computed in conformity with GAAP.
"GLOBAL SECURITY" means a Security that is in the form of Exhibit A,
Exhibit B or Exhibit C hereto that includes the Global Security Legend.
"GLOBAL SECURITY LEGEND" means the legend set forth under such caption
in Exhibit A, Exhibit B and Exhibit C hereto.
"GOVERNMENT SECURITIES" means securities that are (a) direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States of America (including any agency or
instrumentality thereof) of the payment of which the full faith and credit of
the United States of America is pledged, (b) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or (c) obligations of a
Person the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America.
"GRUPO IUSACELL NOTES" means 10% Senior Notes of Grupo Iusacell, S.A.
de C.V. due 2004 originally issued in $150,000,000 principal amount.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such
other Person (whether arising by virtue of partnership arrangements, or
by agreement to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement conditions
or otherwise) or
(2) entered into for purposes of assuring in any other manner
the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
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<PAGE> 23
"HEDGING OBLIGATIONS" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDER" or "SECURITYHOLDER" means the Person in whose name a Security
is registered on the Registrar's books.
"INCUR" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary; provided further, that solely for
purposes of determining compliance with Section 4.03, amortization of debt
discount shall not be deemed to be the Incurrence of Indebtedness; provided
further, that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness Incurred shall at all times be the aggregate principal amount at
Stated Maturity.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of
indebtedness of such Person for borrowed money;
(2) the principal of and premium (if any) in respect of
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments (other than (A) promissory notes or similar
instruments issued in the ordinary course of business to guarantee the
payment of Trade Payables, and (B) obligations entered into in the
ordinary course of business to the extent not drawn upon, or if drawn,
such drawing is reimbursed no later than the third Business Day
following payment);
(3) all obligations of such Person in respect of letters of
credit, surety bonds or other similar instruments (including
reimbursement obligations with respect thereto) other than obligations
entered into in the ordinary course of business to the extent not drawn
upon, or if drawn, such drawing is reimbursed no later than the third
Business Day following payment;
(4) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services (except Trade Payables),
which purchase price is due more than 270 days after the date of
placing such property in service or taking delivery and title thereto
or the completion of such services;
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<PAGE> 24
(5) all Capitalized Lease Obligations and all Attributable
Debt of such Person;
(6) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to the Company, any Preferred Stock of the
Restricted Subsidiaries (but excluding, in each case, any accrued
dividends);
(7) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of Indebtedness of such
Person shall be the lesser of:
(A) the fair market value of such asset at such date
of determination and
(B) the amount of such Indebtedness of such other
Persons;
(8) all Indebtedness of other Persons to the extent Guaranteed
by such Person; and
(9) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent
obligations described above at such date. The amount of Indebtedness
with respect to Hedging Obligations shall be:
(A) zero, if such Hedging Obligation is permitted
pursuant to clause (b) (5) (B) of Section 4.03 or
(B) the notional amount of such Hedging Obligation, if
such Hedging Obligation is not so permitted.
"INDENTURE" means this Indenture as amended or supplemented from time
to time.
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"INITIAL PURCHASERS" means Chase Securities Inc., Salomon Smith Barney
Inc. and the other several Initial Purchasers named on Schedule 1 to the
Purchase Agreement.
"INTEREST RATE AGREEMENT" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"INVESTMENT" in any Person means any direct or indirect advance (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender), loan or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and Section
4.05,
(1) "Investment" shall include the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market
value of the net assets of any Subsidiary of the Company at the time
that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have
a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to:
(A) the Company's "Investment" in such Subsidiary at
the time of such redesignation less
(B) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market
value of the net assets of such Subsidiary at the
time of such redesignation; and
(2) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of
Directors.
"ISSUE DATE" means the date on which the Securities are originally
issued.
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"JOINT VENTURE INVESTMENT" means
(1) any sale, lease, transfer, issuance or other disposition
of shares of Capital Stock of a Subsidiary, property or other assets by
the Company or any of the Restricted Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction)
which is engaged in or used in, as applicable, a Related Business, in
exchange for which the Company or a Restricted Subsidiary receives
Capital Stock of another Person (other than the Company or a Restricted
Subsidiary) engaged primarily in a Related Business, provided that the
fair market value of such Capital Stock is at least equal to the fair
market value of such shares, property or assets that are the subject of
such disposition and
(2) any Investment in Iusacell PCS, S.A. de C.V.
"LEVERAGE RATIO" means the ratio of:
(1) the outstanding consolidated Indebtedness of a Person and
its Subsidiaries (or in the case of the Company, the Restricted
Subsidiaries) divided by
(2) the Annualized EBITDA of such Person.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"MASTER TECHNICAL SERVICES AGREEMENT" means the Master Technical
Services Agreement by and between Bell Atlantic International, Inc. and
Sistecel, S.A. de CV, effective as of January 1, 1997, without giving effect to
any amendment, waiver or other modification thereof.
"MEXICO" means the United Mexican States.
"NET AVAILABLE CASH" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a promissory note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the shares, properties or other assets that are the
subject of such Asset Disposition or received in any other noncash form)
therefrom, in each case net of
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<PAGE> 27
(1) all legal, title and recording tax expenses, commissions
and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by
any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which (unless it is Subordinated
Debt) must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law be repaid out of the
proceeds from such Asset Disposition,
(3) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and
(4) appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition.
"NET CASH PROCEEDS", with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"1997 INDENTURE" means the indenture dated as of July 25, 1997 among
Grupo Iusacell, S.A. de C.V., certain subsidiary guarantors and First Union
National Bank, as trustee.
"NORTHERN REGION LICENSE HOLDER" means any holder or licensee of a
Cellular A-Band license in the Northern Regions.
"NORTHERN REGIONS" means any one or more of Region 1, Region 2, Region
3 and Region 4, as such regions are on the date hereof referred to for Mexican
regulatory purposes.
"OFFICER" of any Person means the Chairman of the Board, the Chief
Executive Officer, the Director General, the Chief Financial Officer, the Chief
Operating Officer, the President, any Vice President, the Treasurer or the
Secretary of such Person.
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"OFFICERS' CERTIFICATE" means a certificate signed by two Officers of
the Company or BAC, as the case may be.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"OWNERSHIP REGULATED SUBSIDIARIES" means each of Iusacell PCS, S.A. de
C.V. (personal communications services), Infotelecom, S.A. de C.V. (paging
services), Iusatel, S.A. de C.V. (long distance services),
Iusatelecomunicaciones, S.A. de C.V. (local wireless services), Punto-a-Punto
Iusacell, S.A. de C.V. (certain microwave operations) and any other Subsidiary
of the Company, in each case as to which applicable law or regulation prohibits
the Company from owning a majority of the Voting Stock thereof.
"PERALTA GROUP" means Carlos Peralta Quintero and his Affiliates (other
than the Company and its Subsidiaries).
"PERMITTED HOLDERS" means BAC and any Affiliate of BAC.
"PERMITTED INVESTMENT" means an Investment by the Company or any
Restricted Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person which
will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such
Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all its assets to, the Company or a
Restricted Subsidiary; provided, however, that such Person's primary
business is a Related Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted
Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary
trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;
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<PAGE> 29
(5) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
(6) loans or advances to employees made in the ordinary course
of business consistent with past practices of the Company or such
Restricted Subsidiary and not exceeding U.S.$3.0 million in the
aggregate outstanding at any one time;
(7) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments;
(8) any securities or other Investments received in compliance
with Section 4.07;
(9) Joint Venture Investments in an aggregate amount not to
exceed the greater of
(A) U.S.$50.0 million and
(B) 5% of Consolidated Net Tangible Assets, provided
that the amount of any such Joint Venture
Investment shall be deemed to equal the Fair
Market Value at the time of disposition of the
shares of Capital Stock, property or other assets
disposed of in connection with such Joint Venture
Investment;
(10) Iusatelecomunicaciones, S.A. de C.V. as an Unrestricted
Subsidiary in an aggregate amount not to exceed U.S.$12.0 million;
(11) any purchases of Indebtedness, options, futures and other
securities in connection with Interest Rate Agreements or Currency
Agreements permitted to be incurred under Section 4.03; and
(12) Iusacell PCS, S.A. de C.V. in an amount not to exceed
U.S.$70.0 million, the entire proceeds of which are immediately used by
Iusacell PCS, S.A. de C.V. to repay Indebtedness owing to Grupo
Iusacell, S.A. de C.V.
"PERMITTED LIENS" means, with respect to any Person:
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<PAGE> 30
(1) pledges or deposits by such Person under worker's
compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts
(other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States
government bonds to secure surety bonds to which such Person is a
party, or deposits as security for contested taxes or import duties or
for the payment of rent, in each case Incurred in the ordinary course
of business;
(2) Liens imposed by law, such as carriers', warehousemen's
and mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings or other Liens
arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other
proceedings for review and 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 accounts or other
funds maintained with a creditor depository institution;
(3) Liens for taxes not yet due or payable or subject to
penalties for non-payment and which are being contested in good faith
by appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of
credit issued pursuant to the request of and for the account of such
Person in the ordinary course of its business;
(5) survey exceptions, encumbrances, easements or reservations
of, or rights of others for, licenses, rights-of-way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in
the operation of the business of such Person;
(6) Liens on property or assets that are the subject of
Indebtedness permitted under clause (8) of paragraph (b) of Section
4.03 (other than the Refinancing Indebtedness referred to in such
clause (8) which Refinancing Indebtedness shall be the subject of
clause (15) below); provided, however, that:
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<PAGE> 31
(A) any such Lien is limited to the specific property
or asset being financed or, in the case of real
property or fixtures, including additions and
improvements, the real property on which such
asset is attached,
(B) such Indebtedness is Incurred solely for the
purpose of financing the acquisition, construction
or lease of such property or asset and
(C) such Indebtedness is incurred within 365 days
after the later of the acquisition, completion of
construction, repair, improvement or addition or
commencement of full operation of such property or
asset by the Company or a Restricted Subsidiary;
(7) Liens existing on the Issue Date or required to be granted
pursuant to the terms of Indebtedness existing on the Issue Date as in
effect on the Issue Date;
(8) Liens on property of a Person at the time such Person
becomes a Subsidiary; provided, however, such Liens are not created,
Incurred or assumed in connection with, or in contemplation of, such
Person becoming such a Subsidiary of the Company; provided further,
however, that such Liens may not extend to any other property owned by
the Company or any Restricted Subsidiary (other than assets and
property affixed or appurtenant thereto);
(9) Liens on property at the time the Company or a Restricted
Subsidiary acquired the property, including any acquisition by means of
a merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that such Liens are not created,
Incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend
to any other property owned by the Company or any Restricted Subsidiary
(other than assets and property affixed or appurtenant thereto);
(10) Liens securing Indebtedness or other obligations of a
Restricted Subsidiary owing to the Company or a Wholly Owned
Subsidiary;
(11) Liens securing Hedging Obligations so long as the related
Hedging Obligations are permitted under clause (5)(B) of paragraph (b)
of Section 4.03;
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<PAGE> 32
(12) Liens in an aggregate amount not in excess of U.S.$10.0
million or its foreign currency equivalent at any time outstanding
securing one or more judgments or decrees against the Company or one of
its Subsidiaries, so long all such judgments or decrees are being
contested in good faith and any appropriate legal proceedings which may
have been duly initiated for the review of any such judgment or decree
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(13) leases and subleases of real property entered into in the
ordinary course of the business of the Company or the applicable
Restricted Subsidiary which do not interfere with the ordinary conduct
of the business of the Company or any Restricted Subsidiary, and which
are made on customary and usual terms applicable to similar properties;
(14) any interest or title by a lessor or sublessor, or any
Lien in favor of a landlord, arising under any real or personal
property lease under which the Company or any of the Restricted
Subsidiaries is a lessee, sublessee or subtenant and which the Company
or such Restricted Subsidiary entered into in the ordinary course of
its business (other than any Lien securing any Capitalized Lease
Obligation, Purchase Money Indebtedness or Sale/Leaseback Transaction);
(15) Liens to secure any refinancing, refunding, extension,
renewal or replacement (or successive refinancings, refundings,
extensions, renewals or replacements) as a whole, or in part, of any
Indebtedness secured by any Lien referred to in the foregoing clauses
(6), (7), (8) and (9); provided, however, that:
(A) such new Lien shall be limited to all or part of
the same property that secured the original Lien
(plus improvements on such property) and
(B) the Indebtedness secured by such Lien at such time
is not increased to any amount greater than the
sum of:
(i) the outstanding principal amount
or, if greater, committed amount of
the Indebtedness described under
clause (6), (7), (8) or (9) at the
time the original Lien became a
Permitted Lien under this Indenture
and
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<PAGE> 33
(ii) an amount necessary to pay any fees
and expenses, including premiums,
related to such refinancing,
refunding, extension, renewal or
replacement.
(16) Liens Incurred in connection with
Capitalized Lease Obligations permitted under this
Indenture; provided that such Liens do not extend or
cover any property other than the property that is
the subject of the Capitalized Lease Obligation;
(17) Liens Incurred in the ordinary course
of business of the Company and its Subsidiaries with
respect to obligations that do not exceed U.S.$10
million at any one time outstanding;
(18) Liens in favor of the Company or any
Restricted Subsidiary; and
(19) the Lien on the Security Account in
favor of the Holders of the Securities.
"PERMITTED SECURITIZATION TRANSACTION" means any sale, discount,
conveyance or other disposition of receivables generated through the Company's
Consolidated operations:
(1) that is made without representation or warranty (except
for representations and warranties normally and customarily given by
sellers and servicers in connection with asset securitization
transactions),
(2) that is made pursuant to bona fide transactions with third
parties for Fair Market Value,
(3) in respect of which the Company and the Restricted
Subsidiaries neither incur nor accept any risk other than risk in
respect of the representations and warranties as described in clause
(1) above, risk arising in connection with the obligation to service
such receivables and other risks normally and customarily incurred or
accepted by sellers and servicers and their affiliates in connection
with asset securitization transactions and
(4) that the Company in good faith accounts for as, and
intends that such transactions will be characterized under U.S. GAAP
(as defined below) as, a "true sale" and not a liability.
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<PAGE> 34
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PLEDGED SECURITIES" means the securities purchased by the Company with
a portion of the net proceeds from the initial offer and sale by the Company of
the Initial Securities, which shall consist of Government Securities, to be
deposited in the Security Account.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"PRINCIPAL" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"PRIVATE EXCHANGE" shall have the meaning set forth in the Exchange and
Registration Rights Agreement.
"PRIVATE EXCHANGE SECURITIES" means notes of the Company to be
delivered in a Private Exchange pursuant to the Exchange and Registration Rights
Agreement.
"PRIVATE PLACEMENT LEGEND" means the legend set forth under such
caption in Exhibit A and Exhibit C hereto.
"PRO FORMA EBITDA" means for any Person, for any period, the EBITDA of
such Person as determined on a Consolidated basis in accordance with GAAP
consistently applied after giving effect to the following:
(1) if, during or after such period, such Person or any of its
Subsidiaries shall have made any disposition of any Person or business,
Pro Forma EBITDA of such Person and its Subsidiaries shall be computed
so as to give pro forma effect to such disposition as if such
disposition occurred at the beginning of such period,
(2) if, during or after such period, such Person or any of its
Subsidiaries completes an acquisition of any Person or business which
immediately after such acquisition is a Subsidiary of such Person or
whose
26
<PAGE> 35
assets are held directly by such Person or a Subsidiary of such Person,
Pro Forma EBITDA shall be computed so as to give pro forma effect to
the acquisition of such Person or business as if such acquisition
occurred at the beginning of such period and
(3) if during or after such period, such Person or any of its
Subsidiaries Incurs or repays any Indebtedness, Pro Forma EBITDA shall
be computed so as to give pro forma effect to such Incurrence or
repayment; provided, however, that, with respect to the Company, all
the foregoing references to "Subsidiary" or "Subsidiaries" shall be
deemed to refer only to "Restricted Subsidiaries."
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act or in Mexico pursuant to the Mexican Securities Market
Law (Ley del Mercado de Valores) and the regulations of the Comision Nacional
Bancaria y de Valores (the Mexican National Banking and Securities Commission).
"PURCHASE AGREEMENT" means the Purchase Agreement dated December
9, 1999, among the Company, Grupo Iusacell, S.A. de C.V. and the Initial
Purchasers.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness:
(1) consisting of the deferred purchase price of property
(including, without limitation, handset inventory), conditional sale
obligations, obligations under any title retention agreement and other
purchase money obligations, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset
being financed, and
(2) Incurred in the ordinary course of business solely to
finance the acquisition, construction or lease by the Company or a
Restricted Subsidiary of such asset, including repairs, additions and
improvements thereto.
"REDEMPTION DATE" means the date fixed for the redemption of a Security
established by or pursuant to Section 3.07 and 3.08.
"REFINANCING INDEBTEDNESS" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances" and "refinanced"
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<PAGE> 36
shall have a correlative meaning) any Indebtedness existing on the date of this
Indenture or Incurred in compliance with this Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary (to the
extent permitted in this Indenture) and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing Indebtedness; provided,
however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no
earlier than the Stated Maturity of the Indebtedness being refinanced,
(2) the Refinancing Indebtedness has an Average Life at the
time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced,
(3) the Refinancing Indebtedness shall not be senior in right
of payment to the Indebtedness being refinanced and
(4) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the sum of:
(A) the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted
value) then outstanding of the Indebtedness being
refinanced and
(B) the amount of prepayment premiums owed, if any,
not in excess of the amount provided for by the
preexisting prepayment provisions of such
Indebtedness being refinanced; provided further,
however, that Refinancing Indebtedness shall not
include:
(i) Indebtedness of a Restricted
Subsidiary that refinances
Indebtedness of the Company or
(ii) Indebtedness of the Company or a
Restricted Subsidiary that
refinances Indebtedness of an
Unrestricted Subsidiary.
"REGISTERED EXCHANGE OFFER" shall have the meaning set forth in the
Exchange and Registration Rights Agreement.
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"REGISTERED EXCHANGE SECURITIES" means notes of the Company to be
delivered in a Registered Exchange Offer pursuant to the Exchange and
Registration Rights Agreement.
"REGISTRABLE SECURITIES" means (i) each Initial Security until the date
on which such Security has been exchanged for a freely transferable Security in
the Registered Exchange Offer, (ii) each Initial Security or Private Exchange
Security until the date on which it has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iii) each Initial Security or Private Exchange Security until the
date on which it is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.
"RELATED BUSINESS" means any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"REPRESENTATIVE" means the trustee, agent or representative (if any)
for an issue of Designated Senior Indebtedness.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person, other than leases between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries.
"SEC" means the United States Securities and Exchange Commission.
"SECONDMENT AGREEMENT" means the Agreement for the Reimbursement of
Compensation Expense (Secondment Agreement) by and between Bell Atlantic
International, Inc. and Sistecel, S.A. de C.V. , effective as of January 1,
1997, without giving effect to any subsequent amendment, waiver or other
modification thereof.
"SECURITY ACCOUNT" means the security account created under the
Security Agreement.
"SECURITY AGREEMENT" means the agreement dated as of the Issue Date
between the Company and The Bank of New York, as security agent.
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"SECURED INDEBTEDNESS" means any Indebtedness of the Company or a
Restricted Subsidiary secured by a Lien.
"SECURITIES" means, collectively, the Initial Securities and, when and
if issued as provided in the Exchange and Registration Rights Agreement, the
Exchange Securities.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"SPECIFIED SUBSIDIARY DEBT" means:
(1) the Grupo Iusacell Notes, the Credit Facility and the
Eximbank Facility, in each case as in effect on the Issue Date and
(2) any refinancing permitted under this Indenture provided
that the terms of such debt refinancing are not more restrictive.
"STATED MATURITY" means, with respect to any security or Indebtedness,
the date specified in such security or credit document as the fixed date on
which the final payment of principal of such security or Indebtedness is due and
payable, including pursuant to any mandatory redemption or prepayment provision
(but excluding any provision providing for the repurchase of such security or
prepayment of such Indebtedness at the option of the holder thereof or creditor
thereunder upon the happening of any contingency beyond the control of the
issuer or borrower unless such contingency has occurred).
"STRATEGIC INVESTOR" means any Person beneficially owning at least 10%
of the Company's outstanding Capital Stock (on a fully diluted basis) and any
Affiliate of such Person.
"STRATEGIC SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company
granted by Strategic Investors which by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is Incurred,
(1) is expressly made subordinate in right of payment to the
Securities on the terms provided in this Indenture and
(2) provides that no payment of principal, premium or interest
on, or any other payment with respect to, such Indebtedness may be made
until
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one year after the payment in full of all of the Company's obligations
under the Securities (other than for Mexican withholding taxes with
respect to interest paid in kind in the form of additional Strategic
Subordinated Indebtedness in an amount not to exceed 15% of the
aggregate principal amount of such additional Strategic Subordinated
Indebtedness).
"SUBORDINATED OBLIGATION" means
(1) any Strategic Subordinated Indebtedness and
(2) any Indebtedness (whether outstanding on the Issue Date or
thereafter Incurred) of the Company or any Restricted Subsidiary that
is subordinate and junior in right of payment to the Securities, as the
case may be, pursuant to a written agreement.
"SUBSIDIARY" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) 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:
(1) such Person or
(2) one or more Subsidiaries of such Person;
provided, however, that each Ownership Regulated Subsidiary shall be deemed to
be a Subsidiary of the Company for so long as:
(A) the Company beneficially owns a majority of the
outstanding Capital Stock thereof and
(B) applicable law or regulation prohibits the Company
from beneficially owning a majority of the Voting
Stock of such Ownership Regulated Subsidiary.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(1) direct obligations of the United States of America or any
agency or instrumentality thereof with a maturity of 365 days or less
from the date of acquisition and other obligations issued or directly
and fully guaranteed or insured by the United States of America or any
agency or
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<PAGE> 40
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof);
(2) demand deposits, certificates of deposit or Eurodollar
deposits with a maturity of 365 days or less from the date of
acquisition of any financial institution which at the date of
acquisition has combined capital and surplus and undivided profits of
not less than U.S.$500.0 million (or any foreign currency equivalent
thereof) and has outstanding indebtedness rated at least A by Standard
& Poor's Ratings Group and at least A2 by Moody's Investors Service,
Inc.;
(3) commercial paper, loan participation interests, medium
term notes, asset backed securities and other promissory notes,
including floating or variable rate obligations, issued by any Person
other than the Company or an Affiliate of the Company, with a remaining
maturity of 365 days or less from the date of acquisition and rated at
least A-1 or A-, as applicable, by Standard & Poor's Rating Group and
at least P-1 or A3, as applicable, by Moody's Investors Service, Inc.;
(4) repurchase agreements and reverse repurchase agreements
relating to marketable obligations directly or indirectly issued or
unconditionally guaranteed by the United States of America or issued by
any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition; provided, however, that the terms of such agreements
comply with the guidelines set forth in the Federal Financial
Agreements of Depositary Institutions with Securities Dealers and
Others, as adopted by the Comptroller of the Currency;
(5) securities with maturities of six months or less from the
date of acquisition issued or fully and unconditionally guaranteed by
any state, commonwealth or territory of the United States of America,
or by any political subdivision or taxing authority thereof, and rated
at least A by Standard & Poor's Ratings Group or A2 by Moody's
Investors Service, Inc.;
(6) instruments backed by letters of credit of institutions
satisfying the requirements of clause (2) above;
(7) Certificados de la Tesoreria de la Federacion (Cetes),
Bonos de Desarrollo del Gobierno Federal (Bondes) or Bonos Ajustables
del Gobierno Federal (Ajustabonos), in each case, issued by the Mexican
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<PAGE> 41
government and having a maturity of 365 days or less from the date of
acquisition;
(8) any other instruments issued or guaranteed expressly by
the Mexican government and denominated and payable in pesos and having
a maturity of 365 days or less from the date of acquisition;
(9) demand deposits, certificates of deposit and bankers'
acceptances denominated in pesos and issued by any of the five
top-rated banks (as evaluated by any internationally recognized rating
agency) organized under the laws of Mexico or any state thereof; and
(10) investment funds which invest solely in any of the
instruments described in clauses (1) through (9) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture, except as set forth in
Section 9.03.
"TRANSFER RESTRICTED SECURITY" means any Initial Security (other than
Securities purchased pursuant to Regulation S) or any Private Exchange Security.
"TRADE PAYABLES" means, with respect to any Person, any accounts
payable or any indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person arising in the ordinary course of business
in connection with the acquisition of goods or services.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"TRUST OFFICER" means when used with respect to the Trustee, any
officer within the corporate trust department of the Trustee, including any vice
president, assistant vice president, assistant secretary, assistant treasurer,
trust officer or any other officer of the Trustee who customarily performs
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such person's knowledge of and familiarity with the particular
subject and who shall have direct responsibility for the administration of this
Indenture.
"UNIFORM COMMERCIAL CODE" means the New York Uniform Commercial Code as
in effect from time to time.
"UNRESTRICTED SUBSIDIARY" means:
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<PAGE> 42
(1) Iusatelecomunicaciones, S.A. de C.V. (local wireless
service),
(2) Iusacell PCS, S.A. de C.V. (PCS services),
(3) any Subsidiary of the Company that at the time of
determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and
(4) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
either:
(A) the Subsidiary to be so designated has total
consolidated assets of U.S.$1,000 or less or
(B) if such Subsidiary has consolidated assets greater
than U.S.$1,000, then such designation would be
permitted under Section 4.05.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(i) the Company could Incur U.S.$1.00
of additional Indebtedness under
paragraph (a) of Section 4.03 and
(ii) no Default shall have occurred and
be continuing. Any such designation
by the Board of Directors shall be
evidenced to the Trustee by
promptly filing with the Trustee a
copy of the resolution of the Board
of Directors giving effect to such
designation and an Officers'
Certificate certifying that such
designation complied with the
foregoing provisions.
"U.S. GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth
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<PAGE> 43
(1) in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants,
(2) statements and pronouncements of the Financial Accounting
Standards Board,
(3) in such other statements by such other entity as approved
by a significant segment of the accounting profession, and
(4) the rules and regulations of the SEC 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 SEC.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"VOTING STOCK" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or another Wholly Owned Subsidiary.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
- - ----------------------------------------------------------------------- ----------
<S> <C>
"Additional Amounts"................................................... 4.16
"Affiliate Transaction"................................................ 4.08
"Agent Members"........................................................ 2.13
"Bankruptcy Law"....................................................... 6.01
"Blockage Notice"...................................................... 12.03
"covenant defeasance option"........................................... 8.01(b)
CT Corporation......................................................... 13.11(a)
"Custodian"............................................................ 6.01
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
- - ----------------------------------------------------------------------- ----------
<S> <C>
"Event of Default"..................................................... 6.01
"Excess Proceeds"...................................................... 4.07(a)
"Excessive Additional Amounts"......................................... 3.08
"IAIs"................................................................. 2.01(b)
"IAI Global Security".................................................. 2.01(b)
"Initial Securities"................................................... Preamble
"legal defeasance option".............................................. 8.01(b)
"Legal Holiday"........................................................ 13.08
Notice of Default...................................................... 6.01
"Obligations".......................................................... 11.01
"Offer"................................................................ 4.07(b)
"Offer Amount"......................................................... 4.07(c)
"Offer Notice ......................................................... 4.09(b)
"Offer Period"......................................................... 4.07(c)
"Offer Time"........................................................... 4.09(a)
"Offeror".............................................................. 4.09(b)
"Paying Agent"......................................................... 2.03
"Payment Blockage Period".............................................. 12.03
"Physical Securities".................................................. 2.01(c)
"Purchase Date"........................................................ 4.07(c)
"QIB Global Security".................................................. 2.01(b)
"QIBs"................................................................. 2.01(b)
"Registrar"............................................................ 2.03
"Regulation S"......................................................... 2.01(b)
"Regulation S Global Security"......................................... 2.01(b)
"Relevant Rating Agency"............................................... 4.09(a)
"Restricted Payment"................................................... 4.05
"Successor Company".................................................... 5.01
"U.S. Global Securities"............................................... 2.01(b)
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the TIA which
are incorporated by reference in and made a part of this Indenture. The
following TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture Securityholder" means a Securityholder.
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<PAGE> 45
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company and
any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the issuer dated such date
prepared in accordance with GAAP and accretion of principal on such
security shall be deemed to be the Incurrence of Indebtedness; and
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with respect
to such Preferred Stock, whichever is greater.
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<PAGE> 46
SECTION 1.05. GAAP; Dollar Equivalents. All ratios and computations
based on GAAP contained in this Indenture shall be computed in conformity with
GAAP, and all such ratios and computations shall be translated into Dollar
Equivalents.
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating.
(a) the Initial Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Indenture, and as otherwise
provided in this Article 2. Any Registered Exchange Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit B,
which is incorporated in and expressly made a part of this Indenture, and as
otherwise provided in this Article 2. Any Private Exchange Securities and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit C, which is incorporated in and expressly made a part of this Indenture,
and as otherwise provided in this Article 2. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company). Each Security
shall be dated the date of its authentication. The terms of the Securities set
forth in Exhibit A, Exhibit B and Exhibit C are part of the terms of this
Indenture. The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and integral multiples thereof.
(b) The Initial Securities are being offered and sold by the Company
to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Securities will be offered and sold by the Initial Purchasers only (i) to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) ("QIBS") and (ii) in reliance on Regulation S under the Securities Act
("REGULATION S"). After such initial offers and sales, the Initial Securities
may be transferred to, among others, QIBS, in reliance on Regulation S and to
institutional "Accredited Investors" (within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) ("IAIS") in accordance with certain
transfer restrictions. The Initial Securities shall be issued initially in the
form of three permanent Global Securities (with separate CUSIP numbers)
substantially in the form set forth in Exhibit A deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and
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<PAGE> 47
authenticated by the Trustee as hereinafter provided. One such Global Security
shall represent the Initial Securities sold to QIBs (the "QIB GLOBAL SECURITY").
A second such Global Security shall represent the Initial Securities sold
pursuant to Regulation S (the "REGULATION S GLOBAL SECURITY"), and such Global
Security shall not contain the Private Placement Legend. A third such Global
Security shall represent any Initial Securities transferred to IAIs (the "IAI
GLOBAL SECURITY" and, together with the QIB Global Security, the "U.S. GLOBAL
SECURITIES"). The aggregate principal amount of each Global Security may from
time to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided. Transfers of Initial Securities between QIBs and IAIs and to
purchasers pursuant to Regulation S shall be represented by appropriate
increases and decreases to the respective amounts of the appropriate Global
Securities, as more fully provided in Section 2.14.
(c) Initial Securities offered and sold other than as described in the
preceding two paragraphs, if any, shall be issued in the form of permanent
certificated securities in registered form in substantially the form set forth
in Exhibit A attached hereto without the Global Security Legend (the "PHYSICAL
SECURITIES").
SECTION 2.02. Execution and Authentication. Two Officers of the
Company shall sign the Securities for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate and deliver (i) Initial Securities for
original issue in an aggregate principal amount of $350,000,000, (ii) Registered
Exchange Securities for issue only in a Registered Exchange Offer, pursuant to
the Exchange and Registration Rights Agreement, for a like principal amount of
Initial Securities exchanged pursuant thereto and (iii) Private Exchange
Securities for issue only in a Private Exchange, pursuant to the Exchange and
Registration Rights Agreement, for a like principal amount of Initial Securities
exchanged pursuant thereto, in each case upon a written order of the Company
signed by two Officers of the Company or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the
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<PAGE> 48
Company. Such order shall specify the amount of the Securities to be
authenticated, the date on which the original issue of Securities is to be
authenticated and whether the Securities are to be Initial Securities,
Registered Exchange Securities or Private Exchange Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$350,000,000 except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Any such appointment shall be
evidenced by an instrument signed by an authorized officer of the Trustee, a
copy of which shall be furnished to the Company. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "REGISTRAR") and an office or agency where Securities may
be presented for payment (the "PAYING AGENT"). The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
have one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any Wholly Owned Subsidiary incorporated in either the United States
or Mexico may act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Global Securities.
The Company may remove any Registrar or Paying Agent upon written
notice to such Registrar or Paying Agent and to the Trustee; provided, however,
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<PAGE> 49
that no such removal shall become effective until (i) acceptance of an
appointment by a successor as evidenced by an appropriate agreement entered into
by the Company and such successor Registrar or Paying Agent, as the case may be,
and delivered to the Trustee or (ii) notification to the Trustee that the
Trustee shall serve as Registrar or Paying Agent until the appointment of a
successor in accordance with clause (i) above. The Registrar or Paying Agent may
resign at any time upon written notice given to the Company and the Trustee at
least ten Business Days prior to the effectiveness of such resignation;
provided, however, that the Trustee may resign as Paying Agent or Registrar only
if the Trustee also resigns as Trustee in accordance with Section 7.08.
SECTION 2.04. Paying Agent to Hold Money in Trust. Prior to each due
date of the principal or interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal or interest when so
becoming due. The Company shall require each Paying Agent (other than the
Trustee in its capacity as Paying Agent) to agree in writing that the Paying
Agent shall hold in trust for the benefit of Securityholders or the Trustee all
money held by the Paying Agent for the payment of principal of or interest on
the Securities and shall notify the Trustee of any default by the Company in
making any such payment. If the Company or any Subsidiary of the Company acts as
Paying Agent, it shall segregate the money held by it as Paying Agent and hold
it as a separate trust fund. The Company at any time may require a Paying Agent
to pay all money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent. Upon complying with this Section, the Paying
Agent shall have no further liability for the money delivered to the Trustee.
Any money deposited with any Paying Agent, or then held by the Company
or any Subsidiary of the Company in trust for the payment of principal or
interest on any Security and remaining unclaimed for two years after such
principal or interest has become due and payable shall be paid to the Company at
its request, or, if then held by the Company or any such Subsidiary, shall be
discharged from such trust; and the Securityholders shall thereafter, as
unsecured general creditors, look only to the Company for payment thereof, and
all liability of the Paying Agent with respect to such money, and all liability
of the Company or such Subsidiary as trustee thereof, shall thereupon cease.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish, or cause the Registrar to furnish, to the
Trustee, in writing at least five Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date
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<PAGE> 50
as the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer. When a Security is presented to the Registrar or a
co-registrar with a request to register a transfer, the Registrar shall register
the transfer as requested if the requirements of Section 8-401(a) of the Uniform
Commercial Code are met. When Securities are presented to the Registrar or a
co-registrar with a request to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall make the exchange as
requested if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-registrar's request. The Company may require
payment of a sum sufficient to pay all taxes, assessments or other governmental
charges in connection with any transfer or exchange pursuant to this Section.
The Company shall not be required to make and the Registrar need not register
transfers or exchanges of Securities selected for redemption (except, in the
case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before the mailing of a
notice of Securities to be redeemed.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the Person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of or interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interest in such Global Security
may be effected only through a book-entry system maintained by the Holder of
such Global Security (or its agent), and that ownership of a beneficial interest
in such Global Security shall be required to be reflected in a book entry.
All Securities issued upon any transfer or exchange pursuant to this
Section shall evidence the same debt and shall be entitled to the same benefits
under this Indenture as the Securities surrendered upon such transfer or
exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that such
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section
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<PAGE> 51
8-405 of the Uniform Commercial Code are met, such that the Holder (i) satisfies
the Company and the Trustee within a reasonable time after he has notice of such
loss, destruction or wrongful taking and the Registrar does not register a
transfer prior to receiving such notification, (ii) makes such request to the
Company or the Trustee prior to the Security being acquired by a bona fide
purchaser and (iii) satisfies any other reasonable requirements of the Trustee.
Such Holder shall furnish an indemnity bond sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, the Paying Agent,
the Registrar and any co-registrar from any loss that any of them may suffer if
a Security is replaced. The Company and the Trustee may charge the Holder for
their expenses in replacing a Security. In the event any such mutilated, lost,
destroyed or wrongfully taken Security has become or is about to become due and
payable, the Company in its discretion may pay such Security instead of issuing
a new Security in replacement thereof.
Every replacement Security is an additional obligation of the Company.
The provisions of this Section 2.07 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, lost, destroyed or wrongfully taken
Securities.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless a Trust Officer of the Trustee and the Company receive proof
satisfactory to them that the replaced Security is held by a bona fide
purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.09. Temporary Securities. Until Securities are ready for
delivery in permanent form, the Company may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in
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<PAGE> 52
the form of the corresponding permanent Securities but may have variations that
the Company considers appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate permanent
Securities and deliver them in exchange for temporary Securities upon surrender
of such temporary Securities at the office or agency of the Company, without
charge to the Holders.
SECTION 2.10. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel
(subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation unless the Company directs the Trustee to deliver canceled
Securities to the Company. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancellation.
The Trustee shall not authenticate Securities in place of canceled Securities
other than pursuant to the terms of this Indenture.
SECTION 2.11. Defaulted Interest. If the Company defaults in a payment
of interest on the Securities, the Company shall pay the defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail or cause to be
mailed to each Securityholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may
use CUSIP numbers (if then generally in use) and, if so, the Trustee shall use
CUSIP numbers in notices of redemption as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company shall
promptly notify the Trustee of any change in the CUSIP numbers.
SECTION 2.13. Book-entry Provisions for Global Securities. (a) Each
Global Security initially shall (i) be registered in the name of the Depositary
for such Global Security or the nominee of such Depositary and (ii) be delivered
to the Trustee as custodian for such Depositary. Beneficial interests in the
Global
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<PAGE> 53
Securities may be held indirectly through members of or participants in
("AGENT MEMBERS") the Depositary (including Cedel and Euroclear in the case of
the Regulation S Global Security).
Agent Members shall have no rights under this Indenture with respect to
any Global Security held on their behalf by the Depositary, or the Trustee as
its custodian, or under such Global Security, and the Depositary may be treated
by the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of any
Security.
(b) Transfers of a Global Security shall be limited to transfers of
such Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary (and Agent Member, if applicable) and the provisions of
Section 2.14. Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in a Global Security if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or the Depositary ceases to be a clearing
agency registered under the Exchange Act, at a time when the Depositary is
required to be so registered in order to act as Depositary, and in each case a
successor depositary is not appointed by the Company within 90 days of such
notice, or (ii) the Company executes and delivers to the Trustee and Registrar
an Officers' Certificate stating that such Global Security shall be so
exchangeable or (iii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depositary to permit such transfers.
(c) The registered holder of a Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.14. Special Transfer Provisions. Unless and until a Transfer
Restricted Security is transferred or exchanged under an effective registration
statement under the Securities Act, the following provisions shall apply:
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(a) Transfers to Non-QIB IAIs. The minimum principal amount of
Securities that may be purchased by an IAI that is not a QIB is $100,000. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Transfer Restricted Security to any IAI which is not a
QIB (other than pursuant to Regulation S):
(1) The Registrar shall register the transfer of any Transfer
Restricted Security by a Holder if (x) the requested transfer is at
least two years after the Issue Date and at least three months after
the last date such Holder was an affiliate of the Company or (y) the
proposed transferee has delivered to the Registrar a letter
substantially in the form set forth in Exhibit D hereto.
(2) If the proposed transferee is an Agent Member and the
Transfer Restricted Security to be transferred consists of a beneficial
interest in the QIB Global Security, upon receipt by the Registrar of
(x) the letter, if any, required by paragraph (1) above and (y)
instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and an increase in the principal amount of
the IAI Global Security in an amount equal to the principal amount of
the beneficial interest in the QIB Global Security to be so transferred
and the Registrar shall reflect on its books and records the date and
an appropriate decrease in the principal amount of such QIB Global
Security.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Transfer Restricted
Security to a QIB (other than pursuant to Regulation S):
(1) The Registrar shall register the transfer of a Transfer
Restricted Security by a Holder if (x) the requested transfer is at
least two years after the Issue Date and at least three months after
the last date such Holder was an affiliate of the Company or (y) such
transfer is being made by a proposed transferor who has provided the
Registrar with a letter substantially in the form set forth in Exhibit
E hereto.
(2) If the proposed transferee is an Agent Member and the
Transfer Restricted Security to be transferred consists of an interest
in the IAI Global Security, upon receipt by the Registrar of (x) the
letter, if any, required by paragraph (1) above and (y) instructions
given in accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the QIB
Global Security in an amount equal to the
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principal amount of the beneficial interest in the IAI Global Security
to be so transferred, and the Registrar shall reflect on its books and
records the date and an appropriate decrease in the principal amount of
such IAI Global Security.
(c) Transfers Pursuant to Regulation S. The following provisions shall
apply with respect to registration of any proposed transfer of a Transfer
Restricted Security pursuant to Regulation S:
(1) The Registrar shall register any proposed transfer of a
Transfer Restricted Security by a Holder if (x) the requested transfer
is at least two years after the Issue Date and at least three months
after the last date such Holder was an affiliate of the Company or (y)
upon receipt of a letter substantially in the form set forth in Exhibit
F hereto from the proposed transferor.
(2) If the proposed transferor is an Agent Member holding a
beneficial interest in a U.S. Global Security, upon receipt by the
Registrar of (x) the letter, if any, required by paragraph (1) above
and (y) instructions in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and an increase in the principal amount of
the Regulation S Global Security in an amount equal to the principal
amount of the beneficial interest in such U.S. Global Security to be
transferred, and the Registrar shall reflect on its books and records
the date and an appropriate decrease in the principal amount of the
applicable U.S. Global Security.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless either (i) the circumstances contemplated by
paragraph (a)(1)(x), (b)(1)(x), (c)(1)(x) or (c)(1)(y) of this Section exist or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(e) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement
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Legend and agrees that it shall transfer such Security only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.06 or this Section 2.14.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
ARTICLE 3
REDEMPTION
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to Section 3.07 or 3.08, it shall notify the Trustee in
writing of the redemption date and the principal amount of Securities to be
redeemed.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption shall comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall be
not fewer than 15 days after the date of notice to the Trustee. Any such notice
may be canceled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities to Be Redeemed. If fewer than all
the Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee considers
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make the
selection from outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal of Securities that
have denominations larger than $1,000. Securities and portions of them the
Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Company promptly of the Securities or portions of Securities to be redeemed.
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SECTION 3.03. Notice of Redemption. At least 30 days but not more than
60 days before a date for redemption of Securities, the Company shall mail a
notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption payment
or the Paying Agent is prohibited from making such payment pursuant to the terms
of this Indenture, interest on Securities (or portion thereof) called for
redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Securities.
At the Company's request (which may be revoked at any time in writing
prior to the time at which the Trustee shall have given such notice to the
Holders), the Trustee shall give the notice of redemption in the Company's name
and at the Company's expense. In such event, the Company shall provide the
Trustee with the information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption
is mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption
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price stated in the notice, plus accrued interest, if any, to the redemption
date; provided that if the redemption date is after a regular record date and on
or prior to the interest payment date, the accrued interest shall be payable to
the Securityholder of the redeemed Securities registered on the relevant record
date. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. At least one Business Day
prior to the redemption date, the Company shall deposit with the Paying Agent
(or, if the Company or a Subsidiary of the Company is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of and
accrued interest on all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate for the Holder (at the Company's expense) a new Security equal in
principal amount to the unredeemed portion of the Security surrendered.
SECTION 3.07. Optional Redemption. At any time and from time to time
prior to December 1 , 2002, the Company may redeem in the aggregate up to 35% of
the original aggregate principal amount of the Securities with the proceeds of
one or more Public Equity Offerings by the Company at a redemption price
(expressed as a percentage of the principal amount thereof) of 114.25% plus
accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least 65% of the
original aggregate principal amount of the Securities must remain outstanding
after each such redemption.
SECTION 3.08. Redemption for Tax Reasons. The Securities may be
redeemed, at the option of the Company, in whole but not in part, at any time,
upon giving not less than 30 nor more than 60 days' notice by mail to the
Holders of the Securities (which notice will be irrevocable), at a price equal
to 100% of the outstanding principal amount thereof plus accrued interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date) and including Additional Amounts payable in respect of such payment, if
the Company determines and certifies to the Trustee immediately prior to the
giving of such notice that as a result of any amendment to, or change in, the
laws (or any rules or regulations promulgated thereunder) of Mexico or any
political subdivision thereof or taxing authority therein, or any amendment to
or change in an official
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interpretation or application regarding such laws, rules or regulations, which
amendment, change, application or interpretation becomes effective on or after
December 9, 1999, the Company pays, or would be obligated for reasons outside
its control, and after taking reasonable measures available to it to avoid such
obligation, to pay, Additional Amounts in respect of any Security pursuant to
the terms and conditions thereof which exceed the Additional Amounts that would
have been payable if Mexican withholding tax at a rate of 15% would be imposed
on payments to Holders ("Excessive Additional Amounts"); provided, however,
that:
(1) no such notice of redemption may be given earlier than 90
days prior to the earliest date on which the Company would, but for
such redemption, be obligated to pay such Excessive Additional Amounts
and
(2) at the time such notice is given, the Company's obligation
to pay such Additional Amounts (including any Excessive Additional
Amounts) remains in effect;
provided further, however, that such notice shall not be deemed effectively
given if on the date on which the notice is given, the Company no longer has an
obligation to pay Excessive Additional Amounts as a result of a subsequent
change in law.
Prior to the publication of any notice of redemption pursuant to this
provision, the Company will deliver to the Trustee an Officers' Certificate
stating that the Company is entitled to effect such redemption and setting forth
a statement of facts showing that the conditions precedent to the right of the
Company so to redeem have occurred and an opinion of Mexican legal counsel
acceptable to the Trustee to the effect that the Company has or will become
obligated to pay such Excessive Additional Amounts as a result of an amendment
or change referred to in this Section.
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities. The Company shall promptly pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not
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prohibited from paying such money to the Securityholders on that date pursuant
to the terms of this Indenture or otherwise.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. Provision of Financial Information. So long as any
Securities are outstanding, the Company will file with the Trustee and provide
Holders of Securities:
(1) within 180 days after the end of each fiscal year of the
Company, annual reports on Form 20-F (or any successor form) containing
information required to be contained therein (or required in such
successor form);
(2) within 60 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 6-K (or any
successor form) containing unaudited, consolidated financial statements
for such quarter; and
(3) promptly from time to time after the occurrence of an
event required to be therein reported, such other reports on Form 6-K
(or any successor form).
At any time when the Company is not required to be subject to Section
13(a) or 15(d) of the Exchange Act (or any successor provision thereto), the
Company will file with the Trustee and provide Holders of Securities:
(A) within 180 days after the end of each fiscal
year of the Company, annual audited
consolidated financial statements and
(B) within 60 days after the end of each of the
first three fiscal quarters of each fiscal
year, unaudited, consolidated financial
statements for such quarter, and, unless it
is exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, will make
available the information contemplated by
Rule 144A(d) (4) under the Securities Act
upon the request of a Holder of a Security
to such Holder or to a prospective purchaser
of a Security from such Holder. The
financial statements referred to in this
paragraph
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will, unless otherwise required by
applicable law or by the SEC, be prepared in
accordance with GAAP; provided that all
annual, audited consolidated financial
statements will contain a reconciliation to
U.S. GAAP (as defined in Section 1.01) of
net income and stockholders' equity. The
Company also shall comply with the other
provisions of TIA Section 314(a).
(4) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of
such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein,
including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 4.03. Limitation on Indebtedness.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided,
however, that the Company may Incur Indebtedness if on the date thereof (after
giving effect to such Incurrence and the application of the proceeds thereof)
the Company's Leverage Ratio would be equal to or less than 7.5:1, if such
Indebtedness is Incurred on or prior to December 31, 2001 and 6.5:1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries, may Incur the following Indebtedness:
(1) Refinancing Indebtedness of Indebtedness under the Credit
Facility (as the same may be amended from time to time without
increasing the committed amount outstanding, except as otherwise
permitted by this Section), including in connection with Permitted
Securitization Transactions, in an aggregate principal amount on the
date of Incurrence which, when added to all other Indebtedness Incurred
under the Credit Facility or pursuant to this clause (1) and then
outstanding, shall not exceed U.S.$225.0 million less the aggregate
amount of all prepayments and required payments of principal applied to
reduce the aggregate amount available to be borrowed under the Credit
Facility or any Refinancing Indebtedness with respect thereto,
including pursuant to Section 4.07;
(2) Strategic Subordinated Indebtedness of the Company,
provided that participation by the Peralta Group in such Strategic
Subordinated Indebtedness shall not exceed the percentage held by the
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Peralta Group of the Capital Stock of the Company that is held by the
Peralta Group and BAC;
(3) Indebtedness of the Company owing to and held by any
Wholly Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by the Company or any Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or a Wholly
Owned Subsidiary) will be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(4) Indebtedness represented by the Securities, any
Indebtedness (other than the Indebtedness described in clauses (1)
through (3) above) outstanding on the Issue Date and any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (4), clauses (7), (11) or (12) below or paragraph (a) above;
(5) Indebtedness:
(A) consisting of performance and other similar
bonds and reimbursement obligations Incurred
by the Company and its Restricted
Subsidiaries in the ordinary course of
business securing the performance of
contractual, franchise, concession or
license obligations of the Company or a
Restricted Subsidiary; and
(B) under Currency Agreements and Interest Rate
Agreements, in each case entered into for
bona fide hedging purposes of the Company in
the ordinary course of business; provided,
however, that such Currency Agreements and
Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at
any time other than as a result of
fluctuations in foreign currency exchange
rates or interest rates or by reason of
fees, indemnities and compensation payable
thereunder;
(6) Indebtedness (other than Indebtedness permitted to be
Incurred pursuant to paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of
Incurrence which,
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when added to all other Indebtedness Incurred pursuant to this clause
(6) and then outstanding, will not exceed U.S.$25.0 million;
(7) Indebtedness Incurred in connection with the Company
making an offer to purchase the Securities pursuant to any Change of
Control, as described in Section 4.09 or under comparable provisions in
the 1997 Indenture; provided that 100% of the proceeds of such
Indebtedness shall be used to repurchase Securities or to pay expenses
or fees of the Company reasonably incurred in connection therewith;
(8) Indebtedness Incurred in respect of Capitalized Lease
Obligations, Purchase Money Indebtedness and any Refinancing
Indebtedness with respect thereto, provided that:
(A) the principal amount of such Indebtedness
does not exceed 100% of the Fair Market
Value of the property or assets subject to
such Capitalized Lease Obligations, Purchase
Money Indebtedness or Refinancing
Indebtedness and
(B) the aggregate principal amount of all
Indebtedness Incurred and then outstanding
under this clause does not exceed U.S.$125.0
million;
(9) Indebtedness Incurred by the Company, all the proceeds of
which are promptly used by the trust administering the Company's
executive employees' stock purchase plan to purchase from the Company
shares of the Company's Series V Common Stock, provided that such
Indebtedness is repaid in full within three Business Days following the
date of Incurrence;
(10) $30.0 million in Attributable Debt related to
Sale/Leaseback Transactions involving wireless telecommunications
towers; provided that such Attributable Debt and the obligations
related thereto do not qualify as a capitalized lease for financial
reporting purposes in accordance with GAAP;
(11) the Incurrence by the Company of Indebtedness not to
exceed, at any one time, 2.0 times the excess of the aggregate Net Cash
Proceeds received by the Company from the issuance and sale of, or
capital contribution in respect of, its Capital Stock (other than
Disqualified Stock and other than an issuance or sale to a Subsidiary
of the Company or an issuance or sale to an employee stock ownership
plan or to a trust
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established by the Company or any of its Subsidiaries for the benefit
of their employees) subsequent to the Issue Date over the amount of
such proceeds used to make Restricted Payments as provided in clause
(C)(ii) of paragraph (a) or clause (b)(1) of Section 4.05; and
(12) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than Indebtedness Incurred in
connection with, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was acquired by the Company); provided, however,
that on the date of such acquisition and after giving pro forma effect
thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to paragraph (a) of this Section.
(c) Notwithstanding the foregoing in paragraph (b), neither the
Company nor any Restricted Subsidiary may Incur any Indebtedness pursuant to
paragraph (b) above if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligation unless such Indebtedness:
(1) will be subordinated to the Securities to at least the
same extent as such Subordinated Obligation,
(2) has a Stated Maturity no earlier than the Stated Maturity
of such Subordinated Obligation and
(3) has an Average Life at the time such Indebtedness is
Incurred that is equal to or greater than the Average Life of such
Subordinated Obligation.
(d) Notwithstanding any other provision of this Section, neither the
Company nor any Restricted Subsidiary shall be deemed to have Incurred any
Indebtedness solely as a result of fluctuations in the exchange rates of
currencies; provided, however, that to determine the amount of Indebtedness
outstanding at any time, the currency exchange rates in effect at the time of
such determination shall be used. For purposes of determining the outstanding
principal amount of Indebtedness Incurred pursuant to this Section:
(1) Indebtedness Incurred pursuant to the Credit Facility
prior to or on the date of this Indenture shall be treated as Incurred
pursuant to clause (1) of paragraph (b) above,
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(2) Indebtedness permitted by this Section need not be
permitted solely by reference to one provision permitting such
Indebtedness but may be permitted in part by one such provision and in
part by one or more other provisions of this Section permitting such
Indebtedness and
(3) in the event that Indebtedness or any portion thereof
meets the criteria of more than one of the types of Indebtedness
described in this Section, the Company, in its sole discretion, shall
classify such Indebtedness and only be required to include the amount
of such Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Issuances of Guarantees of Indebtedness by
Subsidiaries.
(a) The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee or secure the payment of any other Indebtedness of the
Company or any of its Restricted Subsidiaries (except Indebtedness of such
Restricted Subsidiary or a Restricted Subsidiary of such Restricted Subsidiary)
unless:
(1) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture providing for the Guarantee of the
payment of the Securities by such Restricted Subsidiary and
(2) such Restricted Subsidiary waives and agrees not to in any
manner whatsoever claim or take the benefit or advantage of, either any
right to receive payment by way of subrogation against the Company or
against any direct or indirect security for such obligation, or any
other right to be reimbursed, indemnified or exonerated by or for the
account of the Company in respect thereof or any right to receive
payment, in the nature of contribution or for any other reason, from
any other Restricted Subsidiary with respect to such payment, in each
case so long as any amount payable by the Company under this Indenture
or under the Securities remains unpaid;
provided that this paragraph shall not be applicable to any Guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary and was not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or Guarantees by a Restricted Subsidiary
to secure Indebtedness under the Credit Facility, the Eximbank Facility and the
Grupo Iusacell Notes. Any Guarantee required by this Section to be issued will
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rank no less than pari passu with the Guarantee the issuance of which gave rise
to the requirement under this Section.
(b) Notwithstanding the foregoing paragraph (a), each Guarantee of
the Securities by a Restricted Subsidiary will provide by its terms that it
shall be automatically and unconditionally released and discharged upon:
(1) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all the Company's and each Restricted
Subsidiary's Capital Stock in such Restricted Subsidiary (provided such
sale, exchange or transfer is not prohibited by this Indenture),
(2) the release or discharge of the Guarantee which gave rise
to the requirements under this Section, except a discharge or release
by or as a result of payment under such Guarantee and
(3) the designation of such Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with terms of this Indenture.
SECTION 4.05. Limitation on Restricted Payments.
(a) The Company will not, and will not permit its Restricted
Subsidiaries directly or indirectly to:
(1) declare or pay any dividend or make any distribution on or
in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company) except
dividends or distributions payable solely in its Capital Stock (other
than Disqualified Stock) and except dividends or distributions payable
to the Company or another Restricted Subsidiary (and, if such
Restricted Subsidiary is not wholly owned, to its other shareholders on
a pro rata basis),
(2) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of the Company or any Restricted Subsidiary held by
Persons other than the Company or a Wholly Owned Subsidiary,
(3) purchase, repurchase, redeem, defease or otherwise acquire
or retire for value, prior to scheduled maturity, scheduled repayment
or scheduled sinking fund payment any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a principal
installment or final maturity, in each case due within one year of the
date of such purchase, repurchase or other acquisition), or
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(4) make any Investment (other than a Permitted Investment) in
any Person
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement, payment or Investment being herein referred to as
a "Restricted Payment")
if at the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(A) a Default shall have occurred and be continuing
(or would result therefrom);
(B) the Company could not Incur at least U.S.$1.00 of
additional Indebtedness under paragraph (a) of Section 4.03;
or
(C) the aggregate amount of such Restricted Payment
and all other Restricted Payments (the amount so expended, if
other than in cash, to be determined in good faith by the
Board of Directors, whose determination will be conclusive and
evidenced by a resolution of the Board of Directors) declared
or made subsequent to the Issue Date would exceed the sum of:
(i) the excess of:
(a) Cumulative EBITDA over
(b) the product of 1.5 and
Cumulative Interest Expense;
(ii) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of its
Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance
or sale to a Subsidiary of the Company or an employee
stock ownership plan or other trust established by
the Company or any of its Subsidiaries, provided that
Net Cash Proceeds received by the Company from
payments in respect of purchases of its Capital Stock
by employees of the Company pursuant to its executive
employees' stock purchase plan shall be included in
the calculation of the amount of Net Cash Proceeds
under this clause (ii) to the extent that such
payments are not financed,
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directly or indirectly, by the Company or any
Subsidiary of the Company);
(iii) the amount by which Indebtedness of
the Company or the Restricted Subsidiaries is reduced
on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of
the Company or the Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the
amount of any cash or other property distributed by
the Company or any Restricted Subsidiary upon such
conversion or exchange); and
(iv) the amount equal to the net reduction
in Investments (excluding any Joint Venture
Investment) in any Person resulting from:
(aa) payments of dividends,
repayments of the principal of loans or
advances or other transfers of assets to the
Company or any Restricted Subsidiary from
such Person or
(bb) the designation of any Person
as a Restricted Subsidiary (valued in each
case as provided in the definition of
"Investment") not to exceed the amount of
Investments previously made by the Company
or any Restricted Subsidiary in such Person,
which amount was included in the calculation
of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase or redemption of Capital Stock of the Company
or Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary or an employee stock ownership plan or
other trust established by the Company or any of its Subsidiaries);
provided, however, that:
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(A) such purchase or redemption will be excluded
in the calculation of the amount of
Restricted Payments under clause (C) of the
foregoing paragraph (a) and
(B) the Net Cash Proceeds from such sale will be
excluded from clause (C)(ii) of the
foregoing paragraph (a) but only to the
extent of the Net Cash Proceeds applied to
such purchase or redemption;
(2) any purchase, repurchase or redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of Refinancing
Indebtedness which is expressly subordinated in right of payment to the
Securities, as the case may be, to the same extent as the Subordinated
Obligations to be purchased or redeemed and is permitted to be Incurred pursuant
to paragraph (b) of Section 4.03; provided, however, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments under clause (C) of the foregoing paragraph (a);
(3) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
Section; provided, however, that such dividend will be included in the
calculation of the amount of Restricted Payments under clause (C) of the
foregoing paragraph (a);
(4) Investments, not to exceed in the aggregate U.S.$10.0 million, by
the Company or any Restricted Subsidiary in Persons engaged in Related
Businesses; provided, however, that the amount of such Investments will be
included in the calculation of the amount of Restricted Payments under clause
(C) of the foregoing paragraph (a);
(5) the repurchase or other acquisition of shares of Capital Stock
(A) of the Company for the purpose of granting
purchase rights to employees under employee
stock ownership plans; provided that the
aggregate amount of such repurchases and
other acquisitions shall not exceed U.S.$5.0
million in any calendar year;
(B) of Ownership Regulated Subsidiaries; and
(C) of Grupo Iusacell, S.A. de C.V.;
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provided that the aggregate amount of Restricted Payments
under (5)(B) and (5)(C) shall not exceed $25.0 million; and
provided,further, that such repurchases and other acquisitions
shall be included in the calculation of the amount of
Restricted Payments under clause (C) of the foregoing
paragraph (a);
(6) Restricted Payments made by the Company or its Restricted
Subsidiaries in an amount not to exceed U.S.$5.0 million in the
aggregate; or
(7) payments or distributions to dissenting stockholders
pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with Section
5.01, in an amount not to exceed U.S.$10.0 million.
SECTION 4.06. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(2) make any loans or advances to the Company or any other Restricted
Subsidiary or
(3) transfer any of its property or assets to the Company or any other
Restricted Subsidiary,
except:
(A) any encumbrance or restriction pursuant to an
agreement as in effect at the Issue Date, exclusive of any
amendment, waiver or other modification thereto entered into
after the Issue Date;
(B) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary prior to
the
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date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred as consideration in,
in contemplation of, or to provide all or any portion of the
funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted
Subsidiary or was otherwise acquired by the Company) and
outstanding on such date;
(C) any encumbrance or restriction pursuant to an
agreement constituting Refinancing Indebtedness of
Indebtedness Incurred pursuant to an agreement referred to in
clause (A) or (B) of this Section or this clause (C) or
contained in any amendment to an agreement referred to in
clause (A) or (B) of this Section or this clause (C); provided
that no encumbrance or restriction permitted by this clause
(C) shall prevent any Restricted Subsidiary of the Company
from paying dividends or making distributions to the Company
or any Restricted Subsidiary, from paying any Indebtedness
owed to the Company or any Restricted Subsidiary, from making
any loan or advance to the Company or any Restricted
Subsidiary or from transferring any property or assets to the
Company or any Restricted Subsidiary, in any case where
proceeds from such dividend, distribution, payment, loan,
advance or transfer are to be used, directly or indirectly, to
make any payment of principal, interest, premium or other
payment on or with respect to the Securities or under this
Indenture and provided, further, that the encumbrances and
restrictions contained in any such refinancing agreement or
amendment are not materially less favorable to the
Securityholders than encumbrances and restrictions contained
in such agreements;
(D) in the case of clause (3), any encumbrance or
restriction that:
(i) restricts in a customary manner the subletting,
assignment or transfer of any property or asset that
is subject to a lease, concession, permit, license or
similar contract, or
(ii) contained in security agreements or mortgages
permitted under this Indenture and securing
Indebtedness of a Restricted Subsidiary to the extent
such encumbrance or restrictions restrict the
transfer of the property subject to such security
agreements or mortgages;
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(E) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition;
(F) any restriction on the sale or other disposition
of assets or property securing Indebtedness as a result of a
Permitted Lien on such assets or property; and
(G) any encumbrance or restriction existing under or
by reason of applicable law or regulations.
SECTION 4.07. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, make any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from Senior Indebtedness at
the time of such Asset Disposition) at least equal to the Fair Market
Value of the shares, property and other assets subject to such Asset
Disposition,
(2) except in the case of a disposition of Capital Stock
permitted by clause (5) of Section 4.12, 80% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the
form of cash, Temporary Cash Investments or other assets of a type
ordinarily used in a Related Business that are to be used by the
Company or a Restricted Subsidiary in the conduct of its business, and
(3) in the event and to the extent that the Net Available Cash
received by the Company and its Restricted Subsidiaries from one or
more Asset Dispositions occurring on or after the Issue Date in any
period of 12 consecutive months exceeds U.S.$5.0 million, the proceeds
of such Asset Disposition are applied as set forth in the remainder of
this paragraph. An amount equal to 100% of the Net Available Cash from
such Asset Disposition may be applied by the Company (or such
Restricted Subsidiary, as the case may be) within 365 days after the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash, to the extent the Company elects,
(A) to prepay, repay or purchase Senior
Indebtedness (other than Senior Indebtedness
owed to the Company
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or an Affiliate of the Company); provided,
however, that in connection with any such
prepayment, repayment or purchase, the
Company or such Restricted Subsidiary will
permanently retire such Senior Indebtedness
and will cause the related loan commitment
(if any) to be permanently reduced in an
amount equal to the principal amount so
prepaid, repaid or purchased or
(B) to reinvest in Additional Assets (including
by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or
another Restricted Subsidiary).
Any Net Available Cash from an Asset Disposition that is not used in
accordance with the preceding sentence within 365 days from the later of the
date of such Asset Disposition or the receipt of Net Available Cash relating
thereto shall constitute "Excess Proceeds," When the aggregate amount of Excess
Proceeds exceeds U.S.$5.0 million (taking into account income earned on such
Excess Proceeds), the Company shall make an Offer (as defined below) to purchase
Securities (or other Senior Indebtedness) pursuant to and subject to the
conditions set forth in paragraph (b) of this Section. To the extent that any
portion of the Excess Proceeds remains after compliance with the preceding
sentence and provided that all Holders have been given the opportunity to tender
the Securities for repurchase in accordance with this Indenture, the Company or
such Restricted Subsidiary may use such remaining amount for any purpose not
prohibited by this Indenture. Pending application of Net Available Cash pursuant
to this provision, such Net Available Cash shall be invested in Temporary Cash
Investments.
For the purposes of this Section, the assumption of Senior Indebtedness
of the Company (other than Disqualified Stock of the Company) or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Senior Indebtedness in connection with such Asset Disposition
and securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash shall be deemed to be "cash."
(b) In the event of an Asset Disposition that requires the purchase of
Securities (and other Senior Indebtedness) pursuant to clause (a)(1) of this
Section, the Company will be required to use the Excess Proceeds to purchase
Securities (and such other Senior Indebtedness) tendered pursuant to an offer by
the Company for the Securities and that other debt on a pro rata basis (the
"Offer") at a purchase price of 100% of their principal amount plus accrued and
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unpaid interest, if any, to the date of purchase (subject to the right of
Holders of record on the relevant record date to receive interest on the
relevant interest payment date) (or, in the event the Securities or such other
Senior Indebtedness was issued with significant original issue discount, 100% of
the accreted value thereof) in accordance with the procedures (including
prorationing in the event of oversubscription) set forth in Section 4.07(c).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall deliver to the Trustee and
send, by first-class mail to each Holder, a written notice stating that the
Holder may elect to have his or her Securities purchased by the Company either
in whole or in part (subject to prorationing as hereinafter described in the
event the Offer is oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days nor more than 60 days after the date of such notice
(the "Purchase Date") and shall contain such information concerning the business
of the Company which the Company in good faith believes shall enable such
Holders to make an informed decision (which at a minimum shall include (i) the
most recently filed annual report on Form 20-F under the Exchange Act (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed report on Form 6-K under the Exchange Act of the Company
containing quarterly financial information and any subsequently filed reports on
such Form 6-K of the Company, other than reports on such Form 6-K describing
Asset Dispositions otherwise described in the offering materials (or
corresponding successor reports), (ii) a description of material developments in
the Company's business subsequent to the date of the latest of such reports, and
(iii) if material, appropriate pro forma financial information) and all
instructions and materials necessary to tender Securities pursuant to the Offer,
together with the information contained in clause (3) below.
(2) Not later than the date upon which written notice of an
Offer is delivered to the Trustee as provided below, the Company shall deliver
to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the
"Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.07(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with the Paying Agent
(or, if the Company or a Subsidiary of the Company is acting as its own Paying
Agent, segregate and hold in trust) in Temporary Cash Investments an amount
equal to the Offer Amount to be held for payment in accordance with the
provisions of this Section. Upon the expiration of the period for which the
Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancellation the Securities or portions thereof which have been
properly tendered
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to and are to be accepted by the Company. The Trustee (or Paying Agent) shall,
on the Purchase Date, mail or make available for delivery payment to each
tendering Holder in the amount of the purchase price. In the event that the
aggregate purchase price of the Securities delivered by the Company to the
Trustee is less than the Offer Amount, the Trustee (or Paying Agent) shall
deliver the excess to the Company (or if the Company is acting as Paying Agent,
the Company may release such amount from trust) promptly after the expiration of
the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the Purchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security which was
delivered for purchase by the Holder and a statement that such Holder is
withdrawing his or her election to have such Security purchased. If at the
expiration of the Offer Period the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Securities in denominations of
$1,000, or integral multiples thereof, shall be purchased). Holders whose
Securities are purchased only in part shall be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee
which are to be accepted for purchase, the Company shall also deliver an
Officers' Certificate and an Opinion of Counsel stating that such Securities are
to be accepted by the Company pursuant to and in accordance with the terms of
this Section. A Security shall be deemed to have been accepted for purchase at
the time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(d) The Company will comply, to the extent applicable, with Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Securities pursuant to this Section. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this Section, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this Section by virtue thereof.
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SECTION 4.08. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into or conduct any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") on terms that:
(1) are less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that
could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an
Affiliate,
(2) in the event such Affiliate Transaction involves
an aggregate amount in excess of U.S.$1.0 million, have not
been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate
Transaction and
(3) that, in the event such Affiliate Transaction
involves an amount in excess of U.S.$5.0 million, have not
been determined to be fair to the Company or such Restricted
Subsidiary from a financial point of view pursuant to the
written opinion of an investment banking firm of national
standing or other recognized independent expert with
experience appraising the terms of the type of transaction or
series of related transactions.
(b) The provisions of the foregoing paragraph (a) will not apply to:
(1) any Restricted Payment permitted to be
paid pursuant to Section 4.05,
(2) the payment of reasonable fees to
directors of the Company and its Subsidiaries who are
not employees of the Company or its Subsidiaries,
(3) transactions pursuant to the Secondment
Agreement, provided that, in the event such
transactions involve an incurrence in an aggregate
amount exceeding U.S.$10.0 million in any calendar
year, such transactions to the extent they exceed
U.S.$10.0 million must be approved by a majority of
the members of the Board of Directors
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having no personal stake therein and must be
determined to be fair to the Company and the
applicable Restricted Subsidiaries from a financial
point of view pursuant to a written opinion of an
investment banking firm or other expert as provided
in paragraph (a) above,
(4) transactions pursuant to the Master
Technical Services Agreement, provided that, in the
event such transactions involve an incurrence in an
aggregate amount exceeding U.S.$3.0 million in any
calendar year, such transactions to the extent they
exceed U.S.$3.0 million must be approved by a
majority of the members of the Board of Directors
having no personal stake therein and, in the event
such transactions involve an aggregate amount
exceeding U.S.$5.0 million in any calendar year, such
transactions to the extent they exceed U.S.$5.0
million must be determined to be fair to the Company
and the applicable Restricted Subsidiaries from a
financial point of view pursuant to a written opinion
of an investment banking firm or other expert as
provided in paragraph (a) above,
(5) transactions pursuant to the terms of
any Strategic Subordinated Indebtedness,
(6) any transaction between the Company and
a Restricted Subsidiary or between Restricted
Subsidiaries,
(7) any issuance of securities, or other
payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans
approved by the Board of Directors; or any employment
agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of
business,
(8) loans or advances to employees in the
ordinary course of business in accordance with the
past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed U.S.$3.0
million in the aggregate outstanding at any one time,
(9) the issuance or sale of any Capital
Stock (other than Disqualified Stock) of the Company,
or
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(10) transactions pursuant to finance
agreements or other banking, finance or insurance
arrangements, if the terms thereof are no less
favorable to the Company than those that could be
obtained at the time of such transaction in
arm's-length dealings with a Person who is not an
Affiliate.
SECTION 4.09. Change of Control.
(a) Upon a Change of Control, each Holder shall have the right to
require the Company to repurchase all or any part of such Holder's Securities at
a purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), in accordance with the terms
contemplated in paragraph (b) below.
In addition, if:
(x) in connection with any transaction or series of
related transactions involving a Change of Control,
the Company acquires or enters into any agreement to
acquire any direct or indirect equity interest in any
Northern Region License Holder or
(y) at any time after acquiring or entering into any
agreement to acquire any direct or indirect equity
interest in any Northern Region License Holder, or
becoming or entering into any agreement to become a
Northern Region License Holder or an Affiliate of a
Northern Region License Holder, there shall occur a
Change of Control in connection with which a "person"
(as that term is defined in Section 13(d) and 14(d)
of the Exchange Act) other than a Permitted Holder
becomes the owner of more than 30% of the total
voting power of the Voting Stock of the Company, and
such person is or was a Northern Region Legion
License Holder or an Affiliate thereof, or had
entered into any agreement or understanding to become
a Northern Region License Holder or an Affiliate
thereof, or had entered into any agreement or
understanding to cause the Company to acquire or
become Affiliated with or assist or facilitate the
Company in acquiring or becoming Affiliated with any
Northern Region License Holder,
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then, if any such Change of Control referred to in (x) or (y) above occurs on or
before June 1, 2003, each Holder will have the right to require BAC, jointly and
severally with the Company, to purchase all or any part of such Holder's
Securities at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of the purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) unless (I) upon the
occurrence of such Change of Control and immediately after giving pro forma
effect to the transactions described in subclauses (A) and (B) of clause (3)
below, no Default shall have occurred and be continuing, and (II) each of the
following conditions is satisfied at the time (the "Offer Time") that the
Offeror (as defined below) mails the Offer Notice (as defined below) in
accordance with the terms of this Section 4.09:
(1) neither the Company nor any of its Restricted Subsidiaries shall
have become obligated to purchase or to offer to purchase any other Indebtedness
by reason of the occurrence of such Change of Control; provided that, if any
such obligation shall have arisen, this condition (1) shall nevertheless be
deemed satisfied if prior to the Offer Time, and prior to the time any such
Indebtedness is purchased or otherwise retired, such obligation shall cease to
exist (it being understood that this condition (1) shall remain unsatisfied
until such obligation so ceases to exist); and
(2) (a) except solely as a result of the passage of time, the weighted
average maturity of all Indebtedness of the Company's Restricted Subsidiaries
shall be no shorter at the Offer Time than it was immediately prior to the time
such Change of Control was consummated; (b) the weighted average maturity of all
Indebtedness of the Company's Restricted Subsidiaries shall not have been
shortened in contemplation of any transaction described in subclause (A) or (B)
of clause (3) below; (c) since the time such Change of Control was consummated,
the Company's Restricted Subsidiaries shall not have agreed to amend the terms
of any such Indebtedness, or refinanced or agreed to refinance any such
Indebtedness, on terms (other than price terms) that are less favorable to the
Company or any of its Restricted Subsidiaries in any respect, including without
limitation prepayment or call terms, or terms that would limit the ability of a
Restricted Subsidiary to pay dividends or interest or to make loans or advances;
and no such terms shall have been agreed to be so amended and no such
Indebtedness shall have been so refinanced or agreed to be so refinanced in
contemplation of any transaction described in subclause (A) or (B) of clause (3)
below; and
(3) prior to the Offer Time, each of Moody's Investors Service and
Standard & Poor's Ratings Services (each, a "Relevant Rating Agency") shall
have announced publicly either that (I) in light of the transactions described
in subclauses (A) and (B) below it has determined to affirm or upgrade the
rating accorded by it to the Company and the Company's securities or (II) it has
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determined that the transactions described in subclauses (A) and (B) below will
not cause it to, or not be a contributing cause in its decision to, downgrade
the rating accorded by it to the Company or any of its securities or change its
outlook with respect to the Company or any of its securities to negative, or put
the Company or any of its securities on "credit watch" with negative
implications, or words with like effect. The transactions referred to in the
foregoing sentence are:
(A) any actual or proposed Change of Control transaction
or series of transactions which is contemplated in
clause (x) or clause (y) of this covenant, or any
transaction that would not have been entered into in
the absence of such Change of Control transaction,
including without limitation, the Incurrence or
proposed Incurrence of any Indebtedness in connection
therewith; and
(B) any actual or proposed transaction or series of
transactions involving the acquisition by or
Affiliation with the Company of any Northern Region
License Holder or any transaction that would not have
been entered into in the absence of such acquisition
or Affiliation transaction, including, without
limitation, the Incurrence or proposed Incurrence of
any Indebtedness in connection therewith; and
(4) prior to the Offer Time, there shall not have occurred (either
before or after such Change of Control) any downgrading or change in outlook to
negative, nor shall any notice have been given of any intended or potential
downgrading or change in outlook to negative, or of any review for a possible
change that does not indicate the direction of the possible change (including,
without limitation, any circumstance in which the Company or its securities have
been put on "credit watch" with negative implications, or words with like
effect), in or with respect to the rating accorded the Company or any of its
securities or in the rating outlook for the Company or any of its securities by
any "nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act (including,
without limitation, the Relevant Rating Agencies), which actual, intended or
potential downgrading or change is attributed, in whole or in part, by at least
one such organization as having occurred in light of any transaction described
in subclause (A) or (B) of clause (3) above, and which actual, intended or
potential downgrading or change shall not have been reversed or retracted at or
before the Offer Time; and
(5) after giving pro forma effect to the transactions described in
subclauses (A) and (B) of clause (3) above, the Company's Leverage Ratio would
be equal to or less than the Company's Leverage Ratio, without giving pro forma
effect to such transactions, immediately prior to both (i) the transactions
described
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in subclause (A) of clause (3) above and (ii) the transactions described in
subclause (B) of clause (3) above.
(b) Within 30 days following any Change of Control, the Company, shall
mail a notice (the "Offer Notice") to each Holder, with a copy to the Trustee;
provided that if BAC shall then be obligated to make an offer to purchase
Securities jointly and severally with the Company, then BAC shall join in such
Offer Notice, and shall explicitly state therein that its obligations with
respect to any required offer to purchase and purchase of Securities are joint
and several with those of the Company. In addition BAC shall state in any Offer
Notice in which it is required to join that, upon the closing of any such
purchase of Securities, it will become a Holder of the Securities. As used
herein, the term "Offeror" means the Company, and, if BAC is required to join in
an offer to purchase Securities, shall also include BAC.
The Offer shall state:
(1) that a Change of Control has occurred and
that such Holder has the right to require the Offeror
to purchase such Holder's Securities at a purchase
price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of
Holders of record on a record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts and
financial information regarding such Change of
Control;
(3) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the
date such Offer Notice is mailed); and
(4) the instructions determined by the Offeror,
consistent with this Section, that a Holder must
follow in order to have its Securities purchased.
(c) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Company
(which shall act on behalf of BAC if the offer to purchase shall have been
required to have been made by BAC and the Company jointly and severally) at the
address specified in the notice at least three Business Days prior to the
purchase date. Holders shall be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the
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principal amount of the Security which was delivered for purchase by the Holder
and a statement that such Holder is withdrawing his or her election to have such
Security purchased.
(d) On the purchase date, all Securities purchased by the Offeror
under this Section shall be delivered to the Trustee, who shall cancel all
Securities purchased by the Company and deliver to BAC all Securities purchased
by BAC. Upon such cancellation or delivery by the Trustee, as applicable, the
applicable Offeror shall pay the purchase price plus accrued and unpaid
interest, if any, to the Holders entitled thereto.
(e) The Offeror will comply, to the extent applicable, with Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Securities pursuant to this Section. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this Section, the Offeror will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this Section by virtue thereof.
SECTION 4.10. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate complying with Section 314(a)(4) of the TIA and stating
that in the course of the performance by the signers of their duties as Officers
of the Company they would normally have knowledge of any Default or Event of
Default and, if such signer does know of such a Default or Event of Default, the
certificate shall describe such Default or Event of Default with particularity
and describe what actions, if any, the Company proposes to take with respect to
such Default or Event of Default. The Company shall deliver to the Trustee, as
soon as possible and in any event within five days after the Company becomes
aware of the occurrence of any Event of Default or an event which, with notice
or the lapse of time or both, would constitute an Event of Default, an Officers'
Certificate setting forth the details of such Event of Default or default and
the action which the Company proposes to take with respect thereto.
SECTION 4.11. Further Instruments and Acts. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.12 Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries. The Company will not sell any shares of Capital Stock
of a Restricted Subsidiary, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of its Capital Stock (other
than, if necessary,
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shares of Capital Stock constituting directors' or other legally required
qualifying shares) except:
(1) to the Company or a Wholly Owned Subsidiary,
(2) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Subsidiary of the Company,
(3) in respect of capital contributions to Restricted Subsidiaries
which are not Wholly Owned Subsidiaries
(4) in connection with the capitalization of any Ownership Regulated
Subsidiary that results in Persons other than the Company owning a majority of
the Voting Stock thereof but only to the extent that such ownership is required
by applicable law or regulation,
(5) if such sale of Capital Stock is made to a Person in exchange for a
contribution by such Person to a Restricted Subsidiary of Additional Assets if,
immediately after giving pro forma effect to such sale and contribution, the
Company's Leverage Ratio would be equal to or better than the Leverage Ratio of
the Company immediately prior to the transaction, or
(6) if such Capital Stock or the proceeds from the sale thereof are
contributed to a Joint Venture Investment that is a Permitted Investment.
Any such sale or issuance permitted by clause (2), (3), (4) or (5) above will be
treated as an Asset Disposition and must comply with the terms of Section 4.07.
SECTION 4.13. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or permit to
exist any Lien on any of its property or assets (including Capital Stock of
Restricted Subsidiaries), whether owned on the Issue Date or thereafter
acquired, other than Permitted Liens, securing any obligation unless
contemporaneously therewith (or prior thereto) effective provision is made to
secure the Securities on an equal and ratable basis with (or on a senior basis
to, in the case of Indebtedness subordinated in right of payment to the
Securities) such obligation.
SECTION 4.14. Limitation on Sale/Leaseback Transactions. The Company
will not, and will not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless:
(1) the Company or such Restricted Subsidiary would be entitled to
Incur Indebtedness in an amount equal to the Attributable Debt with respect to
such Sale/Leaseback Transaction pursuant to Sections 4.03 and 4.04 and
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(2) the Company or such Restricted Subsidiary would be entitled to
create a Lien on such property securing such Attributable Debt without securing
the Securities, pursuant to Section 4.13 and
(3) the transfer of such property is permitted by, and the Company
applies the proceeds of such transaction in compliance with, Section 4.07.
SECTION 4.15. Limitation on Lines of Business. The Company will not,
and will not permit any Restricted Subsidiary to, engage in any business other
than a Related Business.
SECTION 4.16. Additional Amounts. All payments in respect of the
Securities will be made after withholding or deduction for any taxes, duties,
assessments or governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by Mexico or any political subdivision thereof
or taxing authority therein. The Company will pay such additional amounts
("Additional Amounts") as will result in receipt by the Holders of such amounts
as would have been received by them had no such withholding or deduction been
required, except that no such Additional Amounts will be payable with respect to
any payment on any Security to the extent:
(1) that any such taxes, duties, assessments or other governmental
charges would not have been imposed but for a connection between the Holder or
beneficial owner of such Security and Mexico or any political subdivision
thereof or taxing authority therein, other than the holding of such Security and
the receipt of payments with respect to such Security;
(2) of any such taxes, duties, assessments or other governmental
charges with respect to a Security presented for payment more than 30 days after
the date on which such payment became due and payable or the date on which
payment thereof is duly provided for and notice thereof given to the Holders
pursuant to the terms of this Indenture, whichever occurs later, except to the
extent that the Holder of such Security would have been entitled to such
Additional Amounts on presenting such Security for payment on any date during
such 30-day period; or
(3) of any such estate, inheritance, gift or other similar taxes
imposed with respect to such Security.
Any reference in this Indenture or in the Securities to principal,
premium or interest, or any other payment in respect of the Securities, will be
deemed also to refer to any Additional Amounts which may be payable.
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The Company or other Person making such payment will provide the
Trustee with documentation evidencing the payment of Mexican taxes in respect of
which the Company or such Person has paid any Additional Amounts, which
documentation shall be legally sufficient to obtain foreign tax credits for U.S.
Federal income tax purposes. Copies of such documentation will be made available
to the Holders upon request therefor.
ARTICLE 5
SUCCESSOR COMPANY; SUCCESSOR TO BAC
SECTION 5.01. When Company May Merge or Transfer Assets. The Company
will not consolidate with or merge with or into any Person, or in one
transaction or a series of transactions, sell, convey, transfer, lease or
dispose of all or substantially all its assets, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a Person organized and existing under the laws of Mexico, the
United States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) will expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, all the obligations of the Company, under the Securities and
this Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional U.S.$1.00 of Indebtedness under
paragraph (a) of Section 4.03;
(4) in the case of a conveyance, transfer, lease or disposition of all
or substantially all of the Company's assets, such assets shall have been
transferred as an entirety or virtually as an entirety to one Person; and
(5) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with this
Indenture. In addition, the Company shall deliver to the Trustee:
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(A) an Opinion of Counsel to the effect that
Holders of the Securities will not recognize
income, gain or loss for U.S. Federal income
tax purposes as a result of such transaction
and will be subject to U.S. Federal income
tax on the same amount and in the same
manner and at the same times as would have
been the case if such transaction had not
occurred and
(B) an Opinion of Counsel in Mexico to the
effect that Holders of the Securities will
not recognize income, gain or loss for
Mexican tax purposes as a result of such
transaction and will be subject to Mexican
taxes (including withholding taxes) on the
same amounts, in the same manner and at the
same times as would have been the case if
such transaction had not occurred.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company, under this Indenture, but the
predecessor company in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Securities.
Notwithstanding the foregoing clauses (2) and (3), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
SECTION 5.02. When BAC May Merge or Transfer Assets. Until such time as
BAC has no further obligations under Section 4.09, BAC will not consolidate with
or merge with or into any Person, or in one transaction or a series of
transactions, sell, convey, transfer, lease or dispose of all or substantially
all its assets, unless:
(1) the resulting, surviving or transferee Person (the "BAC SUCCESSOR"
which term, if the transfer is to more than one Person, shall refer to the
transferee who receives the greatest portion of BAC's assets) (if not BAC) will
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations of BAC,
under the Securities and this Indenture; and
(2) BAC will have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with this Indenture.
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The BAC Successor will succeed to, and be substituted for, and may
exercise every right and power of, BAC under this Indenture, but the predecessor
company in the case of a lease of all or substantially all its assets will not
be released from its obligations under this Indenture.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) a default occurs in any payment of interest on any Security when
the same becomes due and payable, and such default continues for a period of 30
days;
(2) a default occurs in the payment of the principal of any Security
when the same becomes due and payable at its Stated Maturity, upon optional
redemption, upon required repurchase, upon declaration or otherwise;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, 4.12, 4.13, 4.14, 4.15 or 4.16 (other than a failure to
purchase Securities when required under Section 4.07 or 4.09) and such failure
continues for 30 days after the notice specified in the penultimate paragraph of
this Section;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (1), (2), (3) or
(4) above) and such failure continues for 60 days after the notice specified in
the penultimate paragraph of this Section;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or the acceleration
of any such Indebtedness by the holders of such Indebtedness because of a
default and the total amount of such Indebtedness unpaid or accelerated exceeds
U.S.$5.0 million or its foreign currency equivalent at any time;
(7) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
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(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian
or sindico of it or for any substantial part
of its property;
(D) makes a general assignment for the benefit
of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency, bankruptcy or suspension of payments;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary
case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary or for any
substantial part of its property; or
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order
or decree remains unstayed and in effect for 60 days;
(9) the rendering of any judgment or decree for the payment of money
in excess of U.S.$10.0 million or its foreign currency equivalent against the
Company or any Significant Subsidiary if
(A) an enforcement proceeding is commenced with
respect to such judgment or decree or
(B) such judgment or decree remains outstanding
for a period of 60 days following such
judgment and is not discharged, waived or
the execution thereof stayed within 10 days
after receipt of the notice specified in the
penultimate paragraph of this Section; or
(10) the Lien created by the Security Agreement shall at any time fail
to constitute a valid and perfected Lien on all of the collateral purported to
be subject
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thereto, securing the obligations purported to be secured thereby, with the
priority required by the Security Agreement, or the Company shall so assert in
writing.
(11) BAC fails to purchase Securities when required under Section 4.09
and such failure continues for 60 days after the notice specified in the
penultimate paragraph of this Section; or BAC fails to comply with any other
requirement of Section 4.09 or of the last sentence of this Section 6.01 and
such failure continues for 30 days after the notice specified in the penultimate
paragraph of this Section; or BAC fails to comply with Section 5.02; or, until
such time as BAC has no further obligations under Section 4.09, BAC pursuant to
or within the meaning of any Bankruptcy Law commences a voluntary case, consents
to the entry of an order for relief against it in an involuntary case, consents
to the appointment of a Custodian for it or all or substantially all of its
assets, or makes a general assignment for the benefit of its creditors.
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means any applicable bankruptcy, insolvency,
suspension of payments, reorganization or other similar law of Mexico or the
United States now or hereafter in effect, including the Ley de Quiebras y
Suspension de Pagos. The term "Custodian" means any receiver, trustee, assignee,
liquidator, sindico, custodian or similar official under any Bankruptcy Law.
A default under clause (4), (5) or (9) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified in clause (4), (5) or (9) after
receipt of such notice. Such notice must specify the Default, demand that it be
remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (3), (6) or (7) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5), (8), (9) or (10), its status and what action the Company is
taking or proposes to take with respect thereto. BAC shall deliver to the
Trustee, within 30 days after the occurrence thereof, written notice in the form
of an Officers' Certificate of any Event of Default with respect to BAC under
clause (11), its status and what action BAC is taking or proposes to take with
respect thereto.
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SECTION 6.02. Acceleration. If an Event of Default (other than an Event
of Default specified in Section 6.01(7) or 6.01(8) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in principal amount of the outstanding Securities by notice to
the Company and a Trust Officer of the Trustee, may declare the principal of and
accrued but unpaid interest on all the Securities to be due and payable. Upon
such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 6.01(7) or 6.01(8) with
respect to the Company occurs and is continuing, the principal of and interest
on all the Securities shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
Securityholders. The Holders of a majority in principal amount of the Securities
by notice to a Trust Officer of the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon such Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to a Trust Officer of the Trustee
may waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Security or (ii) a Default in
respect of a provision that under Section 9.02 cannot be amended without the
consent of each Securityholder affected. When a Default is waived, it is deemed
cured, but no such waiver shall extend to any subsequent or other Default or
impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section
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7.01, that the Trustee determines is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction. Prior to taking any action
hereunder, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
SECTION 6.06. Limitation on Suits. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to a Trust Officer of the Trustee written notice
stating that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to a Trust Officer of the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities do
not give the Trustee a direction inconsistent with the request during such
60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal of and interest on the Securities held by such Holder, on or after the
respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(1) or 6.01(2) occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Company for the whole amount then due and owing (together with interest on
any unpaid interest to the extent lawful) and the amounts provided for in
Section 7.07.
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SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents and take such other actions,
including participating as a member, voting or otherwise, of any committee of
creditors appointed in the matter, as may be necessary or advisable in order to
have the claims of the Trustee and the Securityholders allowed in any judicial
proceedings relative to the Company, any Subsidiary of the Company, their
respective creditors or their property and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or property
from the Company pursuant to this Article 6, it shall pay out the money or
property in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Trustee shall mail to each Securityholder and the Company a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Company, a suit by the Trustee, a suit by a Holder pursuant to
Section 6.07 or a suit by Holders of more than 10% in principal amount of the
Securities.
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SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise or use under the circumstances in
the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates,
instruments, reports, notices, directions, consents or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine any such certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section;
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(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of
any of its rights or powers, if it shall have reasonable grounds to
believe that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. Subject to Section 7.01:
(a) The Trustee may conclusively rely and shall be protected in acting
or refraining from acting on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care. The Trustee
shall give notice to the Company of the appointment of any agent, and such
appointment shall be subject to the reasonable approval of the Company.
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(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit. If the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled, upon reasonable notice, to examine the
books, records and premises of the Company during normal business hours,
personally or by agent or attorney (the reasonable costs for which will be borne
solely by the Company) and shall incur no liability or additional liability of
any kind by reason of such inquiry or investigation.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.
(h) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee, and such
notice references the Securities and the Indenture.
(i) The rights, privileges, protections, immunities and benefits given
to the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its capacities
hereunder and to each agent, custodian and other Person employed to act
hereunder.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar or
co-registrar may do
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the same with like rights. However, the Trustee must comply with Sections 7.10
and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing
and if it is actually known to a Trust Officer of the Trustee, the Trustee shall
mail to each Securityholder notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment of principal of or interest
on any Security (including payments pursuant to the mandatory redemption
provisions of such Security, if any), the Trustee may withhold the notice if and
so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Securityholders. The Trustee shall
not be charged with knowledge of any Event of Default described in Section
6.01(3), 6.01(4), 6.01(5), 6.01(6), 6.01(7), 6.01(8), 6.01(9) or 6.01(10),
unless a Trust Officer shall have actual knowledge of such Event of Default.
SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable
after each May 15 beginning with May 15, 2000, and in any event prior to July 14
in each year, the Trustee shall mail to each Securityholder a brief report dated
as of May 15 that complies with TIA Section 313(a). The Trustee shall also
comply with TIA Section 313(b) and TIA Section 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee, Paying Agent, Registrar and co-registrar from time to time compensation
as agreed in writing for their services rendered hereunder. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall promptly reimburse the Trustee upon request for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the documented compensation and expenses, disbursements and
advances of the Trustee's agents, counsel, accountants and other professionals.
Any costs and expenses associated with the Exchange Securities
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shall be paid by the Company. The Company shall indemnify the Trustee, or any
predecessor Trustee, Paying Agent, Registrar and co-registrar, and each of their
officers, directors and employees (each in their respective capacities), for and
hold each of them harmless against any and all loss, damage, claim, liability or
expense (including reasonable attorneys' fees and expenses) including taxes
(other than taxes based upon, measured by or determined by the income of the
Trustee) incurred by them without negligence or bad faith on their part in
connection with the acceptance and administration of this trust and the
performance of their duties hereunder. The Trustee, Paying Agent, Registrar and
co-registrar shall notify the Company of any claim for which they may seek
indemnity promptly upon obtaining actual knowledge thereof; provided that any
failure so to notify the Company shall not relieve the Company of its indemnity
obligations hereunder except to the extent the Company shall have been adversely
affected thereby. The Company shall defend the claim (whether asserted by any
Holder or any other Person) and the indemnified party shall provide reasonable
cooperation at the Company's expense in the defense. Such indemnified parties
may have separate counsel and the Company shall pay the reasonable fees and
expenses of such counsel; provided that the Company shall not be required to pay
such fees and expenses if it assumes such indemnified parties' defense and, in
such indemnified parties' reasonable judgment, there is no conflict of interest
between the Company and such parties in connection with such defense. The
Company may not unreasonably withhold its consent for any settlement. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by an indemnified party through such party's own wilful
misconduct or negligence.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee, Paying Agent,
Registrar or co-registrar incurs expenses after the occurrence of a Default
specified in Section 6.01(7) or 6.01(8) with respect to the Company, the
expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company in writing at least one Business Day in
advance. The Holders of a majority in principal amount of the Securities may
remove the Trustee by so notifying the Company and the Trustee and may appoint a
successor
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Trustee with the prior written consent of the Company, which shall not be
unreasonably withheld. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee, at the
expense of the Company.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting,
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surviving or transferee corporation without any further act shall be the
successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Section 310(a). The Trustee shall have a
combined capital and surplus of at least U.S.$50.0 million as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
SECTION 7.12. Appointment of Co-Trustee. (a) It is the purpose of this
Indenture that there shall be no violation of any law of any jurisdiction
(including particularly the law of the State) denying or restricting the right
of banking corporations or associations to transact business as trustee in such
jurisdiction. It is recognized that in case of litigation under this Indenture
or the Security Agreement, and in particular in case of the enforcement thereof
on default, or in the case the Trustee deems that by reason of any present or
future law of any jurisdiction it may not exercise any of the powers, rights or
remedies herein granted to the Trustee or hold title to the properties, in
trust, as herein granted or take any action which may be desirable or necessary
in connection therewith, it may be necessary that the Trustee appoint an
individual or institution as a separate or co-trustee. The following provisions
of this Section are adopted to these ends.
(b) In the event that the Trustee appoints an additional individual
or institution as a separate or co-trustee, each and every remedy, power, right,
claim, demand, cause of action, immunity, estate, title, interest and lien
expressed or
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intended by this Indenture to be exercised by or vested in or conveyed to the
Trustee with respect thereto shall be exercisable by and vest in such separate
or co-trustee but only to the extent necessary to enable such separate or
co-trustee to exercise such powers, rights and remedies, and only to the extent
that the Trustee by the laws of any jurisdiction (including particularly the
State) is incapable of exercising such powers, rights and remedies and every
covenant and obligation necessary to the exercise thereof by such separate or
co-trustee shall run to and be enforceable by either of them.
(c) Should any instrument in writing from the Company be required by
the separate or co-trustee so appointed by the Trustee for more fully and
certainly vesting in and confirming to him or it such properties, rights,
powers, trusts, duties and obligations, any and all such instruments in writing
shall, on request, be executed, acknowledged and delivered by the Company;
provided, that if an Event of Default shall have occurred and be continuing, if
the Company does not execute any such instrument with fifteen (15) days after
request therefor, the Trustees shall be empowered as an attorney-in-fact for the
Company to execute any such instrument in the Company's name and stead. In case
any separate or co-trustee or a successor to either shall die, become incapable
of acting, resign or be removed, all the estates, properties, rights, powers,
trusts, duties and obligations of such separate or co-trustee, so far as
permitted by law, shall vest in and be exercised by the Trustee until the
appointment of a new trustee or successor to such separate or co-trustee.
(d) Every separate trustee and co-trustee shall to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(1) all rights and powers, conferred or imposed upon the
Trustee shall be conferred or imposed upon and may be exercised or
performed by such separate trustee or co-trustee; and
(2) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder.
(e) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Indenture and the conditions
of this Article.
(f) Any separate trustee or co-trustee may at any time appoint the
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Indenture on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, right,
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remedies and trusts shall vest in and be exercised by the Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Company irrevocably deposits with the Trustee funds or U.S. Government
Obligations on which payment of principal and interest when due shall be
sufficient to pay at maturity or upon redemption all outstanding Securities,
including interest thereon to maturity or such redemption date (other than
Securities replaced pursuant to Section 2.07), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Section 8.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c), 8.02 and 8.06, the Company at any time
may terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.12, 4.13, 4.14, 4.15, 4.16 and 5.01(3) and
the operation of Sections 6.01(3) (with respect to Section 5.01(3) only),
6.01(4), 6.01(5) (with respect to Subsidiaries of the Company), 6.01(6), 6.01(7)
(with respect to Subsidiaries of the Company), 6.01(8) (with respect to
Subsidiaries of the Company), 6.01(9) and 6.01(10) ("covenant defeasance
option"). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default and BAC shall
be automatically released from its obligations under this Indenture. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Sections 6.01(4),
6.01(5) (with respect to Subsidiaries of the
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Company), 6.01(6), 6.01(7) (with respect to Subsidiaries of the Company),
6.01(8) (with respect to Subsidiaries of the Company), 6.01(9) and 6.01(10) or
because of the failure of the Company to comply with Section 5.01(3).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding paragraphs (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05,
8.06 and 4.16 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal of and interest on the
Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment on the
deposited U.S. Government Obligations plus any deposited money without
investment shall provide cash at such times and in such amounts as shall be
sufficient to pay principal and interest when due on all the Securities to
maturity or redemption, as the case may be;
(3) 91 days pass after the deposit is made and during the 91-day period
no Default specified in Section 6.01(7) or 6.01(8) with respect to the Company
occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other agreement
binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company Act of
1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee (A) an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling, or (ii) since the date of this Indenture there has been a change in
the applicable Federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Securityholders
shall not
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recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance and shall be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred and (B) an Opinion of Counsel in Mexico to the
effect that Holders of the Securities shall not recognize income, gain or loss
for Mexican tax purposes as a result of such deposit and defeasance and shall be
subject to Mexican taxes (including withholding taxes) on the same amounts, in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee (A) an Opinion of Counsel to the effect that the
Securityholders shall not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and shall be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred and (B) an
Opinion of Counsel in Mexico to the effect that Holders of the Securities shall
not recognize income, gain or loss for Mexican tax purposes as a result of such
deposit and defeasance and shall be subject to Mexican taxes (including
withholding taxes) on the same amounts, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the defeasance
and discharge of the Securities as contemplated by this Article 8 have been
complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 8.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
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thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations other than any tax,
fee or other charge which by law is for the account of the Securityholders.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders. The Company, BAC and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in place
of certificated Securities; provided, however, that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of the
Code or in a manner such that the uncertificated Securities are described in
Section 163(f)(2)(B) of the Code;
(4) to add Guarantees with respect to the Securities;
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(5) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company;
(6) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(7) to make any change that does not adversely affect the rights of any
Securityholder; or
(8) to provide for the issuance and authorization of the Exchange
Securities.
An amendment under clause (2) of the above sentence may only be made
provided that the Company delivers to the Trustee (i) an Opinion of Counsel to
the effect that Holders of the Securities shall not recognize income, gain or
loss for U.S. Federal income tax purposes as a result of such assumption by a
successor corporation and shall be subject to U.S. Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such assumption had not occurred and (ii) an Opinion of Counsel in
Mexico to the effect that Holders of the Securities shall not recognize income,
gain or loss for Mexican tax purposes as a result of such assumption by a
successor corporation and shall be subject to Mexican taxes (including
withholding taxes) on the same amounts, in the same manner and at the same times
as would have been the case if such assumption had not occurred.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company, BAC and the Trustee
may amend this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of at least a majority in principal
amount of the Securities. The Holders of at least a majority in principal amount
of the Securities may waive (without notice to any Securityholder) compliance by
the Company with any provision or consent of this Indenture or the Securities.
However, without the consent of each Securityholder affected, an amendment or
waiver may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment or waiver;
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(2) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with Article
3;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder to receive payment of principal of
and interest on such Holder's Securities on or after the due dates therefor or
to institute suit for the enforcement of any payment on or with respect to such
Holder's Securities;
(7) make any change in Section 6.04, Section 6.07 or the third sentence
of this Section;
(8) release any funds from the Security Account in a manner
inconsistent with the provisions of the Security Agreement as in effect on the
Issue Date or modify any provision of the Security Agreement in a manner adverse
to the Holders of the Securities; or
(9) release BAC from its obligations hereunder.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such amendment
or waiver. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment or waiver under
this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent
to an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent
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or waiver is not made on the Security. However, any such Holder or subsequent
Holder may revoke the consent or waiver as to such Holder's Security or portion
of the Security if the Trustee receives the notice of revocation before the date
the amendment or waiver becomes effective. After an amendment or waiver becomes
effective, it shall bind every Securityholder. An amendment or waiver becomes
effective once the consents from the Holders of the requisite percentage in
principal amount of outstanding Securities are received by the Company or the
Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee to Sign Amendments and Waivers. The Trustee shall
sign any amendment or waiver authorized pursuant to this Article 9 if the
amendment or waiver does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may but need not sign it. In
signing such amendment or waiver the Trustee shall be entitled to receive
indemnity reasonably satisfactory to it and to receive, and (subject to Section
7.01) shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that such amendment or waiver is authorized or
permitted by this Indenture and complies with the provisions hereof (including
Section 9.03).
SECTION 9.07. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture, the Securities or the Security Agreement unless
such
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consideration is offered to be paid to all Holders that so consent, waive or
agree to amend in the time frame set forth in solicitation documents relating to
such consent, waiver or agreement.
ARTICLE 10
SECURITY
SECTION 10.01. Security. (a) On the Issue Date, the Company shall
purchase, and at all times, subject to the Security Agreement, pledge to the
Trustee the Pledged Securities as security for the benefit of the Holders. The
Pledged Securities must be in such amount together with the proceeds from the
investment thereof, will be sufficient in the written opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due on
the outstanding Securities. The Pledged Securities shall be pledged by the
Company to the Trustee for the benefit of the Holders pursuant to the Security
Agreement and shall be held by the Trustee in the Security Account pending
disposition pursuant to the Security Agreement.
(b) Each Holder, by its acceptance of a Security, consents and agrees
to the terms of the Security Agreement (including, without limitation, the
provisions providing for foreclosure and release of the Pledged Securities) as
the same may be in effect or may be amended from time to time in accordance with
its terms, and authorizes and directs the Trustee to enter into the Security
Agreement and to perform its respective obligations and exercise its respective
rights thereunder in accordance therewith. The Company shall do or cause to be
done all such acts and things as may be reasonably necessary or proper, or as
may be required by the provisions of the Security Agreement, to assure and
confirm to the Trustee the security interest in the Pledged Securities
contemplated hereby, by the Security Agreement or any part thereof, as from time
to time constituted, so as to render the same available for the security and
benefit of this Indenture and of the Securities secured hereby, according to the
intent and purposes herein expressed. The Company shall take, or shall cause to
be taken, any and all actions reasonably required (and any action reasonably
requested by the Trustee) to cause the Security Agreement to create and
maintain, as security for the obligations of the Company under this Indenture
and the Securities, valid and enforceable first priority liens in and on all the
Pledged Securities, in favor of the Trustee, superior to and prior to the rights
of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Security
Agreement will not be deemed to impair the security under this Indenture in
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contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Security Agreement.
To the extent applicable, the Company shall cause TIA Section 314(d), relating
to the release of property or securities from the Lien and security interest of
the Security Agreement and relating to the substitution therefor of any property
or securities to be subjected to the Lien and security interest of the Security
Agreement, to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an officer of the Company, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent appraiser or other
expert selected or approved by the Company in the exercise of reasonable care.
(d) The Company shall cause TIA Section 314(b), relating to opinions of
counsel regarding the Lien under the Security Agreement, to be complied with.
The Trustee may, to the extent permitted by Section 7.02 hereof, accept
statements contained in the opinions so provided as conclusive evidence of
compliance with the foregoing provisions.
(e) The Trustee, in its sole discretion and without the consent of the
Holders, may, and at the request of the Holders of at least 25% in aggregate
principal amount of Securities then outstanding shall, on behalf of the Holders,
take all actions it deems necessary or appropriate in order to (i) enforce any
of the terms of the Security Agreement and (ii) collect and receive any and all
amounts payable in respect of the obligations of the Company thereunder. The
Trustee shall have power to institute and to maintain such suits and proceedings
as the Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Pledged Securities (including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interest of the Holders or of the Trustee).
ARTICLE 11
INTENTIONALLY OMITTED
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<PAGE> 110
ARTICLE 12
INTENTIONALLY OMITTED
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. Notices. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail or by national overnight
courier service addressed as follows:
if to the Company:
Nuevo Grupo Iusacell, S.A. de C.V.
Prolongacion Paseo de la Reforma 1236
Colonia Sant Fe
Delegacion Cuajimalpa
05348, Mexico, D.F., Mexico
Tel. no. +525-109-4400
Attn: Ruben G. Perlmutter
Vice President, Mergers & Acquisitions and
General Counsel
if to the Bell Atlantic Corporation:
Bell Atlantic Corporation
1095 Avenue of the Americas
41st Floor
New York, New York 10036
Attn: Vice President - Treasurer
with a copy to:
Bell Atlantic Corporation
1095 Avenue of the Americas
38th Floor
New York, New York 10036
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<PAGE> 111
Attn: General Attorney - Finance and Investments
if to the Trustee:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
by first class mail within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice.
SECTION 13.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee and complying with Section 13.05 stating that, in
the opinion of the signers, all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been complied with; and
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(2) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee and complying with Section 13.05 stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee actually knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar, co-registrar and the Paying Agent may make reasonable rules for
their functions.
SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday or a day on which commercial banking institutions (including, the Federal
Reserve System) are authorized or required by law to close in New York City. If
a payment date is a Legal Holiday, payment shall be made on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening
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period. If a regular record date is a Legal Holiday, the record date shall not
be affected.
SECTION 13.09. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 13.10. Waiver of Immunities. To the extent that the Company or
any of its properties, assets or revenues may have or may hereafter become
entitled to, or have attributed to it, any right of immunity, on the grounds of
sovereignty or otherwise, from any legal action, suit or proceeding, from the
giving of any relief in any such legal action, suit or proceeding, from setoff
or counterclaim, from the competent jurisdiction of any court, from service of
process, from attachment upon or prior to judgment, from attachment in aid of
execution of judgment, or from execution of judgment, or other legal process or
proceeding for the giving of any relief or for the enforcement of any judgment,
in any competent jurisdiction in which proceedings may at any time be commenced,
with respect to its obligations, liabilities or any other matter under or
arising out of or in connection with this Indenture and the transactions
contemplated hereby, the Company hereby irrevocably and unconditionally waives,
and agrees not to plead or claim, any such immunity and consent to such relief
and enforcement.
SECTION 13.11. Consent to Jurisdiction; Appointment of Agent for
Service of Process; Judgment Currency. (a) The Company, by the execution and
delivery of this Indenture, irrevocably agrees that service of process may be
made upon CT Corporation Services ("CT Corporation"), with offices at 111 Eighth
Avenue, New York, New York 10011 (or its successors as agent for service of
process), in the County, City and State of New York, United States of America,
in any suit or proceeding against the Company instituted by the Trustee, based
on or arising under this Indenture and the transactions contemplated hereby in
any federal or state court in the State of New York, County of New York, and
each of the Company and the Trustee hereby irrevocably consents and submits to
the jurisdiction of any such court and to the courts of its own corporate
domicile in respect of actions brought against it as a defendant generally and
unconditionally in respect of any such suit or proceeding.
(b) Each of the Company and BAC further, by the execution and delivery
of this Indenture, irrevocably designates, appoints and empowers CT Corporation
as its designee, appointee and authorized agent to receive for and on its behalf
service (i) of any and all legal process, summons, notices and documents that
may
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be served in any action, suit or proceeding brought against the Company or BAC
with respect to its obligations, liabilities or any other matter arising out of
or in connection with this Indenture and the transactions contemplated hereby
and (ii) that may be made on such designee, appointee and authorized agent in
accordance with legal procedures prescribed for such courts, and it being
understood that the designation and appointment of CT Corporation as such
authorized agent shall become effective immediately without any further action
on the part of the Company or BAC, as the case may be. Each of the Company and
BAC represents to the Trustee that it has notified CT Corporation of such
designation and appointment and that CT Corporation has accepted the same, and
that CT Corporation has been paid its full fee for such designation, appointment
and related services through the date that is seven years from the date of this
Indenture. Each of the Company and BAC further agrees that, to the extent
permitted by law, service of process upon CT Corporation (or its successors as
agent for service of process) and written notice of said service to the Company
or BAC, as the case may be, pursuant to Section 13.02 of this Indenture, shall
be deemed in every respect effective service of process upon the Company or BAC
in any such suit or proceeding. If for any reason such designee, appointee and
agent hereunder shall cease to be available to act as such, each of the Company
and BAC agrees to designate a new designee, appointee and agent in The City of
New York, New York on the terms and for the purposes of this Section reasonably
satisfactory to the Trustee. Each of the Company and BAC further hereby
irrevocably consents and agrees to the service of any and all legal process,
summons, notices and documents in any such action, suit or proceeding against
the Company or BAC, as the case may be, by serving a copy thereof upon the
relevant agent for service of process referred to in this Section (whether or
not the appointment of such agent shall for any reason prove to be ineffective
or such agent shall accept or acknowledge such service) and by mailing copies
thereof by registered or certified air mail, postage prepaid, to the Company or
BAC at its address specified in or designated pursuant to this Indenture. Each
of the Company and BAC agrees that the failure of any such designee, appointee
and agent to give any notice of such service to it shall not impair or affect in
any way the validity of such service or any judgment rendered in any action or
proceeding based thereon. Nothing herein shall in any way be deemed to limit the
ability of the Trustee to serve any such legal process, summons, notices and
documents in any other manner permitted by applicable law. Each of the Company
and BAC hereby irrevocably and unconditionally waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of venue of any of the aforesaid actions, suits or proceedings arising out of or
in connection with this Indenture brought in federal or state court in the State
of New York, County of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum and further irrevocably waives any right to which it
may be entitled on account of place of residence or domicile.
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<PAGE> 115
(c) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures the Trustee could purchase United
States dollars with the other currency in New York City on the business day
preceding that on which final judgment is given. The obligation of the Company
in respect of any sum due from the Company to the Trustee shall, notwithstanding
any judgment in a currency other than United States dollars, not be discharged
until the first business day, following receipt by the Trustee of any sum
adjudged to be so due in the other currency, on which (and only to the extent
that) the Trustee may in accordance with normal banking procedures purchase
United States dollars with the other currency; if the United States dollars so
purchased are less than the sum originally due to the Trustee hereunder, the
Company agrees, as a separate obligation and notwithstanding any such judgment,
to indemnify the Trustee against the loss. If the United States dollars so
purchased are greater than the sum originally due to the Trustee hereunder, the
Trustee agrees to pay to the Company an amount equal to the excess of the
dollars so purchased over the sum originally due to the Trustee hereunder.
(d) The provisions of this Section shall survive any termination of
this Indenture, in whole or in part.
SECTION 13.12. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 13.13. Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of BAC in
this Indenture shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 13.14. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 13.15. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture
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<PAGE> 116
have been inserted for convenience of reference only, are not intended to be
considered a part hereof and shall not modify or restrict any of the terms or
provisions hereof.
108
<PAGE> 117
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
NUEVO GRUPO IUSACELL, S.A. de C.V.
By: ______________________________
Name: Howard F. Zuckerman
Title: Executive Vice President,
Finance
By: ______________________________
Name: William S. Roberts
Title: Executive Vice President
and Chief Financial Officer
BELL ATLANTIC CORPORATION
By: ______________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By: ______________________________
Name:
Title:
<PAGE> 118
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
[GLOBAL SECURITIES LEGEND]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(1)
[Private Placement Legend]
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION FROM
REGISTRATION. EACH PURCHASER OF THIS NOTE IS NOTIFIED THAT THE SELLER OF THIS
NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A)
THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO
THE ISSUER, (2) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY
- - --------
(1) This paragraph should only be added if the Security is issued in
global form.
<PAGE> 119
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904
UNDER THE SECURITIES ACT, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR"
AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, (5)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (1) THROUGH
(6) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO
IN (A) ABOVE. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES
IT WILL FURNISH TO THE ISSUER AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING REPRESENTATIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR"
AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT
IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR
(3) A PURCHASER WHO MEETS THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES
ACT.
2
<PAGE> 120
NUEVO GRUPO IUSACELL, S.A. de C.V.
14 1/4% SENIOR NOTE DUE 2006
CUSIP No.___________
$[ ]
NUEVO GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico, promises to pay to CEDE & CO., or registered
assigns, the amount set forth on the Schedule of Increases and Decreases in
Global Security on the opposite side of this security on December 1, 2006.
Interest Payment Dates: June 1 and December 1.
Record Dates: May 15 and November 15.
3
<PAGE> 121
Additional provisions of this Security are set forth on the other side
of this Security.
NUEVO GRUPO IUSACELL, S.A. de C.V.,
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
With respect to its obligations in connection with this Security as set
forth in Sections 4.09, 5.02 and 6.01 of the Indenture (the "BAC Commitment").
BELL ATLANTIC CORPORATION
By:
----------------------------------------
Name:
Title:
Dated: December 16, 1999
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THE BANK OF NEW YORK
as Trustee, certifies that this is
one of the Securities referred
to in the Indenture
By
----------------------------------------
Authorized Signatory
4
<PAGE> 122
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
14 1/4% SENIOR NOTE DUE 2006
1. INTEREST; LIQUIDATED DAMAGES
NUEVO GRUPO IUSACELL, S.A. de C.V., a limited liability stock
corporation organized under the laws of Mexico (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "COMPANY"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company and Bell Atlantic
Corporation, a Delaware corporation ("BAC"), will use their best efforts to have
the Exchange Offer Registration Statement and, if applicable, a Shelf
Registration Statement (each a "REGISTRATION STATEMENT") declared effective by
the Commission as promptly as practicable after the filing thereof. If (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 75 days after the Issue Date; (ii) the Exchange Offer Registration Statement
or the Shelf Registration Statement, as the case may be, is not declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change in law or interpretation); (iii) the
Registered Exchange Offer is not consummated on or prior to 180 days after the
Issue Date; or (iv) the Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change interpretation) but shall thereafter
cease to be effective (at any time that the Company and BAC are obligated to
maintain the effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), the Company
will pay liquidated damages to each Holder of Registrable Securities, during the
period of one or more such Registration Defaults, in an amount equal to $0.192
per week per $1,000 principal amount of the Securities constituting Registrable
Securities held by such Holder until (i) the applicable Registration Statement
is filed, (ii) the Exchange Offer Registration Statement is declared effective
and the Registered Exchange Offer is consummated, (iii) the Shelf Registration
Statement is declared effective (iv) or the Shelf Registration Statement again
becomes effective, as the case may be. All accrued liquidated damages shall be
paid to Holders in the same manner as interest payments on the Securities on
semi-annual payment dates which correspond to interest payment dates for the
Securities. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
5
<PAGE> 123
The Company will pay interest semiannually on June 1 and December 1 of
each year. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from December 16,
1999. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the May 15 or November 15 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money. It may mail an interest check to a Holder's
registered address.
3. PAYING AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation (the
"TRUSTEE"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its Wholly Owned Subsidiaries incorporated in either the United States
or Mexico may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
December 16, 1999 (the "INDENTURE"), between the Company, BAC and the Trustee.
The terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa77bbbb) as in effect on the date of the IndeNTUre (the
"Act"). Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the Company
limited to $350,000,000 aggregate principal amount at any one time outstanding
(subject to Section 2.07 of the Indenture). This Security is one of the Initial
Securities referred to in the Indenture. The Securities include the Initial
Securities
6
<PAGE> 124
and any Exchange Securities issued in exchange for the Initial Securities
pursuant to the Indenture. The Initial Securities and the Exchange Securities
are treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the issuance of debt by the Company and its
Restricted Subsidiaries, the payment of dividends and other distributions on,
and acquisitions or retirements of, the Capital Stock and Subordinated
Obligations of the Company and its Restricted Subsidiaries, the incurrence by
the Company and its Restricted Subsidiaries of Liens on its property and assets
which do not equally and ratably secure the Securities, the sale or transfer of
assets and stock of Restricted Subsidiaries of the Company, investments by the
Company and its Restricted Subsidiaries, the lines of business in which the
Company and its Restricted Subsidiaries may operate, consolidations, mergers and
transfers of all or substantially all of the Company's property and assets and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and its Restricted Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries and to sell or issue the Capital Stock of
Restricted Subsidiaries. The Indenture also imposes certain obligations with
respect to the payment of Additional Amounts.
5. REDEMPTION
At any time and from time to time prior to December 1, 2002, the
Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of securities with the proceeds of one or more Public Equity
Offerings by the Company, at a redemption price (expressed as a percentage of
principal amount) of 114.25% plus accrued interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption.
The Securities may be redeemed, at the option of the Company, in whole
but not in part, at any time, upon giving not less than 30 nor more than 60
days' notice by mail to the Holders of the Securities (which notice will be
irrevocable), at a price equal to 100% of the outstanding principal amount
thereof plus accrued interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) and including Additional Amounts payable
in respect of such payment, if the Company determines and certifies to the
Trustee immediately prior to the giving of such notice that as a result of any
amendment to, or change in, the laws (or any rules or regulations promulgated
thereunder) of Mexico or any political subdivision thereof or taxing authority
therein, or any amendment to or change in an official interpretation or
application regarding such laws, rules or regulations,
7
<PAGE> 125
which amendment, change, application or interpretation becomes effective on or
after December 9, 1999, the Company pays, or would be obligated for reasons
outside its control, and after taking reasonable measures available to it to
avoid such obligation, to pay, Additional Amounts in respect of any Security
pursuant to the terms and conditions thereof which exceed the Additional Amounts
that would have been payable if Mexican withholding tax at a rate of 15% would
be imposed on payments of interest or amounts deemed to be interest to Holders
("EXCESSIVE ADDITIONAL AMOUNTS"); provided, however, that (i) notice of such
redemption shall not be given earlier than 90 days prior to the earliest date on
which the Company would, but for such redemption, be obligated to pay such
Excessive Additional Amounts and (ii) at the time such notice is given, the
Company's obligation to pay such Additional Amounts (including any Excessive
Additional Amounts) remains in effect; provided further, however, that such
notice shall not be deemed effectively given if on the date on which the notice
is given, the Company no longer has an obligation to pay Excessive Additional
Amounts as a result of a subsequent change in law.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the right
to require the Company to repurchase all or any part of the Securities of such
Holder at a purchase price in cash equal to 101% of the principal amount of the
Securities to be repurchased plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of holders of record on the relevant
record date to receive interest due on the related interest payment date) as
provided in, and subject to the terms of, the Indenture. Under certain
circumstances, as set forth in Section 4.09 of the Indenture, upon a Change of
Control, any Holder of Securities will also have the right to require BAC to
repurchase all or any part of the Securities of such Holder on the same terms
set forth in the preceding sentence.
8. DENOMINATIONS; TRANSFER; EXCHANGE
8
<PAGE> 126
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of 15
days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
9. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes, subject to provisions for record dates with respect to
payment of interest.
10. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
11. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal of and interest on the Securities to redemption or
maturity, as the case may be.
12. AMENDMENT; WAIVER
9
<PAGE> 127
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Securities or the Security Agreement may be amended with the
written consent of the Holders of at least a majority in principal amount
outstanding of the Securities and (ii) any default or noncompliance with any
provision of the Indenture, the Securities or the Security Agreement may be
waived with the written consent of the Holders of a majority in principal amount
outstanding of the Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, BAC and the
Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the Indenture,
or to provide for uncertificated Securities in addition to or in place of
certificated Securities or to add guarantees with respect to the Securities or
to add additional covenants or surrender rights and powers conferred on the
Company or BAC or to comply with any requirement of the Commission in connection
with qualifying the Indenture under the Act, or to make any other change that
does not adversely affect the rights of any Securityholder, or to provide for
the issuance and authorization of the Exchange Securities.
13. DEFAULTS AND REMEDIES
10
<PAGE> 128
An Event of Default is defined in the Indenture as: (1) a default in
any payment of interest on any Security when due, continued for 30 days; (2) a
default in the payment of principal of any Security when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise; (3) the failure by the Company to comply with its obligations
under Section 5.01 of the Indenture; (4) the failure by the Company to comply
for 30 days after notice with any of its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.12, 4.13, 4.14, 4.15 or 4.16 of the
Indenture (in each case, other than a failure to purchase Securities); (5) the
failure by the Company or Bell Atlantic to comply for 60 days after notice with
its other agreements contained in the Securities or the Indenture; (6) the
failure by the Company or any Significant Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds U.S.$5.0 million or
its foreign currency equivalent (the "cross acceleration provision"); (7)
certain events of bankruptcy, suspensions of payments, insolvency or
reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions"); (8) the rendering of any judgment or decree for the payment of
money in excess of U.S.$10.0 million or its foreign currency equivalent against
the Company or a Significant Subsidiary if: (A) an enforcement proceeding
thereon is commenced or (B) such judgment or decree remains outstanding for a
period of 60 days following such judgment and is not discharged, waived or
stayed within 10 days after receipt of the notice described below (the "judgment
default provision"); or (9) the Lien created by the Security Agreement shall at
any time fail to constitute a valid and perfected Lien on all of the collateral
purported to be subject thereto, securing the obligations purported to be
secured thereby, with the priority required by the Security Agreement, or the
Company shall so assert in writing. If an Event of Default (other than a Default
relating to certain events of bankruptcy, insolvency, suspension of payments or
reorganization of the Company) occurs and is continuing, the Trustee or the
Holders of at least a majority in principal amount of the Securities may declare
the principal of and accrued but unpaid interest on all the Securities to be due
and payable immediately. Certain events of bankruptcy, insolvency, suspension of
payments or reorganization are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of
11
<PAGE> 129
principal or interest) if and so long as a committee of its Trust Officers in
good faith determines that withholding notice is in the interest of the Holders.
14. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
15. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company,
BAC or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
16. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
17. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
18. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
12
<PAGE> 130
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture which has in it the
text of this Security in larger type. Requests may be made to:
NUEVO GRUPO IUSACELL,
S.A. DE C.V.
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delegacion Cuajimalpa
05348, Mexico, D.F., Mexico
Tel. no. +525-109-4400
Attn: Vice President of Investor
Relations
13
<PAGE> 131
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ]. The
following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Principal amount
Amount of Amount of of this Global
decrease in increase in Security
principal amount principal amount following such Signature of
of this Global of this Global decrease or authorized officer
Date of Exchange Security Security increase of Trustee
<S> <C> <C> <C> <C>
</TABLE>
14
<PAGE> 132
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
- - --------------------------------------------------------------------------------
Date: Your Signature:
------------------------- -----------------------
Signature Guarantee:
--------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
- - --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
15
<PAGE> 133
CERTIFICATE TO BE DELIVERED UPON TRANSFER,
EXCHANGE OR REGISTRATION OF SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) _______ book-entry or _______ definitive form by the
undersigned.
The undersigned (check one box below):
/ / subject to the terms of the Indenture, has requested the Trustee by
written order to deliver in exchange for its beneficial interest in the
Global Security held by the Depository a Security or Securities in
definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global
Security (or the portion thereof indicated above); or
/ / has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
16
<PAGE> 134
[In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the later of (a) two years after the date
of original issuance of such Securities and (b) three months after the last date
the undersigned was an Affiliate of the Company, the undersigned confirms that
such Securities are being:(2)
CHECK ONE BOX BELOW:
(1) / / transferred to the Company; or
(2) / / transferred pursuant to an effective
registration statement under the Securities
Act of 1933; or
(3) / / transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933, as amended,
and the transferor has furnished to the Trustee a
signed letter containing certain representations and
agreements (the form of which letter appears as
Exhibit E to the Indenture); or
(4) / / transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933, as
amended, and the transferor has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of which
letter appears as Exhibit F to the Indenture); or
(5) / / transferred to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act of 1933, as amended), that has
furnished to the Trustee a signed letter containing
certain representations and agreements (the form of
which letter appears as Exhibit F to the Indenture);
or
- - ------------------
(2) This paragraph, the last paragraph of this Certificate and the
related boxes do not apply in the case of transfers of interests in the
Regulation S Global Security.
17
<PAGE> 135
(6) / / transferred pursuant to an exemption from
registration under Rule 144 (if applicable) of the
Securities Act of 1933, as amended.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4), (5) or
(6) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.]
------------------------------------------------
Signature
- - --------------------------------------------------------------------------------
Signature Guarantee:
Signature
(Signature must be guaranteed
by a participant in a signature
guarantee medallion program)
- - --------------------------------------------------------------------------------
18
<PAGE> 136
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company (or
BAC, if applicable) pursuant to Section 4.07 or 4.09 of the Indenture, check the
box:
/ /
If you want to elect to have only part of this Security purchased by
the Company (or BAC, if applicable) pursuant to Section 4.07 or 4.09 of the
Indenture, state the amount:
-----------------------------------------
Date: Your Signature:
(Sign exactly as your name appears on the
other side of the Security)
Signature Guarantee:
-----------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
19
<PAGE> 137
EXHIBIT B
[FORM OF FACE OF REGISTERED EXCHANGE SECURITY]
[GLOBAL SECURITIES LEGEND]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(1)
- - -------------------
(1) This paragraph should only be added if the Security is issued in
global form.
<PAGE> 138
NUEVO GRUPO IUSACELL, S.A. de C.V.
14 1/4% SENIOR NOTE DUE 2006
CUSIP No.___________
$[ ]
NUEVO GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico, promises to pay to CEDE & CO., or registered
assigns, the amount set forth on the Schedule of Increases and Decreases in
Global Security on the opposite side of this security on December 1, 2006.
Interest Payment Dates: June 1 and December 1.
Record Dates: May 15 and November 15.
2
<PAGE> 139
Additional provisions of this Security are set forth on the other side
of this Security.
NUEVO GRUPO IUSACELL, S.A. de C.V.,
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
With respect to its obligations in connection with this Security as set
forth in Sections 4.09, 5.02 and 6.01 of the Indenture (the "BAC Commitment").
BELL ATLANTIC CORPORATION
By:
---------------------------------------
Name:
Title:
Dated: December 16, 1999
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK
as Trustee, certifies that this is
one of the Securities referred
to in the Indenture
By
----------------------------------------
Authorized Signatory
3
<PAGE> 140
[FORM OF REVERSE SIDE OF REGISTERED EXCHANGE SECURITY]
14 1/4% SENIOR NOTE DUE 2006
1. INTEREST; LIQUIDATED DAMAGES
NUEVO GRUPO IUSACELL, S.A. de C.V., a limited liability stock
corporation organized under the laws of Mexico (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "COMPANY"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above.
The Company will pay interest semiannually on June 1 and December 1 of
each year. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from December 16,
1999. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the May 15 or November 15 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money. It may mail an interest check to a Holder's
registered address.
3. PAYING AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation (the
"TRUSTEE"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its Wholly Owned Subsidiaries incorporated in either the United States
or Mexico may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
December 16, 1999 (the "INDENTURE"), between the Company, Bell Atlantic
Corporation, a Delaware corporation ("BAC"), and the Trustee. The terms of the
4
<PAGE> 141
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa77bbbb) as in effect on the date of the Indenture (the
"ACT"). Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the Company limited
to $350,000,000 aggregate principal amount at any one time outstanding (subject
to Section 2.07 of the Indenture). This Security is one of the Initial
Securities referred to in the Indenture. The Securities include the Initial
Securities and any Exchange Securities issued in exchange for the Initial
Securities pursuant to the Indenture. The Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture. The
Indenture imposes certain limitations on the issuance of debt by the Company and
its Restricted Subsidiaries, the payment of dividends and other distributions
on, and acquisitions or retirements of, the Capital Stock and Subordinated
Obligations of the Company and its Restricted Subsidiaries, the incurrence by
the Company and its Restricted Subsidiaries of Liens on its property and assets
which do not equally and ratably secure the Securities, the sale or transfer of
assets and stock of Restricted Subsidiaries of the Company, investments by the
Company and its Restricted Subsidiaries, the lines of business in which the
Company and its Restricted Subsidiaries may operate, consolidations, mergers and
transfers of all or substantially all of the Company's property and assets and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and its Restricted Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries and to sell or issue the Capital Stock of
Restricted Subsidiaries. The Indenture also imposes certain obligations with
respect to the payment of Additional Amounts.
5. REDEMPTION
At any time and from time to time prior to December 1, 2002, the
Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of securities with the proceeds of one or more Public Equity
Offerings by the Company, at a redemption price (expressed as a percentage of
principal amount) of 114.25% plus accrued interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption.
5
<PAGE> 142
The Securities may be redeemed, at the option of the Company, in whole
but not in part, at any time, upon giving not less than 30 nor more than 60
days' notice by mail to the Holders of the Securities (which notice will be
irrevocable), at a price equal to 100% of the outstanding principal amount
thereof plus accrued interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) and including Additional Amounts payable
in respect of such payment, if the Company determines and certifies to the
Trustee immediately prior to the giving of such notice that as a result of any
amendment to, or change in, the laws (or any rules or regulations promulgated
thereunder) of Mexico or any political subdivision thereof or taxing authority
therein, or any amendment to or change in an official interpretation or
application regarding such laws, rules or regulations, which amendment, change,
application or interpretation becomes effective on or after December 9, 1999,
the Company pays, or would be obligated for reasons outside its control, and
after taking reasonable measures available to it to avoid such obligation, to
pay, Additional Amounts in respect of any Security pursuant to the terms and
conditions thereof which exceed the Additional Amounts that would have been
payable if Mexican withholding tax at a rate of 15% would be imposed on payments
of interest or amounts deemed to be interest to Holders ("EXCESSIVE ADDITIONAL
AMOUNTS"); provided, however, that (i) notice of such redemption shall not be
given earlier than 90 days prior to the earliest date on which the Company
would, but for such redemption, be obligated to pay such Excessive Additional
Amounts and (ii) at the time such notice is given, the Company's obligation to
pay such Additional Amounts (including any Excessive Additional Amounts) remains
in effect; provided further, however, that such notice shall not be deemed
effectively given if on the date on which the notice is given, the Company no
longer has an obligation to pay Excessive Additional Amounts as a result of a
subsequent change in law.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
6
<PAGE> 143
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the right
to require the Company to repurchase all or any part of the Securities of such
Holder at a purchase price in cash equal to 101% of the principal amount of the
Securities to be repurchased plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of holders of record on the relevant
record date to receive interest due on the related interest payment date) as
provided in, and subject to the terms of, the Indenture. Under certain
circumstances, as set forth in Section 4.09 of the Indenture, upon a Change of
Control, any Holder of Securities will also have the right to require BAC to
repurchase all or any part of the Securities of such Holder on the same terms
set forth in the preceding sentence.
8. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of 15
days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
9. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes, subject to provisions for record dates with respect to
payment of interest.
10. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
11. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for
7
<PAGE> 144
the payment of principal of and interest on the Securities to redemption or
maturity, as the case may be.
12. AMENDMENT; WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Securities or the Security Agreement may be amended with the
written consent of the Holders of at least a majority in principal amount
outstanding of the Securities and (ii) any default or noncompliance with any
provision of the Indenture, the Securities or the Security Agreement may be
waived with the written consent of the Holders of a majority in principal amount
outstanding of the Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, BAC and the
Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the Indenture,
or to provide for uncertificated Securities in addition to or in place of
certificated Securities or to add guarantees with respect to the Securities or
to add additional covenants or surrender rights and powers conferred on the
Company or BAC or to comply with any requirement of the Commission in connection
with qualifying the Indenture under the Act, or to make any other change that
does not adversely affect the rights of any Securityholder, or to provide for
the issuance and authorization of the Exchange Securities.
13. DEFAULTS AND REMEDIES
8
<PAGE> 145
An Event of Default is defined in the Indenture as: (1) a default in
any payment of interest on any Security when due, continued for 30 days; (2) a
default in the payment of principal of any Security when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise; (3) the failure by the Company to comply with its obligations
under Section 5.01 of the Indenture; (4) the failure by the Company to comply
for 30 days after notice with any of its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.12, 4.13, 4.14, 4.15 or 4.16 of the
Indenture (in each case, other than a failure to purchase Securities); (5) the
failure by the Company or Bell Atlantic to comply for 60 days after notice with
its other agreements contained in the Securities or the Indenture; (6) the
failure by the Company or any Significant Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds U.S.$5.0 million or
its foreign currency equivalent (the "cross acceleration provision"); (7)
certain events of bankruptcy, suspensions of payments, insolvency or
reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions"); (8) the rendering of any judgment or decree for the payment of
money in excess of U.S.$10.0 million or its foreign currency equivalent against
the Company or a Significant Subsidiary if: (A) an enforcement proceeding
thereon is commenced or (B) such judgment or decree remains outstanding for a
period of 60 days following such judgment and is not discharged, waived or
stayed within 10 days after receipt of the notice described below (the "judgment
default provision"); or (9) the Lien created by the Security Agreement shall at
any time fail to constitute a valid and perfected Lien on all of the collateral
purported to be subject thereto, securing the obligations purported to be
secured thereby, with the priority required by the Security Agreement, or the
Company shall so assert in writing. If an Event of Default (other than a Default
relating to certain events of bankruptcy, insolvency, suspension of payments or
reorganization of the Company) occurs and is continuing, the Trustee or the
Holders of at least a majority in principal amount of the Securities may declare
the principal of and accrued but unpaid interest on all the Securities to be due
and payable immediately. Certain events of bankruptcy, insolvency, suspension of
payments or reorganization are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of
9
<PAGE> 146
principal or interest) if and so long as a committee of its Trust Officers in
good faith determines that withholding notice is in the interest of the Holders.
14. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
15. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company,
BAC or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
16. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
17. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
18. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
10
<PAGE> 147
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture which has in it the
text of this Security in larger type. Requests may be made to:
NUEVO GRUPO IUSACELL,
S.A. DE C.V.
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delegacion Cuajimalpa
05348, Mexico, D.F., Mexico
Tel. no. +525-109-4400
Attn: Vice President of Investor
Relations
11
<PAGE> 148
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ]. The
following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Principal amount
Amount of Amount of of this Global
decrease in increase in Security
principal amount principal amount following such Signature of
of this Global of this Global decrease or authorized officer
Date of Exchange Security Security increase of Trustee
<S> <C> <C> <C> <C>
</TABLE>
12
<PAGE> 149
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
- - --------------------------------------------------------------------------------
Date:_________________________ Your Signature:_______________________
Signature Guarantee:
----------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
- - --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
13
<PAGE> 150
CERTIFICATE TO BE DELIVERED UPON TRANSFER,
EXCHANGE OR REGISTRATION OF SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) _______ book-entry or _______ definitive form by the
undersigned.
The undersigned (check one box below):
/ / subject to the terms of the Indenture, has requested the Trustee by
written order to deliver in exchange for its beneficial interest in the
Global Security held by the Depository a Security or Securities in
definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global
Security (or the portion thereof indicated above); or
/ / has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
- - --------------------------------------------------------------------------------
Signature
Signature Guarantee:
- - --------------------------------------------------------------------------------
Signature
(Signature must be guaranteed
by a participant in a signature
guarantee medallion program)
- - --------------------------------------------------------------------------------
14
<PAGE> 151
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company (or
BAC, if applicable) pursuant to Section 4.07 or 4.09 of the Indenture, check the
box:
/ /
If you want to elect to have only part of this Security purchased by
the Company (or BAC, if applicable) pursuant to Section 4.07 or 4.09 of the
Indenture, state the amount:
- - --------------------------------------------------------------------------------
Date: Your Signature:
(Sign exactly as your name appears on the
other side of the Security)
- - --------------------------------------------------------------------------------
Signature Guarantee:
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
15
<PAGE> 152
EXHIBIT C
[FORM OF FACE OF PRIVATE EXCHANGE SECURITY]
[GLOBAL SECURITIES LEGEND]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(1)
[Private Placement Legend]
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION FROM
REGISTRATION. EACH PURCHASER OF THIS NOTE IS NOTIFIED THAT THE SELLER OF THIS
NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A)
THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO
THE ISSUER, (2) IN THE
- - -----------------------
(1) This paragraph should only be added if the Security is issued in
global form.
<PAGE> 153
UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3) OUTSIDE THE UNITED STATES
IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS NOTE
FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, (5) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (1) THROUGH (6) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO
IN (A) ABOVE. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES
IT WILL FURNISH TO THE ISSUER AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING REPRESENTATIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR"
AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT
IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR
(3) A PURCHASER WHO MEETS THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES
ACT.
2
<PAGE> 154
NUEVO GRUPO IUSACELL, S.A. de C.V.
14 1/4% SENIOR NOTE DUE 2006
CUSIP No.___________
$[ ]
NUEVO GRUPO IUSACELL, S.A. de C.V., a limited liability corporation
organized under the laws of Mexico, promises to pay to CEDE & CO., or registered
assigns, the amount set forth on the Schedule of Increases and Decreases in
Global Security on the opposite side of this security on December 1, 2006.
Interest Payment Dates: June 1 and December 1.
Record Dates: May 15 and November 15.
3
<PAGE> 155
Additional provisions of this Security are set forth on the other side
of this Security.
-------------------------------------------
NUEVO GRUPO IUSACELL, S.A. de C.V.,
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
With respect to its obligations in connection with this Security as set
forth in Sections 4.09, 5.02 and 6.01 of the Indenture ("BAC Commitment").
BELL ATLANTIC CORPORATION
By:
---------------------------------------
Name:
Title:
Dated: December 16, 1999
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK
as Trustee, certifies that this is
one of the Securities referred
to in the Indenture
By
----------------------------------------
Authorized Signatory
4
<PAGE> 156
[FORM OF REVERSE SIDE OF PRIVATE EXCHANGE SECURITY]
14 1/4% SENIOR NOTE DUE 2006
1. INTEREST; LIQUIDATED DAMAGES
NUEVO GRUPO IUSACELL, S.A. de C.V., a limited liability stock
corporation organized under the laws of Mexico (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "COMPANY"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company and Bell Atlantic
Corporation, a Delaware corporation ("BAC"), will use their best efforts to have
the Exchange Offer Registration Statement and, if applicable, a Shelf
Registration Statement (each a "REGISTRATION STATEMENT") declared effective by
the Commission as promptly as practicable after the filing thereof. If (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 75 days after the Issue Date; (ii) the Exchange Offer Registration Statement
or the Shelf Registration Statement, as the case may be, is not declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change in law or interpretation); (iii) the
Registered Exchange Offer is not consummated on or prior to 180 days after the
Issue Date; or (iv) the Shelf Registration Statement is filed and declared
effective within 150 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission or its staff, if later, within
75 days after publication of the change interpretation) but shall thereafter
cease to be effective (at any time that the Company and BAC are obligated to
maintain the effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), the Company
will pay liquidated damages to each Holder of Registrable Securities, during the
period of one or more such Registration Defaults, in an amount equal to $0.192
per week per $1,000 principal amount of the Securities constituting Registrable
Securities held by such Holder until (i) the applicable Registration Statement
is filed, (ii) the Exchange Offer Registration Statement is declared effective
and the Registered Exchange Offer is consummated, (iii) the Shelf Registration
Statement is declared effective (iv) or the Shelf Registration Statement again
becomes effective, as the case may be. All accrued liquidated damages shall be
paid to Holders in the same manner as interest payments on the Securities on
semi-annual payment dates which correspond to interest payment dates for the
Securities. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
5
<PAGE> 157
The Company will pay interest semiannually on June 1 and December 1 of
each year. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from December 16,
1999. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the May 15 or November 15 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal and interest by
check payable in such money. It may mail an interest check to a Holder's
registered address.
3. PAYING AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation (the
"TRUSTEE"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
or any of its Wholly Owned Subsidiaries incorporated in either the United States
or Mexico may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of
December 16, 1999 (the "INDENTURE"), between the Company, BAC and the Trustee.
The terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa77bbbb) as in effect on the date of the IndeNTUre (the
"Act"). Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the Company
limited to $350,000,000 aggregate principal amount at any one time outstanding
(subject to Section 2.07 of the Indenture). This Security is one of the Initial
Securities referred to in the Indenture. The Securities include the Initial
Securities
6
<PAGE> 158
and any Exchange Securities issued in exchange for the Initial Securities
pursuant to the Indenture. The Initial Securities and the Exchange Securities
are treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the issuance of debt by the Company and its
Restricted Subsidiaries, the payment of dividends and other distributions on,
and acquisitions or retirements of, the Capital Stock and Subordinated
Obligations of the Company and its Restricted Subsidiaries, the incurrence by
the Company and its Restricted Subsidiaries of Liens on its property and assets
which do not equally and ratably secure the Securities, the sale or transfer of
assets and stock of Restricted Subsidiaries of the Company, investments by the
Company and its Restricted Subsidiaries, the lines of business in which the
Company and its Restricted Subsidiaries may operate, consolidations, mergers and
transfers of all or substantially all of the Company's property and assets and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and its Restricted Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries and to sell or issue the Capital Stock of
Restricted Subsidiaries. The Indenture also imposes certain obligations with
respect to the payment of Additional Amounts.
5. REDEMPTION
At any time and from time to time prior to December 1, 2002, the
Company may redeem in the aggregate up to 35% of the original aggregate
principal amount of securities with the proceeds of one or more Public Equity
Offerings by the Company, at a redemption price (expressed as a percentage of
principal amount) of 114.25% plus accrued interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption.
The Securities may be redeemed, at the option of the Company, in whole
but not in part, at any time, upon giving not less than 30 nor more than 60
days' notice by mail to the Holders of the Securities (which notice will be
irrevocable), at a price equal to 100% of the outstanding principal amount
thereof plus accrued interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) and including Additional Amounts payable
in respect of such payment, if the Company determines and certifies to the
Trustee immediately prior to the giving of such notice that as a result of any
amendment to, or change in, the laws (or any rules or regulations promulgated
thereunder) of Mexico or any political subdivision thereof or taxing authority
therein, or any amendment to or change in an official interpretation or
application regarding such laws, rules or regulations,
7
<PAGE> 159
which amendment, change, application or interpretation becomes effective on or
after December 9, 1999, the Company pays, or would be obligated for reasons
outside its control, and after taking reasonable measures available to it to
avoid such obligation, to pay, Additional Amounts in respect of any Security
pursuant to the terms and conditions thereof which exceed the Additional Amounts
that would have been payable if Mexican withholding tax at a rate of 15% would
be imposed on payments of interest or amounts deemed to be interest to Holders
("EXCESSIVE ADDITIONAL AMOUNTS"); provided, however, that (i) notice of such
redemption shall not be given earlier than 90 days prior to the earliest date on
which the Company would, but for such redemption, be obligated to pay such
Excessive Additional Amounts and (ii) at the time such notice is given, the
Company's obligation to pay such Additional Amounts (including any Excessive
Additional Amounts) remains in effect; provided further, however, that such
notice shall not be deemed effectively given if on the date on which the notice
is given, the Company no longer has an obligation to pay Excessive Additional
Amounts as a result of a subsequent change in law.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Securities to be redeemed
at his registered address. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If money sufficient to
pay the redemption price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the redemption date is deposited with the Paying
Agent on or before the redemption date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
7. PUT PROVISIONS
Upon a Change of Control, any Holder of Securities will have the right
to require the Company to repurchase all or any part of the Securities of such
Holder at a purchase price in cash equal to 101% of the principal amount of the
Securities to be repurchased plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of holders of record on the relevant
record date to receive interest due on the related interest payment date) as
provided in, and subject to the terms of, the Indenture. Under certain
circumstances, as set forth in Section 4.09 of the Indenture, upon a Change of
Control, any Holder of Securities will also have the right to require BAC to
repurchase all or any part of the Securities of such Holder on the same terms
set forth in the preceding sentence.
8. DENOMINATIONS; TRANSFER; EXCHANGE
8
<PAGE> 160
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of 15
days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
9. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes, subject to provisions for record dates with respect to
payment of interest.
10. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
11. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal of and interest on the Securities to redemption or
maturity, as the case may be.
12. AMENDMENT; WAIVER
9
<PAGE> 161
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Securities or the Security Agreement may be amended with the
written consent of the Holders of at least a majority in principal amount
outstanding of the Securities and (ii) any default or noncompliance with any
provision of the Indenture, the Securities or the Security Agreement may be
waived with the written consent of the Holders of a majority in principal amount
outstanding of the Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Company, BAC and the
Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the Indenture,
or to provide for uncertificated Securities in addition to or in place of
certificated Securities or to add guarantees with respect to the Securities or
to add additional covenants or surrender rights and powers conferred on the
Company or BAC or to comply with any requirement of the Commission in connection
with qualifying the Indenture under the Act, or to make any other change that
does not adversely affect the rights of any Securityholder, or to provide for
the issuance and authorization of the Exchange Securities.
13. DEFAULTS AND REMEDIES
10
<PAGE> 162
An Event of Default is defined in the Indenture as: (1) a default in
any payment of interest on any Security when due, continued for 30 days; (2) a
default in the payment of principal of any Security when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise; (3) the failure by the Company to comply with its obligations
under Section 5.01 of the Indenture; (4) the failure by the Company to comply
for 30 days after notice with any of its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.12, 4.13, 4.14, 4.15 or 4.16 of the
Indenture (in each case, other than a failure to purchase Securities); (5) the
failure by the Company or Bell Atlantic to comply for 60 days after notice with
its other agreements contained in the Securities or the Indenture; (6) the
failure by the Company or any Significant Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds U.S.$5.0 million or
its foreign currency equivalent (the "cross acceleration provision"); (7)
certain events of bankruptcy, suspensions of payments, insolvency or
reorganization of the Company or a Significant Subsidiary (the "bankruptcy
provisions"); (8) the rendering of any judgment or decree for the payment of
money in excess of U.S.$10.0 million or its foreign currency equivalent against
the Company or a Significant Subsidiary if: (A) an enforcement proceeding
thereon is commenced or (B) such judgment or decree remains outstanding for a
period of 60 days following such judgment and is not discharged, waived or
stayed within 10 days after receipt of the notice described below (the "judgment
default provision"); or (9) the Lien created by the Security Agreement shall at
any time fail to constitute a valid and perfected Lien on all of the collateral
purported to be subject thereto, securing the obligations purported to be
secured thereby, with the priority required by the Security Agreement, or the
Company shall so assert in writing. If an Event of Default (other than a Default
relating to certain events of bankruptcy, insolvency, suspension of payments or
reorganization of the Company) occurs and is continuing, the Trustee or the
Holders of at least a majority in principal amount of the Securities may declare
the principal of and accrued but unpaid interest on all the Securities to be due
and payable immediately. Certain events of bankruptcy, insolvency, suspension of
payments or reorganization are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of
11
<PAGE> 163
principal or interest) if and so long as a committee of its Trust Officers in
good faith determines that withholding notice is in the interest of the Holders.
14. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
15. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company,
BAC or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
16. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
17. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
18. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
12
<PAGE> 164
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture which has in it the
text of this Security in larger type. Requests may be made to:
NUEVO GRUPO IUSACELL,
S.A. DE C.V.
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delegacion Cuajimalpa
05348, Mexico, D.F., Mexico
Tel. no. +525-109-4400
Attn: Vice President of Investor
Relations
13
<PAGE> 165
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ]. The
following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Date of Exchange Amount of Amount of Principal amount Signature of
decrease in increase in of this Global authorized officer
principal amount principal amount Security of Trustee
of this Global of this Global following such
Security Security decrease or
increase
<S> <C> <C> <C> <C>
</TABLE>
14
<PAGE> 166
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
- - --------------------------------------------------------------------------------
Date: Your Signature:
------------------------- -----------------------
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
- - --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
15
<PAGE> 167
CERTIFICATE TO BE DELIVERED UPON TRANSFER,
EXCHANGE OR REGISTRATION OF SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) _______ book-entry or _______ definitive form by the
undersigned.
The undersigned (check one box below):
/ / subject to the terms of the Indenture, has requested the Trustee by
written order to deliver in exchange for its beneficial interest in the
Global Security held by the Depository a Security or Securities in
definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global
Security (or the portion thereof indicated above); or
/ / has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
[In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the later of (a) two years after the date
of original issuance of such Securities and (b) three months after the last date
the undersigned was an Affiliate of the Company, the undersigned confirms that
such Securities are being:(2)
CHECK ONE BOX BELOW:
(1) / / transferred to the Company; or
(2) / / transferred pursuant to an effective
registration statement under the Securities
Act of 1933; or
(3) / / transferred pursuant to and in compliance
with Rule 144A under the Securities Act of
1933, as amended, and the transferor has
furnished to the Trustee a signed letter
containing certain representations and
agreements (the form of which letter appears
as Exhibit E to the Indenture); or
- - --------
(2) This paragraph, the last paragraph of this Certificate and the
related boxes do not apply in the case of transfers of interests in the
Regulation S Global Security.
16
<PAGE> 168
(4) / / transferred pursuant to and in compliance
with Regulation S under the Securities Act
of 1933, as amended, and the transferor has
furnished to the Trustee a signed letter
containing certain representations and
agreements (the form of which letter appears
as Exhibit F to the Indenture); or
(5) / / transferred to an institutional "accredited
investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act of
1933, as amended), that has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of
which letter appears as Exhibit F to the
Indenture); or
(6) / / transferred pursuant to an exemption from
registration under Rule 144 (if applicable)
of the Securities Act of 1933, as amended.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4), (5) or
(6) is checked, the Trustee or the Company may require, prior to registering any
such transfer of the Securities, in their sole discretion, such legal opinions,
certifications and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.]
- - --------------------------------------------------------------------------------
Signature
Signature Guarantee:
- - --------------------------------------------------------------------------------
Signature
(Signature must be guaranteed
by a participant in a signature
guarantee medallion program)
- - --------------------------------------------------------------------------------
17
<PAGE> 169
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company (or
BAC, if applicable) pursuant to Section 4.07 or 4.09 of the Indenture, check the
box:
If you want to elect to have only part of this Security purchased by
the Company (or BAC, if applicable) pursuant to Section 4.07 or 4.09 of the
Indenture, state the amount:
- - --------------------------------------------------------------------------------
Date: Your Signature:
(Sign exactly as your name appears on the
other side of the Security)
- - --------------------------------------------------------------------------------
Signature Guarantee:
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
18
<PAGE> 170
EXHIBIT D
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Nuevo Grupo Iusacell, S.A. de C.V.
c/o The Bank of New York, as Trustee
Ladies and Gentlemen:
In connection with the proposed transfer of $________ aggregate
principal amount of 14 1/4% Senior Notes due 2006 (the "NOTES") of Nuevo Grupo
Iusacell, S.A. de C.V., a limited liability stock corporation organized under
the laws of Mexico (the "COMPANY"), we confirm that:
1. We understand that the Notes have not been registered under the
Securities Act of 1933 (the "SECURITIES ACT"), and may not be sold except as
permitted in the following sentence. We understand and agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated, (x)
that such Notes are being offered only in a transaction not involving any public
offering within the meaning of the Securities Act, (y) that if we decide to
resell, pledge or otherwise transfer such Notes within two years after the date
of the original issuance of the Notes or if within three months after we cease
to be an affiliate (within the meaning of Rule 144 under the Securities Act) of
the Company, such Notes may be resold, pledged or transferred only (i) to the
Company, (ii) so long as the Notes are eligible for resale pursuant to Rule 144A
under the Securities Act ("RULE 144A"), to a person whom we reasonably believe
is a "qualified institutional buyer" (as defined in Rule 144A) ("QIB") that
purchases for its own account or for the account of a QIB to whom notice is
given that the resale, pledge or transfer is being made in reliance on Rule 144A
(as indicated by the box checked by the transferor on the Certificate of
Transfer on the reverse of the certificate for the Notes), (iii) outside the
United States in accordance with Regulation S under the Securities Act (as
indicated by the box checked by the transferor on the Certificate of Transfer on
the reverse of the certificate for the Notes), (iv) to an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act ("INSTITUTIONAL ACCREDITED INVESTOR") (as
indicated by the box checked by the transferor on the Certificate of Transfer on
the reverse of the certificate for the Notes) which has certified to the Company
and the Trustee that it is such an accredited investor and is acquiring the
Notes for investment purposes and not for distribution, (v) pursuant to an
exemption from registration under the Securities Act provided by Rule 144 (if
applicable) under the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, in each case in
<PAGE> 171
accordance with any applicable securities laws of any state of the United
States, and we will notify any purchaser of the Notes from us of the above
resale restriction, if then applicable. We further understand that in connection
with any transfer of the Notes by us that the Company and the Trustee may
request, and if so requested we will furnish, such certificates, legal opinions
and other information as they may reasonably require to confirm that any such
transfer complies with the foregoing restrictions.
2. We are able to fend for ourselves in the transactions contemplated
by the Offering Memorandum dated July 15, 1997, as amended from time to time,
relating to the Notes, we have knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its investment and can afford the
complete loss of such investment.
3. We understand that the minimum principal amount of Notes that may be
purchased by an Institutional Accredited Investor is $100,000.
4. We are acquiring the Notes transferred to us for investment
purposes, and not for distribution, for our own account or for one or more
accounts as to each of which we exercise sole investment discretion and we are
or such account is an Institutional Accredited Investor.
5. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
------------------------------------------------
(Name of Transferee)
By:
------------------------------------------
Date:
------------------------------------------
2
<PAGE> 172
EXHIBIT E
[FORM OF LETTER TO BE DELIVERED
IN CONNECTION WITH TRANSFERS PURSUANT TO RULE 144A]
Nuevo Grupo Iusacell, S.A. de C.V.
c/o The Bank of New York, as Trustee
[Date]
Re: Nuevo Grupo Iusacell, S.A. de C.V. (the "COMPANY")
14 1/4% Senior Notes due 2006 (the "SECURITIES")
Ladies and Gentlemen:
In connection with our proposed sale of $_______ aggregate principal
amount at maturity of the Securities, we hereby certify that such transfer is
being effected pursuant to and in accordance with Rule 144A ("RULE 144A") under
the Securities Act of 1933 (the "SECURITIES ACT"), and, accordingly, we hereby
further certify that the Securities are being transferred to a person that we
reasonably believe is purchasing the Securities for its own account, or for one
or more accounts with respect to which such person exercises sole investment
discretion, and such person and each such account is a "qualified institutional
buyer" within the meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A and such Securities are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
--------------------------------------------
[Name of Transferor]
By:
----------------------------------------
Authorized Signature
<PAGE> 173
EXHIBIT F
[FORM OF LETTER TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S]
Nuevo Grupo Iusacell, S.A. de C.V.
c/o The Bank of New York, as Trustee
[Date]
Re: Nuevo Grupo Iusacell, S.A. de C.V. (the "COMPANY") 14 1/4%
Senior Notes due 2006 (the "SECURITIES")
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S ("REGULATION S") under the Securities Act
of 1933 (the "SECURITIES ACT"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States that would not comply with the requirements of Rule 903(b) or
Rule 904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
<PAGE> 174
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-------------------------------------
Authorized Signature
2
<PAGE> 1
Exhibit 4.3
NUEVO GRUPO IUSACELL, S.A. de C.V.
$350,000,000
14 1/4% Senior Notes due 2006
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
December 16, 1999
CHASE SECURITIES INC.
SALOMON SMITH BARNEY INC.
J.P.MORGAN SECURITIES INC.
c/o Chase Securities Inc.
270 Park Avenue, 4th Floor
New York, New York 10017
Ladies and Gentlemen:
Nuevo Grupo Iusacell, S.A. de C.V., a limited liability stock
corporation (sociedad anonima de capital variable) organized under the laws of
Mexico (the "COMPANY"), proposes to issue and sell to Chase Securities Inc.
("CSI"), Salomon Smith Barney Inc. ("SALOMON") and J.P. Morgan Securities Inc.
("J.P. MORGAN" and, together with CSI and Salomon, the "INITIAL PURCHASERS"),
upon the terms and subject to the conditions set forth in a purchase agreement
dated December 9, 1999 (the "PURCHASE AGREEMENT"), $350,000,000 aggregate
principal amount of its 14 1/4% Senior Notes due 2006 (the "SECURITIES"). Bell
Atlantic Corporation, a Delaware corporation ("BAC"), is jointly and severally
liable with the Company for certain of the Company's obligations under the
Securities. Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchasers thereunder, each of the Company and BAC agrees with the Initial
Purchasers, for the benefit of the holders (including the Initial Purchasers) of
the
<PAGE> 2
Securities, the Exchange Securities (as defined herein) and the Private Exchange
Securities (as defined herein) (collectively, the "HOLDERS"), as follows:
1. Registered Exchange Offer. The Company and BAC, severally but not
jointly, shall (i) prepare and, not later than 75 days following the date of
original issuance of the Securities (the "ISSUE DATE"), file with the Commission
a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an
appropriate form under the Securities Act with respect to a proposed offer to
the Holders of the Securities (the "REGISTERED EXCHANGE OFFER") to issue and
deliver to such Holders, in exchange for the Securities, a like aggregate
principal amount of debt securities of the Company (the "EXCHANGE SECURITIES")
that are identical in all material respects to the Securities, except for the
transfer restrictions relating to the Securities, (ii) use their reasonable best
efforts to cause the Exchange Offer Registration Statement to become effective
under the Securities Act no later than 150 days after the Issue Date and the
Registered Exchange Offer to be consummated no later than 180 days after the
Issue Date and (iii) keep the Exchange Offer Registration Statement effective
for not less than 30 days (or longer, if required by applicable law) after the
date that notice of the Registered Exchange Offer is mailed to the Holders (such
period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). The Exchange
Securities will be issued under the Indenture or an indenture (the "EXCHANGE
SECURITIES INDENTURE") among the Company, BAC and the Trustee or such other bank
or trust company that is reasonably satisfactory to the Initial Purchasers, as
trustee (the "EXCHANGE SECURITIES TRUSTEE"), such indenture to be identical in
all material respects to the Indenture, except for the transfer restrictions
relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Company and BAC shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder (a) is not an affiliate of the Company, BAC or an Exchanging Dealer (as
defined herein) not complying with the requirements of the next sentence, (b) is
not an Initial Purchaser holding Securities that have, or that are reasonably
likely to have, the status of an unsold allotment in an initial distribution,
(c) acquires the Exchange Securities in the ordinary course of such Holder's
business and (d) has no arrangements or understandings with any person to
participate in the distribution of the Exchange Securities) to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States. The Company, BAC
and each Initial Purchaser acknowledge that, pursuant to current interpretations
by the Commission's staff of Section 5 of the Securities Act, each Holder that
is a broker-dealer electing to exchange
2
<PAGE> 3
Securities acquired for its own account as a result of market making activities
or other trading activities for Exchange Securities (an "EXCHANGING DEALER"), is
required to deliver a prospectus containing substantially the information set
forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of such prospectus in connection
with a sale of any such Exchange Securities received by such Exchanging Dealer
pursuant to the Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Company and BAC shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "PRIVATE EXCHANGE"), a like aggregate
principal amount of debt securities of the Company (the "PRIVATE EXCHANGE
SECURITIES") that are identical in all material respects to the Exchange
Securities, except for the transfer restrictions relating to such Private
Exchange Securities. The Private Exchange Securities will be issued under the
same indenture as the Exchange Securities, and the Company shall use its
reasonable best efforts to cause the Private Exchange Securities to bear the
same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than
30 days (or longer if required by applicable law) after the date on
which notice of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York;
(d) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
3
<PAGE> 4
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange Offer
and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange Offer and the
Private Exchange;
(b) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as
the case may be, promptly to authenticate and deliver to each Holder of
Exchange Securities or Private Exchange Securities, as the case may be,
equal in principal amount to the Securities of such Holder so accepted
for exchange.
The Company and BAC, severally but not jointly, shall use their
reasonable best efforts to keep the Exchange Offer Registration Statement
effective and to amend and supplement the prospectus contained therein in order
to permit such prospectus to be used by all persons subject to the prospectus
delivery requirements of the Securities Act for such period of time as such
persons must comply with such requirements in order to resell the Exchange
Securities; provided that (i) in the case where such prospectus and any
amendment or supplement thereto must be delivered by an Exchanging Dealer, such
period shall be the earlier of 180 days and the date on which all Exchanging
Dealers have sold all Exchange Securities held by them and (ii) the Company and
BAC shall make such prospectus and any amendment or supplement thereto available
to any broker-dealer for use in connection with any resale of any Exchange
Securities for a period of not less than 90 days after the consummation of the
Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may be,
shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and the Private Exchange,
respectively, will accrue from the last interest payment date on which interest
was
4
<PAGE> 5
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company and BAC that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act and (iii) such Holder is not an
affiliate of the Company or BAC or, if it is such an affiliate, such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company and BAC
(provided that BAC's obligations under this paragraph shall be limited solely to
information furnished by BAC expressly for inclusion in the Exchange Offer
Registration Statement and any amendment thereto) shall ensure that (i) any
Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement
and any supplement to such prospectus does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission or its staff the Company
and BAC are not permitted to effect the Registered Exchange Offer as
contemplated by Section 1 hereof, or (ii) any Securities validly tendered
pursuant to the Registered Exchange Offer are not exchanged for Exchange
Securities within 180 days after the Issue Date, or (iii) any Initial Purchaser
so requests with respect to Securities or Private Exchange Securities not
eligible to be exchanged for Exchange Securities in the Registered Exchange
Offer and held by it following the consummation of the Registered Exchange
Offer, or (iv) any applicable law or interpretations do not permit one or more
Holders to participate in the Registered Exchange Offer, or (v) any Holder that
participates in the Registered Exchange Offer does not receive freely
transferable Exchange Securities in exchange for
5
<PAGE> 6
tendered Securities, or (vi) the Company and BAC so elect, then the following
provisions shall apply:
(a) The Company and BAC, severally but not jointly, shall use their
reasonable best efforts to file as promptly as practicable (but in no event more
than 30 days after so required or requested pursuant to this Section 2) with the
Commission, and thereafter shall use their reasonable best efforts to cause to
be declared effective, a shelf registration statement on an appropriate form
under the Securities Act relating to the offer and sale of the Transfer
Restricted Securities (as defined below) by the Holders thereof from time to
time in accordance with the methods of distribution set forth in such
registration statement (hereafter, a "SHELF REGISTRATION STATEMENT" and,
together with any Exchange Offer Registration Statement, a "REGISTRATION
STATEMENT").
(b) The Company and BAC, severally but not jointly shall use their
reasonable best efforts to keep the Shelf Registration Statement continuously
effective in order to permit the prospectus forming part thereof to be used by
Holders of Transfer Restricted Securities for a period ending on the earlier of
(i) two years from the Issue Date or such shorter period that will terminate
when all the Transfer Restricted Securities covered by the Shelf Registration
Statement have been sold pursuant thereto and (ii) the date on which the
Securities become eligible for resale without volume restrictions pursuant to
Rule 144 under the Securities Act (in any such case, such period being called
the "SHELF REGISTRATION PERIOD"). The Company or BAC, as applicable, shall be
deemed not to have used its reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in Holders of Transfer Restricted Securities
covered thereby not being able to offer and sell such Transfer Restricted
Securities during that period, unless such action is required by applicable law.
(c) Notwithstanding any other provisions hereof, the Company and BAC
(provided that BAC's obligations under this paragraph shall be limited solely to
information furnished by BAC expressly for inclusion in the Shelf Registration
Statement and any amendment thereto) shall ensure that (i) any Shelf
Registration Statement and any amendment thereto and any prospectus forming part
thereof and any supplement thereto complies in all material respects with the
Securities Act and the rules and regulations of the Commission thereunder, (ii)
any Shelf Registration Statement and any amendment thereto (in either case,
other than with respect to information included therein in reliance upon or in
conformity with written information furnished to the Company or BAC by or on
behalf of any Holder specifically for use therein (the "HOLDERS' INFORMATION"))
does not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
6
<PAGE> 7
statements therein not misleading and (iii) any prospectus forming part of any
Shelf Registration Statement and any supplement to such prospectus (in either
case, other than with respect to Holders' Information) does not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders
of Transfer Restricted Securities (as defined below) will suffer damages if the
Company and BAC fail to fulfill their obligations under Section 1 or Section 2,
as applicable, and that it would not be feasible to ascertain the extent of such
damages. Accordingly, if (i) the applicable Registration Statement is not filed
with the Commission on or prior to 75 days after the Issue Date, (ii) the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is not declared effective within 150 days after the Issue Date
(or in the case of a Shelf Registration Statement required to be filed in
response to a change in law or the applicable interpretations of the Commission
or its staff, if later, within 75 days after publication of the change in law or
interpretation), (iii) the Registered Exchange Offer is not consummated on or
prior to 180 days after the Issue Date or (iv) the Shelf Registration Statement
is filed and declared effective within 150 days after the Issue Date (or in the
case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of Commission's staff, if later,
within 75 days after publication of the change in law or interpretation) but
shall thereafter cease to be effective (at any time that the Company and BAC are
obligated to maintain the effectiveness thereof) without being succeeded within
30 days by an additional Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "REGISTRATION
DEFAULT"), the Company shall be obligated to pay liquidated damages to each
Holder of Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder until (i)
the applicable Registration Statement is filed, (ii) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange Offer
is consummated, (iii) the Shelf Registration Statement is declared effective or
(iv) the Shelf Registration Statement again becomes effective, as the case may
be. Following the cure of all Registration Defaults, the accrual of liquidated
damages will cease. As used herein, the term "TRANSFER RESTRICTED SECURITIES"
means (i) each Security until the date on which such Security has been exchanged
for a freely transferable Exchange Security in the Registered Exchange Offer,
(ii) each Security or Private Exchange Security until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Security or
Private Exchange Security until the date on which it is distributed to the
public pursuant to Rule 144
7
<PAGE> 8
under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act. Notwithstanding anything to the contrary in this Section 3(a),
the Company shall not be required to pay liquidated damages to a Holder of
Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent under the
Indenture immediately upon the happening of each and every Registration Default.
The Company shall pay the liquidated damages due on the Transfer Restricted
Securities by depositing with the Paying Agent (which may not be the Company or
any of its Subsidiaries for these purposes), in trust, for the benefit of the
Holders thereof, prior to 10:00 a.m., New York City time, on the next interest
payment date specified by the Indenture and the Securities, sums sufficient to
pay the liquidated damages then due. The liquidated damages due shall be payable
on each interest payment date specified by the Indenture and the Securities to
the record holder entitled to receive the interest payment to be made on such
date. Each obligation to pay liquidated damages shall be deemed to accrue from
and including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided for
in this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to be declared effective or to remain effective or
(iii) the Exchange Offer Registration Statement to be declared effective and the
Registered Exchange Offer to be consummated, in each case to the extent required
by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as either Initial
Purchaser may reasonably propose; (ii) include the information set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in Annex
C hereto in the "Plan of Distribution" section of the
8
<PAGE> 9
prospectus forming a part of the Exchange Offer Registration Statement, and
include the information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; and (iii) if requested by
any Initial Purchaser, include the information required by Item 507 or 508 of
Regulation S-K, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement.
(b) The Company shall advise each Initial Purchaser, each Exchanging
Dealer and the Holders (if applicable) and, if requested by any such person,
confirm such advice in writing (which advice pursuant to clauses (ii) through
(v) hereof shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made):
(i) when any Registration Statement
and any amendment thereto has been filed
with the Commission and when such
Registration Statement or any post-effective
amendment thereto has become effective;
(ii) of any request by the
Commission for amendments or supplements to
any Registration Statement or the prospectus
included therein or for additional
information;
(iii) of the issuance by the
Commission of any stop order suspending the
effectiveness of any Registration Statement
or the initiation of any proceedings for
that purpose;
(iv) of the receipt by the Company
or BAC of any notification with respect to
the suspension of the qualification of the
Securities, the Exchange Securities or the
Private Exchange Securities for sale in any
jurisdiction or the initiation or
threatening of any proceeding for such
purpose; and
(v) of the happening of any event
that requires the making of any changes in
any Registration Statement or the prospectus
included therein in order that the
statements therein are not misleading and do
not omit to state a material fact required
to be stated therein or necessary to make
the statements therein not misleading.
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<PAGE> 10
(c) The Company and BAC (provided that BAC's obligations under this
paragraph shall be limited solely to orders directed at BAC) shall make every
reasonable effort to obtain the withdrawal at the earliest possible time of any
order suspending the effectiveness of any Registration Statement.
(d) The Company shall furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration Statement,
without charge, at least one conformed copy of such Shelf Registration Statement
and any post-effective amendment thereto, including financial statements and
schedules and, if any such Holder so requests in writing, all exhibits thereto
(including those, if any, incorporated by reference).
(e) The Company shall, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company and BAC consent to the use of such
prospectus or any amendment or supplement thereto by each of the selling Holders
of Transfer Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
(f) The Company shall furnish to each Initial Purchaser, each
Exchanging Dealer and any other Holder who so requests, without charge, at least
one conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any Initial Purchaser, Exchanging Dealer or such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(g) The Company shall, during the Exchange Offer Registration Period or
the Shelf Registration Period, as applicable, promptly deliver to each Initial
Purchaser, each Exchanging Dealer and such other persons that are required to
deliver a prospectus following the Registered Exchange Offer, without charge, as
many copies of the final prospectus included in the Exchange Offer Registration
Statement or the Shelf Registration Statement and any amendment or supplement
thereto as such Initial Purchaser, Exchanging Dealer or other persons may
reasonably request; and the Company and BAC consent to the use of such
prospectus or any amendment or supplement thereto by any such Initial Purchaser,
Exchanging Dealer or other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Company and BAC, severally but not jointly, shall use their
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<PAGE> 11
reasonable best efforts to register or qualify, or cooperate with the Holders of
Securities, Exchange Securities or Private Exchange Securities included therein
and their respective counsel in connection with the registration or
qualification of, such Securities, Exchange Securities or Private Exchange
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions as any such Holder reasonably requests in writing and do any and
all other acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the Securities, Exchange Securities or Private Exchange
Securities covered by such Registration Statement; provided, however, that
neither the Company nor BAC will be required to qualify generally to do business
in any jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(i) The Company shall cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities to facilitate the timely
preparation and delivery of certificates representing Securities, Exchange
Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such denominations
and registered in such names as the Holders thereof may request in writing prior
to sales of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs
during the period for which the Company and BAC are required to maintain an
effective Registration Statement, the Company and BAC shall promptly prepare and
file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Securities,
Exchange Securities or Private Exchange Securities from a Holder, the prospectus
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Company shall provide a CUSIP number for the Securities, Exchange
Securities or Private Exchange Securities, as the case may be, and provide the
applicable trustee with printed certificates for the Securities, Exchange
Securities or Private Exchange Securities, as the case may be, in a form
eligible for deposit with The Depository Trust Company.
(l) The Company and BAC shall comply with all applicable rules and
regulations of the Commission and will make generally available to its security
holders as soon as practicable after the effective date of
11
<PAGE> 12
the applicable Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act, provided that in no event
shall such earnings statement be delivered later than 45 days after the end of a
12-month period (or 90 days, if such period is a fiscal year) beginning with the
first month of the Company's first fiscal quarter commencing after the effective
date of the applicable Registration Statement, which statement shall cover such
12-month period.
(m) The Company and BAC shall cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the Trust
Indenture Act as required by applicable law in a timely manner.
(n) The Company and BAC may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Company and BAC such information concerning such holder and the
distribution of such Transfer Restricted Securities as the Company or BAC may
from time to time reasonably require for inclusion in such Shelf Registration
Statement, and the Company and BAC may exclude from such registration the
Transfer Restricted Securities of any holder thereof that fails to furnish such
information within a reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company or BAC pursuant to Section 4(b)(ii) through (v) hereof,
such Holder will discontinue disposition of such Transfer Restricted Securities
until such Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "ADVICE") by the
Company or BAC that the use of the applicable prospectus may be resumed. If the
Company or BAC shall give any notice under Section 4(b)(ii) through (v) during
the period that the Company and BAC are required to maintain an effective
Registration Statement (the "EFFECTIVENESS PERIOD"), such Effectiveness Period
shall be extended by the number of days during such period from and including
the date of the giving of such notice to and including the date when each seller
of Transfer Restricted Securities covered by such Registration Statement shall
have received (x) the copies of the supplemental or amended prospectus
contemplated by Section 4(j) (if an amended or supplemental prospectus is
required) or (y) the Advice (if no amended or supplemental prospectus is
required).
(p) In the case of a Shelf Registration Statement, the Company and BAC
shall enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other action, if
any, as Holders of a majority in aggregate principal amount of the
12
<PAGE> 13
Securities, Exchange Securities or Private Exchange Securities being sold or the
managing underwriters (if any) shall reasonably request in order to facilitate
any disposition of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Company and BAC
shall (i) make reasonably available for inspection by a representative of, and
Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities or Private
Exchange Securities being sold and any underwriter participating in any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement, all relevant financial and other
records, pertinent corporate documents and properties of the Company and BAC and
their respective subsidiaries and (ii) use their reasonable best efforts to have
their officers, directors, employees, accountants and counsel supply all
relevant information reasonably requested by such representative, Special
Counsel or any such underwriter (an "INSPECTOR") in connection with such Shelf
Registration Statement.
(r) In the case of a Shelf Registration Statement, the Company and BAC
shall, if requested by Holders of a majority in aggregate principal amount of
the Securities, Exchange Securities or Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection with
such Shelf Registration Statement, use their reasonable best efforts to cause
(i) the Company's and BAC's counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities, Exchange Securities or Private
Exchange Securities, as applicable, in customary form, (ii) the Company's and
BAC's officers to execute and deliver all customary documents and certificates
requested by Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities or Private Exchange Securities being sold, their
Special Counsel or the managing underwriters (if any) and (iii) the Company's
independent public accountants to provide a comfort letter or letters in
customary form, subject to receipt of appropriate documentation as contemplated,
and only if permitted, by Statement of Auditing Standards No. 72.
(s) The Company shall give notice to the National Banking and
Securities Commission of Mexico of the exchange of the Securities for Exchange
Securities or Private Exchange Securities.
5. Registration Expenses. The Company shall bear all expenses
incurred in connection with the performance of its and BAC's obligations under
Sections 1, 2, 3 and 4 and the Company and Grupo Iusacell, S.A. de C.V. ("OLD
IUSACELL") shall reimburse the Initial Purchasers for the reasonable, customary
and
13
<PAGE> 14
documented fees and disbursements of one firm of attorneys in each of the United
States and Mexico (in addition to any local counsel) acting for the Initial
Purchasers in connection therewith (the "SPECIAL COUNSEL").
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company and Old Iusacell shall, jointly and severally, indemnify
and hold harmless each Holder (including, without limitation, any such Initial
Purchaser or Exchanging Dealer), its affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls such Holder within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 6, Section 7 and
Section 11 as a Holder) from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, without
limitation, any loss, claim, damage, liability or action relating to purchases
and sales of Securities, Exchange Securities or Private Exchange Securities), to
which that Holder may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse each Holder promptly upon demand for
any reasonable, documented legal or other expenses incurred by that Holder in
connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company and Old Iusacell shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with any Holders' Information; provided, further, however, that, with respect to
any such untrue statement in or omission from any related preliminary
prospectus, the indemnity agreement contained in this Section 6(a) shall not
inure to the benefit of any Holder from whom the person asserting any such loss,
claim, damage, liability or action received Securities, Exchange Securities or
Private Exchange Securities to the extent that such loss, claim, damage,
liability or action of or with respect to such Holder results from the fact that
both (A) a copy of the final prospectus was not sent or given to such person at
or prior to the written confirmation of the sale of such Securities, Exchange
14
<PAGE> 15
Securities or Private Exchange Securities to such person and (B) the untrue
statement in or omission from the related preliminary prospectus was corrected
in the final prospectus unless, in either case, such failure to deliver the
final prospectus was a result of non-compliance by the Company or BAC with
Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder shall
indemnify and hold harmless the Company, its affiliates (including Old
Iusacell), BAC, its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 6(b) and Section 7 as the Company),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Company may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any such Registration Statement or any prospectus forming part
thereof or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with any
Holders' Information furnished to the Company by or on behalf of such Holder,
and shall reimburse the Company promptly upon demand for any reasonable,
documented legal or other expenses incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf Registration
Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the Indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 6 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such
15
<PAGE> 16
failure; provided, further, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 6. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 6(a) and 6(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably
16
<PAGE> 17
withheld), effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company, BAC and Old Iusacell from the offering and
sale of the Securities, on the one hand, and a Holder with respect to the sale
by such Holder of Securities, Exchange Securities or Private Exchange
Securities, on the other, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company, BAC and Old Iusacell, on the one hand, and
such Holder, on the other, with respect to the actions, statements or omissions
that resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company, BAC and Old Iusacell, on the one hand, and a
Holder, on the other, with respect to such offering and such sale shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) received by or on behalf of the
Company, BAC and Old Iusacell (treating the Company, BAC and Old Iusacell as one
entity for this purpose) as set forth in the table on the cover of the Offering
Memorandum, on the one hand, bear to the total proceeds received by such Holder
with respect to its sale of Securities, Exchange Securities or Private Exchange
Securities, on the other. The relative fault shall be determined by reference
to, among other things, whether any action in question, including the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact, has been taken or made by the Company, BAC or Old
Iusacell or relates to information supplied by the Company, BAC or Old Iusacell,
on the one hand, or relates to Holders' Information supplied by such Holder, on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or
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<PAGE> 18
liability, or action in respect thereof, referred to above in this Section 7
shall be deemed to include, for purposes of this Section 7, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 7, an indemnifying party that is
a Holder of Securities, Exchange Securities or Private Exchange Securities shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Securities, Exchange Securities or Private Exchange
Securities sold by such indemnifying party to any purchaser exceeds the amount
of any damages which such indemnifying party has otherwise paid or become liable
to pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. Rules 144 and 144A. Each of the Company and BAC shall use its
reasonable best efforts to file the reports required to be filed by it under the
Securities Act and the Exchange Act in a timely manner and, if at any time the
Company or BAC is not required to file such reports, it will, upon the written
request of any Holder of Transfer Restricted Securities, make publicly available
other information so long as necessary to permit sales of such Holder's
securities pursuant to Rules 144 and 144A. The Company covenants that it will
take such further action as any Holder of Transfer Restricted Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Transfer Restricted Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rules 144 and
144A (including, without limitation, the requirements of Rule 144A(d)(4)). Upon
the written request of any Holder of Transfer Restricted Securities, the Company
or BAC shall deliver to such Holder a written statement as to whether it has
complied with such requirements. Notwithstanding the foregoing, nothing in this
Section 8 shall be deemed to require the Company or BAC to register any of their
securities pursuant to the Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the prior written consent of the Company
and BAC (which shall not be unreasonably withheld or delayed), and such Holders
shall be responsible for all underwriting commissions and discounts in
connection therewith.
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<PAGE> 19
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
10. Waiver of Immunities. To the extent that the Company or Old
Iusacell or any of their respective properties, assets or revenues may have or
may hereafter become entitled to, or have attributed to it, any right of
immunity, on the grounds of sovereignty or otherwise, from any legal action,
suit or proceeding, from the giving of any relief in any such legal action, suit
or proceeding, from setoff or counterclaim, from the competent jurisdiction of
any court, from service of process, from attachment upon or prior to judgment,
from attachment in aid of execution of judgment, or from execution of judgment,
or other legal process or proceeding for the giving of any relief or for the
enforcement of any judgment, in any competent jurisdiction in which proceedings
may at any time be commenced, with respect to its obligations, liabilities or
any other matter under or arising out of or in connection with this Agreement
and the transactions contemplated hereby, each of the Company and Old Iusacell
hereby irrevocably and unconditionally waives, and agrees not to plead or claim,
any such immunity and consent to such relief and enforcement.
11. Consent to Jurisdiction; Appointment of Agent for Service of
Process. (a) The Company, BAC and Old Iusacell, by the execution and delivery of
this Agreement, irrevocably agree that service of process may be made upon CT
Corporation Services ("CT CORPORATION"), with offices at 111 Eighth Avenue, New
York, New York 10011 (or its successors as agent for service of process), in the
County, City and State of New York, United States of America, in any suit or
proceeding against the Company, BAC or Old Iusacell instituted by any Holder
entitled to indemnification or contribution under Sections 6 or 7 hereunder,
based on or arising under this Agreement and the transactions contemplated
hereby in any federal or state court in the State of New York, County of New
York, and each of the Company, BAC, Old Iusacell and the Initial Purchasers
hereby irrevocably consents and submits to the jurisdiction of any such court
and to the courts of its own corporate domicile in respect of actions brought
against it as a defendant generally and unconditionally in respect of any such
suit or proceeding.
(b) Each of the Company, BAC and Old Iusacell further, by the
execution and delivery of this Agreement, irrevocably designates, appoints and
empowers CT Corporation, with offices at 111 Eighth Avenue, New York, New
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<PAGE> 20
York 10011, as its designee, appointee and authorized agent to receive for and
on its behalf service (i) of any and all legal process, summons, notices and
documents that may be served in any action, suit or proceeding brought against
the Company, BAC or Old Iusacell, as the case may be, with respect to its
obligations, liabilities or any other matter arising out of or in connection
with this Agreement and the transactions contemplated hereby and (ii) that may
be made on such designee, appointee and authorized agent in accordance with
legal procedures prescribed for such courts, and it being understood that the
designation and appointment of CT Corporation as such authorized agent shall
become effective immediately without any further action on the part of the
Company, BAC or Old Iusacell, as the case may be. Each of the Company, BAC and
Old Iusacell represents to each Initial Purchaser that it has notified CT
Corporation of such designation and appointment and that CT Corporation has
accepted the same, and that CT Corporation has been paid its full fee for such
designation, appointment and related services through the date that is seven
years from the date of this Agreement. Each of the Company, BAC and Old Iusacell
further agrees that, to the extent permitted by law, service of process upon CT
Corporation (or its successors as agent for service of process) and written
notice of said service to the Company, BAC or Old Iusacell, as the case may be,
pursuant to Section 12(b) of this Agreement, shall be deemed in every respect
effective service of process upon the Company, BAC or Old Iusacell in any such
suit or proceeding. If for any reason such designee, appointee and agent
hereunder shall cease to be available to act as such, each of the Company, BAC
and Old Iusacell agrees to designate a new designee, appointee and agent in The
City of New York, New York on the terms and for the purposes of this Section 11
reasonably satisfactory to the Initial Purchasers. Each of the Company, BAC and
Old Iusacell further hereby irrevocably consents and agrees to the service of
any and all legal process, summons, notices and documents in any such action,
suit or proceeding against the Company, BAC or Old Iusacell, as the case may be,
by serving a copy thereof upon the relevant agent for service of process
referred to in this Section 11 (whether or not the appointment of such agent
shall for any reason prove to be ineffective or such agent shall accept or
acknowledge such service) and by mailing copies thereof by registered or
certified air mail, postage prepaid, to the Company, BAC or Old Iusacell at its
address specified in or designated pursuant to this Agreement. Each of the
Company, BAC and Old Iusacell agrees that the failure of any such designee,
appointee and agent to give any notice of such service to it shall not impair or
affect in any way the validity of such service or any judgment rendered in any
action or proceeding based thereon. Nothing herein shall in any way be deemed to
limit the ability of any Holder to serve any such legal process, summons,
notices and documents in any other manner permitted by applicable law. Each of
the Company, BAC and Old Iusacell hereby irrevocably and unconditionally waives,
to the fullest extent permitted by law, any objection that it may now or
hereafter have to the laying of venue of any of the aforesaid
20
<PAGE> 21
actions, suits or proceedings arising out of or in connection with this
Agreement brought in federal or state court in the State of New York, County of
New York, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum and further
irrevocably waives any right to which it may be entitled on account of place of
residence or domicile.
(c) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures the applicable Holder could purchase
United States dollars with the other currency in New York City on the business
day preceding that on which final judgment is given. The obligation of the
Company, BAC and Old Iusacell in respect of any sum due from the Company, BAC or
Old Iusacell to the applicable Holder shall, notwithstanding any judgment in a
currency other than United States dollars, not be discharged until the first
business day, following receipt by such Holder of any sum adjudged to be so due
in the other currency, on which (and only to the extent that) such Holder may in
accordance with normal banking procedures purchase United States dollars with
the other currency; if the United States dollars so purchased are less than the
sum originally due to such Holder hereunder, each of the Company and Old
Iusacell jointly and severally (or BAC, as the case may be) agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Holder against the loss. If the United States dollars so purchased are greater
than the sum originally due to such Holder hereunder, such Holder shall pay to
the Company, BAC or Old Iusacell an amount equal to the excess of the dollars so
purchased over the sum originally due to such Holder hereunder.
(d) The provisions of this Section 11 shall survive any termination of
this Agreement, in whole or in part.
12. Miscellaneous. (a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Company
shall have obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of
21
<PAGE> 22
other Holders may be given by Holders of a majority in aggregate principal
amount of the Securities, the Exchange Securities and the Private Exchange
Securities being sold by such Holders pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company and BAC in accordance with the provisions of this
Section 12(b), which address initially is, with respect to each Holder,
the address of such Holder maintained by the Registrar under the
Indenture, with a copy in like manner to CSI and Salomon;
(2) if to an Initial Purchaser, initially at its address set
forth in the Purchase Agreement;
(3) if to the Company or to Old Iusacell, initially at the
address of the Company set forth in the Purchase Agreement;
(4) if to BAC, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors and Assigns. This Agreement shall be binding upon the
Company, BAC, Old Iusacell, the Initial Purchasers and their respective
successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and by
the 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.
(e) Definition of Terms. For purposes of this Agreement, (a) the term
"business day" means any day on which the New York Stock Exchange, Inc. is
22
<PAGE> 23
open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW.
(h) Remedies. In the event of a breach by the Company, by BAC, by Old
Iusacell or by any Holder, of any of their obligations under this Agreement,
each Holder or the Company, BAC or Old Iusacell, as the case may be, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages (other than the recovery of damages for a breach by the Company or BAC
of its obligations under Section 1 or 2 hereof for which liquidated damages have
been paid pursuant to Section 3 hereof), will be entitled to specific
performance of its rights under this Agreement. Each of the Company, BAC, Old
Iusacell and each Holder agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agree that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. Each of the Company, BAC and Old
Iusacell, severally but not jointly, represents, warrants and agrees that (i) it
has not entered into and shall not, on or after the date of this Agreement,
enter into any agreement that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof,
(ii) it has not previously entered into any agreement which remains in effect
granting any registration rights with respect to any of the Company's debt
securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Securities, it
shall not grant to any person the right to request the Company to register any
debt securities of the Company under the Securities Act unless the rights so
granted are not in conflict or inconsistent with the provisions of this
Agreement.
(j) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders of Transfer Restricted Securities in
such capacity) shall have the right to include any securities of the Company in
any
23
<PAGE> 24
Shelf Registration or Registered Exchange Offer other than Transfer Restricted
Securities.
(k) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
24
<PAGE> 25
Please confirm that the foregoing correctly sets forth the agreement
among the Company, BAC, Old Iusacell and the Initial Purchasers.
-----------------------------------------
Very truly yours
NUEVO GRUPO IUSACELL, S.A. de C.V.
By:
Name: Howard F. Zuckerman
Title: Executive Vice President,
Finance
By:
Name: William S. Roberts
Title: Executive Vice President and
Chief Financial Officer
-----------------------------------------
GRUPO IUSACELL, S.A. de C.V
By:
Name: Howard F. Zuckerman
Title: Executive Vice President,
Finance
By:
Name: William S. Roberts
Title: Executive Vice President and
Chief Financial Officer
-----------------------------------------
BELL ATLANTIC CORPORATION
By:
Name:
Title:
Accepted:
CHASE SECURITIES INC.
By:
25
<PAGE> 26
- - -----------------------------------------
Authorized Signatory
SALOMON SMITH BARNEY INC.
By:
-----------------------------------------
Authorized Signatory
For themselves and the other Initial Purchasers
listed in the first paragraph of the foregoing
Agreement.
26
<PAGE> 27
ANNEX A
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
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 Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company and BAC
have agreed that, for a period of 180 days after the Expiration Date (as defined
herein), they will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution".
27
<PAGE> 28
ANNEX B
Each broker-dealer that receives Exchange Securities for its own
account in exchange for Securities, where such Securities were acquired by such
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 such Exchange Securities. See "Plan of Distribution".
28
<PAGE> 29
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Securities.
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 Securities
received in exchange for Securities where such Securities were acquired as a
result of market-making activities or other trading activities. The Company and
BAC have agreed that, for a period of 180 days after the Expiration Date, they
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
_____________, ____, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus.
Neither the Company nor BAC will receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered 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 Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale 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 such
broker-dealer or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Securities and any commission or concessions
received by any such 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, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company and Old Iusacell have agreed to pay
all expenses incident to the Registered Exchange Offer (including the expenses
of one counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
29
<PAGE> 30
Securities (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
30
<PAGE> 31
ANNEX D
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:
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Securities. If the undersigned is a broker-dealer that will receive
Exchange Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; 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.
31
<PAGE> 1
Exhibit 4.4
NUEVO GRUPO IUSACELL, S.A. de C.V.
$350,000,000
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "SECURITY AGREEMENT") is made and entered
into as of December 16, 1999 by Nuevo Grupo Iusacell, S.A. de C.V., a limited
liability stock corporation (sociedad anonima de capital variable) organized
under the laws of Mexico (the "PLEDGOR"), The Bank of New York, a New York
banking corporation, having an office at 101 Barclay Street, Floor 21 West, New
York, New York 10286, as trustee (in such capacity, the "TRUSTEE") for the
holders from time to time (the "HOLDERS") of the Securities (as defined herein)
issued by the Pledgor under the Indenture referred to below and The Bank of New
York, as securities intermediary (the "SECURITIES INTERMEDIARY").
WITNESSETH
WHEREAS, the Pledgor and the Trustee have entered into that certain
Indenture dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the "INDENTURE"), pursuant to which the
Pledgor is issuing on the date hereof $350,000,000 in aggregate principal amount
of 14 1/4% Senior Notes due 2006 (and along with such notes that may from time
to time be issued in substitution therefor, the "SECURITIES"); and
WHEREAS, the Pledgor has agreed, pursuant to the Indenture, to (i)
purchase or cause the purchase of Pledged Securities (as defined herein) in an
amount that will be sufficient upon receipt of scheduled interest and principal
payments in respect thereof to provide for the payment of the first six
scheduled interest payments due on the Securities and (ii) place such Pledged
Securities (or cause them to be replaced) in an account maintained by the
Trustee with the Securities Intermediary for the benefit of Holders of the
Securities; and
<PAGE> 2
WHEREAS, the Pledgor has agreed to purchase and deliver to the Trustee
United States Treasury securities in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants selected by the
Pledgor and delivered to the Trustee, upon receipt of scheduled interest and
principal payments of such securities, to provide for payment in full of each of
the first six scheduled interest payments that become due on the Securities and
principal on the Securities in the event that the Securities become due and
payable prior to such time as the first six scheduled interest payments thereon
shall have been paid in full ("OBLIGATIONS"); and
WHEREAS, the Pledgor has agreed to (i) grant to the Trustee for its
benefit and the ratable benefit of the Holders of the Securities a security
interest in the Pledged Securities and related collateral and (ii) execute and
deliver this Security Agreement in order to secure the payment and performance
by the Pledgor of all the Obligations; and
WHEREAS, the Trustee has opened an account (the "SECURITY ACCOUNT")
with the Securities Intermediary, at its office at 101 Barclay Street, Floor 21
West, New York, New York 10286, Account No. 016843, in the name of the Trustee,
with respect to which the Trustee is the owner and sole entitlement holder and
which is under the sole dominion and control of the Trustee but subject to the
terms of this Security Agreement. Capitalized terms used herein and not
otherwise defined herein shall have the meanings given to such terms in the
Indenture.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and in order to induce the Holders of the Securities to purchase the
Securities, the Pledgor hereby agrees with the Trustee, for the benefit of the
Trustee and for the ratable benefit of the Holders of the Securities, as
follows:
SECTION 1. Pledge and Grant of Security Interest. As security for the
prompt and complete payment and performance when due of the Obligations (whether
at the stated maturity or otherwise), the Pledgor hereby pledges to the Trustee
for its benefit and for the ratable benefit of the Holders of the Securities,
and grants to the Trustee for its benefit and for the ratable benefit of the
Holders of the Securities, a continuing first priority security interest in and
to all of the Pledgor's right, title and interest in, to and under the following
(wherever located), whether investment property, general intangibles, other
rights, interests, claims and remedies or proceeds or otherwise (collectively,
the "PLEDGED COLLATERAL"): (a) the United States Treasury securities identified
by CUSIP Number in Exhibit A to this Security Agreement and any additional
securities substituted therefore (the "PLEDGED SECURITIES"), (b) any and all
applicable "SECURITY ENTITLEMENTS" (as defined in Section 8-102(a)(17) of the
Uniform Commercial Code in effect in the State of New York (the "UCC")) to the
Pledged
2
<PAGE> 3
Securities, (c) the Security Account and all "financial assets" (as defined in
UCC Section 8-102(a)(9), "FINANCIAL Assets"), funds, certificates, instruments,
assets and properties, if any, from time to time carried therein or representing
or evidencing the Security Account, (d) any and all related accounts in which
Security Entitlements to the Pledged Securities are carried, and (e) all
proceeds of any and all of the Pledged Collateral (including, without
limitation, proceeds that constitute property of the types described in clauses
(a) - (d) of this Section 1).
SECTION 2. Security for Obligation. This Security Agreement secures the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Obligations.
SECTION 3. Delivery of Pledged Securities; Security Agreement;
Interest. (a) The Pledged Securities shall be pledged and transferred to the
Trustee and the Trustee shall become the holder of a Security Entitlement to the
Pledged Securities through action by the Securities Intermediary, as confirmed
(in writing or electronically or otherwise in accordance with standard industry
practice) to the Trustee by the Securities Intermediary either (i) indicating by
book-entry that the Pledged Securities and all Security Entitlements thereto
have been credited to the Security Account, or (ii) acquiring the Pledged
Securities or a Security Entitlement thereto for the Trustee and accepting the
same for credit to the Security Account.
(b) Prior to or concurrently with the execution and delivery hereof
and prior to the transfer to the Trustee of the Pledged Securities (or
acquisition by the Trustee of any Security Entitlement thereto) as provided in
subsection (a) of this Section 3, the Trustee shall establish with the
Securities Intermediary the Security Account on the books of the Securities
Intermediary as a "securities account" within the meaning of UCC Section 8-501
(A "SECURITIES Account"), owned by and in the name of the Trustee, segregated
from all other custodial or collateral accounts, such Security Account to be
maintained at the offices of the Securities Intermediary at 101 Barclay Street,
Floor 21 West, New York, New York 10286, and the Securities Intermediary shall
maintain a Securities Account at the Federal Reserve Bank of New York ("FRBNY").
Upon transfer of the Pledged Securities to the Securities Intermediary (or the
Securities Intermediary's acquisition of the Security Entitlements thereto), as
confirmed to the Securities Intermediary by FRBNY or another securities
intermediary, the Securities Intermediary shall make appropriate book entries
indicating that the Pledged Securities and/or such Security Entitlements have
been credited to the Trustee and the Security Account. Subject to the other
terms and conditions of this Security Agreement, all Financial Assets, funds or
other property held by the Trustee pursuant to this Security Agreement shall be
held in the Security Account subject (except as expressly provided in Section
4(a), (b) and (c) hereof) to the exclusive dominion and control
3
<PAGE> 4
(including "control" as defined in UCC Section 9-115(1)(e)) of the Trustee and
exclusively for the benefit of the Trustee and for the ratable benefit of the
Holders of the Securities, and segregated from all other funds or other property
otherwise held by the Trustee.
(c) The Trustee shall, in accordance with all applicable laws, have
sole dominion and control (including "control" as defined in UCC Section
9-115(l)(e)) over the Security Account, and it shall be a term and condition of
the Security Account, and the Pledgor irrevocably agrees with the Trustee and
the Securities Intermediary, notwithstanding any other term or condition to the
contrary in any other agreement, that no Pledged Collateral shall be released to
or for the account of, or withdrawn by or for the account of, the Pledgor or any
other Person except as expressly provided in this Security Agreement.
(d) The Trustee shall, in accordance with and subject to all
applicable laws, be the sole entitlement holder of, and have the sole power to
originate "ENTITLEMENT ORDERS" (as defined in UCC Section 8-102(a)(8)) with
respect to, the Security Account and all United States Treasury securities and
other Financial Assets held therein, and the Securities Intermediary does hereby
agree that it will comply with Entitlement Orders issued by the Trustee with
respect to the Security Account and all assets and properties from time to time
carried in the Security Account, including such securities, Security
Entitlements and other Financial Assets, without further consent of the Pledgor
or any other Person (except, to the extent required under the Indenture, of the
Holders), and that no Pledged Collateral shall be released to or for the account
of, or withdrawn by or for the account of, the Pledgor or any other Person
except as expressly provided in this Security Agreement.
(e) All Pledged Collateral shall be retained in the Security Account
pending disbursement pursuant to the terms hereof.
(f) Concurrently with the execution and delivery of this Security
Agreement, the Trustee and the Securities Intermediary are delivering to the
Pledgor and to Chase Securities Inc., Salomon Smith Barney Inc. and J.P. Morgan
Securities Inc. as the initial purchasers of the Securities, a duly executed
certificate, in the form of Exhibit B hereto, of each of an officer of the
Trustee and the Securities Intermediary, confirming the Trustee's establishment
and maintenance of the Security Account and the Security Intermediary's receipt
and holding of the Pledged Securities or a Security Entitlement thereto and the
crediting of the Pledged Securities or such Security Entitlement to the Security
Account, all in accordance with this Security Agreement.
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(g) Concurrently with the execution and delivery of this Security
Agreement, if required by the Trustee the Pledgor shall deliver to the Trustee
executed copies of proper financing statements, duly filed under the UCC of the
State of New York, covering the Pledged Collateral described in this Security
Agreement.
(h) Subsequent to the execution and delivery of this Security
Agreement, the Pledgor shall deliver to the Trustee an opinion of a nationally
recognized firm of independent public accountants, selected by the Pledgor, to
the effect that the scheduled interest and principal payments of the Pledged
Securities would be sufficient to provide for the payment in full of each of the
first six scheduled interest payments that become due on the Securities.
(i) The Security Account shall be governed by the law of the State of
New York.
SECTION 4. Disbursements. (a) At least three Business Days prior to the
due date of any of the first six scheduled interest payments on the Securities,
the Pledgor may, pursuant to written instructions given by the Pledgor to the
Trustee (a "COMPANY ORDER"), direct the Trustee to release from the Security
Account and pay to the Holders of the Securities on behalf of the Pledgor
proceeds sufficient to provide for payment in full of such interest then due on
the Securities. Upon receipt of a Company Order, if no Default or Event of
Default under the Indenture shall have occurred and be continuing, the Trustee
will release such proceeds in accordance with the Company Order and the payment
provisions of the Indenture to the Holders of the Securities from (and to the
extent of) proceeds of the Pledged Securities in the Security Account. Nothing
in this Section 4 shall affect the Trustee's rights to apply the Pledged
Collateral to the payment of amounts due on the Securities upon acceleration
thereof.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Pledged Collateral is security from a source of
funds other than the Security Account ("OTHER FUNDS"), the Pledgor may, after
payment in full of such interest payment, direct the Trustee pursuant to a
Company Order to release to the Pledgor or to another party at the direction of
the Pledgor (the "PLEDGOR'S DESIGNEE") proceeds from the Security Account in an
amount less than or equal to the amount of Other Funds applied to such interest
payment. Upon receipt by the Trustee of such Company Order and provided the
Holders of the Securities have received such interest payment, if no Default or
Event of Default (as defined in the Indenture) shall have occurred and be
continuing, the Trustee shall pay over to the Pledgor or the Pledgor's Designee,
as the case may be, the requested amount from proceeds in the Security Account
as soon as practicable (on the same Business Day if practicable). As a condition
to any
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release of funds to the Pledgor pursuant to this Section 4(b), the Pledgor shall
deliver to the Trustee a certificate signed by an officer of the Pledgor stating
that the Pledgor has made the interest payment from a source of funds other than
the Security Account, and that such release has been duly authorized by the
Pledgor and will not contravene any provision of applicable law or the by-laws
(estatutos sociales) of the Pledgor or any material agreement or other material
instrument binding upon the Pledgor or any of its subsidiaries or any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over the Pledgor or any of its subsidiaries or result in the creation or
imposition of any Lien on any assets of the Pledgor, except for the security
interest granted under the Security Agreement.
(c) If at any time the principal of and interest on the Pledged
Securities exceeds 100% of the amount sufficient, in the written opinion of a
nationally recognized firm of independent accountants selected by the Pledgor
and delivered to the Trustee, to provide for payment in full of the Obligations,
the Pledgor may direct the Trustee to release any such excess amount to the
Pledgor or to any Pledgor's Designee. Upon receipt of a Company Order (which
shall include a certificate from such nationally recognized firm of independent
accountants stating the amount by which the Pledged Securities exceed the amount
required to be held in the Security Account), if no Default or Event of Default
(as defined in the Indenture) shall have occurred and be continuing, the Trustee
shall pay over to the Pledgor or the Pledgor's Designee, as the case may be, any
such excess amount.
(d) Upon payment in full of the Obligations, or if the Company shall
become obligated under the Indenture to redeem all of the outstanding Securities
and such Securities shall have been redeemed, then, if no Default or Event of
Default (as defined in the Indenture) shall have occurred and be continuing, the
security interest in the Pledged Collateral evidenced by this Security Agreement
will automatically terminate and be of no further force and effect and the
Pledged Collateral shall promptly (on the same Business Day if practicable) be
paid over and transferred to the Pledgor as directed in writing by the Pledgor.
Furthermore, upon the release of any Pledged Collateral from the Security
Account in accordance with the terms of this Security Agreement, whether upon
release of Pledged Collateral to Holders as payment of interest or otherwise,
the security interest evidenced by this Security Agreement in such released
Pledged Collateral will automatically terminate and be of no further force and
effect.
(e) At least three Business Days prior to the due date of each of the
first six scheduled interest payments on the Securities, the Pledgor shall give
the Trustee notice (by Company Order) as to whether such interest payment will
be made pursuant to Section 4(a) or 4(b) and the respective amounts of interest
that
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will be paid from the Security Account and from Other Funds. Any Other Funds to
be used to make any interest payment shall be delivered to the Trustee, in
immediately available funds, prior to 10:00 a.m. (New York City time) on such
interest payment date. If no such notice is given or such Other Funds have not
been so delivered, the Trustee is hereby directed to act pursuant to Section
4(a) as if it had received a Company Order pursuant thereto for the payment in
full of the interest then due from the Security Account.
(f) The Trustee shall sell the Pledged Collateral in the Security
Account (pursuant to written instructions from Pledgor) in order to make any
scheduled payment of interest unless there are sufficient funds in the Security
Account on such interest payment date.
(g) Nothing contained in Section 1, Section 3, this Section 4, Section
11 or any other provision of this Security Agreement shall (i) afford the
Pledgor any right to issue Entitlement Orders with respect to any Security
Entitlement to the Pledged Securities or any Securities Account in which any
such Security Entitlement may be carried, or otherwise afford the Pledgor rights
to any such Security Entitlement or (ii) except as otherwise specified under
this Security Agreement (or required by applicable law), give rise to any other
rights of the Pledgor with respect to the Pledged Securities, any Security
Entitlement thereto or any Securities Account in which any such Security
Entitlement may be carried (except as expressly provided in Sections 4(a), (b)
and (c) hereof).
SECTION 5. Representations and Warranties. The Pledgor hereby
represents and warrants that, as of the date hereof:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Security
Agreement will not contravene any provision of applicable law or
statute or the by-laws (estatutos sociales) of the Pledgor or any
material agreement or other material instrument binding upon the
Pledgor or any of its subsidiaries or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Pledgor or any of its subsidiaries, or result in the creation or
imposition of any Lien on any assets of the Pledgor, except for the
security interests granted under this Security Agreement; no consent,
approval, authorization or order of, or qualification with, or other
action by, any governmental or regulatory body or agency or any third
party is required (i) for the execution, delivery or performance by the
Pledgor of this Security Agreement, (ii) for the grant by the Pledgor
of the security interest granted hereby, (iii) except for the actions
required pursuant to Section 3(b), for the perfection and maintenance
of the pledge and security interest created hereby (including
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the first priority nature of such pledge and security interest,
assuming compliance by the Securities Intermediary with all obligations
contained in this Security Agreement), or (iv) except for any such
consents, approvals, authorizations or orders required to be obtained
by the Trustee (or the Holders) for reasons other than the consummation
of this transaction, for the exercise by the Trustee of the rights
provided for in this Security Agreement or the remedies in respect of
the Pledged Collateral pursuant to this Security Agreement.
(b) Immediately before depositing the Pledged Securities into
the Security Account, the Pledgor is the legal and beneficial owner of
the Pledged Collateral free and clear of any Lien or claims of any
person or entity (except for the security interests granted under this
Security Agreement). No financing statement or other instrument similar
in effect covering the Pledgor's interest in the Pledged Securities is
on file in any public office, other than any financing statements filed
pursuant to this Security Agreement.
(c) This Security Agreement has been duly authorized, validly
executed and delivered by the Pledgor and assuming the due
authorization, execution and delivery hereof by the Trustee,
constitutes a valid and binding agreement of the Pledgor, enforceable
against the Pledgor in accordance with its terms, except to the extent
that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general
equitable principles (whether considered in a proceeding in equity or
at law).
(d) Upon the transfer to the Trustee of the Pledged Securities
and the acquisition by the Trustee of a Security Entitlement thereto in
accordance with Section 3, and the compliance by the Securities
Intermediary with the provisions of this Security Agreement, the pledge
of and grant of a security interest in the Pledged Collateral securing
the payment of the Obligations for the benefit of the Trustee and the
Holders of the Securities will constitute a valid first priority
perfected security interest in such Pledged Collateral, enforceable as
such against all creditors of the Pledgor (and any persons purporting
to purchase any of the Pledged Collateral from the Pledgor), and all
filings and actions (other than such transfer to the Trustee of the
Pledged Securities) necessary or desirable to perfect and protect such
security interest have been duly taken.
(e) There are no legal or governmental proceedings pending or,
to the best of the Pledgor's knowledge, threatened to which the Pledgor
or
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any of its subsidiaries is a party or to which any property or assets
of the Pledgor or any of its subsidiaries is subject that would
materially adversely affect the power or ability of the Pledgor to
perform its obligations under this Security Agreement or to consummate
the transactions contemplated hereby.
(f) The pledge of the Pledged Collateral pursuant to this
Security Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations T, U and X of the Board of
Governors of the Federal Reserve System) applicable to the Pledgor.
(g) No Event of Default (as defined herein) exists.
(h) The Pledged Securities have been pledged and transferred
to the Trustee.
SECTION 6. Further Assurances. The Pledgor will, promptly upon request
by the Trustee, execute and deliver or cause to be executed and delivered, or
use its commercially reasonable efforts to procure, all assignments, instruments
and other documents, all in form and substance reasonably satisfactory to the
Trustee, any instruments to the Trustee and take any other actions that are
necessary or desirable, to perfect, continue the perfection of, or protect the
first priority of the Trustee's security interest in and to the Pledged
Collateral, to protect the Pledged Collateral against the rights, claims, or
interests of third persons (other than any such rights, claims or interests
created by or arising through the Trustee), to enable the Trustee to enforce its
rights and remedies hereunder, or to effect the purposes of this Security
Agreement. A photocopy or other reproduction of this Security Agreement or any
financing statement covering the Pledged Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. The Pledgor will
promptly pay all reasonable costs incurred in connection with any of the
foregoing. The Pledgor also agrees to take all actions that are necessary to
perfect or continue the perfection of, or to protect the first priority of, the
Trustee's security interest in and to the Pledged Collateral, including the
filing of all necessary financing and continuation statements, and to protect
the Pledged Collateral against the rights, claims or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee).
SECTION 7. Covenants. The Pledgor covenants and agrees with the Trustee
for the benefit of the Holders of the Securities that from and after the date of
this Security Agreement until the payment in full in cash of the Obligations:
(a) that (i) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to,
any of the
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Pledged Collateral or its beneficial interest therein, and (ii) it will
not create or permit to exist any Lien or other adverse interest in or
with respect to its beneficial interest in any of the Pledged
Collateral (except for the security interests granted under this
Security Agreement) and at all times will be the sole beneficial owner
of the Pledged Collateral; and
(b) that it will not (i) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or
inhibit the Trustee's rights or remedies hereunder, including, without
limitation, the Trustee's right to sell or otherwise dispose of the
Pledged Collateral or (ii) fail to pay or discharge any tax, assessment
or levy of any nature with respect to its beneficial interest in the
Pledged Collateral not later than five days prior to the date of any
proposed sale under any judgment, writ or warrant of attachment with
respect to such beneficial interest.
SECTION 8. Power of Attorney. Upon the occurrence and continuation of
an Event of Default, in addition to all of the powers granted to the Trustee
pursuant to the Indenture, the Pledgor hereby appoints and constitutes the
Trustee as the Pledgor attorney-in-fact, with full authority in the place and
stead of the Pledgor and in the name of the Pledgor or otherwise, from time to
time in the Trustee's discretion, to take any action and to execute any
instrument that the Trustee may deem necessary or advisable to accomplish the
purposes of this Security Agreement including, without limitation, the following
powers: (a) collection of proceeds of any Pledged Collateral; (b) conveyance of
any item of Pledged Collateral to any purchaser thereof; (c) giving of any
notices or recording of any Liens under Section 6 hereof; and (d) paying or
discharging taxes or Liens levied or placed upon the Pledged Collateral, the
legality or validity thereof and the amounts necessary to discharge the same to
be determined by the Trustee in its reasonable discretion, and such payments
made by the Trustee to become part of the Obligations of the Pledgor to the
Trustee, due and payable immediately upon demand. The Trustee's authority under
this Section 8 shall include, without limitation, the authority to endorse and
negotiate any checks or instruments representing proceeds of Pledged Collateral
in the name of the Pledgor, execute and give receipt for any certificate of
ownership or any document constituting Pledged Collateral, transfer title to any
item of Pledged Collateral, sign the Pledgor's name on all financing statements
(to the extent permitted by applicable law) or any other documents deemed
necessary or appropriate by the Trustee to preserve, protect or perfect the
security interest in the Pledged Collateral and to file the same, prepare, file
and sign the Pledgor's name on any notice of Lien, and to take any other actions
arising from or incident to the powers granted to the Trustee in this Security
Agreement. This power of attorney is coupled with an interest and is irrevocable
by the Pledgor. Notwithstanding
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anything to the contrary stated herein, the Trustee has no duty or obligation to
exercise any of the powers stated in this Section 8.
SECTION 9. No Assumption of Duties; Reasonable Care. The rights and
powers granted to the Trustee hereunder are being granted in order to preserve
and protect the security interest of the Trustee and the Holders of the
Securities in and to the Pledged Collateral granted hereby and shall not be
interpreted to, and shall not impose any duties on the Trustee or the Securities
Intermediary in connection therewith, other than those expressly provided herein
or imposed under applicable law. Except as provided by applicable law or by the
Indenture, the Trustee shall be deemed to have exercised reasonable care in the
custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment substantially equal to that which the
Trustee accords similar property held by the Trustee for similar accounts, it
being understood that the Trustee in its capacity as such shall not have any
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities or other matters relative to any Pledged
Collateral, whether or not the Trustee has or is deemed to have knowledge of
such matters or (b) investing or reinvesting any of the Pledged Collateral or
any loss on any investment.
SECTION 10. Indemnity. The Pledgor shall indemnify, hold harmless and
defend each of the Trustee and the Securities Intermediary and their respective
directors, officers, agents and employees from and against any and all claims,
actions, obligations, liabilities and expenses, including reasonable defense
costs, reasonable investigative fees and costs and reasonable legal fees and
expenses and damages arising from the Trustee's performance as Trustee under
this Security Agreement or from the Securities Intermediary's performance as
Securities Intermediary under this Security Agreement, except to the extent that
such claim, action, obligation, liability or expense is directly attributable to
the gross negligence or willful misconduct of such indemnified person.
SECTION 11. Remedies upon Event of Default. If any Event of Default as
defined in the Indenture (any such Event of Default being referred to in this
Security Agreement as an "EVENT OF DEFAULT") shall have occurred and be
continuing:
(a) The Trustee and the Holders of the Securities shall have,
in addition to all other rights given by law or by this Security
Agreement or the Indenture, all of the rights and remedies with respect
to the Pledged Collateral of a secured party under the UCC. In
addition, with respect to any Pledged Collateral that shall then be in
or shall thereafter come into the possession or custody of the Trustee,
the Trustee may, upon the direction of a majority in aggregate
principal amount of the Holders of the
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Securities sell or cause the same to be sold at any broker's board or
at public or private sale, in one or more sales or lots, for cash or on
credit or for future delivery, without assumption of any credit risk.
The purchaser of any or all Pledged Collateral so sold shall thereafter
hold the same absolutely, free from any claim, encumbrance or right of
any kind whatsoever created by or through the Pledgor. Unless any of
the Pledged Collateral threatens, in the reasonable judgment of the
Trustee, to decline speedily in value or is or becomes of a type sold
on a recognized market, the Trustee will give the Pledgor reasonable
notice of the time and place of any public sale thereof, or of the time
after which any private sale or other intended disposition is to be
made. To the extent permitted by applicable law, any sale of the
Pledged Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies, commercial finance companies,
or other financial institutions disposing of property similar to the
Pledged Collateral shall be deemed to be commercially reasonable. Any
requirements of reasonable notice shall be met if such notice is mailed
to the Pledgor as provided in Section 15.1 hereof at least 10 days
before the time of the sale or disposition. The Trustee or any Holder
of Securities may, in its own name or in the name of a designee or
nominee, buy any of the Pledged Collateral at any public sale and, if
permitted by applicable law, at any private sale. All expenses
(including court costs and reasonable attorneys' fees, expenses and
disbursements) of, or incident to, the enforcement of any of the
provisions hereof shall be recoverable from the proceeds of the sale or
other disposition of the Pledged Collateral.
(b) The Pledgor further agrees to use its reasonable best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Pledged Collateral pursuant to this Section 11 valid and binding and in
compliance with any and all other applicable requirements of law. The
Pledgor further agrees that a breach of any of the covenants contained
in this Section 11 will cause irreparable injury to the Trustee and the
Holders of the Securities, that the Trustee and the Holders of the
Securities have no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this
Section 11 shall be specifically enforceable against the Pledgor, and
the Pledgor hereby waives and agrees not to assert any defenses against
an action for specific performance of such covenants except for a
defense that no Event of Default has occurred.
(c) The Trustee may, without notice to the Pledgor except as
required by law and at any time or from time to time, charge, set-off
and
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otherwise apply all or any part of the Obligations against the Security
Account or any part thereof.
SECTION 12. Expenses. The Pledgor will upon demand pay to each of the
Trustee and the Securities Intermediary the amount of any and all reasonable and
documented expenses, including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and agents retained by the
Trustee or the Securities Intermediary that the Trustee or the Securities
Intermediary may incur in connection with (a) the review, negotiation and
administration of this Security Agreement (b) the custody or preservation of, or
the sale of, collection from, or other realization upon, any of the Pledged
Collateral, (c) the exercise or enforcement of any of the rights of the Trustee
and the Holders of the Securities hereunder or (d) the failure by the Pledgor to
perform or observe any of the provisions hereof.
SECTION 13. Security Interest Absolute. All rights of the Trustee and
the Holders of the Securities and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional under
all circumstances including but not limited to:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the
Indenture;
(c) any taking, exchange, surrender, release or non-perfection
of any other collateral or any taking, release or amendment or waiver
from any guaranty for all or any of the Obligations;
(d) any change, restructuring or termination of the corporate
structure or the existence of the Pledgor, or any of its subsidiaries;
or
(e) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to,
or a discharge of, the Pledgor in respect of the Obligations or of this
Security Agreement.
SECTION 14. Securities Intermediary's Representations, Warranties and
Covenants. The Securities Intermediary represents and warrants that it is as of
the date hereof, and it agrees that for so long as it maintains the Security
Account and acts as securities intermediary pursuant to this Security Agreement
it shall be a
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"Securities Intermediary" (as defined in the UCC and in 31 C.F.R. Section 357.2)
and shall be eligible to maintain, and does maintain, a Participant's Securities
Account (as defined in 31 C.F.R. Section 357.2) in the name of the Securities
Intermediary with the FRBNY (a "FRBNY MEMBER SECURITIES ACCOUNT"). In
furtherance of the foregoing, the Securities Intermediary hereby:
(a) represents and warrants that it is a corporation that in
the ordinary course of its business maintains Securities Accounts for
others and is acting in that capacity hereunder and with respect to the
Security Account;
(b) represents and warrants that it maintains the FRBNY Member
Securities Account with the FRBNY and that the United Stated Treasury
securities constituting the Pledged Securities transferred to the
Securities Intermediary pursuant to Section 3(b) have been credited to
the FRBNY Member Securities Account;
(c) agrees that the Security Account shall be an account to
which Financial Assets may be credited, and the Securities Intermediary
undertakes to treat the Trustee as the sole person entitled to exercise
rights that comprise (and entitled to the benefits of) such Financial
Assets, and entitled to exercise the rights of an Entitlement Holder
and control in the manner contemplated by the UCC, and further agrees
to identify the Trustee in the records of the Securities Intermediary
as the sole person having a Securities Entitlement against the
Securities Intermediary with respect to the Security Account and all
Financial Assets credited thereto;
(d) hereby represents that it has not granted, and covenants
that so long as it acts as Securities Intermediary hereunder it shall
not grant, control (including without limitation, "control" as defined
in UCC Sections 8- 106 and 9-115(1)(e)) over or with respect to
any Pledged Collateral credited to the Security Account from time to
time to time to any other Person other than the Trustee;
(e) covenants that in its capacity as Securities Intermediary
hereunder and with respect to the Security Account, it shall not take
any action inconsistent with, and represents and covenants that it is
not and so long as this Security Agreement remains in effect will not
become party to any agreement, the terms of which are inconsistent with
the provisions of this Security Agreement;
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(f) agrees, with the other parties to this Security Agreement,
that any item of property credited to the Security Account shall be
treated as a Financial Asset;
(g) agrees, with the other parties to this Security Agreement,
so long as it serves as Securities Intermediary pursuant to this
Security Agreement, to maintain the Security Account as a Securities
Account and maintain appropriate books and records in respect thereof
in accordance with its usual procedures and subject to the terms of
this Security Agreement;
(h) agrees, with the other parties to this Security Agreement,
that the Securities Intermediary's jurisdiction, for purposes of UCC
Section 8-110(e) and 31 C.F.R. 357.11(b) as it pertains to this
Security Agreement, the Security Account and Security Entitlements
relating thereto, shall be the State of New York.
SECTION 15. Miscellaneous Provisions.
Section 15.1 Notices. Any notice or communication given hereunder
shall be in writing, and:
(a) if to the Pledgor, shall be delivered or sent by mail or
telecopy transmission (with a copy by mail to follow) to the address of
the Company set forth in the Offering Memorandum, Attention: William S.
Roberts (telecopier no.: 011-525-109-5752), with a copy to Ruben G.
Perlmutter at the same address (telecopier no.: 011-525-109-5772);
(b) if to the Trustee, shall be delivered or sent by mail or
telecopy transmission (with a copy by mail to follow) to The Bank of
New York, 101 Barclay Street, Floor 21 West, New York, New York 10286,
Attention: Corporate Trust Trustee Administration [(telecopier no.:
(212) 815-5915)]; or
(c) if to the Securities Intermediary, shall be delivered or
sent by mail or telecopy transmission (with a copy by mail to follow)
to The Bank of New York, 101 Barclay Street, Floor 21 West, New York,
New York 10286, Attention: Corporate Trust Trustee Administration
[(telecopier no.: (212) 815-5915)].
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Section 15.2 No Adverse Interpretation of Other Agreements. This
Security Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge, security or
debt agreement (other than the Indenture) may be used to interpret this Security
Agreement.
Section 15.3 Severability. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Security Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable best efforts
to find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
Section 15.4 Headings. The headings in this Security Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 15.5 Counterparts. This Security Agreement may be executed in
any number of counterparts (which may be delivered in original form or by
telecopier) and by the 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.
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Section 15.6 Benefits of Security Agreement. Nothing in this Security
Agreement, express or implied, shall give to any person, other than the parties
hereto and their successors hereunder, and the Holders of the Securities, any
benefit or any legal or equitable right, remedy or claim under this Security
Agreement.
Section 15.7 Amendments, Waivers and Consents. Any amendment or waiver
of any provision of this Security Agreement and any consent to any departure by
the Pledgor from any provision of this Security Agreement shall be effective
only if made or duly given in compliance with all of the terms and provisions of
the Indenture, and neither the Trustee nor any Holder of Securities shall be
deemed, by any act, delay, indulgence, omission or otherwise, to have waived any
right or remedy hereunder or to have acquiesced in any Default or Event of
Default (as defined herein) or in any breach of any of the terms and conditions
hereof. Consistent with the foregoing, this Security Agreement may be amended,
its provisions may be waived and departures from its provisions may be consented
to by action of the Pledgor and the Trustee, and (if applicable) the Holders of
the Securities, as provided in the Indenture, and no such amendment, waiver or
consent shall require any action or approval by the Initial Purchasers. Failure
of the Trustee or any Holder of Securities to exercise, or delay in exercising,
any right, power or privilege hereunder shall not preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Trustee or any Holder of Securities of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Trustee or such Holder of Securities would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
Section 15.8 Interpretation of Agreement. All terms not defined herein
or in the Indenture shall have the meaning set forth in the UCC, except where
the context otherwise requires. Acceptance of or acquiescence in a course of
performance rendered under this Security Agreement shall not be relevant to
determine the meaning of this Security Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
Section 15.9 Continuing Security Interest; Termination. (a) This
Security Agreement shall create a continuing security interest in and to the
Pledged Collateral and shall, unless otherwise provided in this Security
Agreement, remain in full force and effect until the payment in full in cash of
the Obligations. This Security Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee
17
<PAGE> 18
hereunder, to the benefit of the Trustee, the Securities Intermediary, the
Holders of the Securities and their respective successors, transferees and
assigns.
(b) This Security Agreement (other than the Pledgor's obligations
under Sections 10 and 12) shall terminate upon the payment in full in cash of
the Obligations or if the Company shall become obligated under the Indenture to
redeem all of the outstanding Securities and such Securities shall have been
redeemed, and if no Default or Event of Default (as defined in the Indenture)
shall have occurred and be continuing. At such time, the Trustee shall, pursuant
to a Company Order, and at the expense of the Pledgor, reassign and redeliver to
the Pledgor all of the Pledged Collateral hereunder that has not been sold,
disposed of, retained or applied by the Trustee in accordance with the terms of
this Security Agreement as directed in writing by the Pledgor and the Indenture
and take all actions that are necessary to release the security interest created
by this Security Agreement in and to the Pledged Collateral, including the
execution and delivery of all termination statements necessary to terminate any
financing or continuation statements filed with respect to the Pledged
Collateral prepared and delivered to it by the Pledgor. Such reassignment and
redelivery shall be without warranty by or recourse to the Trustee in its
capacity as such, except as to the absence of any Liens on the Pledged
Collateral created by or arising through the Trustee, and shall be at the
reasonable expense of the Pledgor.
Section 15.10 Survival of Representations and Covenants. All
representations, warranties and covenants of the Pledgor contained herein shall
survive execution and delivery of this Security Agreement and shall terminate
only upon the termination of this Security Agreement.
Section 15.11 Waivers. The Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 15.12 Authority of the Trustee and Securities Intermediary. (a)
Each of the Trustee and Securities Intermediary shall have the right to exercise
all powers hereunder that are specifically granted to the Trustee or the
Securities Intermediary by the terms hereof, together with such powers as are
reasonably incident hereto. The Trustee and the Securities Intermediary may
perform any of their respective duties hereunder or in connection with the
Pledged Collateral by or through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of counsel concerning all
such matters. Except as otherwise expressly provided in this Security Agreement
or the Indenture, neither the Trustee, the Securities Intermediary, nor any
director, officer, employee,
18
<PAGE> 19
attorney or agent of the Trustee shall be liable to the Pledgor for any action
taken or omitted to be taken by the Trustee, in its capacity as Trustee or
Securities Intermediary, hereunder, except for its own gross negligence or
willful misconduct, and the Trustee and the Securities Intermediary shall not be
responsible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. The Trustee, the Securities
Intermediary and their respective directors, officers, employees, attorneys and
agents may conclusively rely on any communication, instrument or document
believed by it or them to be genuine and correct and to have been signed or sent
by the proper person or persons.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Security Agreement with respect to any action taken by
the Trustee or the exercise or non-exercise by the Trustee of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Security Agreement shall, as between the Trustee and the
Holders of the Securities, be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Trustee and the Pledgor, the Trustee shall be conclusively
presumed to be acting as agent for the Holders of the Securities with full and
valid authority so to act or refrain from acting, and the Pledgor shall not be
obligated or entitled to make any inquiry respecting such authority.
(c) Each of the Trustee and the Securities Intermediary undertakes to
perform such duties and only such duties as are specifically set forth in this
Security Agreement, and no implied covenants or obligations shall be read into
this Security Agreement against the Trustee or the Securities Intermediary.
(d) No provision of this Security Agreement shall require the Trustee
or the Securities Intermediary to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights and powers.
(e) The Trustee and the Securities Intermediary may consult with
counsel of its selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(f) The Trustee and the Securities Intermediary may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Trustee and the Securities Intermediary
shall not be responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder.
19
<PAGE> 20
(g) The Trustee shall have no duty (i) to see to any recording, filing
or depositing of this Security Agreement or any financing statements evidencing
a security interest in the Pledged Collateral, or to see to the maintenance of
any such recording or filing, or (ii) to inspect the Pledged Collateral at any
time or to inquire as to the performance or observance of any of the Pledgor's
representations, warranties or covenants contained herein.
Section 15.13 Removal or Resignation of the Securities Intermediary.
The Securities Intermediary may resign by written notice to, or be removed by
written notice from, the Trustee at any time; provided, however, that such
resignation shall not be effective until, and in the case of removal the
Securities Intermediary's duties hereunder shall not terminate until, a
successor Securities Intermediary shall have been appointed by the Trustee and
accepted such appointment (by delivery of an agreement substantially in the form
hereof) and any and all assets held by the retiring Securities Intermediary
hereunder shall have been transferred to such successor Securities Intermediary
in accordance with the Trustee's instruction.
Section 15.14 Fees and Expenses. The Securities Intermediary shall be
entitled to charge such fees and charges, including but not limited to
transaction fees and reimbursement for costs, as from time to time may be in
accordance with its usual practice for maintenance and administration of
accounts of the type contemplated hereby (which charges and fees shall be paid
by the Trustee and shall be reimbursable to it pursuant to Section 7.07 of the
Indenture).
Section 15.15 Final Expression. This Security Agreement, together with
the Indenture and any other agreement executed in connection herewith, is
intended by the parties as a final expression of this Security Agreement and is
intended as a complete and exclusive statement of the terms and conditions
thereof.
Section 15.16 Rights of Holders of the Securities. No Holder of
Securities shall have any independent rights hereunder other than those rights
granted to individual Holders of the Securities pursuant to the Indenture;
provided that nothing in this subsection shall limit any rights granted to the
Trustee under the Securities or the Indenture.
Section 15.17 Governing Law. THIS SECURITY AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. NOTWITHSTANDING THE FOREGOING, THE
MATTERS
20
<PAGE> 21
IDENTIFIED IN 31 C.F.R. PART 357, 61 FED. REG. 43626 (AUG. 23,1996) SHALL BE
GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN.
Section 15.18 Waiver of Immunities. To the extent that the Pledgor or
any of its properties, assets or revenues may have or may hereafter become
entitled to, or have attributed to it, any right of immunity, on the grounds of
sovereignty or otherwise, from any legal action, suit or proceeding, from the
giving of any relief in any such legal action, suit or proceeding, from setoff
or counterclaim, from the competent jurisdiction of any court, from service of
process, from attachment upon or prior to judgment, from attachment in aid of
execution of judgment, or from execution of judgment, or other legal process or
proceeding for the giving of any relief or for the enforcement of any judgment,
in any competent jurisdiction in which proceedings may at any time be commenced,
with respect to its obligations, liabilities or any other matter under or
arising out of or in connection with this Security Agreement and the
transactions contemplated hereby, the Pledgor hereby irrevocably and
unconditionally waives, and agrees not to plead or claim, any such immunity and
consent to such relief and enforcement.
Section 15.19. Consent to Jurisdiction; Appointment of Agent for
Service of Process; Judgment Currency. (a) The Pledgor, by the execution and
delivery of this Security Agreement, irrevocably agrees that service of process
may be made upon CT Corporation Services ("CT Corporation"), with offices at 111
Eighth Avenue, New York, New York 10011 (or its successors as agent for service
of process), in the County, City and State of New York, United States of
America, in any suit or proceeding against the Pledgor instituted by the Trustee
or the Securities Intermediary, based on or arising under this Security
Agreement and the transactions contemplated hereby in any federal or state court
in the State of New York, County of New York, and each of the Pledgor, the
Trustee and the Securities Intermediary hereby irrevocably consents and submits
to the jurisdiction of any such court and to the courts of its own corporate
domicile in respect of actions brought against it as a defendant generally and
unconditionally in respect of any such suit or proceeding.
(b) The Pledgor further, by the execution and delivery of this
Security Agreement, irrevocably designates, appoints and empowers CT
Corporation, with offices at 111 Eighth Avenue, New York, New York, 10011, as
its designee, appointee and authorized agent to receive for and on its behalf
service (i) of any and all legal process, summons, notices and documents that
may be served in any action, suit or proceeding brought against the Pledgor with
respect to its obligations, liabilities or any other matter arising out of or in
connection with this Security Agreement and the transactions contemplated hereby
and (ii) that may be made on such designee, appointee and authorized agent in
accordance with legal
21
<PAGE> 22
procedures prescribed for such courts, and it being understood that the
designation and appointment of CT Corporation as such authorized agent shall
become effective immediately without any further action on the part of the
Pledgor. The Pledgor represents to the Trustee and the Securities Intermediary
that it has notified CT Corporation of such designation and appointment and that
CT Corporation has accepted the same, and that CT Corporation has been paid its
full fee for such designation, appointment and related services through the date
that is three years from the date of this Security Agreement. The Pledgor
further agrees that, to the extent permitted by law, service of process upon CT
Corporation (or its successors as agent for service of process) and written
notice of said service to the Pledgor pursuant to Section 15.1 of this Security
Agreement, shall be deemed in every respect effective service of process upon
the Pledgor in any such suit or proceeding. If for any reason such designee,
appointee and agent hereunder shall cease to be available to act as such, the
Pledgor agrees to designate a new designee, appointee and agent in The City of
New York, New York on the terms and for the purposes of this Section reasonably
satisfactory to the Trustee and the Securities Intermediary. The Pledgor further
hereby irrevocably consents and agrees to the service of any and all legal
process, summons, notices and documents in any such action, suit or proceeding
against the Pledgor by serving a copy thereof upon the relevant agent for
service of process referred to in this Section (whether or not the appointment
of such agent shall for any reason prove to be ineffective or such agent shall
accept or acknowledge such service) and by mailing copies thereof by registered
or certified air mail, postage prepaid, to the Pledgor at its address specified
in or designated pursuant to this Security Agreement. The Pledgor agrees that
the failure of any such designee, appointee and agent to give any notice of such
service to it shall not impair or affect in any way the validity of such service
or any judgment rendered in any action or proceeding based thereon. Nothing
herein shall in any way be deemed to limit the ability of the Trustee or the
Securities Intermediary to serve any such legal process, summons, notices and
documents in any other manner permitted by applicable law. The Pledgor hereby
irrevocably and unconditionally waives, to the fullest extent permitted by law,
any objection that it may now or hereafter have to the laying of venue of any of
the aforesaid actions, suits or proceedings arising out of or in connection with
this Security Agreement brought in federal or state court in the State of New
York, County of New York, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum and further irrevocably waives any right to which it may be entitled on
account of place of residence or domicile.
(c) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that
22
<PAGE> 23
the rate of exchange used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase United States dollars with the
other currency in New York City on the business day preceding that on which
final judgment is given. The obligation of the Pledgor in respect of any sum due
from the Pledgor to the Trustee or the Securities Intermediary shall,
notwithstanding any judgment in a currency other than United States dollars, not
be discharged until the first business day, following receipt by the Trustee or
the Securities Intermediary, as applicable, of any sum adjudged to be so due in
the other currency, on which (and only to the extent that) the Trustee or the
Securities Intermediary may in accordance with normal banking procedures
purchase United States dollars with the other currency; if the United States
dollars so purchased are less than the sum originally due to the Trustee or the
Securities Intermediary hereunder, the Pledgor agrees, as a separate obligation
and notwithstanding any such judgment, to indemnify the Trustee or the
Securities Intermediary, as the case may be, against the loss. If the United
States dollars so purchased are greater than the sum originally due to the
Trustee or the Securities Intermediary hereunder, each of the Trustee and the
Securities Intermediary agrees to pay to the Pledgor an amount equal to the
excess of the dollars so purchased over the sum originally due to the Trustee or
the Securities Intermediary hereunder.
(d) The provisions of this Section 15.19 shall survive any
termination of this Security Agreement, in whole or in part.
(e) To the extent permitted by applicable law, the Pledgor waives the
posting of any bond otherwise required of the Trustee or any Holder of
Securities in connection with any judicial process or proceeding to enforce any
judgement or other court order pertaining to this Security Agreement or any
related agreement or document entered in favor of the Trustee or any Holder of
Securities, or to enforce by specific performance, temporary restraining order
or preliminary or permanent injunction the Security Agreement or any related
agreement or document between the Pledgor on the one hand and the Trustee and/or
the Holders of the Securities on the other hand.
23
<PAGE> 24
IN WITNESS WHEREOF, the Pledgor, the Trustee and the Securities
Intermediary have each caused this Security Agreement to be duly executed and
delivered as of the date first above written.
Pledgor:
NUEVO GRUPO IUSACELL,
S.A. de C.V.
By:
---------------------------------------
Name: Howard F. Zuckerman
Title: Executive Vice President,
Finance
By:
---------------------------------------
Name: William S. Roberts
Title: Executive Vice President
and Chief Financial Officer
Trustee:
THE BANK OF NEW YORK,
as Trustee
By:
---------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Securities Intermediary
By:
---------------------------------------
Name:
Title:
<PAGE> 25
EXHIBIT A
The United States Treasury securities identified by the following maturities and
coupon rates.
<PAGE> 26
EXHIBIT B
CERTIFICATE
Pursuant to Section 3(f) of the Security Agreement (the "SECURITY
AGREEMENT") dated as of December 16, 1999 by and among Nuevo Grupo Iusacell,
S.A. de C.V. (the "PLEDGOR"), The Bank of New York, as trustee (the "TRUSTEE")
for the holders of the 14 1/4% Senior Notes due 2006 (the "SECURITIES") of the
Pledgor, and The Bank of New York, as securities intermediary (the "SECURITIES
INTERMEDIARY"), the undersigned officer of the Trustee, on behalf of the
Trustee, and the undersigned officer of the Securities Intermediary, on behalf
of the Securities Intermediary, make the following certifications to the Pledgor
and the initial purchasers of the Securities. Capitalized terms used and not
defined in this Certificate have the meanings set forth or referred to in the
Security Agreement.
1. Substantially contemporaneously with the execution and delivery of
this Certificate, the Trustee has established with the Securities Intermediary,
in its capacity as Securities Intermediary, the Security Account. The Securities
Intermediary has acquired from the FRBNY a Security Entitlement to the United
States Treasury securities identified in ANNEX I to this Certificate (the
"PLEDGED SECURITIES") and is the entitlement holder (as defined in UCC Section
8-102(a)(7)) with respect to such Security Entitlement in the FRBNY's Security
Account. The Securities Intermediary has made appropriate book entries in its
records establishing that the Pledged Securities and all Security Entitlements
thereto have been credited to and are held in the Security Account.
2. The Trustee has established and maintained and will maintain the
Security Account and all Security Entitlements and other positions carried in
the Security Account solely in its capacity as Trustee and has not asserted and
will not assert any claim to or interest in the Security Account or any such
Securities Entitlements or other positions except in such capacity.
3. The Trustee and the Securities Intermediary have acquired their
Security Entitlements to the Pledged Securities for value and without notice of
any adverse claim thereto. Without limiting the generality of the foregoing, the
Pledged Securities are not and the Securities Intermediary's and the Trustee's
Security Entitlements to the Pledged Securities are not, to their knowledge,
subject to any Lien granted by either of them in favor of any securities
intermediary, as defined in UCC Section 8-102(a)(14) (including, without
limitation, the FRBNY) through which the Trustee derives its Security
Entitlement to the Pledged Securities.
<PAGE> 27
4. Neither the Securities Intermediary nor the Trustee has caused or
permitted the Pledged Securities or any Security Entitlement thereto to become
subject to any Lien created by or arising through either of the Trustee or the
Securities Intermediary.
IN WITNESS WHEREOF, the undersigned officers have executed this
Certificate on behalf of the Trustee, and on behalf of the Securities
Intermediary, respectively, this 16th day of December, 1999.
THE BANK OF NEW YORK,
As Trustee
------------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
As Securities Intermediary
------------------------------------------
Name:
Title:
2
<PAGE> 1
Exhibit 5.1
February 18, 2000
Nuevo Grupo Iusacell, S.A. de C.V.
Paseo de la Reforma 1236
Colonia Santa Fe
Delegacion Cuajimalpa
05348 Mexico, D.F.
Re: Nuevo Grupo Iusacell, S.A. de C.V.
Ladies and Gentlemen:
We have acted as special Mexican counsel to Nuevo Grupo Iusacell, S.A. de C.V.
(the "Company"), a limited liability stock company organized under the laws of
the United Mexican States ("Mexico") in connection with the proposed issuance by
the Company of up to U.S.$350,000,000 aggregate principal amount of its 14-1/4%
Senior Notes due 2006 (the "Exchange Notes") for a like principal amount of its
14-1/4% Senior Notes due 2006 (the "Old Notes"). Such exchange offer is more
fully described in the Registration Statement on Form F-4/ S-4 filed by the
Company and Bell Atlantic Corporation on the date hereof (the "Registration
Statement") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement, the form of
Prospectus that is a part thereof (the "Prospectus"), the Company's bylaws
(estatutos sociales) and such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such inquiries
of such officers and representatives, as we have deemed relevant and necessary
as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As to all
questions of fact material to this opinion that have not been independently
established, we have relied upon certificates or comparable documents of
officers and representatives of the Company and have relied upon the relevant
facts stated therein.
It is our opinion that under and with respect to the present laws of the United
Mexican States, the Exchange Notes have been duly authorized and, when executed
and delivered by the Company and countersigned by The Bank of New York, as
Trustee, pursuant to the Indenture dated as of December 16, 1999, and delivered
to and exchanged for the Old Notes by the holders as contemplated by the
Registration Statement, will constitute valid and legally binding
<PAGE> 2
Page 2
direct, general and unconditional obligations of the Company, enforceable in
accordance with their terms, subject to bankruptcy, suspension of payments,
insolvency, reorganization, moratorium, or similar laws now or hereafter in
effect affecting the enforcement of creditor's rights generally.
We hereby consent to the filing of this opinion with the Registration Statement
and to the reference to ourselves under the caption "Enforceability of Civil
Liabilities," "Mexican Taxation" and "Legal Matters" in the Registration
Statement.
Very truly yours,
De Ovando y Martinez del Campo, S.C.
By: Ana Maria Fernandez Rionda
<PAGE> 1
Exhibit 5.2
[CLIFFORD CHANCE
ROGERS & WELLS LLP
LETTERHEAD]
February 18, 2000
Nuevo Grupo Iusacell, S.A. de C.V.
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delagacion Cuajimalpa
05348 Mexico, D.F., Mexico
Re: Nuevo Grupo Iusacell, S.A. de C.V.
Ladies and Gentlemen:
We have acted as special United States counsel to Nuevo Grupo Iusacell, S.A. de
C.V., a Mexican sociedad anonima de capital variable (the "Company") in
connection with the Company's offer to exchange up to U.S. $350,000,000
aggregate principal amount of its 14 1/4% Senior Notes de 2006 (the "Exchange
Notes") for a like principal amount of its 14 1/4% Senior Notes due 2006 (the
"Old Notes"). Such exchange offer is more fully described in the Registration
Statement on Form F-4 / S-4 filed by the Company and Bell Atlantic Corporation
on the date hereof (the "Registration Statement") with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement, the form of
Prospectus that is a part thereof (the "Prospectus"), the Company's bylaws
(estatutos sociales) and such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such inquiries
of such officers and representatives, as we have deemed relevant and necessary
as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As to all
questions of fact material to this opinion that have not been independently
established, we have relied upon certificates or comparable documents of
officers and representatives of the Company and have relied upon the relevant
facts stated therein.
<PAGE> 2
Nuevo Grupo Iusacell, S.A. de C.V.
Page 2
February 18, 2000
Based upon and subject to the foregoing, we are of the opinion that the Exchange
Notes, assuming (i) due authorization, execution, delivery and issuance by the
Company in accordance with Mexican law (ii) due authentication thereof by The
Bank of New York, as Trustee, in accordance with the Indenture dated December
16, 1999 and (iii) due delivery and exchange of the Exchange Notes for the Old
Notes by the holders as contemplated in the Registration Statement and the
relevant agreements, will constitute valid and legally binding obligations of
the Company entitled to the benefits of the Indenture and enforceable against
the Company in accordance with their terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting
creditors' rights generally and by general equitable principles (whether
considered in a proceeding in equity or at law).
Insofar as the opinion set forth herein relates to matters of the law of the
United Mexican States, we have relied upon the opinions of De Ovando y Martinez
del Campo, S.C., Mexican counsel to Iusacell, filed as an Exhibit to the
Registration Statement, and our opinion herein is subject to any and all
exceptions and reservations set forth therein.
We hereby consent to the filing of this opinion with the Registration Statement
and to the reference to ourselves under the captions "Taxation" and "Legal
Matters" in the Registration Statement.
Very truly yours,
/s/ CLIFFORD CHANCE ROGERS & WELLS LLP
<PAGE> 1
Exhibit 5.3
Bell Atlantic Phillip M. Huston, Jr.
1095 Avenue of the Americas Counsel and Corporate Secretary (acting)
Room 3876
New York, New York 10036
212-395-6103
Fax 212 302-8320
February 17, 2000
Bell Atlantic Corporation
1095 Avenue of the Americas
New York, New York 10036
Re: Bell Atlantic Corporation
Registration Statement on Form S-4
Ladies and Gentlemen:
With respect to the filing by Bell Atlantic Corporation (the
"Corporation") under the Securities Act of 1933, as amended ( the "Securities
Act"), of a Registration Statement on Form S-4 relating to the registration of
the Corporation's joint and several obligation (the "Put Option") with Nuevo
Grupo Iusacell, S.A. de C.V. ("Iusacell") to repurchase under certain
circumstances all or a portion of Iusacell's 14 1/4% Senior Notes due 2006,
which are being registered by Iusacell on a registration statement on Form F-4
under the Securities Act concurrently with the Put Option, I am of the opinion
that:
1. The Corporation has been duly incorporated and is validly existing
as a corporation under the laws of the State of Delaware.
2. The Put Option has been duly authorized by the Corporation and
constitutes a valid and legally binding obligation of the Corporation .
I hereby consent to the filing of this Opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to being
named under the heading "Legal Matters" therein.
Very truly yours,
/s/ Phillip M. Huston, Jr.
Phillip M. Huston, Jr.
Counsel and Corporate Secretary (Acting)
<PAGE> 1
Exhibit 8.1
February 18, 2000
Nuevo Grupo Iusacell, S.A. de C.V.
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delegacion Cuajimalpa
05348 Mexico, D.F.
Ladies and Gentlemen:
We have acted as special Mexican counsel to Nuevo Grupo Iusacell, S.A. de C.V.
(the "Company"), a limited liability stock company organized under the laws of
the United Mexican States ("Mexico") in connection with the proposed issuance by
the Company of up to U.S.$350,000,000 aggregate principal amount of its 14-1/4%
Senior Notes due 2006 (the "Exchange Notes") for a like principal amount of its
14-1/4% Senior Notes due 2006 (the "Old Notes"). Such exchange offer is more
fully described in the Registration Statement on Form F-4 / S-4 filed by the
Company and Bell Atlantic Corporation on the date hereof (the "Registration
Statement") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement, the form of
Prospectus that is a part thereof (the "Prospectus"), the Company's bylaws
(estatutos sociales) and such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such inquiries
of such officers and representatives, as we have deemed relevant and necessary
as a basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As to all
questions of fact material to this opinion that have not been independently
established, we have relied upon certificates or comparable documents of
officers and representatives of the Company and have relied upon the relevant
facts stated therein.
Based on the foregoing, and subject to the qualifications stated herein, we are
of the opinion that:
1) The exchange of the Old Notes for the Exchange Notes, pursuant to the
offer to exchange referred to above, will be tax-free under Mexican tax
laws for holders of the Old Notes.
<PAGE> 2
Page 2
2) The information in the Registration Statement under the heading "Mexican
Taxation" has been reviewed by us and, insofar as such information
constitutes summaries of the legal matters referred to therein, fairly
and correctly summarizes in all material respects the matters referred
to therein.
No opinion is given herein with respect to any laws other than the federal laws
of Mexico. This opinion shall be governed by and construed in accordance with
the federal laws of Mexico.
Very truly yours,
De Ovando y Martinez del Campo, S.C.
By: Ana Maria Fernandez Rionda
<PAGE> 1
EXHIBIT 8.2
[CLIFFORD CHANCE ROGERS & WELLS
LLP LETTERHEAD]
February 18, 2000
Nuevo Grupo Iusacell, S.A. de C.V.
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delagacion Cuajimalpa
05348 Mexico, D.F., Mexico
Re: U.S. Federal Income Tax Opinion With Respect to the Exchange Offer (as
defined below)
Ladies and Gentlemen:
We have acted as U.S. federal income tax counsel for Nuevo Grupo Iusacell, S.A.
de C.V. ("New Iusacell"), a company organized under the laws of the United
Mexican States, in connection with New Iusacell's offer to exchange its senior
notes due 2006 (the "Old Notes") for its senior notes due 2006 (the "Exchange
Notes") on a one-for-one basis (the "Exchange Offer"). You have asked for our
opinion as to whether (i) the exchange of Old Notes for Exchange Notes pursuant
to the Exchange Offer will constitute a taxable exchange for U.S. federal income
tax purposes and (ii) the information in the Registration Statement, dated
February 18, 2000 (the "Registration Statement") under the heading "United
States Taxation" is correct in all material respects.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Registration Statement.
In rendering the opinions expressed herein, we have examined and relied upon,
with your consent, the Registration Statement. In addition, in rendering our
opinions expressed below, we have also examined such other documents and legal
authorities as we have deemed relevant for purposes of expressing the opinions
contained herein.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures on each original document are genuine, (iii) all
representations and statements set forth in such documents are true and correct,
and (iv) all obligations imposed by any such documents on the parties thereto
have been or will be performed or satisfied in accordance with their terms.
Our opinions are based upon the Internal Revenue Code of 1986, as amended,
existing and proposed Treasury regulations promulgated thereunder, current
administrative rulings and pronouncements of the Internal Revenue Service
("IRS"), judicial decisions and other applicable authorities in effect as of the
date hereof, all of which are subject to legislative, judicial or administrative
change or differing interpretation, possibly with retroactive effect. Our
opinions are not binding on the IRS, and no ruling with respect to any of the
issues raised by this opinion letter has been requested from
<PAGE> 2
Nuevo Grupo Iusacell, S.A. de C.V.
February , 2000 Page 2
the IRS. No assurance can be given that the opinions expressed herein will not
be challenged by the IRS or sustained by a court.
Based upon and subject to the foregoing, we are of the opinion that:
1. The exchange of Old Notes for Exchange Notes pursuant to the
Exchange Offer will not constitute a taxable exchange for U.S.
federal income tax purposes;
2. A holder of Old Notes that tenders such Old Notes pursuant to
the Exchange Offer will not recognize taxable gain or loss on
the exchange of his or her Old Notes for Exchange Notes; and
3. The information in the Registration Statement under the
heading "United States Taxation" is correct in all material
respects.
The opinions contained herein are limited to those matters expressly covered. No
opinion is to be implied with respect to any other matter. The opinion set forth
herein are as of the date hereof and we disclaim any undertaking to update this
letter or otherwise advise you as to any changes of law or fact which may
hereinafter brought to our attention. We express no opinion as to the laws of
any jurisdiction other than the United States. We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement and the reference to
this firm under the captions "Legal Matters" and "United States Taxation" in the
Registration Statement. In giving this consent, we do not concede that we are
within the category of persons whose consent is required under the Securities
Act or the rules and regulations of the Commission promulgated thereunder.
Except as set forth herein, this opinion may not be relied upon by any person or
entity other than the addressee without our prior written consent.
Very truly yours,
CLIFFORD CHANCE ROGERS & WELLS LLP
<PAGE> 1
Exhibit 12.1
Ratio of earnings to fixed charges
<TABLE>
<CAPTION>
Figures for the nine-month
Figures for the years ended December, 31 periods ended September 30,
------------------------------------------------------------- ---------------------------
(Adjusted for price-level changes and expressed in thousands
of constant pesos as of September 30, 1999
------------------------------------------------------------------------------------------
Description 1994 1995 1996 1997 1998 1998 1999
- - ----------- -------- ---------- -------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations........................... (992,463) (1,088,965) (514,243) (1,302,439) (1,432,930) (1,768,748) 619,322
Provisions for asset tax............... 45,954 41,185 49,827 59,031 70,496 38,271 111,982
---------- ---------- -------- ---------- ---------- ---------- ---------
Pretax income (loss) from continuing
operations........................... (946,509) (1,047,780) (464,416) (1,243,408) (1,362,434) (1,730,477) 731,304
Add:
Integral financing cost................ 345,920 336,488 617,944 337,802 736,042 219,020 512,574
Amortization of debt expense........... -- -- -- 8,499 14,363 10,774 13,048
Interest portion of rent expense....... 2,459 1,852 787 2,728 3,214 1,821 1,842
Equity participation in net losses of
associated companies................. -- 55,855 8,553 -- -- -- --
Amortized portion of capitalized
integral financing cost.............. 880 899 1,962 2,405 47,817 49,948 51,913
---------- ---------- -------- ---------- ---------- ---------- ---------
Adjusted earnings...................... (597,250) (652,686) 164,830 (891,974) (560,998) (1,448,914) 1,310,681
Fixed charges:
Integral financing cost (expensed
and capitalized)..................... 1,094,516 1,342,631 617,944 400,908 721,407 1,230,303 512,385
Amortization of debt expense........... -- -- -- 8,499 14,363 10,774 13,048
Interest portion of rent expense....... 2,459 1,852 787 2,728 3,214 1,821 1,842
---------- ---------- -------- ---------- ---------- ---------- ---------
Fixed charges.......................... 1,096,975 1,344,483 618,731 412,133 738,984 1,242,898 527,255
Earnings to fixed charges.............. -- -- -- -- -- -- 2.49
Fixed charges coverage deficiency...... (1,694,225) (1,997,169) (453,901) (1,304,107) (1,299,982) (2,691,812) --
</TABLE>
<PAGE> 1
Exhibit 15.1
[PRICEWATERHOUSECOOPERS LOGO]
AWARENESS LETTER
February 18, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated November 19, 1999, except with respect to the
matters discussed in Notes 7.d and 8 which is as of December 23, 1999, on our
review of interim consolidated financial information of Grupo Iusacell, S.A. de
C.V. and subsidiaries as of September 30, 1999 and 1998 and for the nine-month
periods then ended is included in this Registration Statement dated February 18,
2000.
Yours very truly,
PricewaterhouseCoopers
By: Juan Manuel Ferron Solis
<PAGE> 1
Exhibit 23.1
[PRICEWATERHOUSECOOPERS LOGO]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form F-4/S-4 of
Nuevo Grupo Iusacell S.A. de C.V. and Bell Atlantic Corporation of our reports
dated February 22, 1999, except with respect to the matters discussed in Notes
13.b, 20, 21 and 22 which is as of May 21, 1999, relating to the financial
statements and financial statement schedule of Grupo Iusacell, S.A. de C.V. and
subsidiaries, which appear in such Registration Statement. We also consent to
the references to us under the headings "Independent Accountants" and "Selected
Consolidated Financial and Operating Information" in such Registration
Statement.
PricewaterhouseCoopers
By: Juan Manuel Ferron Solis
Mexico City, D.F., Mexico
February 18, 2000
<PAGE> 1
[PRICEWATERHOUSECOOPERS LETTERHEAD] Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form F-4/S-4 of our report dated February 9, 1999 relating to the
consolidated financial statements and consolidated financial statement schedule
of Bell Atlantic Corporation, which appears in Bell Atlantic Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
February 14, 2000
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our report, dated
January 28, 1999, included in GTE Corporation's Form 10-K for the year ended
December 31, 1998, which is incorporated by reference in the Joint Proxy
Statement and Prospectus of Bell Atlantic and GTE Corporation and to all
references to our Firm included in this registration statement.
Dallas, Texas
February 9, 2000
<PAGE> 1
Exhibit 23.7
[CONSULTORES Y VALUADORES DE EMPRESAS, S.C. LETTERHEAD]
CONSENT OF APPRAISERS
We consent to the inclusion in the Registration Statement on Form F-4 of our
reports dated October 31, 1997, relating to the appraisal of the analog
telecommunications network of Grupo Iusacell, S.A. de C.V., and subsidiaries,
which appear in such Registration Statement. We also consent to the references
to our firm under the caption "Experts".
Consultores y Valuadores de Empresas, S.C.
By: Javier Arias
/s/ Javier Arias
- - -------------------------
Mexico City, D.F., Mexico
February 16, 2000
<PAGE> 1
Exhibit 24.2
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Lawrence T. Babbio, Jr.
------------------------------------
Lawrence T. Babbio, Jr.
<PAGE> 2
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 9th day of February, 2000.
/s/ Richard L. Carrion
------------------------------------
Richard L. Carrion
<PAGE> 3
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 9th day of February, 2000.
/s/ James G. Cullen
------------------------------------
James G. Cullen
<PAGE> 4
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 14th day of February, 2000.
/s/ Lodewijk J.R. de Vink
------------------------------------
Lodewijk J.R. de Vink
<PAGE> 5
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Stanley P. Goldstein
------------------------------------
Stanley P. Goldstein
<PAGE> 6
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 9th day of February, 2000.
/s/ Helene L. Kaplan
------------------------------------
Helene L. Kaplan
<PAGE> 7
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 2nd day of February, 2000.
/s/ Thomas H. Kean
------------------------------------
Thomas H. Kean
<PAGE> 8
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Elizabeth T. Kennan
------------------------------------
Elizabeth T. Kennan
<PAGE> 9
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ John F. Maypole
------------------------------------
John F. Maypole
<PAGE> 10
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 -1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Joseph Neubauer
------------------------------------
Joseph Neubauer
<PAGE> 11
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 11th day of February, 2000.
/s/ Thomas H. O'Brien
--------------------
Thomas H. O'Brien
<PAGE> 12
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 17th day of February, 2000.
/s/ Eckhard Pfeiffer
--------------------
Eckhard Pfeiffer
<PAGE> 13
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Hugh B. Price
-----------------
Hugh B. Price
<PAGE> 14
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Rozanne L. Ridgway
----------------------
Rozanne L. Ridgway
<PAGE> 15
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben
and Ivan G. Seidenberg as attorney for the undersigned for the purpose of
executing and filing such registration statement and any amendment or amendments
or other necessary documents, hereby giving to each said attorney full authority
to perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 9th day of February, 2000.
/s/ Frederic V. Salerno
-----------------------
Frederic V. Salerno
<PAGE> 16
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben
and Frederic V. Salerno as attorney for the undersigned for the purpose of
executing and filing such registration statement and any amendment or amendments
or other necessary documents, hereby giving to each said attorney full authority
to perform all acts necessary thereto as fully as the undersigned could do if
personally present, and hereby ratifying all that said attorney may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Ivan G. Seidenberg
------------------------
Ivan G. Seidenberg
<PAGE> 17
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Walter V. Shipley
---------------------
Walter V. Shipley
<PAGE> 18
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 9th day of February, 2000.
/s/ John R. Stafford
--------------------
John R. Stafford
<PAGE> 19
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Frederic V.
Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose
of executing and filing such registration statement and any amendment or
amendments or other necessary documents, hereby giving to each said attorney
full authority to perform all acts necessary thereto as fully as the undersigned
could do if personally present, and hereby ratifying all that said attorney may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 9th day of February, 2000.
/s/ Doreen A. Toben
-------------------
Doreen A. Toben
<PAGE> 20
POWER OF ATTORNEY
WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933, as amended, a
registration statement on Form S-4 registering a put option relating to
$350,000,000 aggregate principal amount of 14 1/4% Senior Notes due 2006 of
Nuevo Grupo Iusacell, S. A. de C.V.
NOW, THEREFORE, the undersigned hereby appoints each of Doreen A.
Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the
undersigned for the purpose of executing and filing such registration statement
and any amendment or amendments or other necessary documents, hereby giving to
each said attorney full authority to perform all acts necessary thereto as fully
as the undersigned could do if personally present, and hereby ratifying all that
said attorney may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 8th day of February, 2000.
/s/ Shirley Young
-----------------
Shirley Young
<PAGE> 1
- - --------------------------------------------------------------------------------
EXHIBIT 25.1
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
Nuevo Grupo Iusacell, S.A. de C.V.
(Exact name of obligor as specified in its charter)
New Iusacell Group, Inc.
(Translation of Registrant's Name into English)
Mexico Not applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Prolongacion Paseo de la Reforma 1236
Colonia Santa Fe
Delegacion Cuajimalpa
05348 Mexico, D.F., Mexico
(Address of principal executive offices) (Zip code)
<PAGE> 2
Bell Atlantic Corporation
(Exact name of obligor as specified in its charter)
Delaware 23-2259884
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1095 Avenue of the Americas
New York, New York 10036
(Address of principal executive offices) (Zip code)
-------------
14% Senior Notes due 2006
(Title of the indenture securities)
================================================================================
-2-
<PAGE> 3
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO
THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No.
33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 16th day of February, 2000.
THE BANK OF NEW YORK
By: /s/ MICHAEL CULHANE
---------------------
Name: MICHAEL CULHANE
Title: VICE PRESIDENT
-4-
<PAGE> 5
- - --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1999, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS In Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ........ $ 6,394,412
Interest-bearing balances ................................. 3,966,749
Securities:
Held-to-maturity securities ............................... 805,227
Available-for-sale securities ............................. 4,152,260
Federal funds sold and Securities purchased under
agreements to resell ...................................... 1,449,439
Loans and lease financing receivables:
Loans and leases, net of unearned
income...............37,900,739
LESS: Allowance for loan and
lease losses............572,761
LESS: Allocated transfer risk
reserve........................11,754
Loans and leases, net of unearned income,
allowance, and reserve .................................. 37,316,224
Trading Assets ............................................... 1,646,634
Premises and fixed assets (including capitalized
leases) ................................................... 678,439
Other real estate owned ...................................... 11,571
Investments in unconsolidated subsidiaries and
associated companies ...................................... 183,038
Customers' liability to this bank on acceptances
outstanding ............................................... 349,282
Intangible assets ............................................ 790,558
Other assets ................................................. 2,498,658
Total assets ................................................. $ 60,242,491
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices ....................................... $ 26,030,231
Noninterest-bearing.......................11,348,986
Interest-bearing..........................14,681,245
In foreign offices, Edge and Agreement
subsidiaries, and IBFs .................................. 18,530,950
Noninterest-bearing..........................156,624
Interest-bearing..........................18,374,326
Federal funds purchased and Securities sold under
agreements to repurchase .................................. 2,094,678
Demand notes issued to the U.S.Treasury ...................... 232,459
Trading liabilities .......................................... 2,081,462
Other borrowed money:
With remaining maturity of one year or less ............... 863,201
With remaining maturity of more than one year
through three years ..................................... 449
With remaining maturity of more than three years .......... 31,080
Bank's liability on acceptances executed and
outstanding ............................................... 351,286
Subordinated notes and debentures ............................ 1,308,000
Other liabilities ............................................ 3,055,031
Total liabilities ............................................ 54,578,827
EQUITY CAPITAL
Common stock ................................................. 1,135,284
Surplus ...................................................... 815,314
Undivided profits and capital reserves ....................... 3,759,164
Net unrealized holding gains (losses) on
available-for-sale securities ............................. (15,440)
Cumulative foreign currency translation adjustments .......... (30,658)
Total equity capital ......................................... 5,663,664
Total liabilities and equity capital ......................... $ 60,242,491
</TABLE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the
<PAGE> 7
best of my knowledge and belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni
Alan R. Griffith Directors
Gerald L. Hassell
- - --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
NUEVO GRUPO IUSACELL, S.A. DE C.V.
OFFER TO EXCHANGE ALL OUTSTANDING 14-1/4% SENIOR NOTES DUE 2006
(THE "OLD NOTES")FOR
14-1/4% SENIOR NOTES DUE 2006, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "EXCHANGE NOTES")
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 2000 OR
SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED BY THE
COMPANY (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO
THE EXPIRATION DATE.
To: THE BANK OF NEW YORK, Exchange Agent
By Hand or Overnight By Registered or Certified Mail:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286
Attn: Attn:
By Facsimile
_______________
Confirm by Telephone:
_______________
Delivery of this Letter of Transmittal to an address other than as set forth
above or trasmittion of instructions via facsimile other than as set forth above
does not constitute a valid delivery.
Please read this entire Letter of Transmittal carefully before completing any
box below.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the certificate numbers and principal amount
of Old Notes should be listed on a separate schedule affixed hereto.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Principal
Amount of
Principal Old Notes
Name(s) and Address(es) of Registered Holder(s) Certificate Amount of Tendered
(Please fill in, if blank) Number(s)* Old Note(s) (if less than
all)**
- - ------------------------------------------------------------------------------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
Total
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
*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
$1,000 and any integral multiple thereof. See Instruction 1.
1
<PAGE> 2
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated [____], 2000 (the "Prospectus"), and this Letter of
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange up to U.S. $350,000,000 aggregate principal amount
of its Exchange Notes, for a like principal amount of the Old Notes.
The undersigned has completed the appropriate boxes above and below and signed
this Letter to indicate the action the undersigned desire to take with respect
to the Exchange Offer.
This Letter is to be used either if certificates or Old Notes are to be
forwarded herewith or, if delivery of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent the Depository Trust
Company (the "Book-Entry Facility"), pursuant to procedures set forth in "The
Exchange Offer -- Procedures for Tendering" and "The Exchange Offer --
Book-Entry Transfer" in the Prospectus. Delivery of this Letter and any other
required documents should be made to the Exchange Agent. Delivery of documents
to the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 1.
|_| CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO AN 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 OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
Name of Eligible Institution that Guaranteed Delivery
If Delivered by Book-Entry Transfer:
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:_________________________________________________
2
<PAGE> 3
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
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, tittle and
interest in and 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 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
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties 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) any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act") or (ii) any broker-dealer that purchases Notes
from the Company to resell pursuant to Rule 144A under the Securities Act ("Rule
144A") or any other available exemption) 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 have no arrangement with any person to participate in
the distribution of such Exchange Notes. The undersigned acknowledges that any
holder of Old Notes using the Exchange Offer to participate in a distribution of
the Exchange Notes (i) cannot rely on the position of the staff of the SEC
enunciated in its interpretive letter with respect to Exxon Capital Holdings
Corporation (available May 13, 1988) or similar interests and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
The undersigned represents that (i) the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business (ii) such holder has no arrangements with any person to participate in
the distribution of such Exchange Notes, and (iii) such holder is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or,
if such holder is an affiliate, that such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the undersigned is a broker-dealer, the undersigned
additionally represents that the Old Notes to be exchanged were acquired for its
own account as a result of market-making activities or other trading activities.
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading, it 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
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 be
withdrawn only in accordance with the procedures set forth in the instructions
contained in this letter.
The undersigned understands that tenders of the Old Notes pursuant to any one of
the procedures described under "The Exchange Offer - Procedures for Tendering"
in the Prospectus and in the instructions hereto will constitute a binding
agreement between the undersigned and the Company in accordance with the terms
and subject to the conditions of the Exchange Offer.
3
<PAGE> 4
The undersigned recognizes that, under certain circumstances set forth in the
Prospectus under "The Exchange Offer - Conditions," the Company may not be
required to accept for exchange or withdrawn will be returned to the undersigned
at the address set forth below unless otherwise indicated under "Special
Delivery Instructions" below.
Unless otherwise indicated herein, the box entitled "Special Issuance
Instructions" below, please issue the Exchange Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned. Similarly, unless otherwise indicated under the
box entitled "Special Delivery Instructions" below, please deliver the Exchange
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Old Notes."
THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN OLD NOTES,
HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS WHOSE NAMES
APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO SUCH OLD NOTES AS OF THE
DATE OF TENDER OF SUCH OLD NOTES TO EXECUTE AND DELIVER THE LETTER OF
TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD. ACCORDINGLY, FOR PURPOSES OF
THIS LETTER OF TRANSMITTAL, THE TERM "HOLDER" SHALL BE DEEMED TO INCLUDE SUCH
BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE
AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER TO THE
EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN
SUCH BOX ABOVE.
4
<PAGE> 5
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Exchange Notes are to be issued in the
name of and sent to someone other than the person or persons 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.
Issue: Exchange Notes and/or Old Notes to:
Name(s)___________________________________________
(Please Type or Print)
__________________________________________________
(Please Type or Print)
Address___________________________________________
__________________________________________________
(Zip Code)
(Complete Accompanying Substitute Form W-9)
|_| Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set below
__________________________________________________
(Book-Entry Transfer Facility)
(Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if certificates for Exchange Notes are to be issued in the
name of and sent to someone other than the person or person(s) whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: Exchange Notes and/or Old Notes to:
Name(s)___________________________________________
(Please Type or Print)
__________________________________________________
(Please Type or Print)
Address___________________________________________
__________________________________________________
(Zip Code)
________________________________________________________________________________
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER
OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OLD NOTES AND ALL
OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
5
<PAGE> 6
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
x _________________________________________________ _____________________
x _________________________________________________ _____________________
Signature(s) of Owner(s)/ or Authorized Signatory 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:____________________________________
____________________________________________
(Include Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:_____________________
____________________________________________
(Title)
____________________________________________
(Name and Firm)
Dated:______________________________________
6
<PAGE> 7
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter and Old Notes; Guaranteed Delivery Procedures.
Except as set forth below, a holder of Old Notes who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must submit a
properly completed and duly executed copy of this Letter, including all
other documents required by this Letter to the Exchange Agent at one of
the addresses set forth above under "Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Old
Notes must be received by the Exchange Agent along with this Letter, or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date, or (iii) the holder of Old Notes
must comply with the guaranteed delivery procedures described below.
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, but the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. If such delivery is by
mail, it is recommended that registered mail properly insured, with
return receipt requested by used. In all cases, sufficient time should
be allowed to permit timely delivery.
If a holder desires to tender Old Notes and such holder's Old Notes are
not immediately available or time will not permit such holder's Letter
of Transmittal, Old Notes (or a confirmation of book-entry transfer of
Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) or other required documents to reach the Exchange Agent on or
before the Expiration Date, such holder's tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as defined
below);
(b) on or prior to the Expiration Date, the Exchange Agent has received a
telegram, facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) or letter or such
Eligible Institution setting forth the name and address of the holder
of such Old Notes and the principal amount of Old Notes tendered and
stating that the tender is being made thereby and guaranteeing that,
within three business days after the Expiration Date, a duly executed
Letter of Transmittal or facsimile thereof, together with the Old Notes
(or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility), and any
other documents required by this Letter and the instructions hereto,
will be deposited by such Eligible Institution with the Exchange Agent;
and
(c) this Letter, or a facsimile hereof, and Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility)
and all other required by the Exchange Agent within three business days
after the Expiration Date.
See "The Exchange Offer -- Procedures for Tendering," "The Exchange
Offer -- Book-Entry Transfer," and "The Exchange Offer -- Guaranteed
Delivery Procedures" in the Prospectus.
2. Withdrawals.
Any holder who has tendered Old Notes may withdraw the tender by
delivering written notices or withdrawal (which may be sent by
telegram, facsimile (receipt confirmed by the telephone and an original
delivered by guaranteed overnight courier)) to the Exchange Agent prior
to the Expiration Date. For a withdrawal to be effective, a written
notice of withdrawal sent by telegram, facsimile transmissions (receipt
confirmed by telephone) or letter must be received by the Exchange
Agent prior to the Expiration Date at
7
<PAGE> 8
its address set forth above. Any such notice of withdrawal must specify
name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the amount of such
Old Notes), and (where certificates for Old Notes have been
transmitted) specify the names in which such Old Notes are registered,
if different from that of the withdrawing holder thereof. If
certificates for Old Notes have been delivered or otherwise
unidentified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder thereof must also submit the serial
numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the
procedures of such facility. See "The Exchange Offer -- Withdrawal
Rights" in this Prospectus.
3. Signature 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.
The signatures on this Letter or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of
the 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. In the event that the
signatures in this Letter or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm
which is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc., a
clearing agency, an insured credit union, a savings association or by a
commercial bank or trust company having an office or correspondent in
the United States (collectively, "Eligible Institutions"). If Old Notes
are registered in the name of a person other than the signer of this
Letter, the Old Notes surrendered for exchange may be endorsed by, or
be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Company in its sole
discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holder of Old Notes should indicate in the applicable box the
name and address to which Exchange Notes issued pursuant to the
Exchange Offer are to be issued or sent, if different from the name or
address of the person signing this Letter. In the case of issuance in a
different name, the employer identification or social security number
of the person named must be indicated. If no such instructions are
given, any Exchange Notes will be issued in the name of, and delivered
to, the name or address of the person signing this Letter and any Old
Notes not accepted for exchange will be returned to the name or address
of the person signing this Letter.
5. Backup Withholding Tax.
Under the federal income tax laws, payments that may be made by the
Company on account of Exchange Notes issued pursuant to the Exchange
Offer may be subject to backup withholding at the rate of 31%. In order
to avoid such backup withholding, each tendering holder should complete
and sign the Substitute Form W-9 included in this Letter (or a Form W-8
as described below) and either (a) provide the correct
8
<PAGE> 9
taxpayer identification number ("TIN") and certify, under penalties of
perjury, that the TIN provided is correct and that (i) the holder has
not been notified by the Internal Revenue Service (the "IRS") that the
holder is subject to backup withholding as a result of failure to
report all interest or dividends on the holder's Federal income tax
return or (ii) the IRS has notified the holder that the holder is no
longer subject to backup withholding; or (b) provide an adequate basis
for exemption. If the tendering holder has not been issued a TIN but
has applied for one, or intends to apply for one in the near future,
such holder should write "Applied For" in the space provided for the
TIN in Part 1 of the Substitute Form W-9, sign and date the Substitute
Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part 1, the
Company (or the Paying Agent under the Indenture governing the Exchange
Notes) shall retain 31% of payments made to the tendering holder during
the sixty (60) day period following the date of the Substitute Form
W-9. If the holder furnishes the Exchange Agent or the Company with his
or her TIN within sixty (60) days after the date of the Substitute Form
W-9, the Company (or the Paying Agent) shall remit such amounts
retained during the sixty (60) day period to the holder and no further
amounts shall be retained or withheld from payments made to the holder
thereafter. If, however, the holder has not provided the Exchange Agent
or the Company with his or her TIN within such sixty (60) day period,
the Company (or the Paying Agent) shall remit such previously retained
amounts to the IRS as backup withholding. In general, if a holder is an
individual, the TIN is his or her Social Security number. If the
Exchange Agent or the Company is not provided with the correct TIN, the
holder may also be subject to a $50 penalty imposed by the IRS. Certain
holders (including, among others, all corporations and certain foreign
individuals) are not subject to the backup withholding. In order for a
foreign individual to qualify as an exempt recipient, such holder must
submit a statement (generally IRS Form W-8), signed under penalties of
perjury, attesting to that individual's exempt status. IRS Form W-8 can
be obtained from the Exchange Agent.
Failure to complete the Substitute Form W-9 (or Form W-8) will not, by
itself, cause Old Notes to be deemed invalidly tendered, but as
discussed above, may require the Company (or the Paying Agent) to
withhold 31% of the amount of any payments made on account of the
Exchange Notes.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange
Offer. If, however, Exchange Notes and/or substitute Old Notes not
exchanged are to be delivered to, or are to be registered or issued in
the name of, any person other than the registered holder of the Old
Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old
Notes to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payments such taxes or exemption therefrom
is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this
Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
9
<PAGE> 10
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by the execution of this
Letter, shall waive any right to receive notice of the acceptance of
their Old Notes for exchange.
Neither the Company nor any person obligated to give notice of defects
or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. Inadequate Space.
If the space provided herein is inadequate, the aggregate principal
amount of Old Notes being tendered and the certificate number or
numbers (if applicable) should be listed on a separate schedule
attached hereto and separately signed by all parties required to sign
this Letter.
10. Mutilated, Lost, Stolen or Destroyed Old Notes.
If any certificate has been lost, mutilated, destroyed or stolen, the
holder should promptly notify The Bank of New York, as Exchange Agent,
at the address indicated above. The holder will then be instructed as
to the steps that must be taken to replace the certificate(s). This
Letter of Transmittal and related documents cannot be processed until
the Old Notes have been replaced.
11. 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.
10
<PAGE> 11
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME:
-----------------------------
<TABLE>
<S> <C> <C>
Part I -- TAXPAYER IDENTIFICATION NUMBER
SUBSTITUTE
Form W-9
Department of the Treasury
Internal Revenue Service
ENTER YOUR TAXPAYER IDENTIFICATION NUMBER IN THE ----------------------
APPROPRIATE BOX. FOR MOST INDIVIDUALS, THIS IS YOUR Social Security Number
SOCIAL SECURITY NUMBER. IF YOU DO NOT HAVE A NUMBER,
SEE HOW TO OBTAIN A "TIN" IN THE ENCLOSED GUIDELINES.
Payor's Request for or
Taxpayer
Identification Number
and Certification
NOTE: IF THE ACCOUNT IS IN MORE THAN ONE NAME, SEE -----------------------
THE CHART ON PAGE 2 OF THE ENCLOSED GUIDELINES TO Employer Identification
DETERMINE WHAT NUMBER TO GIVE Number
</TABLE>
- - --------------------------------------------------------------------------------
Part II - For Payees Exempt From Backup Withholding
- - --------------------------------------------------------------------------------
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), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "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
SIGNATURE DATE
------------------------------ -------------------
- - --------------------------------------------------------------------------------
Certification Guidelines - You must cross out item (2) of the above
certification if you have been notified by the IRS that you are subject to
backup withholding because of underreporting of interest or dividends on your
tax return. However, if after being notified by the IRS that you were subject to
backup withholding, you received notification from the IRS that you are no
longer subject to backup withholding, do not cross out item (2).
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under the penalties or perjury, that a Taxpayer Identification Number
has not been issued to me, and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payor, 31% of all payments made
to me on account of the Exchange Notes shall be retained until I provide a
Taxpayer Identification Number to the payor and that, if I do not provide my
Taxpayer Identification Number within sixty (60) days, such retained amounts
shall be remitted to the Internal Revenue Service as backup withholding and 31
percent of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a Taxpayer
Identification Number.
Signature Date
------------------------------ -------------------
Note: Failure to complete and return this form may result in backup withholding
of 31% of any payments made to you on account of Exchange Notes.
11
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
NUEVO GRUPO IUSACELL, S.A. DE C.V.
TENDER OF 14-1/4% SENIOR NOTES DUE 2006 IN EXCHANGE
FOR
14-1/4% SENIOR NOTES DUE 2006 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
This form or one substantially equivalent hereto must be used by a holder to
accept the Exchange Offer of Nuevo Grupo Iusacell, S.A. de C.V., a Mexican
corporation (the "Company"), who wishes to tender 14-1/4% Senior Notes due 2006
(the "Old Notes") to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer -- Guaranteed Delivery Procedures"
of the Company's Prospectus, dated [ ], 2000 (the "Prospectus") and in
Instruction 1 to the related Letter of Transmittal. Any holder who wishes to
tender Old Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date (as defined below) of the Exchange Offer. Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus or
the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON [ ], 2000, OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE
OFFER MAY BE EXTENDED BY THE COMPANY (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
The Bank of New York
<TABLE>
By Mail: Telephone Number: By Hand or Overnight Delivery:
<S> <C> <C>
THE BANK OF NEW YORK --------------- THE BANK OF NEW YORK
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286
Attn: Attn:
Facsimile Number:
---------------
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY 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.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF
A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED BOX ON THE LETTER OF TRANSMITTAL
FOR GUARANTEE OF SIGNATURES.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject to
the conditions set forth in the Prospectus, receipt of which is hereby
acknowledged, the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures."
Subject to and effective upon acceptance for exchange of the Old Notes tendered
herewith, the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to, and any and all
claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Old Notes tendered hereby. In the event
of a termination of the Exchange Offer, the Old Notes tendered pursuant thereto
will be returned to the tendering Old Note holder promptly.
The undersigned hereby represents and warrants that the undersigned accepts the
terms and conditions of the Prospectus and the Letter of Transmittal, 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. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the sale, assignment and transfer of the
Old Notes tendered.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
- - --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature(s) of Registered Holder(s) Address(es):
or Authorized Signatory: ---------------------------
---------------------------------------
- - ------------------------------------
---------------------------------------
- - ------------------------------------
Name(s) of Registered Holder(s):
Area Code and Telephone No.:
- - ------------------------------------ ---------------------------------------
Principal Amount of Notes Tendered: If Old Notes will be delivered by a
book-entry transfer, check trust company:
- - ------------------------------------
The Depository Trust Company
- - ------------------------------------
Certificate No(s). of Notes
(if available):
- - ------------------------------------ Transaction Code No:
-------------------
- - ------------------------------------ Depository Account No.:
----------------
- - --------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of
Old Notes exactly as their name(s) appear(s) on the Old Notes or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, guardian, attorney-in-fact, officer of a corporation, executor,
administrator, agent or other representative, such person must provide the
following information:
Please print name(s) and address(es)
Name(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
Capacity:
-------------------------------------------------------------------
-------------------------------------------------------------------
Address(es):
-------------------------------------------------------------------
-------------------------------------------------------------------
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States
(each, an "Eligible Institution") hereby guarantees that, within three business
days from the date of this Notice of Guaranteed Delivery, a properly completed
and validly executed Letter of Transmittal (or a facsimile thereof), together
with Old Notes tendered hereby in proper form for transfer (or confirmation of
the book-entry transfer of such Old Notes into the Exchange Agent's account at a
Book-Entry Transfer Facility) and all other required documents will be deposited
by the undersigned with the Exchange Agent at one of its addresses set forth
above.
Name of Firm:
------------------------------------------------------------------
------------------------------------------------------------------
Authorized Signature
Address:
-----------------------------------------------------------------------
Name:
---------------------------------------------------------------------
---------------------------------------------------------------------
Title:
--------------------------------------------------------------------
Area Code and Telephone No.:
---------------------------------------------------
Date:
---------------------------------------------------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND VALIDLY EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
3
<PAGE> 4
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any
other documents required by this Notice of Guaranteed Delivery must be
received by the Exchange Agent at its address set forth herein prior to
the Expiration Date. The method of delivery of this Notice of
Guaranteed Delivery and any other required documents to the Exchange
Agent is at the election and sole risk of the holder, and the delivery
will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by
mail, the holders may wish to consider using an overnight or hand
delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 1 of the Letter of Transmittal.
2. Signatures of this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old
Notes referred to herein, the signature must correspond with the
name(s) written on the face of the Old Notes without alteration,
enlargement, or any change whatsoever. If this Notice of Guaranteed
Delivery is signed by a participant of the Book-Entry Transfer Facility
whose name appears on a security position listing as the owner of the
Old Notes, the signature must correspond with the name shown on the
security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of
the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery
must be accompanied by appropriate bond powers, signed as the name of
the registered holder(s) appears on the Old Notes or signed as the name
of the participant shown on the Book-Entry Transfer Facility's security
position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian attorney-in-fact officer of a corporation, or
other person acting in a fiduciary or representative capacity, such
person should so indicate when signing and submit with the Letter of
Transmittal evidence satisfactory to the Company of such person's
authority to so act.
3. Requests for assistance or additional copies, questions and requests
for assistance and requests for additional copies of the Prospectus may
be directed to the Exchange Agent at the address specified in the
Prospectus. Holders may also contact their broker, dealer, commercial
bank, trust company, or other nominee for assistance concerning the
Exchange Offer.
4
<PAGE> 1
EXHIBIT 99.3
NUEVO GRUPO IUSACELL, S.A. DE C.V.
OFFER TO EXCHANGE ALL OUTSTANDING 14-1/4% SENIOR NOTES DUE 2006
FOR
14-1/4% SENIOR NOTES DUE 2004 WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
_______________________2000 OR SUCH LATER DATE AND TIME TO WHICH THE OFFER MAY
BE EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
To: Brokers, Dealer, Commercial Banks
Trust Companies and Other Nominees _________, 2000
Nuevo Grupo Iusacell, S.A. de C.V., a Mexican company (the "Company"), is
offering, upon the terms and subject to the conditions set forth in the
Prospectus, dated __________, 2000 (the "Prospectus") and in the enclosed Letter
of Transmittal (the "Letter of Transmittal") (which together will constitute the
"Exchange Offer"), to exchange an aggregate principal amount of U.S.$350,000,000
of its 14-1/4% Senior Notes due 2006 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus constitutes a part,
for a like principal amount of its 14-1/4% Senior Notes due 2006 (the "Old
Notes") outstanding on the date hereof. The Exchange Notes and Old Notes are
collectively hereinafter referred to as the "Notes." The Exchange Offer is being
made in order to satisfy certain obligations of the company contained in the
Exchange and Registration Rights Agreement dated December 16, 1999 by and among
the Company, Bell Atlantic Corporation, Grupo Iusacell, S.A. de C.V. and Chase
Securities, Inc. and Salomon Smith Barney, Inc. as representatives of the
initial purchasers referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated ___________, 2000;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available
or time will not permit all required documents to reach The Bank
of New York, as Exchange Agent, prior to the Expiration Date or
if the procedure for book-entry transfer cannot be completed on a
timely basis;
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of
your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to the Exchange Agent for the Old
Notes.
<PAGE> 2
YOUR PROMPT ACTION IS REQUESTED.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instruction set forth in the Letter
of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer - Procedures for Tendering" and "The
Exchange Offer - Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial banks and
trust companies for reasonable and necessary costs and expenses incurred by them
in forwarding the Prospectus and the related documents to the beneficial owners
of Old Notes held by them as nominee or in a fiduciary capacity. The Company
will pay or cause to be paid all stock transfer taxes applicable to the exchange
of Old Notes pursuant to the Exchange Offer, except as set forth in Instruction
6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests for
additional copies of the enclosed materials, should be directed to The Bank of
New York, the Exchange Agent for the Old Notes, at its address and telephone
number set forth on the front of the Letter of Transmittal.
Yours very truly,
NUEVO GRUPO IUSACELL, S.A. DE C.V.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM
WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
<PAGE> 1
EXHIBIT 99.4
NUEVO GRUPO IUSACELL, S.A. DE C.V.
OFFER TO EXCHANGE ALL OUTSTANDING 14-1/4% SENIOR NOTES DUE 2006
FOR
14-1/4% SENIOR NOTES DUE 2006 WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
- - -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON ________, 2000
UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). TENDER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
- - -------------------------------------------------------------------------------
To our Clients:
Enclosed for your consideration is a Prospectus dated , 2000 (the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal") relating to the offer (the "Exchange Offer") of Nuevo Grupo
Iusacell, S.A. de C.V. (the "Company") to exchange its 14-1/4% Senior Notes Due
2006, which have been registered under the Securities Act of 1933, as amended
(the "Exchange Notes"), for all of its outstanding 14-1/4% Senior Notes Due 2006
(the "Old Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the Exchange
and Registration Rights Agreement dated December 16, 1999 by and among the
Company, Bell Atlantic Corporation, Grupo Iusacell, S.A. de C.V. and Chase
Securities, Inc. and Salomon Smith Barney, Inc., as representatives of the
initial purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old Notes
carried by us for your account but not registered in your name. A tender of such
Old Notes may only be made by us as the holder of record and pursuant to your
instructions.
Accordingly, we request instructions as to whether you wish us to tender on your
behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order to
permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer.
1. The Exchange Offer is for any and all Old Notes.
2. You will receive one Exchange Note for each Old Note that you
tender.
3. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer -
Conditions."
4. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as
otherwise provided in the instructions in the Letter of
Transmittal.
5. The Exchange Offer expires at 5:00 p.m., New York City time, on
______, 2000, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for your information
only and may not be used directly by you to tender Old Notes.
<PAGE> 2
INSTRUCTION WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed materials
referred to therein relating to the Exchange Offer made by Nuevo Grupo Iusacell,
S.A. de C.V. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account of
the undersigned, upon and subject to the terms and conditions set forth in the
Prospectus and the Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
Aggregate Principal Amount of Old Notes
<S> <C>
14-1/4% Senior Notes Due 2006...................
/ / Please do not tender any Old Notes ----------------------------------------------------
held by you for my account
Dated: , 2000
-------------------------- ----------------------------------------------------
----------------------------------------------------
Signature(s)
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
Please print name(s) here
----------------------------------------------------
----------------------------------------------------
Address(es)
----------------------------------------------------
Area Code and Telephone Number
----------------------------------------------------
Tax Identification or Social Security No(s.)
</TABLE>
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
