As filed with the Securities and Exchange Commission on October 29, 1997
Registration No. 333-37431
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment No. 1
To
FORM F-4/S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------------
GRUPO IUSACELL, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
IUSACELL GROUP, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Vice President Mergers & Acquisitions Sara P. Hanks, Esq.
and Foreign Law Rogers & Wells
Grupo Iusacell, S.A. de C.V. 200 Park Avenue
c/o CT Corporation System New York, New York 10166
1633 Broadway (212) 878-8000
New York, New York 10019
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
----------------------
Approximate date of commencement of proposed exchange 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 a Rule 415 under the Securities Act of
1933, please check the following box. |_|
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Note(1) Aggregate Offering Price(2) Registration Fee(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
10% Series B Senior Notes due 2004 U.S.$150,000,000 100% U.S.$150,000,000 U.S.$45,455
====================================================================================================================================
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2) under the Securities Act.
(2) Determined solely for the purposes of calculating the registration fee in
accordance with Rule 457 promulgated under the Securities Act.
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission
(the "SEC"), acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
SOS TELECOMUNICACIONES, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
SOS TELECOMMUNICATIONS, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
SOS Telecomunicaciones, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
IUSACELL, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
IUSACELL, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Iusacell, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
SISTECEL, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
SISTECEL, INC
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7363
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Sistecel, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
COMUNICACIONES CELULARES DE OCCIDENTE, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
CELLULAR COMMUNICATIONS OF THE WEST, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Comunicaciones Celulares de Occidente, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
TELECOMUNICACIONES DEL GOLFO, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
GULF TELECOMMUNICATIONS, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Telecomunicaciones del Golfo, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
SISTEMAS TELEFONICOS PORTATILES CELULARES, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
PORTABLE CELLULAR TELEPHONE SYSTEMS, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Colonia Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
INMOBILIARIA MONTES URALES 460, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
MONTES URALES 460 REAL ESTATE, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6531
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Inmobiliaria Montes Urales, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
================================================================================
IUSANET, S.A. DE C.V.
(Exact Name of Registrant as Specified in Its Charter)
IUSANET, INC.
(Translation of Registrant's Name Into English)
United Mexican States Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7374
(Primary Standard Industrial
Classification Code Number)
Montes Urales 460
Lomas de Chapultepec
Delegacion Miguel Hidalgo
Mexico, D.F. 11000 Mexico
(525) 104-4100
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Iusanet, S.A. de C.V. Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
MEXICAN CELLULAR INVESTMENTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
N/A
(Translation of Registrant's Name Into English)
United States of America 58-1871277
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4812
(Primary Standard Industrial
Classification Code Number)
CSC - Atlanta
100 Peachtree Street
Atlanta, GA 30303
(404) 589-9479
(Address and Telephone Number of Registrant's Principal Executive Offices)
----------------------
Ruben G. Perlmutter With a copy to:
Director Sara P. Hanks, Esq.
Mexican Cellular Investments Rogers & Wells
c/o CT Corporation System 200 Park Avenue
1633 Broadway New York, New York 10166
New York, New York 10019 (212) 878-8000
(212) 479-8220
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service of Process)
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED [ ], 1997
PRELIMINARY PROSPECTUS
Offer to Exchange all Outstanding 10% Senior Notes Due 2004
for 10% Series B Senior Notes Due 2004
of
Grupo Iusacell, S.A. de C.V.
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on [ ], 1997 (as such date may be extended, the "Expiration
Date")
--------------------
Grupo Iusacell, S.A. de C.V. ("Iusacell" or the "Company"), a limited
liability company with variable capital (sociedad anonima de capital variable)
organized under the laws of the United Mexican States ("Mexico"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal (which together will constitute the
"Exchange Offer"), to exchange (i) up to U.S.$150.0 million aggregate principal
amount of its 10% Series B Senior Notes due 2004 (the "New Notes") for a like
principal amount of its 10% Senior Notes due 2004 outstanding on the date hereof
(the "Old Notes" and, together with the New Notes, the "Notes"). The New Notes
have been registered under the Securities Act of 1933, as amended (the
"Securities Act") pursuant to a Registration Statement (as defined herein) of
which this Prospectus forms a part. The terms of the New Notes are identical in
all material respects to those of the Old Notes except for (i) certain transfer
restrictions and registration rights relating to the Old Notes and (ii) certain
provisions of the Old Notes that would require an increase in their interest
rates were the Old Notes not exchanged for New Notes, or otherwise registered
pursuant to the Securities Act, within specified periods.
Principal of the New Notes will be due on July 15, 2004. Interest will
accrue on the New Notes from the last date to which interest was paid on the Old
Notes or, if no interest has been paid thereon, from their date of issue (July
25, 1997) and will be payable semi-annually in cash in arrears on January 15 and
July 15 of each year, commencing January 15, 1998. The New Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after July
15, 2001 and prior to maturity, at the redemption prices indicated herein, plus
accrued interest, if any, to the redemption date. In addition, at any time and
from time to time prior to July 15, 2000, the Company may 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 (as defined), at a redemption
price of 110% 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. In the event of certain changes affecting Mexican taxation of the
New Notes, the New Notes will also be redeemable at any time in whole, but not
in part, at the option of the Company at 100% of the principal amount thereof,
plus any accrued interest to the redemption date. The New Notes will not be
subject to any sinking fund requirement. In addition, in the event of a Change
in Control (as defined herein), holders of the New Notes shall have the right to
require the Company to purchase all or a portion of such holder's New Notes at a
repurchase price equal to 101% of their principal amount, plus accrued and
unpaid interest, if any, to the date of repurchase. There can be no assurance
that the Company will have the financial resources necessary to repurchase the
New Notes in such circumstances. See "Description of Notes".
The New Notes will be unsecured, senior obligations of the Company ranking
pari passu in right of payment with all other existing and future senior
obligations of the Company and will rank senior to all other existing and future
subordinated indebtedness of the Company. The New Notes will be unconditionally
guaranteed on an unsecured, senior subordinated basis by certain subsidiaries of
the Company (the "Subsidiary Guarantors"). However, the New Notes and the
Subsidiary Guarantees (as defined) will be effectively subordinated to any
secured indebtedness of the Company and its subsidiaries to the extent of the
value of the assets securing such secured indebtedness. In addition, the
Subsidiary Guarantors will guarantee the Credit Facility (as defined), and the
Subsidiary Guarantees will be subordinated to such guarantee obligations under
the Credit Facility. The New Notes also will be effectively subordinated to
obligations of subsidiaries of the Company which are not Subsidiary Guarantors.
The Subsidiary Guarantees could also be effectively subordinated to all the
obligations of the Subsidiary Guarantors under certain circumstances. As of
March 31, 1997, after giving effect to the Financing (as defined) and the
application of the proceeds thereof, the Company and the Subsidiary Guarantors
had approximately Ps. 2,183.0 million (U.S.$275.3 million) of senior obligations
outstanding, of which Ps. 991.3 million (U.S.$125.0 million) was secured,
assuming no amounts were outstanding under the U.S.$100.0 million senior secured
Revolving Credit Facility (as defined). As of March 31, 1997, after giving
effect to the Financing and the application of the proceeds thereof,
subsidiaries of the Company which are not Subsidiary Guarantors had total
balance sheet liabilities (including trade payables and accrued liabilities but
excluding intercompany payables) of approximately Ps. 64.4 million (U.S.$8.1
million). See "Risk Factors-Asset Encumbrance; Subordination of Subsidiary
Guarantees," "-Holding Company Structure," "-Possible Limitations on
Enforceability of Guarantees" and "Description of Notes-Ranking."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a
<PAGE>
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company and the
Subsidiary Guarantors have agreed that, for a period of 90 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".
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF RISK FACTORS THAT
HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is [______], 1997.
<PAGE>
The Company will not receive any proceeds from the Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution". The Company will pay all the expenses
incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date (as defined) for
the Exchange Offer. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Old Notes with respect to the Exchange Offer,
the Company will promptly return such Old Notes to the holder thereof. See "The
Exchange Offer".
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under an Exchange and Registration Rights Agreement
dated July 15, 1997 (the "Exchange and Registration Rights Agreement") entered
into among the Company, the Subsidiary Guarantors and Chase Securities Inc. and
Salomon Brothers Inc as representatives for the initial purchasers of the Old
Notes ("Initial Purchasers"). The Old Notes were issued in a separate offering
(the "Offering") in reliance upon, and subsequently resold by the Initial
Purchasers thereof pursuant to, exemptions from the registration provisions of
the Securities Act (including those provided by Section 4(2) thereof, and Rule
144A and Regulation S promulgated thereunder). The net proceeds of the Offering,
together with borrowings under the Credit Facility, were used to repay existing
debt equal to U.S.$210.8 million, of which U.S.$65.4 million repaid an existing
debt to The Chase Manhattan Bank, an affiliate of Chase Securities, Inc., and to
fund capital expenditures. See "Use of Proceeds".
The Company is making the Exchange Offer in reliance on the position of
the staff of the Securities and Exchange Commission (the "Commission") as set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Based upon these interpretations by the staff of the Commission, the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
a holder thereof, other than (i) a broker-dealer who purchased such Old Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" (as
defined in Rule 405 of the Securities Act) of the Company without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes. Holders of Old Notes accepting an Exchange Offer will
represent to the Company in the Letter of Transmittal that such conditions have
been met. Any holder who participates in the Exchange Offer for the purpose of
participating in a distribution of the New Notes may not rely on the position of
the staff of the Commission as set forth in these no-action letters and would
have to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction.
Each broker-dealer (other than an "affiliate" of the Company) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes as a result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution". Any broker-dealer who is an affiliate of the Company may not rely
on such no-action letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. See "The Exchange Offer".
The New Notes are new securities for which there is currently no market.
The Company presently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ"). Chase Securities Inc.
and Salomon Brothers Inc have advised the Company that, following completion of
the Exchange Offer, they presently intend
i
<PAGE>
to make a market in the New Notes. However, Chase Securities Inc. and Salomon
Brothers Inc are not obligated to do so and any market-making activities with
respect to the New Notes may be discontinued at any time without notice. Chase
Securities Inc. and Salomon Brothers Inc may act as principal or agent in such
transactions. There can be no assurance that an active market for the New Notes
will develop.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the Indenture (as defined
herein). Following consummation of the Exchange Offer, the holders of Old Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders to provide for
the registration under the Securities Act of the Old Notes held by them. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. It is
not expected that an active market for the Old Notes will develop while they are
subject to restrictions on transfer.
The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange Offer expires, which will be [ ], 1997 (the "Expiration
Date"), unless the Exchange Offer is extended (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended). Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date, unless previously
accepted for exchange by the Company. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain conditions which may be waived by the
Company and to the terms and provisions of the Registration Rights Agreement.
Old Notes may be tendered only in denominations of U.S.$1,000 and integral
multiples thereof. See "The Exchange Offer--Solicitation of Tenders; Fees and
Expenses". The New Notes will bear interest from the last interest payment date
of the Old Notes to occur prior to the issue date of the New Notes or, if no
such interest has been paid, from the issue date of the Old Notes (July 25,
1997). Holders of the Old Notes whose Old Notes are accepted for exchange will
not receive interest on such Old Notes for any period subsequent to the last
interest payment date to occur prior to the issue date of the New Notes, if any,
and will be deemed to have waived the right to receive any interest payment on
the Old Notes accrued from such interest payment date or, if no such interest
has been paid, from the issue date of the Old Notes.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of [ ], 1997.
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY AND ITS
SUBSIDIARIES OR ANY INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES
SINCE SUCH DATE.
THE DISTRIBUTION OF THIS PROSPECTUS AND THE OFFER, SALE AND DELIVERY OF
THE NOTES IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW. NO ACTION HAS BEEN
OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY THAT WOULD PERMIT A PUBLIC
OFFERING OF THE NOTES OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY
JURISDICTION OUTSIDE THE UNITED STATES WHERE ACTION FOR THAT PURPOSE IS
REQUIRED. SEE "PLAN OF DISTRIBUTION" FOR A DESCRIPTION OF CERTAIN RESTRICTIONS
ON OFFERS, SALES
ii
<PAGE>
AND DELIVERIES OF THE NEW NOTES AND ON THE DISTRIBUTION OF THIS PROSPECTUS AND
OTHER OFFERING MATERIALS.
iii
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act
applicable to foreign private issuers and in accordance therewith files reports,
including reports on Form 20-F, and other information with the Commission.
Reports and other information filed by the Company 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 Offices 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. Such material may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov). Such reports and other information may also be inspected
at the office of the New York Stock Exchange, 11 Wall Street, New York, New York
10005. As a foreign private issuer, the Company is exempt from certain
provisions of the Exchange Act prescribing the furnishing and content of proxy
statements. For so long as any of the Notes remain outstanding and the Company
is no longer a reporting Company under the Exchange Act, the Company has agreed
to make available to any prospective purchaser of the Notes or beneficial owner
of the Notes the information required by Rule 144A(d)(4) under the Securities
Act, unless the Company is exempt from reporting pursuant to Rule 12g3-2(b)
under the Exchange Act. Any request for the agreements summarized herein should
be directed to the Vice President of Investor Relations, care of Grupo Iusacell,
S.A. de C.V., Montes Urales 460, 3rd Floor, Col. Lomas de Chapultepec, Deleg.
Miguel Hidalgo, C.P. 11000, Mexico, D.F. (telephone 011-525-104-4100).
Iusacell will file with the Trustee and provide holders of the Notes with
copies of all reports required to be filed by the Company with the Commission
under the Exchange Act, including annual reports in English, which will include
a review of operations and annual audited financial statements prepared in
conformity with Mexican GAAP, together with a reconciliation of net income and
total shareholders' equity to U.S. GAAP. See "Description of Notes-Certain
Covenants-Provision of Financial Information."
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
Iusacell has been advised by De Ovando y Martinez del Campo, S.C., special
Mexican counsel to Iusacell, that no treaty exists between the United States and
Mexico for the reciprocal enforcement of foreign judgments. Mexican courts have
enforced judgments rendered in the United States by virtue of the legal
principles of reciprocity and comity, consisting of the review in Mexico of the
United States judgment in order to ascertain whether certain basic principles of
due process and public policy have been complied with without reviewing the
merits of the subject matter of the case. Nevertheless, Iusacell has been
advised by De Ovando y Martinez del Campo, S.C. that there is doubt as to the
enforceability, in original actions in Mexican courts, of liabilities predicated
solely on the United States federal securities laws and as to the enforceability
in Mexican courts of judgments of United States courts obtained in actions
predicated upon the civil liability provisions of the United States federal
securities laws.
Iusacell is a variable capital corporation (sociedad anonima de capital
variable) organized under the laws of Mexico. A majority of the directors and
officers of the Company and certain experts named herein reside outside the
United States (principally in Mexico). All or a substantial portion of the
assets of these 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
within the United States upon such persons or Iusacell or to enforce against
them in the United States judgments obtained in United States courts predicated
upon the civil liability provisions of the federal securities laws or other laws
of the United States.
The Company has appointed CT Corporation System, New York, New York, as
its agent to receive service of process with respect to any actions arising out
of or relating to the New Notes or the Indenture (as defined herein) and has
submitted to the jurisdiction of the U.S. federal and state courts sitting in
New York City in respect of such actions.
Unless stated otherwise, references herein to "Pesos" or "Ps. " are to
Mexican Pesos, and references to "U.S. dollars," "$" or "U.S.$" are to United
States dollars. Iusacell publishes its financial statements in Pesos.
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Pursuant to Mexican GAAP (as defined), financial data for all periods in the
financial statements included herein, unless otherwise indicated elsewhere
herein, have been restated in constant March 31, 1997 Pesos. Restatement into
constant March 31, 1997 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 March 31, 1997. The inflation index
used in this Prospectus for 1992 figures is 2.3754, for 1993 figures is 2.1993,
for 1994 figures is 2.0544, for 1995 figures is 1.3519, for December 31, 1996
figures is 1.0586 and for March 31, 1996 figures is 1.2477. All references in
this Prospectus to the prices and rates for the Company's services and products
are, however, stated in nominal Pesos. Unless otherwise indicated, U.S. dollar
amounts have been translated from Pesos at an exchange rate of Ps. 7.9300 per
U.S. dollar, the exchange rate at March 31, 1997 reported by the Federal Reserve
Bank of New York as its noon buying rate for Pesos (the "Noon Buying Rate"). On
October 2, 1997, the Noon Buying Rate was Ps. 7.7575 per U.S. dollar. Certain
amounts set forth herein may be slightly inconsistent due to rounding.
The Company's principal executive offices are located at Montes Urales
460, Lomas de Chapultepec, Delegacion Miguel Hidalgo, C.P. 11000, Mexico, D.F.,
Mexico; and its telephone number is 525-104-4100.
------------
The Company has been authorized by the Comision Nacional Bancaria y de
Valores (the "CNBV") to register the New Notes in the Special Section of the
Registro Nacional de Valores e Intermediarios (the "RNVI" or the "National
Registry of Securities and Intermediaries") maintained by the CNBV. Registration
of the Notes in the RNVI does not imply any certification as to the investment
quality of the Notes, the solvency of the Company or the accuracy or
completeness of the information contained herein. The Notes may not be offered
publicly in Mexico. This Prospectus may not be publicly distributed in Mexico.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Certain terms used herein are defined either in the Glossary of
Certain Telecommunications Terms which begins on page A-1 of this Prospectus or
elsewhere in this Prospectus. All financial data have been restated in constant
March 31, 1997 Pesos, except as otherwise indicated. References to "Bell
Atlantic" in this Prospectus shall mean Bell Atlantic Corporation or one or more
of its subsidiaries, as the context may require.
Overview
Grupo Iusacell, S.A. de C.V. ("Iusacell" or the "Company") is the largest
non-wireline cellular telecommunications company in Mexico, owning and operating
the non-wireline cellular concessions in four contiguous regions in 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 65.1 million POPs or 70% of Mexico's
population. The Company had a total of 250,727 cellular subscribers at March 31,
1997, and an average monthly cellular revenue per subscriber during the three
months ended March 31, 1997 of Ps. 469 (approximately U.S.$59). In addition to
its core cellular services, the Company also provides a wide range of other
telecommunications services, including paging, long distance, local telephony
and data transmission.
In February 1997, Bell Atlantic, a diversified telecommunications company,
assumed control of the Board of Directors and management of Iusacell. Bell
Atlantic has invested approximately U.S.$1.1 billion since 1993 for its 42.1%
economic interest in the Company. Prior to 1997, Bell Atlantic participated
substantially in the financial and technological operations of the Company. In
February 1997, Bell Atlantic appointed a new Iusacell management team, which has
assumed control of Iusacell's operations, including marketing, distribution and
customer service, and has developed, and is in the process of implementing, a
comprehensive operating and strategic plan.
The new management team at Iusacell is able to draw extensively upon Bell
Atlantic's expertise in the development and implementation of the Company's new
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. The Company's Chief
Operating Officer was formerly the Chief Financial Officer of Iusacell and has
29 years of experience with Bell Atlantic in a variety of operating and
financial roles. Iusacell's current Chief Financial Officer has 13 years of
experience with Bell Atlantic. In June 1997, the Company appointed as its
Director General a Mexican citizen with extensive experience in multinational
operations, who most recently had been president of the Mexican cellular company
which operates the non-wireline cellular concessions in two contiguous northern
regions in which Iusacell does not currently have cellular operations. The new
management team is supported by other personnel from Bell Atlantic.
Competitive Strengths
Large Subscriber Base. Iusacell has built a base of 250,727 cellular
subscribers at March 31, 1997, including both "contract" and "prepay"
subscribers. Approximately 65% of that cellular subscriber base consists of
customers who purchase cellular services pursuant to fixed-term contracts with
the Company. The Company believes that these 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 and *911. Customers who purchase cellular services
in advance through prepay calling cards represent the remaining 35% of
Iusacell's cellular customers. The prepay subscribers are attractive to the
Company due to their higher average per minute airtime charges, lower
acquisition costs and the absence of billing costs, credit concerns and
collection risk. The Company's large customer base allows Iusacell to cross-sell
its services to over a quarter of a million existing customers through a
"one-stop-shopping" approach.
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Proven Bell Atlantic Expertise. Iusacell has begun the implementation of a
broad strategic and operating plan modelled upon Bell Atlantic's wireless
success in the United States and Europe. Bell Atlantic is one of the largest
cellular operators in the United States, serving approximately 5.0 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.D. in the Czech Republic,
Eurotel Bratislava S.R.D. in the Slovak Republic, STET Hellas in Greece and
Excelcomindo in Indonesia. Iusacell believes that Bell Atlantic's extensive
experience in the development and implementation of marketing programs designed
to promote substantial subscriber growth will provide the Company with a
significant competitive advantage in the Mexican cellular market.
Significant Brand Equity. The Company believes that its call quality,
customer care and accurate billing contribute to its strong, favorable brand
awareness. Recent independent market research shows that the Company's contract
customers are very satisfied with the overall services they are receiving. In
order to maximize brand equity, management has consolidated its brand names
under the single, well-recognized IUSACELL brand name.
Established Technological Platform. Iusacell has an existing integrated
network infrastructure that serves as the backbone for its core cellular
business and provides a platform for bundled product offerings, such as paging,
long distance and other telecommunications services. With the benefit of Bell
Atlantic's expertise, the Company has invested in digital switching systems,
dedicated microwave links, cell sites and other network infrastructure. The
Company has a network of five cellular switches, 236 cell sites and 42
repeaters, which covers approximately 70% of the Company's total POPs. The
Company believes that its network provides an excellent platform for
technological innovations such as a CDMA overlay which the Company plans to
begin implementing in the first quarter of 1998.
Comprehensive Geographic Coverage. The four contiguous regions in which
the Company provides cellular service are among the most attractive cellular
markets in Mexico based upon total POPs and demographic characteristics. The
regions of Mexico covered by Iusacell's concessions include Mexico City, the
nation's economic and political capital, and other parts of the country with
high concentrations of industry, tourism and agriculture. The Company's
geographic footprint covers 65.1 million POPs, with total Covered POPs of 46.1
million.
Experienced Management Team. The four senior members of the new management
team appointed by Bell Atlantic have an aggregate of 62 years of experience in
the telecommunications industry. Individually, the Company'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 Bell Atlantic telecommunications
executives and consultants.
Business Strategy
Iusacell's new management team has developed, and is in the process of
implementing, a comprehensive operating and strategic plan primarily focused on
increasing Iusacell's subscriber base, subscriber usage, revenues and
profitability in its core wireless businesses. This strategic plan incorporates
the following key elements:
New Product Offerings and Salesforce Incentives. Iusacell has introduced
new product and pricing packages targeted both at high-usage contract customers,
who favor value-added products, and at low-usage prepay customers. The Company
considers its contract customers to be particularly receptive to bundled product
offerings that include paging, long distance and other telecommunications
services. In addition, the Company is considering marketing its cellular
services to users who typically place calls from within a single region
("limited zone" customers). In May 1997, the Company's salesforce compensation
plan was overhauled to be largely performance based and to reward the sales of
value-added products as well as any migration of qualified prepay customers to
contract plans.
Enhanced Distribution. Iusacell has developed a plan to improve the
distribution of its products based upon the Bell Atlantic model which emphasizes
consistent, standardized merchandising through a well-balanced mix of
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company-owned stores and independent distributors conveniently located
throughout the Company's operating regions. By the end of 1999, the Company
intends to have significantly increased the number of Iusacell-owned and
operated customer service centers, incorporating a new, uniform store design. In
1997, in addition to opening a number of customer service centers with the new
store design, the Company plans to refurbish its existing 57 Iusacell-owned and
operated customer service centers. In March 1997, Iusacell signed a contract
with Precel, S.A. de C.V. ("Precel"), formerly one of the largest distributors
for the Company's competitor, adding 75 locations, thereby increasing Iusacell's
total points of sale in Mexico City by over 40% and reducing the competition's
distribution presence. Iusacell plans to enter into agreements with other
distributors to further increase its points of sale.
Digital Network and Expanded Footprint. The Company plans to launch a
fully digital CDMA network in order to upgrade its existing integrated network
infrastructure. The overlay will begin in Region 9 in the first quarter of 1998,
with the overlay in the remaining regions to be launched by mid-1999. Iusacell
believes that it will be the first cellular operator in Mexico with a commercial
launch of a digital network. The Company believes that, based on its and Bell
Atlantic's evaluation of both CDMA and TDMA technologies, CDMA technology is
superior to TDMA. As part of its strategy to improve customer satisfaction, the
Company plans to augment capacity by adding a total of 61 new cell sites in
1997. In addition, the Company plans to expand its geographic coverage into
northern Mexico by acquiring or forming strategic alliances with cellular
concession holders or by acquiring PCS licenses in the 1.9 GHz frequency band.
Revitalized Customer Service. Iusacell's marketing strategy emphasizes
proactive and timely customer service. The Company utilizes welcome packages,
customer satisfaction calls, Executive Blue Chip programs for corporate
customers and customized billing to communicate its commitment to its customers.
In addition, Iusacell's customer service centers offer "one-stop-shopping" for
cellular, paging, long distance, local telephony and data transmission services
as a convenience to its customers. Iusacell continues to focus on reducing its
fraud rate, as evidenced by its plan to deploy CDMA technology with its proven
encryption benefits. The Company is considering other fraud prevention measures,
including the introduction of authenticated handsets and fingerprinting for
analog signals, the investigation of cloning activities and restrictions on
international long distance dialing. Iusacell is also installing a new prepay
operating system which is expected to improve customer satisfaction through
automated card activation and account information, provide voice messaging and
other value-added services, and lower the cost of support for prepay services.
Realignment of Organizational Structure. Iusacell has consolidated its
business divisions in order to increase operating efficiencies, to facilitate
cross-marketing of services and to reduce duplicative costs. Overall headcount
was reduced by approximately 10% in April 1997 with the elimination of over 230
positions not directly associated with sales and distribution. Furthermore, the
Company has signed a long-term lease in Mexico City that will consolidate
corporate activities previously conducted at five separate locations.
Redesigned Brand Image and Promotional Campaigns. Iusacell recently
launched its newly designed brand logo and product packages with a new
advertising campaign targeted at higher usage customers. For the first time, all
product offerings will be marketed under the single, well-recognized IUSACELL
brand name. As a result, the Company expects to increase brand awareness and
customer loyalty, thereby increasing usage in its addressable market.
Local Telephony Service Offerings. Iusacell has historically provided
local telephony in Mexico on a limited basis through a mobile nationwide IMTS
radiotelephony network and through both rural and public cellularbased telephony
programs. The Company also has approximately 18,000 customers who participate in
a trial of local wireless service in the 450 MHz frequency band, which the
Company began in 1994. The Company plans to expand its 450 MHz service or pursue
other alternatives for the provision of local telephony on a larger scale,
including limited zone product offerings in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands using digital technology that permits mobility.
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Strategic Price Increases for Cellular Service. Since April 1997, Iusacell
has announced a weighted average increase of 15% for the per minute airtime
price on its contract and prepay plans and has announced a weighted average
increase of 8.3% for the fixed monthly charge on its contract plans. The Company
intends to implement future price increases to the extent economic and
competitive conditions permit. For a discussion of the Company's experiences
with the recent price increases, see "-Recent Developments."
The Telecommunications Industry in Mexico
Underserved Telephony Market. The Company believes that there is
substantial unmet demand for telephone service in Mexico as demonstrated by the
relatively low level of wireline and cellular penetration and the long customer
wait for landline service. According to the International Telecommunications
Union ("ITU"), an agency of the United Nations, as of December 31, 1995 there
were approximately 9.6 lines per 100 inhabitants in Mexico, which is lower than
the teledensity rates in certain other Latin American countries and
substantially lower than those in developed countries such as the United States.
The ITU forecasts that Mexican teledensity will reach 14.6 lines per 100
inhabitants by the end of the year 2000.
Expected Recovery in Consumer Spending. The Company expects consumer
spending to recover following the recent economic crisis in Mexico. According to
forecasts by WEFA, GDP growth is expected to be 5.4% and 6.4% in 1997 and 1998,
respectively. With GDP per capita expected to increase by an average of 4.0%
during this period based on an annual population growth rate of 1.8% (as
forecasted by WEFA), the Company anticipates increased demand for its services.
Changing Competitive Dynamics. The Company's cellular competitor is Radio
Movil DIPSA, S.A. de C.V. ("Telcel"), a wholly owned subsidiary of Telefonos de
Mexico, S.A. de C.V. ("Telmex"), which holds the wireline cellular concessions
in all nine regions of Mexico. The Company believes that Telmex faces increasing
competition, especially in the long distance market, which was fully opened to
competition in January 1997. Telmex's major long distance competitors include
two joint ventures in which AT&T Corp. ("AT&T") and MCI Communications
Corporation ("MCI") are the strategic partners.
In late 1995, the Company brought a suit charging Telmex with unlawfully
cross-subsidizing Telcel's cellular phone operations. The Company believes that
the increased competition in the long distance market is hindering Telmex's
ability to continue to cross-subsidize Telcel.
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The Financing
In conjunction with the Offering of the Old Notes, the Company obtained a
commitment from The Chase Manhattan Bank ("Chase") to provide (i) a U.S.$125.0
million five-year senior secured term loan facility (the "Term Facility") and
(ii) a U.S.$100.0 million five-year senior secured revolving credit facility
(the "Revolving Credit Facility" and, together with the Term Facility, the
"Credit Facility"). In addition, the Company obtained a commitment from Bell
Atlantic to provide up to U.S.$150.0 million in subordinated convertible debt
financing (the "Bell Atlantic Facility"). For a discussion of the availability,
terms and conditions of the Bell Atlantic Facility, see "Certain
Transactions-Bell Atlantic Facility."
The net proceeds from the Offering, together with borrowings under the
Credit Facility (the "Financing"), have been applied to: (i) repay U.S.$44.7
million of Banco Mexicano, S.A. ("Banco Mexicano") senior debt and related
interest (the "Banco Mexicano Facility"); (ii) repay U.S.$29.0 million of Banco
Nacional de Mexico, S.A. ("Banamex") senior debt and related interest (the
"Banamex Facility"); (iii) repay U.S.$65.4 million of Chase senior debt and
related interest (the "Chase Facility"); (iv) repay U.S.$46.0 million of Banco
del Atlantico, S.A. ("Banco del Atlantico") senior debt and related interest
(the "Banco del Atlantico Facility"); (v) repay U.S.$25.7 million of Bell
Atlantic New Zealand Holdings, Inc. ("BANZHI") subordinated debt and related
interest (the "BANZHI Loans" and, together with the Banco Mexicano Facility, the
Banamex Facility, the Chase Facility and the Banco del Atlantico Facility, the
"Existing Indebtedness") and (vi) fund capital expenditures to upgrade its
network infrastructure, including the implementation of a CDMA overlay, to build
out its cellular, long distance, local telephony and paging networks, to
redesign Iusacell-owned and operated customer service centers and to support
existing operations and new business opportunities. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Capital Expenditures."
Chase is an affiliate of Chase Securities Inc., one of the Initial
Purchasers.
The following table sets forth the sources and uses of funds in connection
with the Financing:
(U.S. Dollars in Millions)
Sources:
Term Facility(1) ................................ $125.0
Proceeds from Sale of Old Notes ................. 150.0
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Total Sources ........................... $275.0
======
Uses:
Refinance Existing Indebtedness ................. $210.8
Capital Expenditures ............................ 55.2
Transaction Fees and Expenses ................... 9.0
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Total Uses .............................. $275.0
======
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(1) The Company also has available U.S.$100.0 million under the Revolving
Credit Facility U.S.$125.0 million (less accrued interest) under the Bell
Atlantic Facility. For a discussion of the availability, terms and
conditions of the Bell Atlantic Facility, as well as the Revolving Credit
Facility, see "Certain Transactions-Bell Atlantic Facility" and
"Description of Credit Facility."
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The Exchange Offer
The Exchange Offer......... The Company is offering to exchange pursuant to the
Exchange Offer (i) up to an aggregate principal
amount of U.S.$150.0 million of its 10% Series B
Senior Notes due 2004 (the "New Notes") for a like
principal amount of its 10% Senior Notes due 2004
(the "Old Notes") properly tendered on or prior to
the Expiration Date and not withdrawn. The New
Notes and Old Notes are collectively hereinafter
referred to as the "Notes". The New Notes have been
registered under the Securities Act, pursuant to
the Registration Statement of which this Prospectus
is a part.
Expiration Date;
Withdrawal of Tender..... The Exchange Offer will expire at 5:00 p.m. New
York City time, on [ ], 1997, or such later date
and time to which it is extended by the Company.
The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date.
Certain Conditions
to the Exchange Offer.... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company currently expects that each of the
conditions will be satisfied and that no waivers
will be necessary. See "The Exchange Offer--Certain
Conditions to the Exchange Offer."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or such facsimile, together
with such Old Notes and any other required
documentation, to the Exchange Agent (as defined)
at the address set forth therein. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of New Notes for Old Notes pursuant to the
Exchange Offer.
Exchange Agent............. First Union National Bank (the "Exchange Agent") is
serving as the Exchange Agent in connection with
the Exchange Offer.
Tax Consequences........... The exchange of New Notes for Old Notes pursuant to
the Exchange Offer will not be a taxable event for
U.S. federal income tax purposes. Such exchange
will also not constitute a taxable event for
Mexican tax purposes. See "Taxation."
Remaining Old Notes........ Any Old Notes not tendered and accepted in the
Exchange Offer will remain outstanding and will be
entitled to all the rights and preferences and will
be subject to the limitations applicable thereto
under the Indenture. Following consummation of the
Exchange Offer, the holders of Old Notes will
continue to be subject to the
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existing restrictions upon transfer thereof and the
Company will have no further obligation to such
holders to provide for the registration under the
Securities Act of the Old Notes held by them. To
the extent that Old Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected.
It is not expected that an active market for the
Old Notes will develop while they are subject to
restrictions on transfer.
Consequences of Exchanging Old Notes pursuant to the Exchange Offer
The Company is making the Exchange Offer in reliance on the position of
the staff of the Commission as set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought its
own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. Based upon these interpretations by the staff of
the Commission, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by a holder thereof, other than (i) a broker-dealer
who purchased such Old Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an "affiliate" (as defined in Rule 405 of the Securities Act) of
the Company without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of such New Notes. Holders of Old Notes
accepting an Exchange Offer will represent to the Company in the Letter of
Transmittal that such conditions have been met. Any holder who participates in
the Exchange Offer for the purpose of participating in a distribution of the New
Notes may not rely on the position of the staff of the Commission as set forth
in these no-action letters and would have to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction.
Each broker-dealer (other than an "affiliate" of the Company) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes as a result of market-making
activities or other trading activities and will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution". Any broker-dealer who is an affiliate of the Company may not rely
on such no-action letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. See "The Exchange Offer."
The New Notes are new securities for which there is currently no market.
The Company presently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through NASDAQ. Chase Securities Inc.
and Salomon Brothers Inc have advised the Company that, following completion of
the Exchange Offer, they presently intend to make a market in the New Notes.
However, Chase Securities Inc. and Salomon Brothers Inc are not obligated to do
so and any market-making activities with respect to the New Notes may be
discontinued at any time without notice. Chase Securities Inc. and Salomon
Brothers Inc may act as principal or agent in such transactions. There can be no
assurance that an active market for the New Notes will develop.
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The New Notes
Issuer..................... Grupo Iusacell, S.A. de C.V.
Securities Offered......... U.S.$150,000,000 principal amount of 10% Series B
Senior Notes due 2004 (the "New Notes").
Maturity................... July 15, 2004.
Interest Payment Dates..... Interest on the New Notes will be payable
semi-annually on each January 15 and July 15,
commencing January 15, 1998.
Sinking Fund............... None.
Subsidiary Guarantees...... The New Notes will be unconditionally guaranteed on
an unsecured, senior subordinated basis (the
"Subsidiary Guarantees") by the Company's existing
wholly owned subsidiaries, other than Ownership
Regulated Subsidiaries (as defined) and
subsidiaries owning less than U.S.$10,000 of
assets, and, in the future, by certain other
subsidiaries of the Company. See "Risk
Factors-Asset Encumbrance; Subordination of
Subsidiary Guarantees," "-Holding Company
Structure," "-Possible Limitations on
Enforceability of Guarantees" and "Description of
Notes-Subsidiary Guarantees."
Optional Redemption........ The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after July 15, 2001, at the redemption prices set
forth herein, plus accrued interest, if any, to the
redemption date. In addition, at any time and from
time to time prior to July 15, 2000, the Company
may redeem in the aggregate up to 35% of the
original principal amount of the New Notes with the
proceeds of one or more Public Equity Offerings (as
defined) at a redemption price of 110% 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 New Notes remains
outstanding after each such redemption. See
"Description of Notes-Optional Redemption."
Redemption for Tax Reasons. In the event that, as a result of certain changes
in Mexican law, the Company becomes obligated to
pay Additional Amounts (as defined) at a rate in
excess of 15% per annum imposed on interest
payments under the New Notes, then, at the
Company's option, the New Notes may be redeemed at
any time in whole, but not in part, at a price
equal to 100% of the outstanding principal amount
thereof, plus accrued interest, if any, to the
redemption date (together with Additional Amounts
payable in respect of such payment). See
"Description of Notes-Redemption for Tax Reasons."
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Change of Control.......... Upon a Change of Control (as defined), holders of
the New Notes will have the right to require the
Company to repurchase all or any part of the New
Notes at a repurchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. The
Company may not have sufficient funds or the
financial resources necessary to satisfy its
obligations to repurchase the Notes and other
indebtedness that may become payable upon a Change
of Control. See "Description of Notes-Change of
Control."
Ranking.................... The New Notes will rank pari passu in right of
payment with all existing and future senior
unsecured obligations of the Company and will rank
senior in right of payment to all subordinated
indebtedness of the Company. However, the New Notes
and the Subsidiary Guarantees will be effectively
subordinated to any secured indebtedness of the
Company and its subsidiaries to the extent of the
value of the assets securing such secured
indebtedness. In addition, the Subsidiary
Guarantors will guarantee the Credit Facility, and
the Subsidiary Guarantees will be subordinated to
such guarantee obligations under the Credit
Facility, as well as certain other senior
indebtedness. The New Notes will be effectively
subordinated to obligations of subsidiaries of the
Company which are not Subsidiary Guarantors. The
Subsidiary Guarantees could also be effectively
subordinated to all of the obligations of the
Subsidiary Guarantors under certain circumstances.
As of March 31, 1997, after giving effect to the
Financing and the application of the proceeds
thereof, the Company and the Subsidiary Guarantors
would have had approximately Ps. 2,183.0 million
(U.S.$275.3 million) of senior indebtedness
outstanding, of which Ps. 991.3 million (U.S.$125.0
million) would have been secured indebtedness,
assuming no amounts would have been outstanding
under the U.S.$100.0 million senior secured
Revolving Credit Facility. As of March 31, 1997,
after giving effect to the Financing and the
application of the proceeds thereof, subsidiaries
of the Company which are not Subsidiary Guarantors
would have had total balance sheet liabilities
(including trade payables and accrued liabilities
but excluding intercompany payables) of
approximately Ps. 64.4 million (U.S.$8.1 million).
See "Risk Factors-Asset Encumbrance; Subordination
of Subsidiary Guarantees," "-Holding Company
Structure," "-Possible Limitations on
Enforceability of Guarantees" and "Description of
Notes-Ranking."
Additional Amounts......... Subject to certain exceptions, if Mexican taxes are
deducted or withheld from payments on the New
Notes, the Company will pay Additional Amounts to
the extent necessary so that, after such deduction
or withholding, the holders of the Notes receive
the stated amount due. See "Description of
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
Notes--Additional Amounts." Mexican withholding
taxes are expected to apply. See "Mexican
Taxation."
Certain Covenants.......... The Indenture contains limitations on, among other
things, (a) the ability of the Company and the
Restricted Subsidiaries to Incur additional
Indebtedness, (b) the making of Restricted
Payments, including Investments, by the Company and
the Restricted Subsidiaries, (c) payment
restrictions affecting Restricted Subsidiaries, (d)
Asset Dispositions, (e) transactions with
Affiliates, (f) the issuance and sale of Capital
Stock of Restricted Subsidiaries, (g) the creation
or existence of certain Liens, (h) limitations on
engaging in business other than Related Businesses,
(i) limitations on Sale/Leaseback Transactions and
(j) certain consolidations, mergers and transfers
of assets (as each such capitalized term is defined
in "Description of Notes"). Such covenants are
subject to significant exceptions. See "Description
of Notes--Certain Covenants."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of New Notes for Old Notes pursuant to the
Exchange Offer. See "Use of Proceeds."
Book-Entry Settlement;
Delivery and Form.......... The New Notes issued pursuant to the Exchange Offer
will be issued in global form (the "New Global
Note") and will be deposited with a custodian for,
and registered in the name of, The Depositary Trust
Company ("DTC") or its nominee. Interests in the
New Global Note will be shown on transfers thereof
will be effected only through, records maintained
by DTC (with respect to participants' interests)
and its direct and indirect participants, including
the Morgan Guaranty Trust Company of New York,
Brussels office as operator of the Euroclear System
(the "Euroclear System") and Cedel Bank, societe
anonyme ("Cedel"). Except in certain limited
circumstances, certificated Notes will not be
issued in exchange for beneficial interests in the
New Global Note. See "Book Entry; Delivery and
Form".
Listing.................... The New Notes will not be listed on any securities
exchange or quoted through NASDAQ.
Governing Law.............. The New Notes will be, and the Indenture is,
governed by, and construed in accordance with, the
law of the State of New York, United States of
America.
- --------------------------------------------------------------------------------
10
<PAGE>
Recent Developments
The Company's revenues for the second quarter of 1997 were Ps. 428.5
million, a 12.6% increase over revenues for the first quarter of 1997. The
Company's EBITDA for the second quarter of 1997 (as defined in Note 5 under
"Selected Historical and Pro Forma Consolidated Financial and Operating Data")
was Ps. 70.3 million, a 3.6% decrease as compared to EBITDA for the first
quarter. As a percentage of revenues, EBITDA was 16.5% in the second quarter as
compared with 19% in the first quarter. EBITDA for the second quarter was 11%
lower than the pro forma first quarter EBITDA shown in the "Selected Historical
and Pro Forma Consolidated Financial and Operating Data." Net loss in the second
quarter, which amounted to Ps. 67.1 million, was more than double the net loss
in the first quarter. For purposes of the foregoing comparisons, first quarter
results have been restated to constant June 30, 1997 Pesos to reflect second
quarter inflation, which was approximately 2.8%.
The Company's total number of cellular subscribers increased by 12.4% in
the second quarter to 281,740, including 176,134 contract subscribers (an 8%
increase from March 31, 1997) and 105,606 prepay subscribers (a 20% increase
from March 31, 1997). Average monthly MOUs per subscriber were 106 in the second
quarter, as compared with 108 in the first quarter, while nominal average
monthly revenue per subscriber declined to Ps. 463 in the second quarter from
Ps. 469 in the first quarter. Contract churn declined from 3.1% in the first
quarter to 2.7% in the second quarter, and the monthly average of prepay
turnover decreased to approximately 16.9% through June 30, 1997.
The growth in second quarter total revenues was primarily generated by the
increase in the number of cellular subscribers, as well as a substantial
increase in telephone equipment sales and other revenue. Second quarter results
were adversely affected by substantial costs (approximately Ps. 8.2 million)
associated with leasing lines from Telmex in order to meet the Company's
obligations under its long distance concession, without a commensurate increase
in long distance subscribers and because of lower than expected long distance
revenues during the quarter. The Company expects such leased line costs to
continue, but is unable to predict when or whether it will be able to generate
sufficient long distance revenues to offset such costs. The Company capitalizes
the costs relating to the installation of such leased lines.
Although second quarter results benefitted from the incremental revenue
associated with the increase in the number of subscribers, such results were
adversely affected by a significant reduction in average monthly MOUs per prepay
subscriber, which the Company believes likely was in response to the price
increases announced in April and May 1997. Average MOUs per contract customer
have, however, remained relatively stable since the price increases were
implemented. The Company believes that second quarter results do not reflect the
anticipated benefits of the price increases because the price increases were not
fully implemented until June 1997 and because of the reduction in usage by
prepay customers. The Company cannot determine the extent to which its
subscribers have reduced usage in response to price increases.
The higher net loss in the second quarter was a result of the foregoing
factors and a significantly lower gain from monetary position due to the lower
level of inflation during the period.
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. 170.0 million (U.S.$21.8 million) of which Ps. 22.2
million (U.S.$2.8 million) constituted value-added tax and Ps. 28.6 million
(U.S.$3.7 million) were accounted for as interest expense.
In August 1997, the Company and Telmex also entered into amendments to the
current interconnection agreement pursuant to which Iusacell agreed to pay
Telmex an interim interconnection rate of Ps. 0.31 (U.S.$0.04) per minute
retroactive to June 1, 1997 (as opposed to the Ps. 0.45 (U.S.$0.056) per minute
rate previously charged by Telmex) and Telmex agreed to extend to the Company
the 38% discount available to other large business customers for use of its long
distance network. Iusacell and Telmex are currently negotiating the terms of an
entirely new interconnection agreement the terms of which will also be
retroactive to June 1, 1997. The Company anticipates that this new
interconnection agreement will implement an even lower interconnection rate and
will provide for some form of reciprocal payments by Telmex for interconnecting
with Iusacell's networks.
On September 30, 1997, the Company consummated the sale of its direct and
indirect minority interests in its Ecuadorean cellular company, Consorcio
Ecuatoriano de Telecommunicaciones S.A. ("Conecel"), and its Ecuadorean paging
company Corptilor, S.A. to a corporation controlled by the controlling
shareholder of the majority shareholder of these companies. At the closing,
Iusacell received U.S.$29.4 million in cash consideration for its direct
interests in these companies and anticipates receiving an additional U.S.$3.4
million in respect of its indirect interests by the end of 1997.
The Company's revenues for the third quarter of 1997 were Ps. 446.7 million, a
1.3% increase over revenues for the second quarter of 1997. Revenue growth was
adversely affected by Ps. 39.0 million due to the reversal, as a consequence of
the August 1997 interconnection settlement with Telmex described above, of
accrued interconnection revenue which the Company had expected to receive from
Telmex. Without this reversal, third quarter revenues would have been Ps. 486.0
million, a 10.2% increase over second quarter revenues. The Company's EBITDA for
the third quarter of 1997 was Ps. 103.4 million, a 42.8% increase as compared to
the Ps. 72.4 million EBITDA for the second quarter. EBITDA in the third quarter
was reduced by the Ps. 39.0 million reversal in accrued interconnection revenue,
which reduction was ore than offset by a Ps. 47.4 million reduction in cost of
services as a result of the Telmex interconnection settlement. Without these
interconnection settlement impacts, EBITDA would have been Ps. 95.0 million. Net
income for the quarter was Ps. 80.9 million and included a gain of Ps. 151.9
million resulting from the sale of its interests in Conecel and Corptilor S.A.
described above. For purposes of the foregoing comparisons, second quarter
results have been restated to constant September 30, 1997 Pesos to reflect third
quarter inflation, which was approximately 2.9%.
The Company's cellular subscriber base increased by 20% in the third quarter to
338,300 customers. In the third quarter, average monthly MOUs per subscriber
declined to 104 in the third quarter, while nominal average monthly revenue per
subscriber declined to Ps. 451. Contract churn increased to 2.9% in the third
quarter from 2.7% in the second quarter, and the monthly average of prepay
turnover decreased to approximately 10% in the third quarter.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Summary Historical and Pro Forma Consolidated Financial and Operating Data
The following table sets forth summary historical financial and other data
of the Company for each of the five years ended December 31, 1996 and for the
three months ended March 31, 1996 and 1997, and certain pro forma financial and
other data for the year ended December 31, 1996 and the three months ended March
31, 1997.
The summary historical financial information as of and for the years ended
December 31, 1995 and 1996 and the summary historical financial information for
the year ended December 31, 1994, have been derived from the audited
consolidated financial statements of Iusacell and its subsidiaries and the
related notes thereto (the "Audited Consolidated Financial Statements"), which
have been audited by Coopers & Lybrand, Despacho Roberto Casas Alatriste,
independent accountants, and Mancera S.C., a member of Ernst & Young
International, independent accountants, respectively (except for two
subsidiaries, whose financial statements were audited by Coopers & Lybrand,
Despacho Roberto Casas Alatriste, independent accountants, and Prieto Ruiz de
Velasco y Cia., S.C., independent accountants, respectively), and are included
elsewhere herein. The summary historical financial information for the years
ended December 31, 1992 and 1993 is derived from the consolidated financial
statements of the Company, which have been audited by Mancera, S.C., a member of
Ernst & Young International, and are not included herein. The summary historical
financial information as of and for the three months ended March 31, 1996 and
1997 has been derived from the unaudited consolidated financial statements of
Iusacell and its subsidiaries and the related notes thereto (the "Unaudited
Consolidated Financial Statements," and, together with the Audited Consolidated
Financial Statements, the "Consolidated Financial Statements"), which have been
reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste, independent
accountants, and are included elsewhere herein. Interim results for the three
months period ended March 31, 1997, are not necessarily indicative of results
that can be expected in future periods.
The pro forma financial data have been derived from the Unaudited Pro
Forma Consolidated Financial Information and the related notes thereto (the
"Unaudited Pro Forma Consolidated Financial Information"), which have been
reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste, independent
accountants, and are included elsewhere herein. The pro forma information does
not purport to represent what the Company's results would have actually been if
the Financing and the cost savings resulting from the elimination in April 1997
of certain managerial and administrative positions had occurred on the dates
indicated nor does such information purport to project the results of the
Company for any future period.
The summary financial and other data below should be read in conjunction
with "Unaudited Pro Forma Consolidated Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere herein. Except as
otherwise indicated, all financial statements included herein have been prepared
in accordance with generally accepted accounting principles in Mexico ("Mexican
GAAP"), which differ in significant respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). See Note 19 to the Audited
Consolidated Financial Statements. In accordance with Mexican GAAP, the
financial statements included herein recognize certain effects of inflation and
restate data for prior periods in constant March 31, 1997 Pesos. See Notes 3 and
4 to the Audited Consolidated Financial Statements included elsewhere in this
Prospectus.
The unaudited consolidated financial information for the second quarter
ended June 30, 1997, presented under "Recent Developments" has been prepared in
accordance with Mexican GAAP. Significant differences between Mexican GAAP and
U.S. GAAP are described in Note 19 to the Audited Consolidated Financial
Statements included elsewhere herein. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- General." For the six months
ended June 30, 1997 there were no additional differences which had not been
quantified with respect to their occurrence in the Audited Consolidated
Financial Statements as of December 31, 1994, 1995 and 1996.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Summary Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Year Ended December 31,
Pro Forma Pro Forma
1992 1993 1994 1995 1996 1996(1) 1996 1996(1)
------- ------- ------- ------- ------- --------- ----------- --------
(Millions of constant March 31, 1997 Pesos, except ratios (Millions of U.S. dollars,
and operating data(2)) except ratios and
operating data(3))
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues .... Ps.1,158.7 Ps. 1,434.5 Ps. 2,003.2 Ps. 1,615.5 Ps. 1,464.0 Ps. 1,464.0 U.S.$ 184.6 U.S.$ 184.6
Telephone equipment
and other revenues .. 72.2 128.3 273.3 287.8 236.1 236.1 29.8 29.8
------- ------- ------- ------- ------- ------- ------- -------
Total ........... 1,230.9 1,562.8 2,276.5 1,903.3 1,700.1 1,700.1 214.4 214.4
Cost of sales .......... 304.7 466.5 716.5 752.0 668.4 668.4 84.3 84.3
Operating expenses ..... 469.3 628.1 969.1 840.7 736.5 693.7 92.9 87.5
Depreciation and
amortization ........ 124.3 241.8 583.2 669.7 604.6 614.8 76.2 77.5
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) 332.6 226.4 7.7 (359.1) (309.4) (276.8) (39.0) (34.9)
Integral financing cost
(gain)(4) ........... 128.6 426.3 678.7 376.9 (129.3) (210.5) (16.3) (26.5)
Net income (loss) ...... Ps. 200.9 Ps. (205.0) Ps. (701.1) Ps. (769.2) Ps. (363.3) Ps. (249.5) U.S.$(45.8) U.S.$(31.5
Other Financial Data:
EBITDA(5) .............. Ps. 457.0 Ps. 468.1 Ps. 590.9 Ps. 310.6 Ps. 295.2 Ps. 338.0 U.S.$ 37.2 U.S.$ 42.6
EBITDA margin(6) ....... 37.1% 30.0% 26.0% 16.3% 17.4% 19.9% 17.4% 19.9%
Capital expenditures ... Ps. 740.0 Ps. 670.3 Ps. 1,229.9 Ps. 471.3 Ps. 211.2 NA U.S.$ 26.6 NA
Interest expense, net .. 175.5 295.5 204.0 173.3 281.1 194.3 35.4 24.5
Ratio of EBITDA to
interest expense, net 2.6x 1.6x 2.9x 1.8x 1.1x 1.7x 1.1x 1.7x
U.S. GAAP (13):
Total revenues ......... 2,276.5 1,903.3 1,793.3 1,793.3 226.1 226.1
Operating profit (loss). 7.7 (359.1) (636.4) (603.8) (80.3) (76.1)
Adjusted EBITDA (6) .... 590.9 310.6 266.9 309.7 33.6 39.0
Net loss ............... (685.1) (363.2) (141.7) (28.0) (17.8) (3.5)
Total assets ........... 7,960.3 7,933.9 6,623.2 NA 835.2 NA
Total stockholders'
equity .............. 5,433.5 3,711.2 3,012.5 NA 379.9 NA
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Data:
Subscribers:
Contract subscribers 114,838 127,361 194,723 208,802 161,277
Prepay subscribers .. -- -- -- 1,399 71,629
------- ------- ------- ------- -------
Total(7) ........ 114,838 127,361 194,723 210,201 232,906
Gross subscriber
additions .............. 86,295 68,551 117,539 103,733 119,968
Average subscribers(8) . 89,930 121,100 161,042 202,462 221,554
Contract churn(9) ...... 3.0% 3.7% 2.7% 3.6% 4.3%
Average monthly MOUs
per subscriber(10) .. 237 211 179 140 117
Nominal average
monthly cellular revenue
per subscriber(11) ..... Ps. 736 Ps. 638 Ps. 595 Ps. 464 Ps. 490
Nominal cost to acquire
a new subscriber(12) ... Ps. 3,738 Ps. 5,808 Ps. 5,717 Ps. 6,143 Ps. 6,076
</TABLE>
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13
<PAGE>
- --------------------------------------------------------------------------------
Summary Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
Pro Forma Pro Forma
1996 1997 1997(1) 1997 1997(1)
------- ------- --------- ------- ---------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and
operating data(3))
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues .......................................... Ps. 398.6 Ps. 318.8 Ps. 318.8 U.S.$ 40.2 U.S.$ 40.2
Telephone equipment and other revenues .................... 53.9 51.5 51.5 6.5 6.5
------- ------- ------- ------- -------
Total ................................................. 452.5 370.3 370.3 46.7 46.7
Cost of sales ................................................ 151.4 131.9 131.9 16.6 16.6
Operating expenses ........................................... 176.8 167.3 157.0 21.1 19.8
Depreciation and amortization ................................ 157.9 132.9 135.4 16.8 17.1
------- ------- ------- ------- -------
Operating profit (loss) ...................................... (33.6) (61.8) (54.1) (7.8) (6.8)
Integral financing cost (gain)(4) ............................ (143.9) (39.9) (44.9) (5.0) (5.7)
Net income (loss) ............................................ Ps. 105.9 Ps. (32.2) Ps. (19.5) U.S.$ (4.1) U.S.$ (2.5)
Other Financial Data:
EBITDA(5) .................................................... Ps. 124.3 Ps. 71.1 Ps. 81.4 U.S.$ 9.0 U.S.$ 10.3
EBITDA margin(6) ............................................. 27.5% 19.2% 22.0% 19.2% 22.0%
Capital expenditures ......................................... Ps. 13.2 Ps. 31.6 NA U.S.$ 4.0 NA
Interest expense, net ........................................ 73.0 54.8 44.8 6.9 5.6
Ratio of EBITDA to interest expense, net ..................... 1.7x 1.3x 1.8x 1.3x 1.8x
Balance Sheet Data:
Working capital ..............................................Ps. (1,348.3) Ps. (1,232.2) Ps. 373.1 U.S.$ (155.4) U.S.$ 47.0
Property and equipment, net .................................. 3,912.6 3,353.4 3,353.4 422.9 422.9
Total assets ................................................. 6,782.0 6,018.9 6,744.7 759.0 850.5
Total debt ................................................... 1,668.5 1,457.0 2,183.0 183.8 275.3
Total stockholders' equity ................................... 4,103.8 3,838.2 3,838.2 484.0 484.0
</TABLE>
Three Months Ended
March 31,
1996 1997
--------- ---------
Operating Data:
Subscribers:
Contract subscribers ..................... 208,714 162,855
Prepay subscribers ....................... 2,163 87,872
--------- ---------
Total(7) ............................. 210,877 250,727
Gross subscriber additions .................. 20,354 32,951
Average subscribers(8) ...................... 210,539 241,817
Contract churn(9) ........................... 3.9% 3.1%
Average monthly MOUs per subscriber(10) ..... 126 108
Nominal average monthly cellular revenue per
subscriber(11) .............................. Ps. 516 Ps. 469
Nominal cost to acquire a new subscriber(12) Ps. 6,899 Ps. 5,057
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Notes to Summary Historical and Pro Forma Consolidated
Financial and Operating Data
(1) The pro forma statement of operations data for the year ended December 31,
1996 and the three months ended March 31, 1997 give effect to the
Financing as well as to cost savings resulting from the elimination in
April 1997 of certain managerial and administrative positions, as though
they had occurred as of January 1, 1996. The pro forma balance sheet data
as of March 31, 1997 give effect to the Financing as though it had
occurred as of March 31, 1997. See "Unaudited Pro Forma Consolidated
Financial Information."
(2) Pursuant to Mexican GAAP, financial data for all periods included herein
have, unless otherwise indicated elsewhere herein, been restated in
constant March 31, 1997 Pesos. Restatement into constant March 31, 1997
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 March 31, 1997. The inflation index used
in this Prospectus for 1992 figures is 2.3754, for 1993 figures is 2.1993,
for 1994 figures is 2.0544, for 1995 figures is 1.3519, for December 31,
1996 figures is 1.0586 and for March 31, 1996 figures is 1.2477.
(3) Peso amounts were converted to U.S. dollars at the exchange rate of
Ps.7.9300 per U.S.$1.00 reported as the Noon Buying Rate on March 31,
1997. 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-Peso Devaluation; Exchange Controls."
(4) Integral financing cost (gain) consists of net interest expense, foreign
exchange losses or gains and gains or losses on net monetary position.
(5) "EBITDA" is defined herein as operating profit (loss) plus the sum of
depreciation, amortization and, under U.S. GAAP, non-cash items, and is
presented because the Company believes that EBITDA provides useful
information regarding the Company's debt service ability. EBITDA as
presented in this Prospectus (under both Mexican GAAP and U.S. GAAP)
differs from EBITDA as defined in the Indenture. EBITDA in this Prospectus
has not been reduced to reflect the additional expenses the Company would
have incurred had Iusacell expensed, rather than, as is its current
practice under Mexican GAAP and as is permitted under U.S. GAAP, amortized
(over 18 months) the cost of cellular telephones Iusacell gives to its
contract customers. These additional expenses will be deducted from the
determination of EBITDA under the Indenture. EBITDA under U.S. GAAP would
be decreased by the amount of capitalized pre-operating expenses (net of
capitalized pre-operating revenues) for Iusacell's 450 MHz local wireless
subsidiary which, beginning in 1996, are expensed. Under Mexican GAAP,
these net pre-operating expenses are capitalized. Adjusted EBITDA under
U.S. GAAP in this Prospectus is "adjusted" from EBITDA under U.S. GAAP by
not expensing these pre-operating amounts, which adjustment is consistent
with EBITDA under the Indenture as the Company's 450 MHz local wireless
subsidiary will be an Unrestricted Subsidiary (as defined) under the
Indenture. For the year ended December 31, 1996, Adjusted EBITDA under
U.S. GAAP is different from EBITDA under Mexican GAAP in that the amount
of a reserve for employee severance is expensed under U.S. GAAP (with a
corresponding decrease in Adjusted EBITDA), while such reserve amount is
considered an extraordinary item under Mexican GAAP (with no effect on
EBITDA). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 19 to the Audited Consolidated
Financial Statements. EBITDA should not be considered in isolation or as a
substitute for the consolidated income statements or the consolidated
statements of changes in financial position prepared in accordance with
Mexican GAAP or as a measure of profitability or liquidity.
(6) EBITDA margin is calculated by dividing EBITDA by total revenues for the
respective period.
(7) Total subscribers refers to the Company's subscribers in its operating
regions at the end of the respective periods. A prepay customer is
included as a subscriber if, at the end of a period, the customer's prepay
card has not yet expired. See "Business-Cellular Services-Prepay
Turnover."
(8) Average subscribers represents the rolling monthly average number of
subscribers for each of the respective periods.
(9) Contract churn for a given period is calculated 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. For
a discussion of prepay turnover, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Increase in Prepay
Subscribers Base."
(10) Average monthly MOUs per subscriber is calculated by dividing the total
MOUs for the respective period by the average number of subscribers for
such period and dividing the resulting quotient by the number of months in
such period.
(11) Nominal average monthly cellular revenue per subscriber is calculated by
dividing the total cellular service revenue for the respective period (in
nominal Pesos) by the average number of subscribers for such period and
dividing the resulting quotient by the number of months in such period.
(12) 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.
(13) See Note 19 to the Audited Consolidated Financial Statements for a
discussion of certain differences between U.S. GAAP and Mexican GAAP.
- --------------------------------------------------------------------------------
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RISK FACTORS
Purchasers of the New Notes offered hereby should carefully consider the
following risk factors, as well as other information set forth in this
Prospectus, prior to making an investment in the New Notes. To the extent it
relates to the Mexican government or Mexican macroeconomic data, the following
information has been extracted from official publications of the Mexican
government and has not been independently verified.
Recent Negative Operating Results
The Company has experienced net losses for each of the four years in the
period ended December 31, 1996 and for the six months ended June 30, 1997. See
"Summary-Recent Developments." For the year ended December 31, 1996 and for the
three months ended March 31, 1997, the Company's earnings were insufficient to
cover its fixed charges by Ps. 320.7 million (U.S.$40.4 million) and Ps. 36.7
million (U.S.$4.6 million), respectively. After giving pro forma effect to the
Financing and the application of the net proceeds thereof as if it had occurred
on January 1, 1996, the Company's earnings would have been insufficient to cover
its fixed charges by Ps. 211.6 million (U.S.$26.7 million) for the year ended
December 31, 1996 and by Ps. 25.1 million (U.S.$3.2 million) for the three
months ended March 31, 1997. The Company's revenues declined by 16.4% and 10.7%
in 1995 and 1996, respectively, and EBITDA declined by 47.4% and 5.0% in such
years. The Company's revenues and EBITDA declined by 18.2% and 42.8%,
respectively, in the first quarter of 1997 from the first quarter of 1996. The
Company also experienced a 22.8% reduction in the number of its contract
customers during 1996 (contract customers increased by less than 1% during the
first quarter of 1997). There can be no assurance that the Company will be able
to reverse these trends in the near future or that, if the Company were unable
to do so, such continuing losses and declines would not affect the Company's
ability to service the Notes or to access credit or refinance its indebtedness,
including the Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." EBITDA is used in this paragraph as
defined in Note 5 to "Summary-Summary Historical and Pro Forma Consolidated
Financial and Operating Data."
Mexican Governmental, Political, Economic and Social Factors
The Company is a Mexican corporation with substantially all of its
operations situated in Mexico, and approximately 99.5% of its revenues in 1996
resulted from sales generated within Mexico. Accordingly, the economic
environment within Mexico, which is significantly affected by actions taken by
the Mexican government, can be expected to have a significant impact on the
Company's business, financial condition and results of operations and on the
Company's ability to meet its obligations under the Notes.
Beginning in December 1994, Mexico experienced an economic crisis
characterized by exchange rate instability, high inflation, high domestic
interest rates, negative economic growth and reduced consumer purchasing power.
The Noon Buying Rate rose from Ps. 3.4662 per U.S.$1.00 on December 19, 1994 to
Ps. 5.000 per U.S.$1.00 on December 31, 1994, Ps. 7.7400 per U.S.$1.00 on
December 31, 1995, Ps. 7.8810 per U.S.$1.00 on December 31, 1996 and Ps. 7.8870
per U.S.$1.00 on July 15, 1997. See "-Peso Devaluation; Exchange Controls."
Mexican GDP declined by 6.2% in 1995, grew by 5.1% during 1996 and grew at an
annualized rate of 5.1% in the first quarter of 1997. The annual rate of
inflation, as measured by changes in the Mexican National Consumer Price Index
(Indice Nacional de Precios al Consumidor or the "INPC"), was 52.0% and 27.7% in
1995 and 1996, respectively, after having been only 7.1% in 1994. For the first
quarter of 1997, the non-annualized inflation rate was 5.9%. Concerns over the
Mexican economy also led to sharply higher interest rates in 1995 and 1996, both
domestically and externally, on Mexican public and private sector debt and to
sharply reduced opportunities for refinancing or refunding maturing debt issues
(including the Company's indebtedness). Mexican interest rates, which had
reached a low of 8.8% per annum for 28-day Cetes (Mexican treasury bills) in
February 1994, rose through most of 1994 and increased substantially in 1995,
when interest rates on 28-day Cetes averaged 48.3%. Interest rates on 28-day
Cetes averaged 31.3% in 1996. On September 30, 1997, the interest rate on 28-day
Cetes was 16.65%. In response to the economic situation, the Mexican government
entered into an international economic recovery package and announced a series
of measures which initially limited and may in the future limit the growth of
the Mexican economy.
These economic conditions substantially reduced the purchasing power of
the Mexican population and, as a consequence, had a material adverse effect on
the Company's 1995 and 1996 financial condition and results of operations. In
1996, the Company experienced a 22.8% reduction in the number of its contract
customers. In response to this trend
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and to meet the needs of its existing customers, the Company began to offer
prepay cards in June 1996. Prepay card subscribers now represent approximately
35% of the Company's total number of subscribers. Prepay customers generate
substantially lower average monthly revenues and minutes of use, and have
substantially higher turnover rates, than contract customers. In addition, the
shorter duration of a prepay customer's commitment (currently up to 60 days) as
compared to a contract customer's commitment (on average 18 months), could cause
the Company's prepay subscriber base to be adversely affected more quickly and
substantially than its contract subscriber base in the event of future negative
economic developments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Increase in Prepay Subscriber Base."
Due to market and economic conditions, the Company was unable to increase
its rates sufficiently in 1995, 1996 and the first quarter of 1997 to keep pace
with inflation and may not be able to do so in the future. While the Mexican
economy has begun to recover, such recovery has not yet resulted, and may not
result, in a significant improvement in consumer purchasing power, which
continues to adversely affect the Company. There can be no assurance that the
economic recovery will continue or that the economy will return to the growth
levels existing prior to the crisis. There is a risk that any political,
economic or social responses to the economic situation, over which the Company
has no control (and which could include, among other things, social unrest and
labor disruptions), may impair the Company's business, financial condition and
results of operations and adversely affect the Company's ability to access
credit, refinance its existing indebtedness and meet its obligations under the
Notes.
On July 6, 1997, Mexico held elections for, among other offices, all
members of the Mexican Chamber of Deputies, 32 members of the Mexican Chamber of
Senators and the mayor of Mexico City. As a result of these elections, for the
first time in seven decades, the Partido Revolucionario Institucional will not
hold a majority of the seats in the Mexican Chamber of Deputies or the office of
mayor of Mexico City. Iusacell cannot predict the impact these elections will
have on Mexican economic, regulatory and social policy or the consequences
thereof on the business, financial condition and results of operations of the
Company.
Peso Devaluation; Exchange Controls
While the Company's sales are almost entirely denominated in Pesos, the
vast majority of its obligations are denominated in U.S. dollars, and the
Company is therefore exposed to Peso devaluation risk. The Peso has been subject
to substantial devaluation against the U.S. dollar in the past, particularly
since December 1994, and may be subject to further significant devaluation in
the future. The Company does not currently have in place and does not intend to
enter into hedging transactions with respect to this risk. Therefore, further
declines in the value of the Peso relative to the U.S. dollar could adversely
affect the Company's ability to meet its obligations under the Notes, the Credit
Facility and other U.S. dollar-denominated obligations.
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 no assurance can be given 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
the Company's access to U.S. dollars to meet its U.S. dollar obligations under
the Notes and could also have a material adverse effect on the Company's
business, financial condition and results of operations. The impact of any such
measures adopted by the Mexican government on the Mexican economy cannot be
accurately predicted. See "Exchange Rates."
Substantial Leverage; Ability to Service Debt
As of March 31, 1997, the Company's total consolidated indebtedness, as
adjusted to give effect to the Financing and the application of the proceeds
thereof, would have been Ps. 2,183.0 million (U.S.$275.3 million), or
approximately 36.3% of its total capitalization, assuming no amounts would have
been outstanding under the U.S.$100.0 million Revolving Credit Facility.
Historically, the Company's cash generated from operating activities has not
been sufficient to meet its debt service, working capital and capital
expenditure requirements, and the Company has relied on additional borrowings
and capital contributions to meet such funding needs. The degree to which the
Company is leveraged and the covenants set forth in the Indenture and the Credit
Facility may adversely affect the Company's ability to finance its future
operations, to compete effectively against better capitalized competitors and to
withstand downturns in its business or the
17
<PAGE>
economy generally, and could limit its ability to pursue business opportunities
that may be in the interests of the Company and its securityholders. See
"-Capital Requirements," "Capitalization," "Description of Credit Facility" and
"Description of Notes-Certain Covenants."
Asset Encumbrance; Subordination of Subsidiary Guarantees
Although the New Notes will be senior obligations of the Company ranking
pari passu in right of payment with all other existing and future senior
obligations of the Company, like the Old Notes, the New Notes will not be
secured by any of the Company's assets. The Company's obligations under the
Credit Facility will be secured by a pledge of all capital stock held by the
Company and the Subsidiary Guarantors and, subject to applicable regulations and
approvals, by security interests in all cellular concessions held by the Company
and its subsidiaries and all assets used in or arising out of the commercial
operation of such concessions. Accordingly, if an event of default occurs under
the Credit Facility, the lenders under the Credit Facility will have a prior
right to substantially all of the assets of the Company and the Subsidiary
Guarantors, and may foreclose upon such assets to the exclusion of the holders
of the Notes, notwithstanding the existence of an event of default under the
Indenture. In such event, the assets of the Company and the Subsidiary
Guarantors securing the Credit Facility would first be used to repay in full
amounts outstanding under the Credit Facility, resulting in all or a portion of
such assets being unavailable to satisfy the claims of holders of the Notes and
other unsecured indebtedness. In addition, the Indenture permits the Company and
the Restricted Subsidiaries to incur certain other secured indebtedness. Under
certain circumstances, after the closing of the Financing, the aggregate amount
available under the Credit Facility may be increased by up to U.S.$100.0
million. If an event of default occurs under any such permitted secured
indebtedness, the lenders thereunder will have a prior right to the assets of
the Company and the Subsidiary Guarantors securing such indebtedness. In the
event of a foreclosure by such lenders, there can be no assurance that there
will be sufficient assets to pay any amounts due on the Notes.
The Indebtedness evidenced by the Subsidiary Guarantees of the New Notes,
like the Old Notes, will be subordinated to the prior payment in full of all
Indebtedness of the Company outstanding under the Credit Facility as well as to
certain refinancing indebtedness with respect thereto. By reason of such
subordination, in the event of an insolvency, liquidation or other statutory
reorganization of the Company, the lenders under the Credit Facility, or any
such refinancing indebtedness, must be paid in full before the holders of the
Notes may be paid pursuant to the Subsidiary Guarantees; consequently, there may
be insufficient assets remaining after payment of claims of such lenders to pay
amounts due on the Notes. In addition, under certain circumstances, no payments
to holders of Notes may be made pursuant to the Subsidiary Guarantees if a
default exists under the Credit Facility. Furthermore, the guarantees of the
Credit Facility by the Subsidiary Guarantors will be secured by security
interests in substantially all of the assets of the Subsidiary Guarantors and,
along with other secured indebtedness of the Subsidiary Guarantors, will
effectively rank senior to the Company and the Subsidiary Guarantees, which are
unsecured. On March 31, 1997, after giving effect to the Financing and the
application of the proceeds thereof, the aggregate amount of such secured
indebtedness of the Company and the Subsidiary Guarantors would have been
approximately Ps. 991.3 million (U.S.$125.0 million), assuming no amounts are
outstanding under the U.S.$100.0 million Revolving Credit Facility. See
"Description of Credit Facility" and "Description of Notes-Ranking" and
"-Subsidiary Guarantees."
Holding Company Structure
The Company's operations are conducted through its direct and indirect
subsidiaries. As a holding company, the Company has no independent operations
and, therefore, is dependent on the cash flows of its subsidiaries and other
entities to meet its own obligations, including the payment of principal of and
interest on the Notes. There can be no assurance that the Company will obtain
sufficient funds from its subsidiaries in order to make payments on its
indebtedness, including the Notes.
Because certain of the Company's subsidiaries do not guarantee the payment
of the Notes, the claims of holders of the Notes will be effectively
subordinated to the claims of creditors of such subsidiaries. The Company's
paging, long distance, 450 MHz local wireless and microwave subsidiaries will
not be Subsidiary Guarantors until such time as applicable law or regulation
shall no longer prohibit the Company from owning a majority of the voting stock
thereof, supermajority shareholder approval shall not be required for such
subsidiary to make guarantees and such subsidiaries are otherwise Restricted
Subsidiaries, which designation is in the discretion of the Company (see
"-Potential Lack of Control Over Certain Subsidiaries"). The Company's local 450
MHz wireless subsidiary will be designated as an Unrestricted
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Subsidiary. The Company's other non-wholly owned subsidiaries (as well as
subsidiaries owning assets having a fair market value of less than U.S.$10,000)
also will not be Subsidiary Guarantors. As of March 31, 1997, the total balance
sheet liabilities of the Company's subsidiaries which are not Subsidiary
Guarantors (including trade payables and accrued liabilities but excluding
intercompany payables) were Ps. 64.4 million (U.S.$8.1 million). These
subsidiaries may have other liabilities, including contingent liabilities, which
could be substantial. In addition, if the Subsidiary Guarantees were held to be
invalid for any reason, trade creditors and holders of indebtedness of the
Subsidiary Guarantors would generally have priority as to the assets of the
Subsidiary Guarantors over claims of the Company and the holders of the
Company's indebtedness, including the Notes. In this case, claims of holders of
the Notes would also be effectively subordinated to claims of creditors of the
Subsidiary Guarantors. As of March 31, 1997, the total balance sheet liabilities
of all the Company's subsidiaries (including trade payables and accrued
liabilities but excluding intercompany payables) were Ps. 677.2 million
(U.S.$85.4 million). See "-Possible Limitations on Enforceability of
Guarantees," "Description of Notes-Ranking," "-Subsidiary Guarantees" and Note
20 to the Audited Consolidated Financial Statements.
Mexican corporations may only pay dividends out of net income after
approval by shareholders of the financial statements reflecting such net income
and the payment of such dividends and after all prior losses have been
recovered. In addition, payments of dividends by a Mexican company are subject
to corporate taxes at the prevailing 34% rate unless made out of taxed retained
earnings. Such provisions of Mexican law could reduce dividends received by the
Company from its subsidiaries.
Possible Limitations on Enforceability of Guarantees
The Subsidiary Guarantees provide a basis for a direct claim against the
Subsidiary Guarantors; however, it is possible that the Subsidiary Guarantees
may not be enforceable. The Company has been advised by its Mexican counsel, De
Ovando y Martinez del Campo, S.C., that the laws of Mexico do not prevent the
Subsidiary Guarantees from being valid, binding and enforceable against the
Subsidiary Guarantors in accordance with their terms, provided they are in
compliance with certain requirements under Mexican law. The Company has been
advised by Rogers & Wells, United States counsel for Iusacell, that the
obligation of each Subsidiary Guarantor may be subject to review under U.S.
state or federal fraudulent transfer laws. Under such laws, if a court in a
lawsuit by an unpaid creditor or representative of creditors of a subsidiary of
the Company, such as a trustee in bankruptcy or such Subsidiary Guarantor as
debtor-in-possession, were to find that at the time such obligation was
incurred, such Subsidiary Guarantor, among other things, (a) did not receive
fair consideration or reasonably equivalent value therefor and (b) (i) was
insolvent, (ii) was rendered insolvent, (iii) was engaged in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (iv) intended to incur or believed that it would incur debts
beyond its ability to pay such debts as they matured, such court could avoid
such Subsidiary Guarantor's obligation and direct the return of any payments
made thereunder to such Subsidiary Guarantor or to a fund for the benefit of its
creditors. Moreover, regardless of the factors identified in the foregoing
clauses (i) through (iv), such court could avoid such obligation and direct such
repayment if it found that the obligation was incurred with an intent to hinder,
delay or defraud such Subsidiary Guarantor's creditors.
Under Mexican law there are provisions that affect or may affect
creditors' rights generally or the rights of certain creditors in particular.
Those provisions include, among other things, (i) a creditor's right to request
the nullity of action taken by a debtor to the prejudice of such creditor and
(ii) priority given to preferred creditors, pursuant to which labor claims,
claims of tax authorities for unpaid taxes and claims of secured creditors or
creditors with a special privilege under law will have priority over claims of
unsecured creditors.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction being applied. Generally, however, an
entity would be considered insolvent if the sum of its debts is greater than all
of its property (including collection rights) at a fair valuation or if the
present fair salable value of its assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured.
Furthermore, the Subsidiary Guarantors may be or become subject to
contractual restrictions on their ability to make payments on the Subsidiary
Guarantees. If a Subsidiary Guarantor is sold, merged or consolidated in a
transaction in which it is not the surviving entity, such Subsidiary Guarantor
will be released from all obligations under its Subsidiary Guarantee so long as
the proceeds from such transaction are applied as described under "Description
of Notes-Certain
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Covenants-Limitation on Sale of Assets and Subsidiary Stock." See "-Asset
Encumbrance; Subordination of Subsidiary Guarantees."
If the Subsidiary Guarantees were not enforceable, the Notes would
effectively be subordinated to all liabilities, including trade payables and
accrued liabilities, of the Subsidiary Guarantors. On March 31, 1997, after
giving effect to the Financing and the application of the proceeds thereof, the
Subsidiary Guarantors had total balance sheet liabilities of approximately Ps.
376.2 million (U.S.$47.4 million), in addition to their guarantee obligations
under the Credit Facility. Additionally, the Subsidiary Guarantors have other
liabilities, including contingent liabilities, which may be substantial. See
"Description of Notes-Subsidiary Guarantees."
Potential Lack of Control Over Certain Subsidiaries
Mexican telecommunications and foreign investment laws limit foreign
ownership of companies holding concessions to provide telecommunications
services other than cellular service, including local telephony and domestic and
international long distance, to not more than 49% of the voting capital stock
thereof. Certain telecommunications concessions, including nearly all paging
concessions, also explicitly restrict foreign ownership to the aforementioned
percentage. These laws and concessions also generally prohibit foreign control
over such companies by other means.
In February 1997, Mexico's Comision Nacional de Inversiones Extranjeras
(the "Mexican Foreign Investment Commission") conditioned its approval of Bell
Atlantic assuming management control over the Company and its subsidiaries upon
the requirement that, within a renewable period of 180 days, Iusacell transfer
at least 51% of the voting shares of the Company's subsidiaries providing long
distance (Iusatel, S.A. de C.V.) and local wireless services
(Iusatelecomunicaciones, S.A. de C.V.) to Mexican nationals on terms acceptable
to the Mexican Foreign Investment Commission. Iusacell intends to comply with
this condition by transferring 51% of the voting shares of these subsidiaries to
Mexican nationals while retaining a larger equity interest through the ownership
of "neutral" limited-voting stock (inversion neutra). See "Business-Government
Regulation-Foreign Ownership Restrictions." Although Iusacell has commenced
negotiations with Mexican nationals for this purpose, Iusacell cannot anticipate
whether it will be able to negotiate a definitive transfer agreement with any
such Mexican nationals, what the terms of any such definitive transfer agreement
will be or whether such terms will be acceptable to the Mexican Foreign
Investment Commission or whether any such transfer will be consummated. Iusacell
expects that it will retain rights relating to the management and operations of
such subsidiaries commensurate with the magnitude of its interests therein.
However, there can be no assurance that the Company will be able to obtain such
rights with respect to the management and operations of such subsidiaries or
access its proportionate share of their cash flow.
Pursuant to a joint venture with Infomin, S.A. de C.V. ("Infomin"), a
Mexican corporation, the Company holds a 51% interest in Infotelecom, S.A. de
C.V. ("Infotelecom"), an entity which engages in the commercialization and
provision of paging services. Infomin holds a concession to provide national
paging services. 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. As a result,
the transfer of Infomin's paging concession to Infotelecom cannot be effected so
long as Bell Atlantic continues to control the management of Iusacell and the
Company continues to hold more than 49% of the voting shares of Infotelecom. The
Company's paging services are currently provided only through Infotelecom. See
"Business-Other Services-Paging."
Because of the above described foreign ownership restrictions, the
Company's paging, long distance, 450 MHz local telephony and microwave
subsidiaries will not be Subsidiary Guarantors. To the extent other subsidiaries
of the Company are subject to similar restrictions (such as in the case of PCS
concession holders), such other subsidiaries also will not be Subsidiary
Guarantors. See "-Holding Company Structure."
Potential Inability to Fund a Change of Control Offer or Acceleration of Notes
Upon the occurrence of a Change of Control (as defined under "Description
of Notes--Change of Control"), the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The occurrence of certain
of the events that would constitute a Change of Control could constitute a
default under existing and future indebtedness of the Company, which could
result
20
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in such indebtedness becoming due and payable. In addition, upon the occurrence
of an Event of Default (as defined under "Description of Notes--Events of
Default") (including a cross-default to other indebtedness for borrowed money)
the maturity of the Notes may be accelerated. The source of funds for any
repurchase of the Notes or acceleration and any such other payments will be the
Company's available cash, cash generated from operations or other sources,
including additional capital raised from a new controlling person or otherwise.
However, there can be no assurance that the Company will have sufficient funds
to purchase all the Notes that might be delivered by holders thereof seeking to
accept the offer to purchase or upon acceleration. See "Description of
Notes--Change of Control".
Increased Competition; Disputes with Telmex
The Company faces significant competition from Telcel in providing
cellular services in each region in which the Company operates. As a subsidiary
of Telmex, Telcel has significantly greater financial and other resources than
those available to the Company. Telcel operates a nationwide cellular network
under concessions from the Mexican government and has only one competitor in
each region in which it operates. This nationwide network and concession,
together with Telcel's relationship with Telmex, its established customer base
and its ability to use Telmex's installed telecommunications systems give it a
substantial competitive advantage over the Company. In addition, the Company
believes that Telcel may benefit from unlawful cross-subsidies by Telmex, which
allow Telcel to charge rates below cost for cellular services. Competition is
substantial and the Company bears significant promotional expenses, including
the provision of cellular telephones to contract subscribers free of charge or
at a substantial discount. Competitive conditions also contributed in 1996 and
the first quarter of 1997 to a substantial increase in prepay customers, who
generate significantly lower average monthly cellular revenues and MOUs than
contract subscribers, and substantially higher turnover relative to contract
churn. In addition, the shorter duration of a prepay customer's commitment
(currently up to 60 days) as compared to a contract customer's commitment (on
average 18 months), could cause the Company's prepay subscriber base to be
adversely affected more quickly and substantially than its contract subscriber
base by negative competitive developments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Increase in Prepay
Subscriber Base" and "Business-Competition." There can be no assurance that the
Company will be able to compete effectively against Telcel.
The Company expects to face increased competition from other companies
providing comparable services utilizing emerging technologies which may be
introduced in the future, including enhanced specialized mobile radio, PCS and
satellite telephone. PCS and certain local telephony bandwidth auctions are
scheduled by the Mexican government for the fall of 1997 and are expected to
result in increased price competition. In addition, the Company's concessions do
not prevent the Mexican government from licensing other companies to provide
similar services in the regions now served by the Company. As the Company
expands its local telephony services it will increasingly face competition from
Telmex and other companies seeking to provide local services. See "-Mexican
Government Regulation" and "Business-Competition."
The Company also competes with Telmex and other companies for long
distance customers. Telmex's existing, nationwide customer base and installed
landline network give it a substantial competitive advantage over the Company.
The SCT has granted long distance concessions to nine other companies, including
joint ventures in which major international telecommunications companies such as
AT&T and MCI have significant ownership interests, and more concessions may
still be granted. Presubscription balloting is currently taking place in certain
cities, whereby telephone customers choose their long distance carrier. The
Company has chosen not to commit significant marketing resources to the
balloting process and has fared poorly in initial balloting results.
In data transmission services, the Company competes with Telmex and
Telecomm, S.A., the Mexican state entity, which operates in, and participates in
the regulation of, the Mexican data transmission industry, as well as with over
1,000 private networks.
In paging services, the Company competes with established companies such
as Comunicaciones Mtel, S.A. de C.V. ("Skytel"), Operadora Biper, S.A. de C.V.
("Biper"), Comunicacion Dinamica Metropolitana, S.A. de C.V. ("Codime"),
Marcatel S.A. de C.V. ("Marcatel") and Buscatel, S.A. de C.V. ("Buscatel"), a
subsidiary of Telmex. Certain of the Company's paging competitors have already
established nationwide paging networks, giving them a significant operational
and marketing advantage over the Company.
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Telmex and certain other competitors have significantly greater financial
and other resources than those available to the Company, which limits the
ability of the Company to compete effectively. See "-Ability to Implement New
Services" and "Business-Competition."
The Company has filed a complaint with Mexico's Comision Federal de
Competencia (the "Mexican Federal Competition Commission") 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 and discriminatory practices
against the Company. The disputes with Telmex have had and may continue to have
an adverse effect on the Company's business relationship with Telmex, which is
the largest participant in the Mexican telecommunications market. See
"Business-Legal Proceedings."
Capital Requirements
In order to implement its operating strategy through 2001, the Company
will be required to make significant expenditures. The Company expects capital
expenditures for 1997, 1998 and 1999 to total approximately U.S.$308 million.
Significant additional expenditures may be required under the terms of the
Company's concessions.
The Company believes that it has sufficient financing for its capital
expenditures in 1997 and the first half of 1998. As the Company makes additional
investments in its cellular network and pursues long distance and local
telephony opportunities (including PCS), it will need additional funds in the
second half of 1998 and beyond to the extent the Bell Atlantic Facility is not
drawn upon. The terms of the Company's concessions may also require the Company
to make certain other significant investments in its various networks for which
additional funds would be required during 1997 and 1998. There can be no
assurance as to whether the Company can obtain any such additional funds on
acceptable terms or at all. The Indenture and the Credit Facility limit the
ability of the Company to incur debt. See "-Substantial Leverage; Ability to
Service Debt," "-Rapid Technological Change," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources-Capital Expenditures," "Certain
Transactions" and "Description of Notes."
Rapid Technological Change
Inherent in the global telecommunications industry is the need to adapt to
rapid and significant changes in technology, which generally requires
significant capital expenditures. While the Company currently provides cellular
service primarily using analog technology, it has, in order to remain
competitive, already begun to implement digital technology and plans to begin
implementing a CDMA overlay in the first quarter of 1998. There can be no
assurance that CDMA or any other digital technology selected by the Company in
its cellular business will not be challenged by competition from new or improved
digital technologies supporting cellular service or other services such as PCS
in the near future or that technological changes will not adversely affect the
Company's competitive position or require write-downs of obsolete technology. In
connection with the planned CDMA overlay, the Company may record substantial
non-cash losses relating to the write-off of assets deployed in its existing
network. PCS auctions are scheduled by the Mexican government for the fall of
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Local Telephony in the 450 MHz Frequency Band; CDMA
Overlay" and "-Liquidity and Capital Resources-Capital Expenditures" and
"Business-Network and Equipment-Cellular Services."
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Risks of Expansion
The Company's strategy contemplates the pursuit of strategic opportunities
in the wireless business in Mexico, and the Company is currently pursuing
several such opportunities (although to date no agreements with respect to such
opportunities have been entered into). The Company's strategy also contemplates
expanding into new telecommunications services, including PCS. Iusacell
currently intends to participate in the auction for PCS bandwidth scheduled by
the Mexican government for the fall of 1997. Each of these opportunities and new
business ventures will require the devotion of substantial management resources
and may require significant capital investments. Furthermore, such opportunities
will be subject to risks inherent in the integration of new business enterprises
into the Company's existing operations. There can be no assurance that any of
the strategic opportunities will be consummated. Moreover, the Company may incur
significant costs and expenses in connection with the consummation and
implementation of these opportunities. There can be no assurance that these
expenditures will ultimately result in the integration of profitable operations
with the Company's existing business. See "Business-Business Strategy."
Ability to Implement New Services
The ability of the Company to expand its paging and long distance services
and to implement local telephony services, including PCS, in accordance with its
plans will depend on a number of factors over which the Company has limited or
no control. These factors include, among others, the Company's ability to
acquire concessions for spectrum at commercially acceptable prices, raise
sufficient capital, obtain required governmental approvals, negotiate reasonable
interconnection agreements, obtain certain rights of way for fiber optic cables,
successfully deploy certain technologies, secure leases for base stations, hire
additional qualified personnel and develop an adequate customer base. Any of
these factors could cause significant delays in, or impede or reduce the scope
of, the implementation of the new services.
The Company 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 the Company
reached agreement on a process by which the Company could obtain a concession
issued and recognized by the SCT to provide local wireless service in the 450
MHz frequency band. The Company's ability to implement local wireless service in
the 450 MHz frequency band is conditioned upon the acquisition of concessions to
provide such service at a commercially acceptable cost (which will be affected
by the outcome of the auctions in the 450 MHz and 1.9 GHz (PCS) frequency bands
scheduled for the fall of 1997) as well as the approval by the SCT of the
Company's technical and economic plans for such service. There can be no
assurance that such concessions can be acquired at a commercially acceptable
cost or that such approval will be granted. In the alternative, the Company may
consider providing local telephony service in other frequency bands. Any such
service could also require regulatory approvals and the payment of substantial
fees to acquire or modify concessions, and the Company may record substantial
non-cash losses in connection with write-downs of assets related to its 450 MHz
local wireless service. There can be no assurance that any approval which may be
required in connection with any such service would be granted. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Local
Telephony in the 450 MHz Frequency Band; CDMA Overlay" and "Business-Other
Services-Local Telephony."
Cellular Fraud
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. In addition to loss of revenue as a
result of fraudulent use, the Company also suffers cash costs due to its
obligation to reimburse carriers for the cost of services provided to fraudulent
users accessing long distance services or out-roaming in the region of another
operator. These cash costs approximated Ps. 32.6 million (U.S.$4.0 million) in
1996 and Ps. 9.6 million (U.S.$1.2 million) in the first quarter of 1997.
Reports have appeared that there has been an increase in cellular fraud.
Although technology has been developed to combat the fraudulent use of
telecommunications networks, it does not eliminate fraudulent use entirely.
Significant expenditures are required periodically to acquire and utilize
anti-fraud technology. For the year ended December 31, 1996, costs incurred by
the Company in the prevention of fraud were approximately Ps. 1.6 million
(U.S.$0.2 million), and the Company expects to spend approximately Ps. 25.4
million (U.S.$3.2 million) in 1997 for fraud prevention. While the Company makes
use of anti-fraud technology and plans to introduce enhancements in 1997, it
still expects to have substantial costs due to cellular fraud. There can be no
assurance
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that fraud or the costs of anti-fraud initiatives will not have an adverse
effect upon the Company's business, financial condition and results of
operations.
Mexican Government Regulation
The terms of the concessions pursuant to which the Company provides its
services are subject to government regulation. There can be no assurance that
additional concessions to provide services similar to or the same as those
provided or expected to be provided by the Company will not be granted to
potential competitors, or that the value of the Company's concessions will not
otherwise be affected by government action.
The Mexican government, through the SCT, has granted concessions to
certain of the Company's subsidiaries to provide cellular communications service
in four different regions. The SCT has the right to terminate a concession,
without compensation, before the expiration of its term in the event a
concessionaire fails to perform its obligations under, or violates the terms of,
the concession or applicable law. The Mexican government, through the SCT, may
also temporarily seize all assets related to a concession in the event of
natural disaster, war, significant public disturbance or threats to internal
peace and for other reasons of economic or public order. In addition, the
Mexican government has the statutory right to expropriate any concession and
claim all assets related thereto for reasons of public interest (rescate).
Mexican law provides for compensation in connection with losses and damages
related to temporary seizure or expropriation. However, there can be no
assurance as to the adequacy or timing of compensation obtained in any such
case. See "Business-Government Regulation."
The Company is also subject to regulation by the SCT with respect to its
paging, long distance and local telephony services and its microwave
transmission facilities. As with its cellular concessions, the Company's right
to operate these services and facilities is subject to compliance with various
conditions specified in the concessions and applicable law, and such concessions
may be revoked, temporarily seized or expropriated in terms similar to those
described in the prior paragraph. The Company has not yet received the
concession or SCT approval of its technical and economic plans necessary to
commercialize local wireless services using the 450 MHz frequency band. See
"-Ability to Implement New Services." The Mexican government intends to auction
bands of frequencies for microwave links within the next thirty days. The
Company currently intends to participate in such auctions.
Finally, if the Company were to be deemed by the SCT and the Comision
Federal de Telecomunicaciones (the "Mexican Federal Telecommunications
Commission") to be a dominant carrier within a particular telecommunications
service, then the Company could also be subject to, among other things,
obligations relating to maximum prices and minimum service quality.
Relationship with Principal Shareholders
Pursuant to the bylaws of Iusacell, Bell Atlantic has the ability to
determine the outcome of any action requiring the approval of the Company's
shareholders, except that the concurrence of Carlos Peralta Quintero and his
affiliated companies (collectively, the "Peralta Group") is required in order to
change the nationality, corporate nature or corporate purpose of the Company, to
amend the Company's bylaws, to merge or dissolve the Company, to spin off parts
of the Company, to increase or reduce the fixed capital of the Company, to issue
bonds or preferred capital stock, to redeem shares of capital stock, to cancel
the registration of the Series L Shares of the Company on the Mexican Stock
Exchange or any other securities exchange, to sell or acquire, or exercise
withdrawal rights with respect to, shares of other companies if the relevant
consideration exceeds 20% of the stockholders' equity of the Company and with
respect to any other matter which pursuant to applicable law or the Company's
bylaws may require a special quorum at the relevant shareholders' meeting. In
addition, Bell Atlantic and the Peralta Group have entered into a shareholders
agreement which, among other things, governs the appointment of the Company's
board of directors and grants the Peralta Group the right to approve certain
actions of the Company. See "Controlling Shareholders."
In early 1996, Carlos Peralta, formerly Vice Chairman of the Board of
Directors of the Company and currently a Director of the Company, publicly
stated that he had, in April 1994, transferred U.S.$50.0 million to bank
accounts controlled by Raul Salinas de Gortari, for an investment in a venture
capital fund to be organized by Mr. Salinas. Mr. Salinas, brother of the former
President of Mexico, currently faces charges in connection with the
assassination of a prominent politician, as well as charges of "inexplicable
enrichment" (which is a crime under Mexican law), related to
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more than U.S.$100.0 million allegedly being held by him in non-Mexican bank
accounts under an assumed name. Mr. Salinas may also face other criminal
charges, such as tax evasion. Various press reports in Mexico and
internationally have speculated that the U.S.$50.0 million transfer may have
represented payment for governmental favors and not an investment in a venture
capital fund. Mr. Peralta has denied such allegations. The Company has not made
any payments to Mr. Salinas, and is not aware of any wrongdoing by Mr. Peralta.
The Company is of the opinion that all concessions it holds were granted
in compliance with applicable Mexican laws. However, there can be no assurance
that Mexican governmental authorities will not attempt to challenge the validity
of the concessions or to take other actions that could be detrimental to the
Company with respect to its concessions. Nor can there be any assurance that Mr.
Peralta's alleged involvement with Mr. Salinas or other factors will not result
in a forced divestiture or attachment of Mr. Peralta's holding in the Company.
Apparently prompted by Mr. Peralta's disclosure, in February 1996 the
Mexican federal tax authorities started tax audits on the Company, certain
subsidiaries of the Company and Mr. Peralta. The Company has no reason to
believe that such audits have adversely affected or will adversely affect its
operations, financial condition or results of operations. On March 2, 1997, a
warrant for Mr. Peralta's arrest was issued following his indictment on charges
of tax evasion. Mr. Peralta obtained an injunction (amparo) against execution of
the arrest warrant and, on April 28,1997, was acquitted of all related charges.
The Secretaria de Hacienda y Credito Publico (the "Mexican Ministry of Finance")
and the Prosecutor General's Office of Mexico are appealing the acquittal.
The Company's business activities have required, and will in the future
require, licenses and approvals from the Mexican government. There can be no
assurance that Mr. Peralta's public statements and indictment and the Mexican
government's inquiries will not impact the Company's ability to obtain
concessions, licenses and approvals for business opportunities in the future,
including those required for the long distance and local telephony services, or
to obtain the renewal of existing concessions, licenses and approvals. Various
press reports had speculated that Mr. Peralta's public statements contributed to
the delay in Iusacell and the SCT reaching agreement regarding the Company's
local wireless service in the 450 MHz frequency band.
Additionally, there can be no assurance that the publicity surrounding Mr.
Peralta's statements or indictment will not have a negative impact on consumer
perceptions of the Company and will not adversely affect the Company's business,
financial condition and results of operations.
Dependence on Bell Atlantic Personnel
The majority of the Company's senior management team, including its Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer, are
employees of Bell Atlantic whose services are provided to Iusacell on a
consulting or seconded basis. If these employees were not made available to
Iusacell by Bell Atlantic (because Bell Atlantic was no longer the controlling
shareholder of Iusacell or otherwise), the Company's results of operations and
financial condition could be materially adversely affected. See "Management" and
"Certain Transactions."
Different Accounting Standards
Mexican companies listed on the Bolsa Mexicana de Valores, S.A. de C.V.
(the "Mexican Stock Exchange"), including Iusacell, must prepare their financial
statements in accordance with Mexican GAAP, which differs in significant
respects from U.S. GAAP, including the treatment of minority interest, deferred
income taxes, capitalized pre-operating expenses and revenues for the Company's
450 MHz local wireless project, extraordinary charges and the resulting changes
in gains and losses in monetary positions. 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 19 to the Audited Consolidated Financial
Statements.
Consequences of Failure to Exchange
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Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange; Resale of New Notes."
Possible Limitations on Sale of New Notes
To comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company has
agreed to register or qualify the sale of the New Notes in such jurisdictions
only in limited circumstances and subject to certain conditions. See "The
Exchange Offer--Consequences of Failure to Exchange; Resale of New Notes."
Transfer of New Notes Only in Accordance with DTC Procedures
Ownership of beneficial interests in the New Notes will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by DTC or its nominee and the records of DTC's participants. The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Those laws may impair the
ability to transfer beneficial interests in the New Notes. Because DTC can only
act on behalf of participants, which in turn act on behalf of owners of
beneficial interests held through such participants and certain banks, the
ability of a person having a beneficial interest in a New Note to pledge or
transfer such interest to persons or entities that do not participate in the DTC
system may be impaired. See "Description of the Notes--Book Entry; Delivery and
Form."
Absence of Active Trading Market; Transfer Restrictions; Possible Volatility
The New Notes are new securities for which there is currently no market.
The Company presently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through NASDAQ. Although the Initial
Purchasers have informed the Company that they intend to make a market in the
New Notes, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any trading market for the New Notes.
Mexican securities are, to varying degrees, influenced 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 the securities of issuers in other countries, including Mexico. There
can be no assurance that the Notes or the Company's ability to meet its
obligations under the Notes would not be adversely affected by any such
developments.
Payment of Judgments in Pesos
Under Mexican monetary law, in the event that proceedings were brought in
Mexico seeking to enforce the Company's or a Subsidiary Guarantor's obligations
under the Notes or the Subsidiary Guarantees, the Company or such Subsidiary
Guarantor would not be required to discharge such obligations in a currency
other than Mexican currency. An obligation in a currency other than Mexican
currency, which is payable in Mexico, may be satisfied in Mexican currency at
the rate of exchange in effect on the date and in the place payment occurs. The
applicable exchange rate is currently determined by Banco de Mexico every
banking day in Mexico and published the following banking day in the Diario
Oficial de la Federacion.
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Forward-Looking Information is Subject to Risk and Uncertainty
This Prospectus contains forward-looking statements. These forward-looking
statements reflect the Company's views with respect to 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 set forth 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 speak only as of their
dates. The Company undertakes 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."
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RATINGS
The Company's senior indebtedness has been rated B+ by Standard & Poor's
Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P") and B2 by
Moody's Investors Service, Inc. ("Moody's", and together with S&P, the "Rating
Agencies").
Future events, such as events affecting the Company, could have an adverse
impact on the ratings of the Notes. There is no assurance that any such rating
will continue for any period of time or that it will not be reviewed, revised,
suspended or withdrawn entirely by the applicable Rating Agency as a result of
changes in, or unavailability of, information if, in such Rating Agency's
judgment, circumstances so warrant. There is no obligation on the part of the
Company or any other person to maintain any particular rating of the Notes.
There can be no assurance that any of the Rating Agencies will provide
surveillance or that, even if any of the Rating Agencies commence providing
surveillance that, they will continue to do so. Changes affecting the Company
may have an adverse effect on the rating of the Notes, and thus the market value
of the Notes.
A security rating is not a recommendation to buy, sell or hold securities.
Each security rating should be considered independently of similar ratings on
different securities. There can be no assurance as to whether any rating agency
not requested to rate the Notes will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Notes by a rating agency that has
not been requested by the Company to do so may be lower than the ratings
assigned by the Rating Agencies.
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THE EXCHANGE OFFER
General
The Company hereby offers upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to U.S.$150.0 million aggregate principal amount of New Notes for a
like aggregate principal amount of Old Notes, properly tendered on or prior to
the Expiration Date and not withdrawn as permitted pursuant to the procedures
described below. The Exchange Offer is being made with respect to all of the Old
Notes. The New Notes evidence the same debt as the Old Notes and are issued
under and are entitled to the same benefits under the Indenture as the Old
Notes.
As of the date of this Prospectus, U.S.$150.0 million aggregate principal
amount of the Old Notes was outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about [ ], 1997, to all
registered holders of Old Notes. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "--Certain Conditions to the Exchange Offer" below and to the terms
and provisions of the Registration Rights Agreement (as defined below).
Purpose of the Exchange Offer
The Old Notes were issued by the Company on July 25, 1997 in transactions
exempt from the registration requirements of the Securities Act. Accordingly,
the Old Notes may not be offered, resold, or otherwise transferred in the United
States unless so registered or unless an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the Old Notes, the Company
entered into an Exchange and Registration Rights Agreement, dated as of July 15,
1997 (the "Registration Rights Agreement"). The Registration Rights Agreement
requires the Company to file with the Commission a registration statement
relating to the Exchange Offer within 75 calendar days after the issue date of
the Old Notes, and to use its best reasonable efforts to cause the registration
relating to the Exchange Offer to become effective under the Securities Act
within 150 calendar days after the issue date of the Old Notes and the Exchange
Offer to be consummated within 180 calendar days after the issue date of the Old
Notes. The Exchange Offer is being made by the Company to satisfy its
obligations with respect to the Registration Rights Agreement.
Expiration Date; Extension; Termination; Amendment
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1997, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date"). The Company expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open, and thereby delay acceptance for exchange of
any Old Notes, by giving oral notice (promptly confirmed in writing) or written
notice to the Exchange Agent and by giving written notice of such extension to
the holders thereof or by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release through
the Dow Jones News Service, in each case, no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or to
amend the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the events
specified below under "--Certain Conditions to the Exchange Offer". If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Old Notes as promptly as practicable in the manner set forth above with
respect to an extension of the Expiration Date.
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For purposes of the Exchange Offer, a "business day" means any day other
than a Saturday, a Sunday or a date on which banking institutions in New York
City are not required to be open, and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Procedures For Tendering Old Notes
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal.
Except as set forth below, a holder of Old Notes who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal to the Exchange Agent at the address set
forth in such Letter of Transmittal 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 the Letter of Transmittal, 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 OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO OLD NOTES NOR THE LETTER OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on the Letter of Transmittal 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" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on the
Letter of Transmittal 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. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or a correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of the person other than
a signer of the Letter of Transmittal, the Old Notes surrendered for exchange
must 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 thereof with the
signature thereon guaranteed by an Eligible Institution.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by (i) 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) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Old Notes tendered pursuant to a Notice
of Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
timely deposit of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and
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conditions of the Exchange Offer as to any particular Old Notes either before or
after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being acquired
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, that neither the holder nor any such
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder nor any such other
person is an "affiliate" as defined under Rule 405 of the Securities Act, of the
Company, or if it is an affiliate it will comply with the registration and
prospectus requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes 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 New
Notes. See "Plan of Distribution."
Book-Entry Transfer
The Exchange Agent will make a request within two business days after the
date of this Prospectus to establish accounts with respect to the Old Notes at
the Book-Entry Transfer Facility. The Book-Entry Transfer Facility for the
purpose of facilitating the Exchange Offer, and, subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's systems, may make book-entry delivery of Old Notes by
causing the transfer of such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, the Letter of Transmittal with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures.
Guaranteed Delivery Procedures
If a holder of Old Notes desires to accept the Exchange Offer and time
will not permit the Letter of Transmittal or Old Notes to reach the Exchange
Agent 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 Exchange Agent
has received at its address set forth below on or prior to the Expiration Date,
a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Notes are registered and, if possible, the certificate numbers of the
Old Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation of such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes being tendered
by the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of Notice of Guaranteed Delivery which may be
used by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
31
<PAGE>
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal, sent by
telegram, telex, facsimile transmission (receipt confirmed by telephone) or
letter must be received by the Exchange Agent prior to the Expiration Date at
its address set forth below. Any such notice of withdrawal must specify the 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 of Old Notes have been transmitted) specify the name 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
identified 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. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, which 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. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the holder thereof) as soon as
practicable after such 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 Old Notes" above
at any time on or prior to the Expiration Date.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Old
Notes properly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date and will issue the New Notes promptly after such acceptance. See
"--Certain Conditions to the Exchange Offer" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted properly tendered Old Notes
for exchange when, as and if the Company has given oral and written notice
thereof to the Exchange Agent, with written confirmation of any oral notice to
be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that the surrendered Old
Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed appropriate
Letter of Transmittal and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer, such unaccepted Old Notes will be returned without expense
to the tendering holder thereof or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
unaccepted Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration of
the Exchange Offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
32
<PAGE>
(i) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or any governmental agency seeking to restrain or
prohibit or prevent the Company from proceeding with the Exchange Offer or
assessing or seeking any damages as a result thereof, or that might result
in a material adverse effect on the contemplated benefits of the Exchange
Offer to the Company; or
(ii) there shall be proposed, enacted, promulgated or deemed applicable to
the Exchange Offer by any government or governmental agency or authority
any law or regulation, including any applicable interpretation of the
staff of the Commission, that might in the sole judgment of the Company
result in any of the consequences described in clause (i).
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable judgment. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement, of which this Prospectus constitutes a part, or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA"). In any such event the Company is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
Exchange Agent
First Union National Bank has been appointed as the Exchange Agent for the
Exchange Offer. All tendered Old Notes, the executed Letter of Transmittal, and
other related documents should be directed to the Exchange Agent at the address
set forth in the Letter of Transmittal. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent at the address set forth in the Letter of Transmittal.
First Union National Bank also acts as Trustee under the Indenture.
Solicitation of Tenders; Fees and Expenses
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately U.S.$300,000, which includes fees and expenses of the Exchange
Agent, Trustee, registration fees, accounting, legal, printing and related fees
and expenses.
No person has been authorized to give information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not
33
<PAGE>
being made to (nor will tenders be accepted from or on behalf of) holders of Old
Notes in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith except that holders who instruct
the Company to register New Notes in the name of, or request Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon. See "Mexican Taxation--Exchange Offer."
Accounting Treatment
The New Notes will be recorded at the carrying value of the Old Notes as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting principles will be recognized by the
Company upon the exchange of New Notes for Old Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
Consequences of Failure to Exchange; Resale of New Notes
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Old Notes not exchanged pursuant to
the Exchange Offer will continue to remain outstanding in accordance with their
terms. In general, the Old Notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Notes under the Securities Act. However, (i) if an Initial Purchaser so requests
with respect to Old Notes not eligible to be exchanged for New Notes in the
Exchange Offer and held by it following consummation of the Exchange Offer or
(ii) if any holder of Old Notes is not eligible to participate in the Exchange
Offer or, in the case of any holder of Old Notes that participates in the
Exchange Offer, does not receive freely tradeable New Notes in exchange for Old
Notes, the Company is obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Old Notes held by such
persons.
Based on certain no-action letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
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 or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. Thus,
any New Notes acquired by such holder will not be freely transferable except in
compliance with the Securities Act. A broker-dealer who holds Old Notes that
were acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Notes.
Each such broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
in the Letter of Transmittal that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights
34
<PAGE>
Agreement and subject to certain specific limitations therein, to register or
qualify the New Notes for offer or sale under the securities or blue sky laws of
such jurisdictions as any holder of the Old Notes reasonably requests in
writing.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of the Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and limitations applicable thereto, under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
the Exchange Offer. See "Description of Notes". All untendered Old Notes will
continue to be subject to the restrictions on transfer set forth in the
applicable Indenture. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered Old Notes could be
adversely affected.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes which are
not tendered in the Exchange Offer.
35
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby, the terms of which are identical in all material
respects to those of the Old Notes. The issuance of the New Notes will not
result in any change in the aggregate indebtedness of the Company.
The net proceeds from the sale of the Old Notes under the Offering of
approximately U.S.$143.9 million (after deducting discounts and other expenses
of the Offering), together with borrowings under the Credit Facility has been
applied to: (i) repay the Banco Mexicano Facility and related interest in an
amount equal to U.S.$44.7 million, (ii) repay the Banamex Facility and related
interest, in an amount equal to U.S.$29.0 million, (iii) repay the Chase
Facility and related interest in an amount equal to U.S.$65.4 million, (iv)
repay the Banco del Atlantico Facility and related interest in an amount equal
to U.S.$46.0 million, (v) repay the BANZHI Loans and related interest in an
amount equal to U.S.$25.7 million and (vi) fund capital expenditures to upgrade
its network infrastructure, including the implementation of a CDMA overlay,
build out its cellular, long distance, local telephony and paging networks,
redesign Iusacell-owned and operated customer service centers and support
existing operations and new business opportunities. The actual amount of capital
expenditures to be made will depend upon, among other factors, the acquisition
of spectrum in the 450 MHz, 1.9 GHz (PCS) or microwave frequency bands by
concession, lease or otherwise, the receipt of any required government
concessions, permits or authorizations, market demand for services, the receipt
of rights of way and the leasing of any required facilities or land. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources -Capital Expenditures."
The Banco Mexicano Facility consisted of two loans maturing on January 28,
2004 and November 14, 2004 and having accrued interest at annual rates of the
six-month London Interbank Offering Rate ("LIBOR") plus 4.00% and six-month
LIBOR plus 3.75%, respectively. The Banamex Facility consisted of five loans
maturing on March 31, 1998, September 19, 2001, December 15, 2001, April 15,
2002 and July 15, 2002 and having accrued interest at annual rates of seven-year
Treasury Notes plus 5.00%, six-month LIBOR plus 2.94%, six-month LIBOR plus
2.94%, Banamex's funding rate plus 2.00% and 12.55%, respectively. The Chase
Facility matured on July 31, 1997 and accrued interest at an annual rate of
30-day LIBOR plus 5.00%. The Banco del Atlantico Facility consisted of two loans
which matured on August 22, 1997 and September 7, 1997 and accrued interest at
annual rates of six-month LIBOR plus 4.00%. The proceeds of the loans under the
Banco del Atlantico Facility have been used to fund capital expenditures. The
BANZHI Loans consisted of five subordinated demand notes having accrued interest
at annual rates of one-month or six-month LIBOR plus 4.00% or 5.00%. The
proceeds of the BANZHI Loans have been used for working capital purposes.
Chase is an affiliate of Chase Securities Inc., one of the Initial
Purchasers.
Pending the application of the proceeds to fund capital expenditures, the
Company may use such proceeds to reduce short-term and dollar denominated
borrowings and will otherwise invest such funds in high-quality liquid
short-term obligations.
36
<PAGE>
EXCHANGE RATES
This Prospectus contains translations of certain Peso amounts into U.S.
dollars at specified rates solely for the convenience of the reader. 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, or at all. The following table sets forth, for
the periods indicated, the high, low, average and period-end free market rate,
or, as the case may be, Noon Buying Rate (as defined), all expressed in nominal
Pesos per U.S. dollar. The Federal Reserve Bank of New York commenced
publication of the Noon Buying Rate on November 8, 1993. The Noon Buying Rate at
October 28, 1997 was Ps. 8.3500 to U.S.$1.00.
Free Market/Noon Buying Rate(1)
-------------------------------
High Low Average(2) Period-End
---- --- ---------- ----------
Year ended December 31, 1992........ 3.183 3.060 3.094 3.183
Year ended December 31, 1993........ 3.240 3.102 3.124 3.108
Year ended December 31, 1994(3)..... 5.750 3.105 3.385 5.000
Year ended December 31, 1995........ 8.050 5.270 6.447 7.740
Year ended December 31, 1996........ 8.045 7.325 7.600 7.881
Nine months ended September 30, 1997 8.030 7.725 7.874 7.766
(1) Source: Banco de Mexico through November 7, 1993; Federal Reserve Bank of
New York since November 8, 1993.
(2) Average of month-end rates.
(3) Beginning on December 22, 1994, Banco de Mexico discontinued regular open
market transactions to stabilize the Peso.
Except for the period from September through December 1982 during a
liquidity crisis suffered by Mexico, Banco de Mexico, the Mexican central bank,
consistently has made foreign currency available to Mexican private sector
entities (such as the Company) to meet their foreign currency obligations.
Nevertheless, in the event of renewed shortages of foreign currency, there can
be no assurance that Banco de Mexico would continue to make foreign currency
available to private sector companies or individuals, or that foreign currency
needed by the Company to service foreign currency obligations, including the
Notes, could be purchased in the open market without substantial additional
cost. See "Risk Factors-Peso Devaluation; Exchange Controls."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for each year in the five-year period ended December
31, 1996 in accordance with Mexican GAAP and for each year in the two-year
period ended December 31, 1996 in accordance with U.S. GAAP. The ratio of
earnings to fixed charges covers continuing operations, and for this purpose (a)
earnings consist of income (loss) before income taxes plus fixed charges and (b)
fixed charges consist of interest expense on all debt (including capitalized
interest), amortization of defined financing costs and a percentage of rental
expense deemed to be interest. Earnings were inadequate to cover fixed charges
in 1993, 1994, 1995 and 1996. The fixed charge coverage deficiency for the years
1993, 1994, 1995 and 1996 in accordance with Mexican GAAP amounted to Ps. 201.0
million (U.S.$25.3 million), Ps. 1.2 billion (U.S.$150.4 million), Ps. 1.4
billion (U.S.$177.2 million) and Ps. 320.7 million (U.S.$40.4 million),
respectively. The fixed charge coverage deficiency for the years 1995 and 1996
in accordance with U.S. GAAP amounted to Ps. million (U.S.$ million) and Ps.
million (U.S.$ million), respectively.
Year ended December 31,
-----------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
Mexican GAAP................................ 2.0x - - - -
U.S. GAAP................................... - - -
37
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Iusacell and its
consolidated subsidiaries as of March 31, 1997 and as adjusted to give effect to
the Financing and the use of proceeds thereof. This table should be read in
conjunction with "Use of Proceeds," "Selected Historical and Pro Forma
Consolidated Financial and Operating Data," "Unaudited Pro Forma Consolidated
Financial 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>
March 31, 1997 March 31, 1997
----------------------- -----------------------------
Actual As Adjusted Actual As Adjusted
----------- ----------- ------------ ----------------
(Millions of constant (Millions of U.S. dollars)(1)
March 31, 1997 Pesos)
<S> <C> <C> <C> <C>
Cash ............................... Ps. 58.0 Ps. 712.5 U.S.$ 7.3 U.S.$ 89.8
=========== =========== =========== ===========
Short-term debt:(2)
Chase Facility ..................... Ps. 514.3 Ps. -- U.S.$ 64.8 U.S.$ --
Banco del Atlantico Facility ....... 278.3 -- 35.1 --
Banco Mexicano Facility ............ 0.7 -- 0.1 --
BANZHI Loans ....................... 51.5 -- 6.5 --
Current maturities of long-term debt 105.9 -- 13.4 --
----------- ----------- ----------- -----------
Total short-term debt ........ 950.7 -- 119.9 --
Long-term debt:(2)
Banco Mexicano Facility ............ 320.4 -- 40.4 --
Banamex Facility ................... 183.8 -- 23.2 --
Finance lease facility(3) .......... 2.2 2.2 0.3 0.3
Term Facility(4) ................... -- 991.3 -- 125.0
Notes offered hereby ............... -- 1,189.5 -- 150.0
----------- ----------- ----------- -----------
Total long-term debt ......... 506.3 2,183.0 63.9 275.3
Stockholders' equity:
Contributed capital ................ 5,867.1 5,867.1 739.9 739.9
Earned capital ..................... (2,034.0) (2,034.0) (256.5) (256.5)
Minority interest .................. 5.1 5.1 0.6 0.6
----------- ----------- ----------- -----------
Total stockholders' equity ... 3,838.2 3,838.2 484.0 484.0
----------- ----------- ----------- -----------
Total capitalization ......... Ps. 5,295.2 Ps. 6,021.2 U.S.$ 667.8 U.S.$ 759.3
=========== =========== =========== ===========
</TABLE>
- ----------
(1) Peso amounts were converted to U.S. dollars at the Noon Buying Rate of Ps.
7.9300 per U.S.$1.00 on March 31, 1997. 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-Peso Devaluation; Exchange
Controls."
(2) All of the Company's short and long-term debt is denominated in U.S.
dollars.
(3) Represents vendor financing for handsets.
(4) In addition to the Company's $125.0 million Term Facility, the Revolving
Credit Facility will permit borrowings in an aggregate principal amount of
up to $100.0 million, all of which will be available at the closing of the
Financing. The Company has also obtained a commitment from Bell Atlantic
to provide the Bell Atlantic Facility in an aggregate principal amount of
up to U.S.$150.0 million. For a discussion of the availability, terms and
conditions of the Bell Atlantic Facility, see "Certain Transactions-Bell
Atlantic Facility."
38
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL
AND OPERATING DATA
Set forth below are selected historical and pro forma consolidated
financial and operating data of the Company for each of the five fiscal years in
the period ended December 31, 1996 and for the three month periods ended March
31, 1996 and 1997, and certain pro forma financial and other data for the year
ended December 31, 1996 and the three months ended March 31, 1997.
The selected consolidated financial data of the Company as of and for each
of the years ended December 31, 1995 and 1996 have been derived from the Audited
Consolidated Financial Statements and the related notes thereto included
elsewhere herein, which have been audited by Coopers & Lybrand, Despacho Roberto
Casas Alatriste, independent accountants. The selected consolidated financial
data of the Company for the year ended December 31, 1994 has been derived from
the Audited Consolidated Financial Statements and the related notes thereto
included elsewhere herein, which have been audited by Mancera, S.C., a member of
Ernst & Young International, independent accountants (except for two
subsidiaries, whose financial statements were audited by Coopers & Lybrand,
Despacho Roberto Casas Alatriste, independent accountants, and Prieto Ruiz de
Velasco y Cia., S.C., independent accountants, respectively). The selected
consolidated financial information of the Company as of December 31, 1994 and as
of and for the years ended December 31, 1992 and 1993 has been derived from
audited consolidated financial statements of the Company which are not included
herein. The selected consolidated financial data as of and for the three months
ended March 31, 1996 and 1997 have been derived from the Unaudited Consolidated
Financial Statements and the related notes thereto included elsewhere herein,
which have been reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste,
independent accountants. Interim results for the three month period ended March
31, 1997 are not necessarily indicative of results that can be expected in
future periods. The pro forma financial data have been derived from the
Unaudited Pro Forma Consolidated Financial Information and the related notes
thereto included elsewhere herein, which have been reviewed by Coopers &
Lybrand, Despacho Roberto Casas Alatriste, independent accountants. The pro
forma information does not purport to represent what the Company's results would
have actually been if the Financing and the cost savings related to the
elimination in April 1997 of certain managerial and administrative positions had
occurred on the dates indicated nor does such information purport to project the
results of the Company for any future period.
The selected consolidated financial and other data below should be read in
conjunction with "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Prospectus. Except as otherwise indicated, all of the financial statements
included herein have been prepared in accordance with Mexican GAAP, which
differs in significant respects from U.S. GAAP. Note 19 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 and a
reconciliation to U.S. GAAP of net income and total stockholders' equity. In
accordance with Mexican GAAP, the financial statements included herein recognize
certain effects of inflation and restate data for prior periods in constant
March 31, 1997 Pesos. See Notes 3 and 4 to the Audited Consolidated Financial
Statements included elsewhere in this Prospectus. The effect of inflation
accounting under Mexican GAAP has not been eliminated in the reconciliation to
U.S. GAAP. See Note 19 to the Audited Consolidated Financial Statements.
The unaudited consolidated financial information for the second quarter
ended June 30, 1997, presented under "Recent Developments" has been prepared in
accordance with Mexican GAAP. Significant differences between Mexican GAAP and
U.S. GAAP are described in Note 19 to the Audited Consolidated Financial
Statements included elsewhere herein. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-General." For the six months
ended June 30, 1997 there were no additional differences which had not been
quantified with respect to their occurrence in the Audited Consolidated
Financial Statements as of December 31, 1994, 1995 and 1996.
Iusacell holds the non-wireline cellular concession in Region 9, and in
1993 and 1994 acquired the holders of the non-wireline cellular concessions in
each of Regions 5, 6 and 7. The financial information for the first six months
of 1993 reflects the Company's results of operations in Region 9 only. Beginning
July 1, 1993, the financial results of Regions 6 and 7 were consolidated in the
financial statements of the Company. Prior to that date, the results of those
regions were reflected in the Company's consolidated financial statements as
equity in net income (loss) in associated companies, using the equity method of
accounting. The assets and liabilities of Region 5 were consolidated into the
financial statements of the Company as of January 1, 1994 and the results of
Region 5 were not reflected in the consolidated financial statements of the
Company for 1993.
39
<PAGE>
Selected Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
1992 1993 1994 1995 1996 1996(1) 1996 1996(1)
------- ------- ------- ------- ------- ------- --------------- --------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and opera-
ting data(3))
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues ........ Ps. 1,158.7 Ps. 1,434.5 Ps. 2,003.2 Ps. 1,615.5 Ps. 1,464.0 Ps. 1,464.0 U.S.$ 184.6 U.S.$ 184.6
Telephone equipment
and other revenues ..... 72.2 128.3 273.3 287.8 236.1 236.1 29.8 29.8
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 1,230.9 1,562.8 2,276.5 1,903.3 1,700.1 1,700.1 214.4 214.4
Cost of sales:
Cost of services ........ 243.5 353.2 582.2 592.2 536.7 536.7 67.7 67.7
Cost of telephone
equipment and other .... 61.2 113.3 134.3 159.8 131.7 131.7 16.6 16.6
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 304.7 466.5 716.5 752.0 668.4 668.4 84.3 84.3
Gross profit ............... 926.2 1,096.3 1,560.0 1,151.3 1,031.7 1,031.7 130.1 130.1
Operating expenses ......... 469.3 628.1 969.1 840.7 736.5 693.7 92.9 87.5
Depreciation and
amortization ............ 124.3 241.8 583.2 669.7 604.6 614.8 76.2 77.5
------- ------- ------- ------- ------- ------- ------- -------
Operating profit (loss) .... 332.6 226.4 7.7 (359.1) (309.4) (276.8) (39.0) (34.9)
Integral financing cost
(gain):
Interest expense, net ... 175.5 295.5 204.0 173.3 281.1 194.3 35.4 24.5
Foreign exchange (gain)
loss, net .............. 19.8 18.9 524.7 705.2 (62.1) (56.5) (7.8) (7.1)
Gain on net monetary
position ............... (66.7) (121.1) (50.0) (501.6) (348.3) (348.3) (43.9) (43.9)
Financing cost incurred
in the acquisition of
Regions 5, 6, and 7 .... -- 233.0 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 128.6 426.3 678.7 376.9 (129.3) (210.5) (16.3) (26.5)
Equity participation in net
(income) loss of
associated companies .... (11.6) (7.3) (3.0) 39.1 6.0 6.0 0.8 0.8
Other income ............... 23.5 3.6 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations
before asset tax,
employee profit
sharing, minority interest
and extraordinary item .. 239.1 (189.0) (668.0) (775.1) (186.1) (72.3) (23.5) (9.1)
Provisions for:
Asset tax ............... 52.0 22.9 32.5 29.1 35.2 35.2 4.4 4.4
Employee profit sharing . 3.8 -- 0.6 2.1 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total .................. 55.8 22.9 33.1 31.2 35.2 35.2 4.4 4.4
Income (loss) before
minority interest and
extraordinary item ...... 183.3 211.9 (701.1) (806.2) (221.3) (107.5) (27.9) (13.5)
Minority interest .......... -- 6.9 -- 37.0 3.2 3.2 0.4 0.4
Extraordinary item(4) ...... 17.6 -- -- -- 145.2 145.2 18.3 18.3
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) .......... Ps. 200.9 Ps. (205.0) Ps. (701.1) Ps. (769.2) Ps. (363.3) Ps. (249.5) U.S.$(45.8) U.S.$ (31.5)
======= ======= ======= ======= ======= ======= ======= =======
Other Financial Data:
EBITDA(5) .................. Ps. 457.0 Ps. 468.1 Ps. 590.9 Ps. 310.6 Ps. 295.2 Ps. 338.0 U.S.$ 37.2 U.S.$ 42.6
EBITDA margin(6) ........... 37.1% 30.0% 26.0% 16.3% 17.4% 19.9% 17.4% 19.9%
Capital expenditures ....... Ps. 740.0 Ps. 670.3 Ps. 1,229.9 Ps. 471.3 Ps. 211.2 NA U.S.$ 26.6 NA
Interest expense, net ...... 175.5 295.5 204.0 173.3 281.1 194.3 35.4 24.5
Ratio of EBITDA to
interest expense, net ... 2.6x 1.6x 2.9x 1.8x 1.1x 1.7x 1.1x 1.7x
Ratio of earnings to fixed
charges(7) .............. 2.0x -- -- -- -- -- -- --
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
1992 1993 1994 1995 1996 1996(1) 1996 1996(1)
------- ------- ------- ------- ------- ------- --------------- --------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and opera-
ting data(3))
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.......... Ps. (466.2) Ps. 196.4 Ps. (381.5) Ps.(1,444.4) Ps.(1,629.8) NA U.S.$ (205.5) NA
Property and equipment,
net................... 2,036.9 2,873.8 4,476.3 4,286.1 3,307.4 NA 417.1 NA
Total assets............. 2,880.6 6,336.3 7,888.6 7,285.6 5,961.0 NA 751.7 NA
Total debt............... 1,560.8 1,888.9 1,445.3 1,659.7 1,404.6 NA 177.1 NA
Total stockholders' equity 975.9 4,081.7 5,606.5 4,388.0 3,333.9 NA 420.4 NA
U.S. GAAP (8):
Total revenues ......................................... 2,276.5 1,903.3 1,793.3 1,793.3 226.1 226.1
Operating profit (loss) ................................ 7.7 (359.1) (635.4) (603.8) (60.3) (76.1)
Adjusted EBITDA (5) .................................... 590.9 310.6 266.9 309.7 33.6 39.0
Net loss ............................................... (685.1) (363.2) (141.7) (28.0) (17.8) (3.5)
Total assets ........................................... 7,960.3 7,933.9 6,623.2 NA 835.2 NA
Total stockholders' equity ............................. 5,433.5 3,711.2 3,012.5 NA 379.9 NA
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Data:
Subscribers:
Contract subscribers .. 114,838 127,361 194,723 208,802 161,277
Prepay subscribers .... -- -- -- 1,399 71,629
--------- --------- -------- --------- --------
Total(9) ............. 114,838 127,361 194,723 210,201 232,906
Gross subscriber additions 86,295 68,551 117,539 103,733 119,968
Average subscribers(10) .. 89,930 121,100 161,042 202,462 221,554
Contract churn(11) ....... 3.0% 3.7% 2.7% 3.6% 4.3%
Average monthly MOUs
per subscriber(12) ....... 237 211 179 140 117
Nominal average monthly
cellular revenue per
subscriber(13) ........ Ps. 736 Ps. 638 Ps. 595 Ps. 464 Ps. 490
Nominal cost to acquire a
new subscriber(14) .... Ps. 3,738 Ps. 5,808 Ps. 5,71 Ps. 6,143 Ps. 6,076
</TABLE>
41
<PAGE>
Selected Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------
Pro Forma Pro Forma
1996 1997 1997(1) 1997 1997(1)
------------ ------------ ----------- ------------ -----------
(Millions of constant March 31, 1997 Pesos, (Millions of U.S. dollars,
except ratios and operating data(2)) except ratios and
operating data(3))
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Service revenues ............................ Ps. 398.6 Ps. 318.8 Ps. 318.8 U.S. $ 40.2 U.S. $ 40.2
Telephone equipment and other revenues ...... 53.9 51.5 51.5 6.5 6.5
------------ ------------ ----------- ------------ -----------
Total .................................... 452.5 370.3 370.3 46.7 46.7
Cost of sales:
Cost of services ............................ 131.2 103.6 103.6 13.0 13.0
Cost of telephone equipment and other ....... 20.2 28.3 28.3 3.6 3.6
------------ ------------ ----------- ------------ -----------
Total .................................... 151.4 131.9 131.9 16.6 16.6
Gross profit .................................. 301.1 238.4 238.4 30.1 30.1
Operating expenses ............................ 176.8 167.3 157.0 21.1 19.8
Depreciation and amortization ................. 157.9 132.9 135.4 16.8 17.1
------------ ------------ ----------- ------------ -----------
Operating profit (loss) ....................... (33.6) (61.8) (54.1) (7.8) (6.8)
Integral financing cost (gain):
Interest expense, net ....................... 73.0 54.8 44.8 6.9 5.6
Foreign exchange (gain) loss, net ........... (49.8) 16.9 21.9 2.1 2.8
Gain on net monetary position ............... (167.1) (111.6) (111.6) (14.0) (14.0)
------------ ------------ ----------- ------------ -----------
Total .................................... (143.9) (39.9) (44.9) (5.0) (5.7)
Equity participation in net income (loss) of
associated companies ........................ 0.1 (0.3) 0.3 -- --
Other income .................................. -- -- -- --
Income (loss) from continuing operations before
asset tax, employee profit sharing, minority
interest and extraordinary item ............. 110.2 (21.6) (8.9) (2.8) (1.1)
Provisions for:
Asset tax ................................... 8.2 10.8 10.8 1.3 1.3
Employee profit sharing ..................... -- -- -- -- --
------------ ------------ ----------- ------------ -----------
Total .................................... 8.2 10.8 10.8 1.3 1.3
Income (loss) before minority interest and
extraordinary item .......................... 102.0 (32.4) (19.7) (4.1) (2.5)
Extraordinary item(4) ......................... -- -- -- -- --
Minority interest ............................. 3.9 0.2 0.2 -- --
------------ ------------ ----------- ------------ -----------
Net income (loss) ............................. Ps. 105.9 Ps. (32.2) Ps. (19.5) U.S. $ (4.1) U.S. $ (2.5)
============ ============ =========== ============ ===========
Other Financial Data:
EBITDA(5) ..................................... Ps. 124.3 Ps. 71.1 Ps. 81.4 U.S. $ 9.0 U.S. $ 10.3
EBITDA margin(6) .............................. 27.5% 19.2% 22.0% 19.2% 22.0%
Capital expenditures .......................... Ps. 13.2 Ps. 31.6 NA U.S. $ 4.0 NA
Interest expense, net ......................... 73.0 54.8 44.8 6.9 5.6
Ratio of EBITDA to interest expense, net ...... 1.7x 1.3x 1.8x 1.3x 1.8x
Ratio of earnings to fixed charges(7) ......... 2.5x -- -- -- --
Balance Sheet Data:
Working capital ............................... Ps. (1,348.3) Ps. (1,232.2) Ps. 373.1 U.S. $(155.4) U.S. $ 47.0
Property and equipment, net ................... 3,912.6 3,353.4 3,353.4 422.9 422.9
Total assets .................................. 6,782.0 6,018.9 6,744.7 759.0 850.5
Total debt .................................... 1,668.5 1,457.0 2,183.0 183.8 275.3
Total stockholders' equity .................... 4,103.8 3,838.2 3,838.2 484.0 484.0
</TABLE>
42
<PAGE>
Three Months Ended March 31,
-------------------------------------
1996 1997
------------------ ----------------
Operating Data:
Subscribers:
Contract subscribers.................... 208,714 162,855
Prepay subscribers...................... 2,163 87,872
--------- ---------
Total(9)............................. 210,877 250,727
Gross subscriber additions................ 20,354 32,951
Average subscribers(10)................... 210,539 241,817
Contract churn(11)........................ 3.9% 3.1%
Average monthly MOUs per subscriber(12)... 126 108
Nominal average monthly cellular revenue per
subscriber(13).......................... Ps. 516 Ps. 469
Nominal cost to acquire a new subscriber(14) Ps. 6,899 Ps. 5,057
43
<PAGE>
Notes to Selected Historical and
Pro Forma Consolidated Financial and Operating Data
(1) The pro forma statement of operating data for the year ended December 31,
1996 and the three months ended March 31, 1997 give effect to the
Financing, as well as to the cost savings resulting from the elimination
in April 1997 of certain managerial and administrative positions as though
they had occurred as of January 1, 1996. The pro forma balance sheet data
as of December 31, 1996 and March 31, 1997 give effect to the Financing as
though it had occurred as of December 31, 1996 and March 31, 1997,
respectively. See "Unaudited Pro Forma Consolidated Financial
Information."
(2) Pursuant to Mexican GAAP, financial data for all periods included herein
have, unless otherwise indicated elsewhere herein, been restated in
constant March 31, 1997 Pesos. Restatement into constant March 31, 1997
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 March 31, 1997. The inflation index used
in this Prospectus for 1992 figures is 2.3754, for 1993 figures is 2.1993,
for 1994 figures is 2.0544, for 1995 figures is 1.3519, for December 31,
1996 figures is 1.0586 and for March 31, 1996 figures is 1.2477.
(3) Peso amounts were converted to U.S. dollars at the exchange rate of Ps.
7.9300 per U.S.$1.00 reported as the Noon Buying Rate on March 31, 1997.
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-Peso
Devaluation; Exchange Controls."
(4) For 1996, the extraordinary item represents restructuring expenses
associated with the reorganization of and change in management control of
the Company, the write off of certain obsolete network equipment and an
additional reserve for doubtful accounts. See Notes 2, 4(d) and 8(b) to
the Audited Consolidated Financial Statements.
(5) "EBITDA" is defined herein as operating profit (loss) plus the sum of
depreciation, amortization and, under U.S. GAAP, non-cash items, and is
presented because the Company believes that EBITDA provides useful
information regarding the Company's debt service ability. EBITDA as
presented in this Prospectus (under both Mexican GAAP and U.S. GAAP)
differs from EBITDA as defined in the Indenture. EBITDA in this Prospectus
has not been reduced to reflect the additional expenses the Company would
have incurred had Iusacell expensed, rather than, as is its current
practice under Mexican GAAP and as is permitted under U.S. GAAP, amortized
(over 18 months) the cost of cellular telephones Iusacell gives to its
contract customers. These additional expenses will be deducted from the
determination of EBITDA under the Indenture. EBITDA under U.S. GAAP would
be decreased by the amount of capitalized pre-operating expenses (net of
capitalized pre-operating revenues) for Iusacell's 450 MHz local wireless
subsidiary which, beginning in 1996, are expensed. Under Mexican GAAP,
these net pre-operating expenses are capitalized. Adjusted EBITDA under
U.S. GAAP in this Prospectus is "adjusted" from EBITDA under U.S. GAAP by
not expensing these pre-operating amounts, which adjustment is consistent
with EBITDA under the Indenture as the Company's local 450 MHz wireless
subsidiary will be an Unrestricted Subsidiary under the Indenture. For the
year ended December 31, 1996, Adjusted EBITDA under U.S. GAAP is different
from EBITDA under Mexican GAAP in that the amount of a reserve for
employee severance is expensed under U.S. GAAP (with a corresponding
decrease in Adjusted EBITDA), while such reserve amount is considered an
extraordinary item under Mexican GAAP (with no effect on EBITDA). See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 19 to the Audited Consolidated Financial
Statements. EBITDA should not be considered in isolation or as a
substitute for the consolidated income statements or the consolidated
statements of changes in financial position prepared in accordance with
Mexican GAAP or as a measure of profitability or liquidity.
(6) EBITDA margin is calculated by dividing EBITDA by the total revenues for
the respective period.
(7) The ratio of earnings to fixed charges covers continuing operations, and
for this purpose (a) earnings consist of income (loss) before income taxes
plus fixed charges and (b) fixed charges consist of interest expense on
all debt (including capitalized interest), amortization of deferred
financing costs and a percentage of rental expense deemed to be interest.
Earnings were inadequate to cover fixed charges in 1993, 1994, 1995, 1996
and the first three months of 1997. The fixed charge coverage deficiency
for the years ended December 31, 1993, 1994, 1995 and 1996 and the three
months ended March 31, 1997 amounted to Ps. 201.0 million (U.S.$25.3
million), Ps. 1.2 billion (U.S.$150.4 million), Ps. 1.4 billion
(U.S.$177.2 million), Ps. 320.7 million (U.S.$40.4 million) and Ps. 36.7
million (U.S.$4.6 million) respectively. On a pro forma basis, the fixed
charge coverage deficiency for the year ended December 31, 1996 and for
the three months ended March 31, 1997 amounted to Ps. 211.6 million
(U.S.$26.7 million) and Ps. 25.1 million (U.S.$3.2 million), respectively.
(8) See Note 19 to the Audited Consolidated Financial Statements for a
discussion of certain differences between U.S. GAAP and Mexican GAAP.
(9) Total subscribers refers to the Company's subscribers in its operating
regions at the end of the respective periods. A prepay customer is
included as a subscriber if, at the end of period, the customer's prepay
card has not yet expired. See "Business-Cellular Services-Prepay
Turnover."
(10) Average subscribers represents the rolling monthly average number of
subscribers for the respective periods.
(11) Contract churn for a given period is calculated 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. For a discussion of
prepay turnover, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Increase in Prepay Subscriber Base."
(12) Average monthly MOUs per subscriber is calculated by dividing the total
MOUs for the respective period by the average number of subscribers for
such period and dividing the quotient by the number of months in such
period.
(13) Nominal average monthly cellular revenue per subscriber is calculated by
dividing the total cellular service revenue for the respective period (in
nominal Pesos) by the average number of subscribers for such 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 cost of cellular telephones Iusacell gives to
its cellular customers, for the respective period (in nominal Pesos)
divided by the gross customer additions for such period.
44
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information has
been derived by the application of pro forma adjustments to the Company's
historical consolidated financial statements included elsewhere in this
Prospectus. The unaudited pro forma consolidated statements of income for the
periods presented give effect to (i) the Financing and the application of the
proceeds thereof and (ii) the cost savings related to the elimination in April
1997 of certain managerial and administrative positions (collectively, the "Pro
Forma Adjustments"), as if each had occurred on January 1, 1996. The unaudited
pro forma consolidated balance sheet as of March 31, 1997 gives effect to the
Financing and the application of the proceeds thereof as if they had occurred on
March 31, 1997. The Unaudited Pro Forma Consolidated Financial Information has
been reviewed by Coopers & Lybrand, Despacho Roberto Casas Alatriste,
independent accountants.
The Unaudited Pro Forma Consolidated Financial Information is for
comparative purposes only and does not purport to represent what the Company's
financial position or results of operations would actually have been had the
events occurred on the assumed dates or to project the Company's financial
position or results of operations for any future date or future period. The
Unaudited Pro Forma Consolidated Financial Information should be read in
conjunction with the Company's historical consolidated financial statements and
related notes included elsewhere in this Prospectus. The Pro Forma Adjustments,
as described in the accompanying notes to the Unaudited Pro Forma Consolidated
Financial Information, are based on available information and certain
assumptions which management believes are reasonable.
The Unaudited Pro Forma Consolidated Financial Information assumes no
amounts are outstanding under the U.S.$100.0 million Revolving Credit Facility
and the U.S.$150.0 million Bell Atlantic Facility. See "Capitalization."
The information included in the pro forma consolidated statement of income
and the pro forma consolidated balance sheet is in accordance with Mexican GAAP.
The notes to the Unaudited Pro Forma Consolidated Financial Information include
a reconciliation of pro forma income in accordance with Mexican GAAP to pro
forma income in accordance with U.S. GAAP for the year ended December 31, 1996.
45
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 1997
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma(a) Pro Forma(a)
---------- ---------------- ------------ ------------
(Thousands of constant March 31, 1997 Pesos) (Thousands of
U.S. dollars)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .............. Ps. 57,950 Ps. 1,189,500(b) Ps. 712,453 U.S.$ 89,843
991,250(c)
(1,454,877)(d)
(71,370)(e)
Accounts receivable:
Trade, net .......................... 144,501 144,501 18,222
Related parties ..................... 8,946 8,946 1,128
Recoverable taxes and other ......... 148,600 148,600 18,739
---------- ---------------- ------------ ------------
302,047 302,047 38,089
Inventories ............................ 71,759 71,759 9,049
---------- ---------------- ------------ ------------
Total current assets .............. 431,756 654,503 1,086,259 136,981
Investment in associated companies ..... 94,931 94,931 11,971
Property and equipment, net ............ 3,353,392 3,353,392 422,874
Other assets ........................... 705,131 71,370(e) 776,501 97,919
Excess of cost of investments in
subsidiaries over book value, net ... 1,433,662 1,433,662 180,790
---------- ---------------- ------------ ------------
Total assets ...................... Ps. 6,018,872 Ps. 725,873 Ps. 6,744,745 U.S.$ 850,535
========== ================ ============ ============
Current liabilities:
Notes payable .......................... Ps. 793,353 Ps. (793,353)(f) Ps.-- U.S.$ --
Current portion of long-term debt ...... 105,907 (105,907)(f) -- --
Trade accounts payables ................ 256,709 256,709 32,372
Related parties ........................ 119,536 (51,545)(g) 67,991 8,574
Taxes and other payable ................ 371,286 371,286 46,820
Income tax and employee profit sharing . 17,195 17,195 2,168
---------- ---------------- ------------ ------------
Total current liabilities ......... 1,663,986 (950,805) 713,181 89,934
---------- ---------------- ------------ ------------
Long-term debt ......................... 506,272 1,189,500(b) 2,182,950 275,277
991,250(c)
(504,072)(h)
Trade accounts payable, long-term ...... 8,300 8,300 1,047
Commitments and contingencies .......... 2,123 2,123 268
---------- ---------------- ------------ ------------
Total liabilities ................. 2,180,681 725,873 2,906,554 366,526
---------- ---------------- ------------ ------------
Stockholders' equity:
Capital contributions ............... 5,867,099 5,867,099 739,861
Earned capital ...................... (2,034,019) (2,034,019) (256,497)
Minority interest ................... 5,111 5,111 645
---------- ---------------- ------------ ------------
Total stockholders' equity ........ 3,838,191 3,838,191 484,009
---------- ---------------- ------------ ------------
Total liabilities and stockholders'
equity ......................... Ps. 6,018,872 Ps. 725,873 Ps. 6,744,745 U.S.$ 850,535
========== ================ ============ ============
</TABLE>
46
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(Thousands of constant March 31, 1997 Pesos and U.S. dollars)
(a) The pro forma balance sheet data assumes that the following transactions
occurred on March 31, 1997:
(1) the sale of Ps. 1,189,500 (U.S.$150,000) of the Notes;
(2) the borrowing of Ps. 991,250 (U.S.$125,000) under the Term Facility;
and
(3) the repayment of Existing Indebtedness consisting of (i) short-term
debt amounting to Ps. 793,353 (U.S.$100,045), (ii) long-term debt
amounting to Ps. 609,979 (U.S.$76,920) of which Ps. 105,907
(U.S.$13,355) was repayable within a year and (iii) related party
liabilities amounting to Ps. 51,545 (U.S. $6,500). The terms and
conditions of the Existing Indebtedness are described in Note 10 to
the Unaudited Consolidated Financial Statements.
(b) Reflects gross proceeds of Ps. 1,189,500 (U.S.$150,000) from the sale of
the Notes.
(c) Reflects the borrowing of Ps. 991,250 (U.S.$125,000) under the Term
Facility.
(d) Reflects the repayment of the Existing Indebtedness.
(e) Reflects payment of new debt issuance costs of Ps. 71,370 (U.S.$9,000)
related to the Financing.
(f) Reflects the repayment of Ps. 899,260 (U.S.$113,400) of short-term debt
and current portion of long-term debt.
(g) Reflects the repayment of Ps. 51,545 (U.S.$6,500) of BANZHI Loans.
(h) Reflects the repayment of Ps. 504,072 (U.S.$63,565) of long-term debt
excluding the current portion of long-term debt.
47
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma(a) Pro Forma(a)
------------- ----------- ------------- ---------------
(Thousands of constant March 31, 1997 Pesos, (Thousands of U.S.
except per share amounts) dollars, except per
share amounts)
<S> <C> <C> <C> <C>
Revenues:
Services.................................. Ps. 1,463,998 Ps. 1,463,998 U.S. $ 184,615
Telephone equipment sales and other....... 236,140 236,140 29,778
------------- ----------- ------------- --------------
Total................................... 1,700,138 1,700,138 214,393
Cost of sales:
Cost of services.......................... 536,737 536,737 67,684
Cost of telephone equipment and other..... 131,651 131,651 16,602
------------- ----------- ------------- --------------
Total................................... 668,388 668,388 84,286
------------- ----------- ------------- --------------
Gross profit.............................. 1,031,750 1,031,750 130,107
Operating expenses........................... 736,547 Ps. (42,800)(b) 693,747 87,484
Depreciation and amortization................ 604,602 10,196 (c) 614,798 77,528
------------- ----------- ------------- --------------
Operating loss (profit)................... 309,399 (32,604) 276,795 34,905
------------- ----------- ------------- --------------
Integral financing cost:
Interest expense, net..................... 281,067 (86,782)(d) 194,285 24,500
Foreign exchange loss (gain), net......... (62,115) 5,600 (e) (56,515) (7,127)
Gain from monetary position............... (348,293) (348,293) (43,921)
------------- ----------- ------------- --------------
Total................................... (129,341) (81,182) (210,523) (26,548)
------------- ----------- ------------- --------------
Equity participation in net (income) loss
of associated companies................... 5,993 5,993 756
Provisions for:
Assets tax................................ 35,199 35,199 4,439
Employee profit sharing................... -- -- --
Minority interest............................ (3,179) (3,179) (401)
Extraordinary item........................... 145,192 145,192 18,309
------------- ----------- ------------- --------------
Net income (loss)............................ Ps. (363,263) Ps. 113,786 Ps. (249,477) U.S. $ (31,460)
============= =========== ============= ==============
Net income (loss) per share.................. Ps. (0.37) Ps. (0.25) U.S. $ (0.03)
============= ============= ==============
Weighted average number of shares
outstanding............................... 981,624 981,624 981,624
============= ============= ==============
</TABLE>
48
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
For the Three Month Period Ended March 31, 1997
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma(a) Pro Forma(a)
------------ --------------- ------------ -------------------
(Thousands of constant March 31, 1997 Pesos, (Thousands of U.S.
except per share amounts) dollars, except per
share amounts)
<S> <C> <C> <C> <C>
Revenues:
Services.................................. Ps. 318,766 Ps. 318,766 U.S.$ 40,197
Telephone equipment sales and other....... 51,474 51,474 6,491
------------ --------------- ------------ -------------
Total................................... 370,240 370,240 46,688
Cost of sales:
Cost of services.......................... 103,645 103,645 13,070
Cost of telephone equipment and other..... 28,317 28,317 3,571
------------ --------------- ------------ -------------
Total................................... 131,962 131,962 16,641
------------ --------------- ------------ -------------
Gross profit.............................. 238,278 238,278 30,048
Operating expenses........................... 167,295 Ps. (10,300)(b) 156,995 19,798
Depreciation and amortization................ 132,883 2,549 (c) 135,432 17,078
------------ --------------- ------------ -------------
Operating loss (profit)................... 61,900 (7,751) 54,149 6,828
------------ --------------- ------------ -------------
Integral financing cost:
Interest expense, net..................... 54,810 (10,035)(d) 44,775 5,646
Foreign exchange loss (gain), net......... 16,890 5,000(e) 21,890 2,760
Gain from monetary position............... (111,600) (111,600) (14,073)
------------ --------------- ------------ -------------
Total................................... (39,900) (5,035) (44,935) (5,667)
------------ --------------- ------------ -------------
Equity participation in net (income) loss
of associated companies................... (331) (331) (42)
Provisions for:
Assets tax................................ 10,822 10,822 1,365
Employee profit sharing................... -- -- --
Minority interest............................ (242) (242) (30)
------------ --------------- ------------ -------------
Net income (loss)............................ Ps. (32,249) Ps. 12,786 Ps. (19,463) U.S.$ (2,454)
============ =============== ============ =============
Net income (loss) per share.................. Ps. (0.03) Ps. (0.02) U.S.$ (0.002)
============ ============ =============
Weighted average number of shares
outstanding (thousands)................... 1,035,094 1,035,094 1,035,094
============ ============ =============
</TABLE>
49
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statements of Income
(Thousands of constant March 31, 1997 Pesos and
U.S. dollars, except per share amounts)
(a) The pro forma consolidated statements of income data assume the following
transactions occurred on January 1, 1996:
(1) the sale of Ps. 1,189,500 (U.S.$150,000) of the Notes;
(2) the borrowing of Ps. 991,250 (U.S.$125,000) under the Term Facility;
and
(3) the repayment of Existing Indebtedness consisting of (i) short-term
debt amounting to Ps. 793,353 (U.S.$100,045) and (ii) long-term debt
amounting to Ps. 609,979 (U.S.$76,920) of which Ps. 105,907
(U.S.$13,355) was repayable within a year and (iii) related party
liabilities amounting to Ps. 51,545 ($6,500). The terms and
conditions of the Existing Indebtedness are described in Note 10 to
the Unaudited Consolidated Financial Statements.
(b) Reflects the pro forma cost savings related to the elimination of certain
managerial and administrative positions in April 1997 in connection with the
reorganization that followed Bell Atlantic's assumption of management control.
The pro forma adjustments give effect to the cost savings resulting from this
reduction in personnel as though it had occurred as of January 1, 1996.
Management does not have plans to replace such personnel and does not anticipate
that the staff reductions will affect the operating revenues of the Company.
(c) Reflects the amortization of deferred finance charges arising from the
payment of debt issuance costs. These costs amount to Ps. 71,370 (U.S.$9,000)
and are being amortized over the 7-year term of the Notes.
(d) Reflects the Financing and the application of the proceeds thereof as though
they had occurred as of January 1, 1996. The adjustments do not include any
interest income assumed to have been derived from the proceeds of the Financing.
Net reduction in interest expense was determined as follows:
<TABLE>
<CAPTION>
Year Three Months
Ended Ended
December 31, March 31,
1996 1997
------------ ------------
<S> <C> <C>
Interest expense of the Notes calculated at an 1 9,737
assumed rate of 10% .................................. Ps. 118,950 Ps. 2
Interest expense of the Term Facility calculated at an
assumed rate of three-month LIBOR + 175 basis points
(7.60%) .............................................. 75,335 18,834
------------ ------------
Increase in interest expense as a result of the Financing 194,285 48,571
------------ ------------
Total reduction in the interest expense from
the repayment of Existing Indebtedness ............... (281,067) (58,606)
------------ ------------
Net reduction in interest expense ....................... Ps. (86,782) Ps. (10,035)
============ ============
</TABLE>
(e) The adjustment to the foreign exchange gain or loss represents the foreign
exchange loss incurred as a result of holding an increased amount of net
monetary liabilities denominated in U.S. dollars.
50
<PAGE>
(f) The pro forma consolidated statements of income are prepared on the basis of
Mexican GAAP. A description and quantification of the significant differences
between Mexican GAAP and U.S. GAAP is included in the Audited Consolidated
Financial Statements of the Company. Pro forma net income, under Mexican GAAP,
is reconciled to pro forma net income on a U.S. GAAP basis for the year ended
December 31, 1996 as follows:
Pro forma net loss under Mexican GAAP ................. Ps. 249,477
U.S. GAAP adjustments:
Deferred income taxes ............................... (179,675)
450 MHz service ..................................... 64,106
Gain on net monetary position ....................... (105,957)
-----------
Total adjustments under U.S. GAAP ..................... (221,526)
-----------
Pro forma net loss under U.S. GAAP .................... Ps. 27,951
===========
Pro forma U.S. GAAP loss per share .................... Ps. 0.03
===========
A Ps. 145,192 (U.S.$18,309) charge relating to the restructuring of the
Company's operations, which was recorded as an extraordinary charge under
Mexican GAAP, would be classified as an item of operating expense under U.S.
GAAP.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All Peso amounts discussed herein are presented in thousands of constant
March 31, 1997 Pesos in accordance with Mexican GAAP, except as otherwise
indicated.
General
The following discussion and analysis is intended to facilitate an
understanding and assessment of significant changes and trends in the historical
results of operations and financial condition of Iusacell and factors affecting
the Company's financial resources. It should be read in conjunction with the
Consolidated Financial Statements and the notes thereto 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 19 to the Audited Consolidated Financial Statements provides a
description of the principal differences between Mexican GAAP and U.S. GAAP as
they relate to the Company, and a reconciliation to U.S. GAAP of the Company's
net income and total stockholders' equity as of and for the years ended December
31, 1994, 1995 and 1996.
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, the Company's financial
statements are reported in period-end Pesos to adjust for the interperiod
effects of inflation. In calendar years 1994, 1995, and 1996, the rates of
inflation in Mexico, as measured by changes in the INPC, were 7.1%, 52.0%, and
27.7% respectively. In the first three months of 1996 and 1997, the INPC
inflation rates were 8.3% and 5.9%, respectively. 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. 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 March 31, 1997. References in this Prospectus to "real"
amounts are to inflation-adjusted Pesos and to "nominal" amounts are to
unadjusted historical Pesos. Bulletin B-10 requires the Company to restate
nonmonetary assets at current replacement cost, to restate nonmonetary
liabilities using the INPC and to restate the components of stockholders' equity
using the INPC. The effects of these inflation accounting principles have not
been eliminated in the reconciliation to U.S. GAAP. See Note 19 to the Audited
Consolidated Financial Statements.
In reporting under Mexican GAAP and in accordance with Bulletin B-10, the
Company 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: (i) net
interest expense or interest income; (ii) net foreign exchange gains or losses;
and (iii) net gains or losses on monetary position. Net foreign exchange gains
or losses reflect the impact of changes in foreign exchange rates on 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 or 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.
Peso 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 altogether 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. By December 31, 1994, the Noon Buying Rate, which had been Ps. 3.4662 to
U.S.$1.00 on December 19, 1994, was 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
52
<PAGE>
to U.S.$1.00 on December 31, 1995, which represented a 54.8% devaluation
relative to the U.S. dollar. On December 31, 1996, the Noon Buying Rate was Ps.
7.8810 to U.S.$1.00, representing a 1.8% decline of the Peso as compared to
December 31, 1995. Cumulatively, the value of the Peso declined 127.4% from
December 19, 1994 to December 31, 1996. On March 31, 1997, the Noon Buying Rate
was Ps. 7.9300 to U.S.$1.00, and on September 2, 1997, the Noon Buying Rate was
Ps.7.7575 to U.S.$1.00.
The Mexican government's response to the devaluation and ensuing high
levels of inflation was to enact a series of fiscal and monetary measures which,
among other things, restricted credit and the money supply, raised prices for
public goods and services, and restricted federal spending. As a result, the
annual inflation rate declined from 52.0% in 1995 to 27.7% in 1996, and GDP grew
by 5.1% in 1996 compared to a contraction of 6.2% in 1995. Preliminary estimates
of annualized GDP growth and inflation for the three months ended March 31, 1997
were 5.1% and 5.9%, respectively. GDP growth in 1996 and the first quarter of
1997 was largely concentrated in the export and construction sectors of the
economy, with little recovery in the consumer segment.
Impact on the Company's Results of Operations
The general economic conditions in Mexico resulting from inflation and the
devaluation of the Peso have had an overall negative impact on the Company's
results of operations primarily as a result of the following factors:
(i) The devaluation resulted in a significant decrease in the
purchasing power of Mexican consumers, resulting in a decrease in the
demand for cellular telephony.
(ii) Due to competitive market conditions and the overall state of
the Mexican economy, the Company was not able to increase its prices in
line with the significant inflation in the economy.
(iii) The significant inflation led to an upward restatement of the
Company's assets and therefore resulted in a substantial increase in
depreciation and amortization expense in 1995, which had an adverse impact
on the Company's earnings. 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 carrying value of dollar-acquired non-monetary assets in accordance
with the rules of the Mexican Stock Exchange (which in turn resulted from
the fact that the rate of inflation exceeded that of devaluation).
(iv) The significant devaluation of the Peso as compared to the U.S.
dollar in 1994 and 1995 resulted in the recording of exchange losses given
the Company's net U.S. dollar liability position in both years. In 1996,
the Company recorded a gain because of the appreciation of the Peso
against the U.S. dollar during a significant portion of the year.
(v) A portion of the Company's costs and expenses (e.g.,
depreciation and amortization and interest expense) is denominated in U.S.
dollars or calculated on the basis of Peso/U.S. dollar devaluation, while
almost all of the Company's revenues are denominated in Pesos, which, in a
period of Peso devaluation, had a negative impact on the Company's
margins.
Impact on the Company's Financial Condition
The general economic conditions in Mexico resulting from inflation and the
devaluation of the Peso have had an overall negative impact on the Company's
financial condition as a result of the following factors:
(i) The majority of the Company's indebtedness is denominated in
U.S. dollars. As a result, the Peso carrying amount of such debt increased
to reflect the additional Pesos required to meet such foreign liabilities.
(ii) Whenever the inflation rate exceeds the rate of devaluation, as
was the case in 1996 and in the first quarter of 1997, the carrying value
of the Company's assets purchased in foreign currencies will
53
<PAGE>
be reduced. This is because, assuming the foreign currency value of a
given asset remains unchanged between periods, the value of such asset for
the prior period is restated upwards using the inflation rate, while the
valuation of such asset for the current period is restated using a foreign
exchange rate which increased at a lower rate.
Increase in Prepay Subscriber Base
In June 1996, the Company introduced its Control Plus prepay program in
response to economic conditions in Mexico and to a prepay cellular card program
offered by Telcel. Control Plus has been extremely popular, and prepay customers
have increased from an insignificant percentage of the Company's subscriber base
in June 1996 to 35.1% at March 31, 1997. The Company expects that the percentage
of its customers who subscribe to cellular service on a prepay basis will
continue to increase.
The Company believes that prepay programs represented an effective means
of attracting and retaining subscribers during a difficult economic and
competitive environment in 1996. However, the Company also believes that prepay
plans are attractive to a wider range of cellular consumers than just those
experiencing financial difficulties. In addition to helping customers control
costs, Control Plus has no monthly bill and allows customers to prepay for
cellular services in cash. Iusacell is marketing these features to new classes
of potential customers and, as a result, expects prepay plans to continue to
help the Company increase cellular market penetration, grow its customer base
and generate positive cash flow. Compared to the average contract plan, prepay
plans involve higher per minute airtime charges, a lower cost to acquire new
subscribers (principally because the Company does not provide a phone to such
customers, as it does with its contract subscribers), and no billing expenses or
credit or collection risk. Prepay customers are also potential customers for the
Company's other services and products, and the Company intends to focus
marketing efforts on "migrating" qualified prepay customers to higher revenue
contract plans. In addition, the Company is considering new methods to increase
minutes of use by its prepay customers.
Prepay customers, on average, have substantially lower MOUs than contract
customers and do not pay monthly fees and, as a result, generate substantially
lower average monthly revenues per customer. Moreover, because prepay cards
expire after 60 days, prepay customers have more frequent opportunities to
decide whether to renew service with the Company or to choose the Company's
competitor as their cellular carrier. If a prepay customer "turns over" his or
her prepay card by not adding credit to the card prior to its 60-day expiration,
the customer loses his or her assigned telephone number and must reapply for a
new number, which may be obtained either from the Company or from the Company's
competitor. Iusacell believes that, because the Company currently waives its
activation fee for customers who have previously turned over while Telcel
generally does not, such customers currently have an incentive to choose the
Company's Control Plus program when reapplying for telephone numbers.
Between May 31, 1996 and March 31, 1997, the number of the Company's
prepay customers increased from 2,730 to 87,872. Since the Company's first
Control Plus customers began to turn over, a monthly average of 17.6% (measured
through May 31, 1997) of the Company's total prepay customers have turned over.
This turnover statistic, however, does not account for customers who reactivated
Control Plus prepay service after their cards expired. The Company is evaluating
different methods of determining turnover, as the current method is dependent
upon, among other things, the number of days of use the Company permits before
expiration of the prepay cards (currently 60 days). Iusacell is installing a new
prepay operating system which the Company expects will enable the Company to
better track those customers who turn over by determining the percentage of
customers who subsequently purchase prepay cards from the Company and the time
period between such purchases. In addition, Iusacell anticipates that the new
prepay operating system, together with initiatives to increase the number of
distribution points for prepay cards, improve customer care and otherwise
improve the convenience of the Company's prepay program, will enhance the
Company's ability to retain prepay customers. See "Risk Factors-Mexican
Governmental, Political, Economic and Social Factors" and "-Increased
Competition; Disputes with Telmex."
54
<PAGE>
In 1996, the Company experienced a 22.8% 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 the Company's
prepay program, resulting in lower revenues and cash flow from these customers.
Iusacell did not introduce Control Plus until June 1996. Consequently, results
of operations in 1996 do not fully reflect the shift from contract to prepay
customers (which shift is more clearly reflected in the comparison between the
first quarters of 1996 and 1997). If the year-end mix of contract and prepay
customers had been in effect throughout 1996, the effect of the lower per
customer revenues and cash flow resulting from the shift in Iusacell's
subscriber mix would have been significantly greater. The Company believes,
however, that this effect would have been partially offset by having been able
to offer Control Plus prior to June 1996 to its credit-challenged contract
customers who were otherwise switching to Telcel's prepay plan and to those
prospective customers who were choosing Telcel's prepay plan in the absence of
alternatives. The Company anticipates further growth in its prepay subscriber
base and an increase in the percentage of total subscribers who are prepay
customers, as well as growth in the number of contract subscribers. There can be
no assurance, however, that the Company will in fact achieve such growth.
Local Telephony in the 450 MHz Frequency Band; CDMA Overlay
The Company 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 the Company
reached agreement on a process by which the Company 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
certain 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 scheduled by the Mexican government for
the fall of 1997. Until the conclusion of such auctions, Iusacell has received a
provisional authorization to use 450 MHz spectrum to provide local wireless
service to up to 50,000 terminals.
As a result of the delays experienced by the Company and the uncertainty
relating to the Company's ability, at a commercially acceptable cost, to
implement full scale local wireless service in the 450 MHz frequency band, the
Company is exploring alternatives for providing local telephony services,
including limited zone wireless service in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands deploying digital technology that permits mobility. At
this time, however, the Company has not made a decision as to which alternative
to pursue and continues with its trial program to provide local wireless service
in the 450 MHz frequency band. If the Company were to determine not to continue
to pursue local wireless service in the 450 MHz frequency band, the Company
would record substantial non-cash losses.
The Company believes that approximately 75% of the fixed assets currently
employed in its 450 MHz trial service could be used in its cellular operations
(with the cost of each such asset being depreciated over its remaining useful
life). No assurance can be given that the Company will be able to sell the
remaining fixed assets or that any such sale would be made at or in excess of
book value. If such remaining fixed assets are sold for less than their book
value, the Company would be required to write off such assets to the extent of
the deficiency between their book value and the sale proceeds. At March 31,
1997, the book value of the fixed assets (including capitalized interest)
deployed in the Company's 450 MHz local wireless service totaled Ps. 616.2
million (U.S.$77.7 million). Assuming that 25% of these fixed assets could not
be sold, the non-cash charge to Iusacell's earnings would be Ps. 154.0 million
(U.S.$19.4 million).
In addition, if the Company's 450 MHz local wireless project were to be
discontinued, Iusacell would also be required to write off the pre-operating
expenses (net of pre-operating revenues) from the project that the Company has
been capitalizing in accordance with Mexican GAAP. At March 31, 1997, a total of
Ps. 66.0 million (U.S.$8.3 million) of such capitalized pre-operating expenses
(net of pre-operating revenues) for the 450 MHz local wireless project were
included in "Other assets" on the Company's balance sheet.
Between the write-off of fixed assets (assuming 25% of them were not able
to be used or sold) and the write-off of net capitalized pre-operating expenses,
the Company's total non-cash loss in the event of a
55
<PAGE>
discontinuation of the 450 MHz local wireless project would have been Ps. 220.0
million (U.S.$27.7 million) at March 31, 1997. See Note 19 to the Audited
Consolidated Financial Statements and Note 17 to the Unaudited Consolidated
Financial Statements.
The Company is party to certain agreements regarding the supply and
servicing of equipment for its 450 MHz local wireless service, including an
agreement with a foreign supplier under which Iusacell contracted to buy
approximately U.S.$315 million of equipment and services (see "Business-Network
and Equipment"). These agreements will be terminated if the Company does not
deploy its 450 MHz local wireless service, and the costs, if any, to the Company
associated with the termination of these agreements would be in addition to the
non-cash losses described above. Such costs could be substantial. See
"Business-Network and Equipment-Other Services."
The Company plans to launch a fully digital CDMA overlay network in 1998
in order to upgrade its existing integrated network infrastructure. The overlay
will begin in Region 9 in the first quarter of 1998, with the overlay for the
remaining regions to be launched by mid-1999. Depending on the choice of vendor
for CDMA equipment, the Company may be required to discontinue using a
substantial portion of its existing network infrastructure, particularly the
TDMA technology now being used for internal purposes in Region 9 and,
accordingly, could record substantial non-cash losses in respect thereof. The
Company cannot anticipate the magnitude of any such potential write-off at this
time. The Company anticipates maintaining its analog (AMPS) infrastructure
following implementation of the CDMA overlay to continue to provide service to
its existing analog subscriber base. See "Business-Network and Equipment."
Recent Developments
The Company's revenues for the second quarter of 1997 were Ps. 428.5
million, a 12.6% increase over revenues for the first quarter of 1997. The
Company's EBITDA for the second quarter of 1997 (as defined in Note 5 under
"Selected Historical and Pro Forma Consolidated Financial and Operating Data")
was Ps. 70.3 million, a 3.6% decrease as compared to EBITDA for the first
quarter. As a percentage of revenues, EBITDA was 16.5% in the second quarter as
compared with 19% in the first quarter. EBITDA for the second quarter was 11%
lower than the pro forma first quarter EBITDA shown in the "Selected Historical
and Pro Forma Consolidated Financial and Operating Data." Net loss in the second
quarter, which amounted to Ps. 67.1 million, was more than double the net loss
in the first quarter. For purposes of the foregoing comparisons, first quarter
results have been restated to constant June 30, 1997 Pesos to reflect second
quarter inflation, which was approximately 2.8%.
The Company's total number of cellular subscribers increased by 12.4% in
the second quarter to 281,740, including 176,134 contract subscribers (an 8%
increase from March 31, 1997) and 105,606 prepay subscribers (a 20% increase
from March 31, 1997). Average monthly MOUs per subscriber were 106 in the second
quarter, as compared with 108 in the first quarter, while nominal average
monthly revenue per subscriber declined to Ps. 463 in the second quarter from
Ps. 469 in the first quarter. Contract churn declined from 3.1% in the first
quarter to 2.7% in the second quarter, and the monthly average of prepay
turnover decreased to approximately 16.9% through June 30, 1997.
The growth in the second quarter total revenues was primarily generated by
the increase in the number of cellular subscribers, as well as a substantial
increase in telephone equipment sales and other revenue. Second quarter results
were adversely affected by substantial costs (approximately Ps. 8.2 million)
associated with leasing lines from Telmex in order to meet the Company's
obligations under its long distance concession, without a commensurate increase
in long distance subscribers and because of lower than expected long distance
revenue during the quarter. The Company expects such leased line costs to
continue, but is unable to predict when or whether it will be able to generate
sufficient long distance revenues to offset such costs. The Company capitalizes
the costs relating to the installation of such leased lines.
Although second quarter results benefitted from the incremental revenue
associated with the increase in the number of subscribers, such results were
adversely affected by a significant reduction in average monthly MOUs per prepay
subscriber, which the Company believes likely was in response to the price
increases announced in April and May 1997. Average MOUs per contract customer
have, however, remained relatively stable since the price increases were
implemented. The Company believes that second quarter results do not reflect the
56
<PAGE>
anticipated benefits of the price increases because the price increases were not
fully implemented until June 1997 and because of the reduction in usage by
prepay customers. The Company cannot determine the extent to which its
subscribers have reduced usage in response to the price increases.
The higher net loss in the second quarter was a result of the foregoing
factors and a significantly lower gain from monetary position due to the lower
level of inflation during the period.
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. 170.0 million (U.S.$21.8 million) of which Ps. 22.2
million (U.S.$2.8 million) constituted value-added tax and Ps. 28.6 million
(U.S.$3.7 million) were accounted for as interest expense.
In August 1997, the Company and Telmex also entered into amendments to the
current interconnection agreement pursuant to which Iusacell agreed to pay
Telmex an interim interconnection rate of Ps. 0.31 (U.S.$0.04) per minute
retroactive to June 1, 1997 (as opposed to the Ps. 0.45 (U.S.$0.056) per minute
rate previously charged by Telmex) and Telmex agreed to extend to the Company
the 38% discount available to other large business customers for use of its long
distance network. Iusacell and Telmex are currently negotiating the terms of an
entirely new interconnection agreement the terms of which will also be
retroactive to June 1, 1997. The Company anticipates that this new
interconnection agreement will implement an even lower interconnection rate and
will provide for some form of reciprocal payments by Telmex for interconnecting
with Iusacell's networks.
On September 30, 1997, the Company consummated the sale of its direct and
indirect minority interests in its Ecuadorean cellular company, Conecel, and its
Ecuadorean paging company Corptilor, S.A. to a corporation controlled by the
controlling shareholder of the majority shareholder of these companies. At the
closing, Iusacell received U.S.$29.4 million in cash consideration for its
direct interests in those companies and anticipates receiving an additional
U.S.$3.4 million in respect of its indirect interests by the end of 1997.
The Company's revenues for the third quarter of 1997 were Ps. 446.7
million, a 1.3% increase over revenues for the second quarter of 1997. Revenue
growth was adversely affected by Ps. 39.0 million due to the reversal, as a
consequence of the August 1997 interconnection settlement with Telmex described
above, of accrued interconnection revenue which the Company has expected to
receive from Telmex. Without this reversal, third quarter revenues would have
been Ps. 486.0 million, a 10.2% increase over second quarter revenues. The
Company's EBITDA for the third quarter of 1997 was Ps. 103.4 million, a 42.8%
increase as compared to the Ps. 72.4 million EBITDA for the second quarter.
EBITDA in the third quarter was reduced by the Ps. 39.0 million reversal in
accrued interconnection revenue, which reduction was more than offset by a Ps.
47.4 million reduction in cost of services as a result of the Telmex
interconnection settlement. Without these interconnection settlement impacts,
EBITDA would have been Ps. 95.0 million. Net income for the quarter was Ps. 80.9
million and included a gain of Ps. 151.9 million resulting from the sale of its
interests in Conecel and Corptilor S.A. described above. For purposes of the
foregoing comparisons, second quarter results have been restated to constant
September 30, 1997 Pesos to reflect third quarter inflation, which was
approximately 2.9%.
The Company's cellular subscriber base increased by 20% in the third
quarter to 338,300 customers. In the third quarter, average monthly MOUs per
subscriber declined to 104 in the third quarter, while nominal average monthly
revenue per subscriber declined to Ps. 451. Contract churn increased to 2.9% in
the third quarter from 2.7% in the second quarter, and the monthly average of
prepay turnover decreased to approximately 10% in the third quarter.
Results of Consolidated Operations
The following table sets forth for the periods indicated the percentage
relationships which certain amounts bear to revenues:
57
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
----------------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Cellular service revenues ....................... 83.1% 68.1% 70.2% 80.5% 79.8%
Other service revenues .......................... 4.9 16.8 15.9 7.6 6.3
----- ----- ----- ----- -----
Total service revenues ...................... 88.0 84.9 86.1 88.1 86.1
Telephone equipment and other revenues .......... 12.0 15.1 13.9 11.9 13.9
----- ----- ----- ----- -----
Total ....................................... 100.0 100.0 100.0 100.0 100.0
Cost of sales:
Cost of services ................................ 25.6 31.1 31.6 29.0 28.0
Cost of telephone equipment and other ........... 5.9 8.4 7.7 4.5 7.6
----- ----- ----- ----- -----
Total ....................................... 31.5 39.5 39.3 33.5 35.6
Gross profit ...................................... 68.5 60.5 60.7 66.5 64.4
Operating expenses ................................ 42.6 44.2 43.3 39.1 45.2
Depreciation and amortization ..................... 25.6 35.2 35.6 34.9 35.9
----- ----- ----- ----- -----
Operating profit (loss) ........................... 0.3 (18.9) (18.2) (7.5) (16.7)
Integral financing cost (gain):
Interest expense, net ........................... 9.0 9.1 16.5 16.1 14.8
Foreign exchange (gain) loss, net ............... 23.0 37.0 (3.7) (11.0) 4.6
Gain on net monetary position ................... (2.2) (26.3) (20.5) (36.9) (30.1)
----- ----- ----- ----- -----
Total ....................................... 29.8 19.8 (7.7) (31.8) (10.7)
Equity participation in net income (loss) of
associated companies ............................ 0.1 (2.0) (0.4) -- --
Income (loss) from continuing operations before
asset tax, employee profit sharing, minority
interest and extraordinary item ................. (29.4) (40.7) (10.9) 24.3 (6.0)
Provision for asset tax and employee profit sharing 1.4 1.6 2.1 1.8 2.9
Minority interest ................................. -- 1.9 0.1 0.9 --
Extraordinary item ................................ -- -- 8.5 -- --
----- ----- ----- ----- -----
Net income (loss) ................................. (30.8)% (40.4)% (21.4)% 23.4% (8.9)%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues
Total revenues consist of cellular service revenues, revenues from other
services and telephone equipment and other revenues. The Company'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 and, until December
1996, from revenues derived from the Company's consolidated 51% investment in
Iusatel Chile, S.A. de C.V. ("Iusatel Chile"), a Chilean long distance provider.
The Company sold its 51% stake in Iusatel Chile in December 1996. See
"Business-International Joint Ventures." 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 (which revenues are
passed through to the applicable host operator).
58
<PAGE>
The following table sets forth the source of the Company's revenues for
the three months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1997
----------------- ------------------
Ps. % Ps. % % Change
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cellular service revenues ............ 364.2 80.5% 295.5 79.8% (18.9)%
Other service revenues ............... 34.4 7.6 23.3 6.3 (32.3)
----- ----- ----- -----
Total service revenues ............. 398.6 88.1 318.8 86.1 (20.0)
Telephone equipment and other revenues 53.9 11.9 51.5 13.9 (4.5)
----- ----- ----- -----
Total revenues ..................... 452.5 100.0% 370.3 100.0% (18.2)%
===== ===== ===== =====
</TABLE>
Cellular Services. The table below sets forth cellular service revenues by
source and operating region for the three months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996(1)
---------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
--------------- --------------- ---------------
Ps. % Ps. % Ps. %
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 79.8 35.4% 40.6 29.3% 120.4 33.1%
Monthly fees .................... 109.7 48.6 64.7 46.6 174.4 47.9
Long distance(3) ................ 12.2 5.4 10.3 7.4 22.5 6.2
Value-added services(4) ......... 22.3 9.9 12.3 8.9 34.6 9.5
In-roaming(5) ................... 1.5 0.7 10.7 7.8 12.2 3.3
Activation fees ................. -- -- 0.1 -- 0.1 --
----- ----- ----- ----- ----- -----
Total cellular service revenues 225.5 100.0% 138.7 100.0% 364.2 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997(1)
---------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
--------------- --------------- ---------------
Ps. % Ps. % Ps. %
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 66.8 38.9% 41.5 33.6% 108.3 36.7%
Monthly fees .................... 74.3 43.2 48.9 39.6 123.2 41.7
Long distance(3) ................ 20.3 11.8 11.8 9.5 32.1 10.9
Value-added services(4) ......... 7.7 4.5 8.1 6.6 15.8 5.3
In-roaming(5) ................... 2.8 1.6 13.2 10.7 16.0 5.4
Activation fees ................. -- -- 0.1 -- 0.1 --
----- ----- ----- ----- ----- -----
Total cellular service revenues 171.9 100.0% 123.6 100.0% 295.5 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, long distance, local telephony or data
transmission services.
(2) Airtime is charged on a per-minute basis for 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 the Company.
(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 the Company's cellular
magazine. Does not include charges for related airtime. Customers using
certain value-added services such as news, weather, sports and
entertainment reports are charged only for airtime, which is therefore
included in airtime.
59
<PAGE>
(5) See "Business-Cellular Services-Roaming" for a discussion of the
differences between in-roaming and out-roaming and the revenues associated
therewith. In-roaming revenues are reflected in total service revenues and
are paid to the Company 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 declined by 18.9% to Ps. 295.5 million
(U.S.$37.3 million) in the first quarter of 1997 from Ps. 364.2 million
(U.S.$45.9 million) in the first quarter of 1996 and represented 79.8% and 80.5%
of total revenues in the first quarters of 1997 and 1996, respectively. Revenues
declined despite an 18.9% increase in total subscribers, while total MOUs
remained relatively stable. One of the reasons for the decline in revenues on a
constant Peso basis was the Company's inability to increase its prices in line
with inflation, which, in accordance with Mexican GAAP, is applied to the prior
reporting period to achieve constant Peso comparisons. The Company was not able
to implement any price increase during the twelve months ended March 31, 1997,
over which period inflation was 24.8%.
Cellular service revenues, particularly revenues from monthly fees and
value-added services, also declined because of the 28.2% decrease in the number
of contract subscribers in 1996. This revenue decline was partially offset by
the airtime revenue generated by the Company's prepay customers under the
Control Plus program, which was launched in June 1996. However, average monthly
revenues generated by Control Plus customers are substantially lower than those
generated by contract subscribers because Control Plus tends to attract lower
volume users who pay no monthly fee, although such users are charged, on
average, higher per minute airtime rates. The proportion of the Company's
customers that subscribes to the Company's prepay program as opposed to the
Company's contract plans has grown significantly since the introduction of
Control Plus. The Company believes that the trend towards the increased
percentage of total subscribers and the significance to the Company's revenues
of prepay plan subscribers are likely to continue.
The decline in cellular service revenues in the first quarter of 1997 from
the first quarter of 1996 was also partially offset as the Company began to
market "bundled" cellular and long distance services in the first quarter of
1997 to its existing and potential cellular subscriber base. Long distance
cellular revenues increased 42.7% to Ps. 32.1 million (U.S.$4.1 million) from
Ps. 22.5 million (U.S.$2.8 million) in the first three months of 1997 and 1996,
respectively.
Iusacell had 250,727 and 210,877 cellular subscribers at March 31, 1997
and 1996, respectively. For the twelve month period ended March 31, 1997, prepay
subscribers increased from a negligible percentage of total subscribers to 35.1%
of total subscribers and the number of contract subscribers declined by 22.0%.
Contract subscribers decreased to 162,855 from 208,714, and prepay subscribers
grew to 87,872 from 2,163. A prepay customer is included as a customer if, at
the end of the period, the customer's prepay card has not yet expired. See
"-Increase in Prepay Subscriber Base."
In the first quarter of 1997, contract subscriber churn remained
relatively flat at an average monthly level of 3.13%, compared to 3.10% during
the first quarter of 1996. Contract churn for the first quarter of 1997 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. In the first quarter of 1996, Iusacell experienced net
decreases in contract subscribers following the introduction by the Company's
competitor of its prepay plan. However, for the first two months of that
quarter, the Company had net increases in the number of contract subscribers.
For a discussion of prepay turnover, see "-Increase in Prepay Subscriber Base."
Average MOUs for the first quarter of 1997 were 108, a decrease of 14.3%
compared to the average of 126 MOUs in the first quarter of 1996. This decline
in MOUs was largely due to the significant increase in the number of the
Company's prepay customers, who generate substantially lower average MOUs than
contract customers. In addition, the Company has experienced a trend toward
lower MOUs as Iusacell's expanded customer base is now attracting subscribers
who tend to generate fewer MOUs.
Nominal average monthly cellular revenue per subscriber declined 9.1% to
Ps. 469 in the first quarter of 1997 from Ps. 516 in the first quarter of 1996.
The nominal average monthly cellular revenue per subscriber in the
60
<PAGE>
first quarter of 1997 was lower than in the first quarter of 1996 due to lower
average MOUs generated by prepay subscribers, as well as the trend towards lower
MOUs per subscriber as the Company expands its customer base.
Other Services. Other service revenues decreased by 32.3% to Ps. 23.3
million (U.S.$2.9 million) from Ps. 34.4 million (U.S.$4.3 million) in the first
quarters of 1997 and 1996, respectively, and represented 6.3% and 7.6% of total
revenues in the first quarters of 1997 and 1996, respectively. This decrease was
principally due to the sale of the Company's interest in Iusatel Chile in
December 1996. Revenues derived from Iusatel Chile were Ps. 15.9 million
(U.S.$2.0 million) in the first quarter of 1996.
Telephone Equipment and Other. Telephone equipment and other revenues
decreased 4.5% to Ps. 51.5 million (U.S.$6.5 million) in the first quarter of
1997 from Ps. 53.9 million (U.S.$6.8 million) in the first quarter of 1996. This
decline was primarily due to a 29.2%, or Ps. 12.2 million (U.S.$1.5 million),
decrease in out-roaming revenue, which was partially offset by a Ps. 8.0 million
(U.S.$1.0 million), increase in sales of handsets.
Cost of Sales
Iusacell's cost of sales includes cost of services, cost of telephone
equipment and other costs. Total cost of sales decreased 12.9% to Ps. 131.9
million (U.S.$16.6 million) in the first quarter of 1997 from Ps. 151.4 million
(U.S.$19.1 million) in the first quarter of 1996. As a percentage of total
revenues, cost of sales increased to 35.6% in the first quarter of 1997 from
33.5% in the first quarter of 1996.
Cost of Services. Cost of services decreased 21.0% to Ps. 103.6 million
(U.S.$13.1 million) in the first quarter of 1997 from Ps. 131.2 million
(U.S.$16.5 million) in the first quarter of 1996, and decreased to 32.5% from
32.9% of total service revenues in such quarters. Cost of services declined as
its primary components, fees paid to the Mexican government and interconnection
fees, vary based on revenues, which declined in the first quarter of 1997.
Cost of Telephone Equipment and Other. Despite the lower rate of inflation
in the first quarter of 1997 relative to the rate of inflation in the first
quarter of 1996, cost of telephone equipment and other costs increased by 40.1%
to Ps. 28.3 million (U.S.$3.6 million) in the first quarter of 1997 from Ps.
20.2 million (U.S.$2.5 million) in the first quarter of 1996, and, as a
percentage of telephone equipment and other revenues, increased to 55.0% in the
first quarter of 1997 from an unusually low 37.5% in the first quarter of 1996.
The cost of a cellular handset given to a contract customer is amortized over 18
months (the average length of the Company'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, the Company's cost of
telephone equipment and other costs would have increased by Ps. 11.5 million
(U.S.$1.4 million) and Ps. 14.5 million (U.S.$1.8 million) in the first quarters
of 1997 and 1996, respectively. See Note 4(f) to the Unaudited Consolidated
Financial Statements. In connection with the Company's CDMA overlay to be
launched in 1998, the Company expects to provide digital handsets at no or
little cost to the customers.
Operating Expenses
Operating expenses decreased 5.4% to Ps. 167.3 million (U.S.$21.1 million)
in the first quarter of 1997 from Ps. 176.8 million (U.S.$22.3 million) in the
first quarter of 1996, and, as a percentage of total revenues, increased to
45.2% in the first quarter of 1997 from 39.1% in the first quarter of 1996.
Notwithstanding the decrease in revenues in the first quarter of 1997 from the
first quarter of 1996, sales and advertising expenses were relatively stable at
Ps. 111.6 million (U.S.$14.1 million) and Ps. 110.3 million (U.S.$13.9 million)
for the first quarter of 1997 and 1996, respectively. General and administrative
expenses declined 13.6% to Ps. 73.7 million (U.S.$9.3 million) from Ps. 85.3
million (U.S.$10.8 million), primarily due to the elimination of general and
administrative expenses from Iusatel Chile and a decline in consulting fees in
the first quarter of 1997. In accordance with Mexican GAAP, pre-operating
expenses (net of pre-operating revenues) associated with the Company's provision
of local wireless service in the 450 MHz band on a trial basis (as well as with
certain other services of the Company) are capitalized rather than, as has been
required under U.S. GAAP since the beginning of 1996,
61
<PAGE>
expensed. The pre-operating expenses (net of pre-operating revenues) that were
capitalized in the first quarter of 1997 and 1996 equalled Ps. 18.0 million
(U.S.$2.3 million) and Ps. 18.9 million (U.S.$2.4 million), respectively.
Depreciation and Amortization
Depreciation and amortization expenses decreased by 15.8% to Ps. 132.9
million (U.S.$16.8 million) in the first quarter of 1997 from Ps. 157.9 million
(U.S.$19.9 million) in the first quarter of 1996. The decline in depreciation
and amortization is attributable to the reduction in the carrying value of fixed
assets during the first quarter of 1997 as recorded in accordance with Bulletin
B-10. In connection with the Company's CDMA overlay to be launched in 1998, the
Company anticipates an increase in amortization expenses as customers trade in
their analog handsets for digital handsets provided by the Company at no or
little cost to the customers. See "-Local Telephony in the 450 MHz Frequency
Band; CDMA Overlay."
Operating Loss
In the quarter ended March 31, 1997, the Company recorded an operating
loss of Ps. 61.8 million (U.S.$7.8 million) as compared to an operating loss of
Ps. 33.6 million (U.S.$4.2 million) in the quarter ended March 31, 1996.
Integral Financing Cost (Gain)
Total integral financing represented a gain for the first three months of
1997 and 1996 of Ps. 39.9 million (U.S.$5.0 million) and Ps. 143.9 million
(U.S.$18.1 million), respectively. The lower gains reported in the first three
months of 1997 are attributable to a foreign exchange loss of Ps. 16.9 million
(U.S.$2.1 million) in 1997 compared to a foreign exchange gain of Ps. 49.8
million (U.S.$6.3 million) in 1996, as well as (due to the lower inflation rate)
a lower gain from monetary correction of Ps. 111.6 million (U.S.$14.1 million)
in 1997 compared to Ps. 167.1 million (U.S.$21.1 million) in 1996. Interest
expense declined 25% to Ps. 54.8 million (U.S.$6.9 million) for the first three
months of 1997 from Ps. 73.0 million (U.S.$9.2 million) for the first three
months in 1996, primarily due to the Company's conversion to equity of U.S.$70.1
million of shareholder debt in February 1997.
Equity Participation in Net Income (Loss) of Associated Companies
The Company recorded equity participation in net income of associated
companies of Ps. 0.3 million (U.S.$0.04 million) in the first quarter of 1997 as
compared to a loss of Ps. 0.1 million (U.S.$0.01 million) in the first quarter
of 1996. This increase was due to operating improvements in the Company's
Ecuadorean affiliate. See "Business-International Joint Ventures."
Net Income (Loss)
As a result of the factors described above, the Company's net loss was Ps.
32.2 million (U.S.$4.1 million) in the first quarter of 1997 as compared to net
income of Ps. 105.9 million (U.S.$13.4 million) in the first quarter of 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues
The following table sets forth the source of the Company's revenues for
the years ended December 31, 1995 and 1996.
62
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1995
------------------- -------------------
Ps. % Ps. % % Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Other service revenues ............... 320.0 16.8 269.6 15.9 (15.8)
------- ------- ------- -------
Total service revenues ............. 1,615.5 84.9 1,464.0 86.1 (9.4)
Telephone equipment and other revenues 287.8 15.1 236.1 13.9 (18.0)
------- ------- ------- -------
Total revenues ..................... 1,903.3 100.0% 1,700.1 100.0% (10.7)%
======= ======= ======= =======
</TABLE>
Cellular Services. The table below sets forth the cellular service
revenues by source and operating region for 1995 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31, 1995(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 331.9 39.4% 156.9 34.7% 488.8 37.7%
Monthly fees .................... 360.6 42.8 200.5 44.3 561.1 43.3
Long distance(3) ................ 53.3 6.3 36.1 8.0 89.4 6.9
Value-added services(4) ......... 69.2 8.2 41.6 9.2 110.8 8.6
In-roaming(5) ................... 26.4 3.1 15.6 3.4 42.0 3.2
Activation fees ................. 1.7 0.2 1.7 0.4 3.4 0.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 843.1 100.0% 452.4 100.0% 1,295.5 100.0%
======= ======= ======= ======= ======= =======
<CAPTION>
Year Ended December 31, 1996(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ........................ 263.5 36.1% 153.6 33.0% 417.1 34.9%
Monthly fees ...................... 332.9 45.7 211.8 45.5 544.7 45.6
Long distance(3) .................. 48.6 6.7 40.5 8.7 89.1 7.5
Value-added services(4) ........... 57.4 7.9 31.4 6.7 88.8 7.4
In-roaming(5) ..................... 26.5 3.6 27.9 6.0 54.4 4.6
Activation fees ................... -- -- 0.3 0.1 0.3 --
------- ------- ------- ------- ------- -------
Total cellular service revenues 728.9 100.0% 465.5 100.0% 1,194.4 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, long distance, local telephony and data
transmission services.
(2) Airtime is charged on a per-minute basis for peak (Monday to Friday, 8:00
A.M. to 10:00 P.M.) and non-peak airtime.
(3) Long distance revenues generated by cellular subscriber were passed
through to Telmex prior to August 11, 1996. Since that date, such revenues
have been retained by the Company.
(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 the Company's cellular
magazine. Does not include charges for related airtime. Customers using
certain value-added services such as news, weather, sports and
entertainment reports are charged only for airtime, which is 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
therewith. In-roaming revenues are reflected in total service revenues and
are paid to the Company 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.
63
<PAGE>
Cellular service revenues declined by 7.8% to Ps. 1,194.4 million
(U.S.$150.6 million) from Ps. 1,295.5 million (U.S.$163.4 million) and
represented 70.2% and 68.1% of total revenues in 1996 and 1995, respectively.
Despite a 10.8% increase in total subscribers, revenues declined primarily due
to a 9.1% decrease in total MOUs. The Company experienced a significant change
in the composition of its subscriber base between 1996 and 1995 with the
introduction of the Company's Control Plus program in June 1996. Average monthly
revenues generated by Control Plus customers are substantially lower than those
generated by contract subscribers because Control Plus tends to attract lower
volume users who pay no monthly fee, although such users are charged, on
average, higher per minute airtime rates. The decline in the number of contract
subscribers also resulted in a decline in revenues from value-added services.
The proportion of the Company's customers that subscribes to the Company's
prepay plan as opposed to the Company's contract plans has grown significantly
since the introduction of Control Plus. The Company believes that the trend
towards the increased percentage of total subscribers and the significance to
the Company's revenues of prepay plan subscribers are likely to continue.
Iusacell had 232,906 and 210,201 cellular subscribers at December 31, 1996
and 1995, respectively. During the year ended December 31, 1996, prepay
subscribers increased from a negligible percentage of total subscribers to 30.8%
of total subscribers, and the number of contract subscribers declined by 22.8%.
Contract subscribers decreased to 161,277 at December 31, 1996 from 208,802 at
December 31, 1995, and prepay subscribers grew to 71,629 at December 31, 1996
from 1,399 at December 31, 1995. A prepay customer is included as a customer if,
at the end of the period, the customer's prepay card has not yet expired. See
"-Increase in Prepay Subscriber Base."
During 1996, contract subscriber churn increased to an average monthly
level of 4.28% compared to 3.62% during 1995, which the Company believes was due
to the continuing effect of the Mexican recession on the consumer segment of the
economy and the migration of contract plan customers to the prepay programs of
the Company and its competitor. For a discussion of prepay turnover, see
"-Increase in Prepay Subscriber Base."
Average MOUs for 1996 were 117, a decrease of 16.4% compared to the
average of 140 MOUs in 1995. This decline in MOUs was largely due to the
significant increase in the number of the Company's prepay customers, who
generate substantially average lower MOUs than contract customers. In addition,
the Company has experienced a trend toward lower MOUs as Iusacell's expanded
customer base is now attracting subscribers who tend to generate fewer MOUs.
During the second half of 1996, the Company introduced three new contract
plans-Flex 75, Flex 150 and Tu Tiempo-which are designed to encourage higher
MOUs, retain and increase contract subscribers and migrate qualified prepay
customers to contract plans. See "Business-Marketing Strategy-Pricing." Nominal
average monthly cellular revenue per subscriber increased 5.6% to Ps. 490 in
1996 from Ps. 464 in 1995.
Other Services. Other service revenues decreased by 15.8% to Ps. 269.6
million (U.S.$34.0 million) in 1996 from Ps. 320.0 million (U.S.$40.4 million)
in 1995. The decline in other services revenue was caused by the Company's
inability to raise prices to keep pace with the rate of inflation (27.7%) in
1996, offset in part by the Company's new paging and long distance services
launched in August 1996. Revenues derived from Iusatel Chile, which the Company
sold in December 1996, were Ps. 63.5 million (U.S.$8.0 million).
Telephone Equipment and Other. Telephone equipment and other revenues
decreased 18.0% to Ps. 236.1 million (U.S.$29.8 million) in 1996 from Ps. 287.8
million (U.S.$36.3 million) in 1995. This decline reflected fewer sales and
upgrades of handsets. The decline in 1996 from 1995 was partially offset by a
significant increase in sales of used handsets from inventory.
Cost of Sales
Total cost of sales decreased 11.1% to Ps. 668.4 million (U.S.$84.3
million) in 1996 from Ps. 752.0 million (U.S.$94.8 million) in 1995. As a
percentage of total revenues, total cost of sales decreased to 39.3% in 1996
from 39.5% in 1995.
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Cost of Services. Cost of services decreased by 9.4% to Ps. 536.7 million
(U.S.$67.7 million) in 1996 from Ps. 592.2 million (U.S.$74.7 million) in 1995,
and were 36.7% of total service revenues in each period. Cost of services
remained relatively constant as its primary components were revenue-based fees
paid to the Mexican government and minute-based interconnection fees.
Cost of Telephone Equipment and Other. Cost of telephone equipment and
other costs decreased by 17.6% to Ps. 131.7 million (U.S.$16.6 million) in 1996
from Ps. 159.8 million (U.S.$20.2 million) in 1995 and, as a percentage of
telephone equipment and other revenues, increased slightly to 55.8% in 1996,
compared to 55.5% in 1995. The decline in costs is attributable to the reduced
demand for telephone equipment in 1996, itself a result of continued adverse
conditions in the consumer segment of the Mexican economy, as well as the
popularity of the Company's prepay program, where the subscriber typically
already owns a cellular handset. The cost of a cellular handset given to a
contract customer is amortized over 18 months (the average length of the
Company'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, the Company's cost of telephone equipment and other costs
would have increased by Ps. 72.5 million (U.S.$9.1 million) and Ps. 7.9 million
(U.S.$1.0 million) in 1996 and 1995, respectively. See Note 4(f) to the Audited
Consolidated Financial Statements. In connection with the Company's CDMA overlay
to be launched in 1998, the Company expects to provide digital handsets at no or
little cost to the customers.
Operating Expenses
Operating expenses decreased by 12.4% to Ps. 736.5 million (U.S.$92.9
million) in 1996 from Ps. 840.7 million (U.S.$106.0 million) in 1995, and, as a
percentage of revenues, decreased in 1996 to 43.3% as compared to 44.2% in 1995.
The decrease in operating expenses was principally due to lower sales and
advertising costs, partially offset by a slight increase in corporate overhead
expenses. In accordance with Mexican GAAP, pre-operating expenses (net of
pre-operating revenues) associated with the Company's provision, on a trial
basis, of local wireless service in the 450 MHz band (as well as with certain
other services of the Company) are capitalized rather than (as has been required
under U.S. GAAP since the beginning of 1996) expensed. The amount of these
pre-operating expenses (net of pre-operating revenues) that were capitalized
instead of expensed in 1996 equalled Ps. 64.0 million (U.S.$8.1 million). U.S.
GAAP would not have required that these pre-operating amounts be expensed in
1995, given the more developmental stage of the Company's 450 MHz project at
that time. See Notes 17 and 19 to the Audited Consolidated Financial Statements.
Depreciation and Amortization
Depreciation and amortization expenses decreased by 9.7% to Ps. 604.6
million (U.S.$76.2 million) in 1996 from Ps. 669.7 million (U.S.$84.5 million)
in 1995. The decline in depreciation and amortization in 1996 compared to 1995
is attributable to the reduction in the carrying value of fixed assets during
1996 recorded in accordance with Bulletin B-10, as well as, to a lesser extent,
substantially lower capital expenditures in 1996. In connection with the
Company's CDMA overlay to be launched in 1998, the Company anticipates an
increase in amortization expenses as customers trade in their analog handsets
for digital handsets provided by the Company at no or little cost to the
customers. See "-Local Telephony in the 450 MHz Frequency Band; CDMA Overlay."
Operating Loss
In 1996, the Company recorded an operating loss of Ps. 309.4 million
(U.S.$39.0 million) as compared to an operating loss of Ps. 359.1 million
(U.S.$45.3 million) in 1995.
Integral Financing Cost (Gain)
Integral financing gain was Ps. 129.3 million (U.S.$16.3 million) in 1996
compared to a cost of Ps. 376.9 million (U.S.$47.5 million) in 1995 due
principally to a foreign exchange gain of Ps. 62.1 million (U.S.$7.8 million) in
1996 compared to a foreign exchange loss of Ps. 705.1 million (U.S.$88.9
million) in 1995. The foreign exchange gain was due to the slight appreciation
of the Peso as compared to the U.S. dollar for a
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significant period during 1996 compared to a significant devaluation of the Peso
in 1995. The integral financing gain was partially offset by a decrease in gain
on monetary position of 30.5% to Ps. 348.3 million (U.S.$43.9 million) in 1996
from Ps. 501.5 million (U.S.$63.2 million) in 1995 reflecting the lower rate of
inflation in 1996. Net interest expense increased 62.3% to Ps. 281.1 million
(U.S.$35.4 million) in 1996 from Ps. 173.3 million (U.S.$21.9 million) in 1995.
The increase in interest expense was due to higher levels of borrowing in 1996,
including borrowings under the Chase Facility and the full year effect of the
U.S.$48.0 million in vendor financing arranged with Northern Telecom Limited in
November 1995.
Equity Participation in Net Loss of Associated Companies
Equity participation in net loss of associated companies decreased by
84.7% to a loss of Ps. 6.0 million (U.S.$0.8 million) in 1996 from a loss of Ps.
39.1 million (U.S.$4.9 million) in 1995. This decrease was due to operating
improvements in the Company's Ecuadorean affiliate. See "Business -
International Joint Ventures."
Extraordinary Item
In 1996, the Company recorded a Ps. 145.2 million (U.S.$18.3 million)
extraordinary charge consisting primarily of restructuring expenses associated
with the reorganization and the change in management control of the Company,
which occurred in February 1997. See Notes 2, 4(d) and 8(b) to the Audited
Consolidated Financial Statements.
Net Loss
As a result of the factors described above, net loss decreased 52.8% to
Ps. 363.3 million (U.S.$45.8 million) in 1996 from Ps. 769.2 million (U.S.$97.0
million) in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues
The following table sets forth the source of revenues for the Company for
the fiscal years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1994
------------------- -------------------
Ps. % Ps. % % Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cellular service revenues ............ 1,891.7 83.1% 1,295.5 68.1% (31.5)%
Other service revenues ............... 111.5 4.9 320.0 16.8 187.0
------- ------- ------- -------
Total service revenues ............. 2,003.2 88.0 1,615.5 84.9 (19.4)
Telephone equipment and other revenues 273.3 12.0 287.8 15.1 5.3
------- ------- ------- -------
Total revenues ..................... 2,276.5 100.0% 1,903.3 100.0% (16.4)%
======= ======= ======= =======
</TABLE>
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<PAGE>
Cellular Services. The table below sets forth the cellular service
revenues by source and operating region for 1994 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31, 1994(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 594.2 48.5% 282.9 42.6% 877.1 46.4%
Monthly fees .................... 412.6 33.6 218.5 32.8 631.1 33.3
Long distance(3) ................ 66.2 5.4 62.8 9.4 129.0 6.8
Value-added services(4) ......... 111.6 9.1 56.0 8.4 167.6 8.9
In-roaming(5) ................... 25.6 2.1 36.8 5.5 62.4 3.3
Activation fees ................. 16.1 1.3 8.4 1.3 24.5 1.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 1,226.3 100.0% 665.4 100.0% 1,891.7 100.0%
======= ======= ======= ======= ======= =======
<CAPTION>
Year Ended December 31, 1995(1)
---------------------------------------------------------------------
Regions 5, 6 and 7
Region 9 Combined Total
------------------- ------------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ...................... 331.9 39.4% 156.0 34.7% 488.8 37.7%
Monthly fees .................... 360.6 42.8 200.5 44.3 561.1 43.3
Long distance(3) ................ 53.3 6.3 36.1 8.0 89.4 6.9
Value-added services(4) ......... 69.2 8.2 41.6 9.2 110.8 8.6
In-roaming(5) ................... 26.4 3.1 15.6 3.4 42.0 3.2
Activation fees ................. 1.7 0.2 1.7 0.4 3.4 0.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 843.1 100.0% 452.4 100.0% 1,295.5 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Figures reflect intercompany eliminations. These figures do not include
revenues derived from paging, long distance, local telephony and data
transmission.
(2) Airtime is charged on a per-minute basis for 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.
(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 the Company's cellular
magazine. Does not include charges for related airtime. Customers using
certain value-added services such as news, weather, sports and
entertainment reports are charged only for airtime, which is 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
therewith. In-roaming revenues are reflected in total service revenues and
are paid to the Company 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 declined by 31.5% to Ps. 1,295.5 million
(U.S.$163.4 million) from Ps. 1,891.7 million (U.S.$238.5 million) and
represented 68.1% and 83.1% of total revenues in 1995 and 1994, respectively.
Revenues declined despite a 7.9% increase in total subscribers. The principal
reason for this decrease was the Company's inability, due to competitive market
conditions, to increase its prices in line with inflation. The Company raised
prices by an average of approximately 20% during 1995, when the inflation rate
was 52.0%. In 1995, the number of contract subscribers increased 14,079.
Iusacell had 210,201 and 194,723 cellular subscribers at December 31, 1995 and
1994, respectively.
During 1995, contract subscriber churn increased to an average monthly
level of 3.62% compared to 2.67% during 1994, which the Company believes was due
to the impact of the Peso devaluation on consumer demand.
Average MOUs for 1995 were 140, a decrease of 21.8% compared to the
average of 179 MOUs in 1994. This decline in MOUs was largely due to the impact
of the Peso devaluation on consumer demand. In addition, the
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Company has experienced a trend toward lower MOUs as Iusacell's expanded
customer base attracts subscribers who tend to generate fewer MOUs. As a result
of this decline in MOUs, nominal average monthly cellular revenue per subscriber
declined 22% to Ps. 464 in 1995 from Ps. 595 in 1994.
Other Services. Other service revenues increased substantially to Ps.
320.0 million (U.S.$40.4 million) in 1995 from Ps. 111.5 million (U.S.$14.1
million) in 1994. This increase is principally due to revenues from the
Company's data transmission services, which Iusacell began providing in 1995.
Telephone Equipment and Other. Telephone equipment and other revenues
increased to Ps. 287.8 million (U.S.$36.3 million) in 1995 from Ps. 273.3
million (U.S.$34.5 million) in 1994, an increase of 5.3%. This increase is
primarily due to an 11% increase in outroaming revenues, offset by a 16% decline
in sales of handsets and accessories.
Cost of Sales
Total cost of sales increased 5.0% to Ps. 752.0 million (U.S.$94.8
million) in 1995 from Ps. 716.5 million (U.S.$90.4 million) in 1994.
Cost of Services. Cost of services increased by 1.7% to Ps. 592.2 million
(U.S.$74.7 million) in 1995 from Ps. 582.2 million (U.S.$73.4 million) in 1994,
and increased to 36.7% of total service revenues in 1996 from 29.1% of total
service revenues in 1995. The increase was largely due to an increase in
technical expenses and the cost of delivering data services, which the Company
initiated in 1995.
Cost of Telephone Equipment and Other. Cost of telephone equipment and
other costs increased by 18.9% to Ps. 159.8 million (U.S.$20.2 million) in 1995
from Ps. 134.3 million (U.S.$16.9 million) in 1994 and, as a percentage of
telephone equipment and other revenues, increased to 55.5% in 1995, compared to
49.2% in 1994. The increase largely resulted from the effect of the Peso
devaluation since the Company purchased equipment in U.S. dollars and sold it in
Pesos. For a discussion of the Company's accounting policy for the cost of
cellular handsets given to customers, see "-Year Ended December 31, 1996
Compared to Year Ended December 31, 1995" and Note 4(f) to the Audited
Consolidated Financial Statements.
Operating Expenses
Operating expenses decreased 13.2% to Ps. 840.7 million (U.S.$106.0
million) in 1995 from Ps. 969.1 million (U.S.$122.2 million) in 1994, and as a
percentage of revenues, increased to 44.2% in 1995 from 42.6% in 1994. Sales and
advertising expenses declined 15.7% in 1995 as a result of the economic
downturn, while corporate overhead expenses increased 9.2% in 1995. There were
no pre-operating expenses in 1995 or 1994 that, under U.S. GAAP, would have been
required to be expensed, but, under Mexican GAAP, would have been permitted to
be capitalized.
Depreciation and Amortization
Depreciation and amortization expenses increased to Ps. 669.7 million
(U.S.$84.5 million) in 1995 from Ps. 583.2 million (U.S.$73.5 million) in 1994.
The upward revaluation of dollar-denominated assets due to the Peso devaluation
as well as depreciation associated with new capital investments principally
accounted for this increase.
Operating Profit (Loss)
The Company recorded an operating loss of Ps. 359.1 million (U.S.$45.3
million) in 1995 as compared to an operating profit of Ps. 7.7 million (U.S.$1.0
million) in 1994.
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<PAGE>
Integral Financing Cost (Gain)
Integral financing cost decreased by 44.5% to Ps. 376.9 million (U.S.$47.5
million) in 1995 from Ps. 678.7 million (U.S.$ 85.6 million) in 1994 due
principally to an increase in gains on monetary position to Ps. 501.5 million
(U.S.$63.2 million) from Ps. 50.0 million (U.S.$6.3 million). The increased
gains on monetary position were the result of an increase in the net amount of
total debt outstanding and substantially increased inflation in 1995. Net
interest expense declined to Ps. 173.3 million (U.S.$21.9 million) in 1995 from
Ps. 204.0 million (U.S.$25.7 million) in 1994, a decrease of 15.0%. This
decrease in interest expense principally resulted from the retirement of high
interest debt with the proceeds of the Company's U.S.$148.7 million global
equity offering in June 1994.The decrease in integral financing costs was
partially offset by the fact that net foreign exchange losses increased to a
loss of Ps. 705.1 million (U.S.$88.9 million) in 1995 from a loss of Ps. 524.7
million (U.S.$66.2 million) in 1994, an increase of 34.4%, principally as a
result of the Peso devaluation.
Equity Participation in Net Income (Loss) of Associated Companies
Equity participation in net income (loss) of associated companies
decreased substantially to a loss of Ps. 39.1 million (U.S.$4.9 million) in 1995
from income of Ps. 3.0 million (U.S.$0.4 million) in 1994. This decline was
primarily attributable to losses sustained by the Company's Ecuadorean affiliate
as a result of the economic crisis experienced throughout Latin America in 1995.
Net Income (Loss)
Net Income (Loss)
As a result of the factors described above, net loss increased 9.7% to Ps.
769.2 million (U.S.$97.0 million) in 1995 from Ps. 701.1 million (U.S.$88.4
million) in 1994.
Income Tax, Asset Tax and Employees' Profit Sharing
The Company prepares its tax returns on a consolidated basis, thereby
benefitting from the ability to offset losses incurred by certain subsidiaries
against the gains of others within the consolidated group.
Iusacell and its subsidiaries are subject to an alternative net asset tax
which is levied on the average value of substantially all assets less certain
liabilities. This tax, which was 2% in 1994 and 1.8% in 1995 and 1996, is
required to be paid if the amount of the asset tax exceeds the computed income
tax liability. The Company provided for Ps. 32.5 million (U.S.$4.1 million), Ps.
29.1 million (U.S.$3.7 million) and Ps. 35.2 million (U.S.$4.4 million) of net
asset taxes for 1994, 1995 and 1996, 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, the Company paid no income taxes in 1994, 1995 and 1996 and paid the
asset taxes specified above. See Note 12 to the Audited Consolidated Financial
Statements for a discussion of the Company's tax loss.
While Iusacell has no employees at the holding company level, the
Company's 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). In 1994, 1995 and the first quarter of 1997, statutory
profit sharing totalled Ps. 0.6 million (U.S.$0.1 million), Ps. 2.1 million
(U.S.$0.3 million) and Ps. 0.3 million (U.S.$0.04 million), respectively. There
was no statutory profit sharing in 1996.
Liquidity and Capital Resources
Liquidity. Historically, the Company's liquidity has been provided by cash
from operations, vendor financing, short and long-term borrowings and capital
contributions. Total debt as of March 31, 1997 was Ps. 1,457.0 million
(U.S.$183.7 million), a decrease of Ps. 211.5 million (U.S.$26.7 million)
compared to March 31, 1996. Substantially all of the Company's debt outstanding
at March 31, 1997 was U.S. dollar denominated and unhedged. As of March 31,
1997, the Company's bank debt, without accrued interest, consisted primarily of
(i) U.S.$64.8 million under the Chase Facility, (ii) U.S.$35.1 million under the
Banco del Atlantico Facility,
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<PAGE>
(iii) U.S.$40.5 million under the Banco Mexicano Facility and (iv) U.S.$23.2
million under the Banamex Facility. All outstanding amounts of principal and
accrued interest on each of these facilities were repaid with proceeds of the
Financing. The issuance of the New Notes will not result in any change in the
aggregate indebtedness of the Company. See "Use of Proceeds."
On February 18, 1997, as part of the transactions relating to the
assumption of management control by Bell Atlantic, U.S.$32.9 million of credit
facilities acquired or provided by Bell Atlantic were converted into
approximately 47.0 million shares of the Company's capital stock.
Simultaneously, U.S.$37.2 million in loans from the Peralta Group was converted
into approximately 53.1 million shares of the Company's capital stock. These
conversions, together with earlier share acquisitions, resulted in Bell Atlantic
owning 44.6% of the Company's voting shares and the Peralta Group owning 52.3%
of the Company's voting shares. In addition, Bell Atlantic committed to provide
the Company with the Bell Atlantic Facility in an aggregate principal amount of
U.S.$150.0 million. For a description of the availability, terms and conditions
of the Bell Atlantic Facility, see "Certain Transactions-Bell Atlantic
Facility."
Interest payments on the Notes and interest and principal payments under
the Credit Facility will represent significant cash requirements for the
Company. See "Risk Factors-Substantial Leverage; Ability to Service Debt." As a
result of the Financing, the Company has outstanding approximately U.S.$275.3
million of indebtedness, including the U.S.$150.0 million principal amount of
the Notes and the U.S.$125.0 million Term Facility. The Company also has
available U.S.$100.0 million under the Revolving Credit Facility. The Notes have
no amortization requirements until their maturity date in 2004. The Term
Facility has amortization requirements of U.S.$18.8 million in 2000, U.S.$51.2
million in 2001 and U.S.$55.0 million in 2002. Assuming the Revolving Credit
Facility is fully drawn, it will have amortization requirements of U.S.$15.0
million in 2000, U.S.$41.0 million in 2001 and U.S.$44.0 million in 2002.
The Company believes that funds from operating activities and the proceeds
of the Financing, including borrowings under the Revolving Credit Facility, will
be adequate to meet its debt service and principal payment requirements, working
capital requirements and a portion of its capital expenditure needs, although no
assurance can be given in this regard. The Company's future operating
performance and ability to service and repay the Notes and borrowings under the
Credit Facility will be subject to future economic and competitive conditions
and to financial, business and other factors, many of which are beyond the
Company's control. See "-Capital Expenditures," "Description of Credit Facility"
and "Description of Notes."
The Company's principal source of funds during the first quarter of 1997
was from financing activities, which totaled Ps. 590.1 million (U.S.$74.4
million), and primarily consisted of the shareholder facilities described above
and increased borrowings under the Banco del Atlantico Facility. During the
first quarter of 1996, the Company's principal source of funds was from
operating activities, which generated a total of Ps. 51.9 million (U.S.$6.5
million). During 1996 and 1995, the Company's principal source of funds also was
from operating activities, which totaled Ps. 469.3 million (U.S.$59.2 million)
and Ps. 557.3 million (U.S.$70.3 million), respectively. This 15.8% decrease in
1996 from 1995 was largely due to (i) a decrease in depreciation and
amortization of Ps. 70.3 million from 1995 reflecting a downward revaluation of
assets due to lower inflation in 1996 compared to 1995, (ii) a lower
contribution from trade accounts payable resulting from stricter payment terms
imposed by key suppliers and (iii) taxes and other payables became a use of
funds rather than a source of funds.
The Company's operations used funds totaling Ps. 375.9 million (U.S.$47.4
million) during the first quarter of 1997, primarily as a result of increases in
(i) recoverable taxes and other and (ii) amounts due from related parties. Net
cash provided by operating activities during the first quarter of 1996 totaled
Ps. 51.9 million (U.S.$6.5 million).
Net cash provided by financing activities increased to Ps. 590.1 million
(U.S.$74.4 million) in the first quarter of 1997 from Ps. 11.8 million (U.S.$1.5
million) in the first quarter of 1996. Net cash used in financing activities in
1996 totaled Ps. 349.3 million (U.S.$44.0 million), compared with Ps. 214.7
million (U.S.$27.1 million) in resources provided by financing activities in
1995. In 1996, the Company repaid Ps. 407.2
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million (U.S.$51.3 million) of various long-term obligations, offset in part by
a Ps. 57.9 million (U.S.$7.3 million) increase in notes payable.
Resources used for investing activities increased to Ps. 252.4 million
(U.S.$31.8 million) during the first quarter of 1997 compared to Ps. 62.9
million (U.S.$7.9 million) during the first quarter of 1996. During the first
quarter of 1997, capital expenditures increased to Ps. 31.6 million (U.S.$4.0
million) compared to Ps. 13.2 million (U.S.$1.7 million) in the first quarter of
1996.
During 1996, the Company's investing activities used resources of Ps. 56.2
million (U.S.$7.1 million) as compared to Ps. 851.3 million (U.S.$107.4 million)
used in 1995. This decrease was due to a decline in capital expenditures, which
totalled Ps. 211.2 million (U.S.$26.6 million) in 1996, as compared to Ps. 471.3
million (U.S.$59.4 million) in 1995. As a result of financial constraints caused
in part by the economic situation in Mexico, the Company reduced its capital
expenditure program in 1996, with outlays principally limited to expansion of
the cellular network and the startup of long distance and paging.
Capital Expenditures. The Company expects to have substantial capital
expenditures to upgrade its network infrastructure, build out its cellular, long
distance, local telephony and paging networks, redesign Iusacell-owned and
operated customer service centers 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 financing.
The Company expects capital expenditures for 1997, 1998 and 1999 to total
approximately U.S.$308 million, of which approximately U.S.$65 million will be
invested during 1997. Approximately U.S.$235 million, or 75% of the total of
U.S.$308 million, will be for the development of its wireless network, including
the deployment of the CDMA digital network beginning in the first quarter of
1998 and ongoing upgrades to the network infrastructure that will support the
Company's existing analog and planned digital networks. The balance of U.S.$73
million will be (i) invested in its long distance and other networks, (ii) used
to redesign Iusacell-owned and operated customer service centers, (iii) used to
fund certain non-network infrastructure, such as the prepay operating platform,
an advanced fraud detection system and upgrades to its billing and other
management information systems, and (iv) used for other corporate purposes.
The Company's 1997-1999 capital expenditure program will, beginning in
1998, require additional financing, which the Company expects will be available
in the form of additional secured bank financing, vendor financing or export
credit agency financing. In the event that these sources of financing would be
unavailable, the Company expects to be able to borrow under the U.S.$150.0
million Bell Atlantic Facility. To the extent that financing is not available,
the Company could be required to substantially limit its capital expenditure
plans. The Indenture and the Credit Facility will limit the ability of the
Company to incur debt, and the degree to which the Company is leveraged may also
adversely affect its ability to obtain additional financing. See "Risk
Factors-Substantial Leverage; Ability to Service Debt" and "-Capital
Requirements."
After 1999, the Company expects to finance its capital expenditure program
with funds from operating activities. Capital expenditures after 1999 will
continue to be substantial, and there can be no assurance that the Company's
results from operations will improve sufficiently to generate enough funds to
support these capital expenditures.
The Company estimates that full compliance with the coverage and
technological investment requirements in its long distance concession will
require at least U.S.$175.0 million in capital expenditures (a substantial
majority of which is not provided for in the above described capital expenditure
program). If the Company does not satisfy such requirements, it could be subject
to certain fines and penalties and potentially lose its long distance
concession. The Company is currently evaluating the commercial feasibility of
complying with the concession and may request that relevant government
authorities modify the terms of such concession to reflect the results of such
evaluation and any corresponding revisions to Iusacell's business plan. See
"Business-Other Services-Long Distance."
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Dividend Policy. The Company has not paid and currently has no plans to
initiate dividend payments. In addition, the Indenture and the Credit Facility
will limit the Company's ability to pay dividends. See "Description of Credit
Facility" and "Description of Notes."
U.S. GAAP Reconciliation
The principal differences between Mexican GAAP and U.S. GAAP as they
relate to the Company are the treatment of minority interest, deferred income
taxes, capitalized pre-operating expenses and revenues for the Company's 450 MHz
local wireless project, extraordinary charges and gains and losses on monetary
position. See Note 19 to the Audited Consolidated Financial Statements.
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BELL ATLANTIC RELATIONSHIP
Since making its initial investment in the Company in late 1993, Bell
Atlantic has become increasingly involved in the management and operations of
Iusacell. From late 1993 through February 1997, Bell Atlantic participated
substantially in the financial and technological operations of the Company.
Today, Bell Atlantic personnel seconded to Iusacell and Bell Atlantic
consultants are integrally involved in managing the day-to-day operations and
defining and implementing the long-term strategy of Iusacell. In particular,
Bell Atlantic seconded employees are now directing the Company's marketing,
distribution, customer service and financial operations. See "Risk
Factors-Dependence on Bell Atlantic Personnel."
Bell Atlantic is one of the largest cellular providers in the United
States, serving approximately 5.0 million subscribers along the East Coast and
in the Southwest. In addition, Bell Atlantic has substantial investments in
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.D. in the Czech Republic, Eurotel Bratislava S.R.D. in
the Slovak Republic, STET Hellas in Greece and Excelcomindo in Indonesia, and
has extensive experience in the development and implementation of marketing
programs designed to promote subscriber growth. In its wireless markets, Bell
Atlantic has emphasized the delivery of high-quality customer service through
customer service centers and its extensive distribution system. The Company
believes that it will benefit from Bell Atlantic's recent assumption of
management control and Bell Atlantic's plans to utilize its expertise gained in
other markets to enhance Iusacell's performance.
In November 1993, Bell Atlantic invested U.S.$520.0 million in exchange
for a 23.2% equity interest in Iusacell. Following completion of the Company's
initial public offering in June 1994, Bell Atlantic purchased for U.S.$520.0
million an additional interest in the Company. As a result of these
transactions, Bell Atlantic owned shares representing 41.9% of the economic
interest of Iusacell and 44.3% of the voting rights relating to the Company's
common stock.
In February 1997, Bell Atlantic assumed control of the Board of Directors
and management of Iusacell from the Peralta Group. The Peralta Group, however,
still retains 52.3% of the voting stock of the Company and certain veto rights.
In February 1997 Bell Atlantic also converted U.S.$32.9 million of debt into
equity, committed to provide the Company up to U.S.$150.0 million of
subordinated convertible debt financing (which will be evidenced by the Bell
Atlantic Facility) and granted the Peralta Group put options with respect to all
outstanding shares of the Company held by the Peralta Group. See "Certain
Transactions" and "Controlling Shareholders." As a result of these transactions,
Bell Atlantic currently owns approximately 42.1% of the economic interest of
Iusacell and approximately 44.6% of the Company's voting rights. Bell Atlantic
consolidates Iusacell's financial results for financial reporting purposes.
Recently, Iusacell appointed a new Chief Executive Officer, Director General,
Chief Operating Officer and Chief Financial Officer in order to implement the
Company's operating strategies. See "Controlling Shareholders" and "Management."
Bell Atlantic is one of the largest telecommunications companies in the
United States in terms of revenue and assets, and has extensive knowledge of the
telecommunications and wireless businesses. On August 14, 1997, Bell Atlantic
completed its merger with NYNEX Corporation, a global communications and media
corporation. Bell Atlantic now provides local exchange telephone service in 12
states and the District of Columbia in a region in the northeastern United
States stretching from Maine to Virginia that encompasses 63 million people and
25 million households, utilizing 39 million access lines and employing 141,600
people. Bell Atlantic had operating revenues and net income of approximately
U.S.$29.2 billion and U.S.$3.4 billion, respectively, for the fiscal year ended
December 31, 1996 and total assets of approximately U.S.$53.3 billion at such
date. Bell Atlantic and NYNEX Corporation are reporting companies under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Reports and
information filed by these companies with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission as
described in "Available Information."
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Neither Bell Atlantic or any of its affiliates (other than the Company and
the Subsidiary Guarantors) nor the Peralta Group will guarantee or otherwise be
legally obligated or responsible in any way for payment of the Notes.
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BUSINESS
Company Overview
Iusacell is the largest non-wireline cellular telecommunications company
in Mexico, owning and operating the non-wireline cellular concessions in four
contiguous regions in 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 65.1
million POPs or 70% of Mexico's population. The Company had a total of 250,727
cellular subscribers at March 31, 1997, and an average monthly cellular revenue
per subscriber during the three months ended March 31, 1997 of Ps. 469
(approximately U.S.$59). In addition to its core cellular services, the Company
also provides a wide range of other telecommunications services including
paging, long distance, local telephony and data transmission. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"-Cellular Services" and "-Other Services."
In February 1997, Bell Atlantic, a diversified telecommunications company,
assumed control of the Board of Directors and management of Iusacell. Bell
Atlantic has invested approximately U.S.$1.1 billion since 1993 for its 42.1%
economic interest in the Company. Prior to 1997, Bell Atlantic participated
substantially in the financial and technological operations of the Company. In
February 1997, Bell Atlantic appointed a new Iusacell management team, which has
assumed control of Iusacell's operations, including marketing, distribution and
customer service, and has developed, and is in the process of implementing, a
comprehensive operating and strategic plan.
The new management team at Iusacell is able to draw extensively upon Bell
Atlantic's expertise in the development and implementation of the Company's new
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. The Company's Chief
Operating Officer was formerly the Chief Financial Officer of Iusacell and has
29 years of experience with Bell Atlantic in a variety of operating and
financial roles. Iusacell's current Chief Financial Officer has 13 years of
experience with Bell Atlantic. In June 1997, the Company appointed as its
Director General a Mexican citizen with extensive experience in multinational
operations, who most recently had been president of the Mexican cellular company
which operates the non-wireline cellular concessions in two contiguous northern
regions in which Iusacell does not currently have cellular operations. The new
management team is supported by other personnel from Bell Atlantic.
Competitive Strengths
Large Subscriber Base. Iusacell has built a base of 250,727 cellular
subscribers at March 31, 1997, including both "contract" and "prepay"
subscribers. Approximately 65% of that cellular subscriber base consists of
customers who purchase cellular services pursuant to fixed term contracts with
the Company. The Company believes that these 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 and *911. Customers who purchase cellular services
in advance through prepay calling cards represent the remaining 35% of
Iusacell's cellular customers. The prepay subscribers are attractive to the
Company due to their higher average per minute airtime charges, lower
acquisition costs and the absence of billing costs, credit concerns and
collection risk. The Company's large customer base allows Iusacell to cross-sell
its services to over a quarter of a million existing customers through a
"one-stop-shopping" approach. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Increase in Prepay Subscriber
Base."
Proven Bell Atlantic Expertise. Iusacell has begun the implementation of a
broad strategic and operating plan modelled upon Bell Atlantic's wireless
success in the United States and Europe. Bell Atlantic is one of the largest
cellular operators in the United States, serving approximately 5.0 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.D. in the Czech Republic,
Eurotel Bratislava S.R.D. in the Slovak Republic, STET Hellas in Greece and
Excelcomindo in Indonesia. Iusacell believes that Bell Atlantic's extensive
experience in the development and implementation of marketing programs designed
to promote
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<PAGE>
substantial subscriber growth will provide the Company with a significant
competitive advantage in the Mexican cellular market.
Significant Brand Equity. The Company believes that its call quality,
customer care and accurate billing contribute to its strong, favorable brand
awareness. Recent independent market research shows that the Company's contract
customers are very satisfied with the overall services they are receiving. In
order to maximize brand equity, management has consolidated its brand names
under the single, well-recognized IUSACELL brand name.
Established Technological Platform. Iusacell has an existing integrated
network infrastructure that serves as the backbone for its core cellular
business and provides a platform for bundled product offerings, such as paging,
long distance and other telecommunications services. With the benefit of Bell
Atlantic's expertise, the Company has invested in digital switching systems,
dedicated microwave links, cell sites and other network infrastructure. The
Company has a network of five cellular switches, 236 cell sites and 42
repeaters, which covers approximately 70% of the Company's total POPs. The
Company believes that its network provides an excellent platform for
technological innovations such as the CDMA overlay which the Company plans to
begin implementing in the first quarter of 1998.
Comprehensive Geographic Coverage. The four contiguous regions in which
the Company provides cellular service are among the most attractive cellular
markets in Mexico based upon total POPs and demographic characteristics. The
regions of Mexico covered by Iusacell's concessions include Mexico City, the
nation's economic and political capital, and other parts of the country with
high concentrations of industry, tourism and agriculture. The Company's
geographic footprint covers 65.1 million POPs, with total Covered POPs of 46.1
million.
Experienced Management Team. The four senior members of the new management
team appointed by Bell Atlantic have an aggregate of 62 years of experience in
the telecommunications industry. Individually, the Company'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 Bell Atlantic telecommunications
executives and consultants.
Business Strategy
Iusacell's new management team has developed, and is in the process of
implementing, a comprehensive operating and strategic plan primarily focused on
increasing Iusacell's subscriber base, subscriber usage, revenues and
profitability in its core wireless businesses. This strategic plan incorporates
the following key elements:
New Product Offerings and Salesforce Incentives. Iusacell has introduced
new product and pricing packages targeted both at high-usage contract customers,
who favor value-added products, and at low-usage prepay customers. The Company
considers its contract customers to be particularly receptive to bundled product
offerings that include paging, long distance and other telecommunications
services. In addition, the Company is considering marketing its cellular
services to limited zone customers. In May 1997, the Company's salesforce
compensation plan was overhauled to be largely performance based and to reward
the sales of value-added products as well as any migration of qualified prepay
customers to contract plans.
Enhanced Distribution. Iusacell has developed a plan to improve the
distribution of its products based upon the Bell Atlantic model which emphasizes
consistent, standardized merchandising through a well-balanced mix of
company-owned stores and independent distributors conveniently located
throughout the Company's operating regions. By the end of 1999, the Company
intends to have significantly increased the number of Iusacell-owned and
operated customer service centers, incorporating a new, uniform store design. In
1997, in addition to opening a number of customer service centers with the new
store designs, the Company plans to refurbish its existing 57 Iusacell-owned and
operated customer service centers. In March 1997, Iusacell signed a contract
with Precel, formerly one of the largest distributors for the Company's
competitor, adding 75 locations, thereby increasing Iusacell's total points of
sale in Mexico City by over 40% and reducing the competition's distribution
presence. Iusacell plans to enter into agreements with other distributors to
further increase its points of sale.
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<PAGE>
Digital Network and Expanded Footprint. The Company plans to launch a
fully digital CDMA network in order to upgrade its existing integrated network
infrastructure. The overlay will begin in Region 9 in the first quarter of 1998,
with the overlay in the remaining regions to be launched by mid-1999. Iusacell
believes that it will be the first cellular operator in Mexico with a commercial
launch of a digital network. The Company believes that, based on its and Bell
Atlantic's evaluation of both CDMA and TDMA technologies, CDMA technology is
superior to TDMA. As part of its strategy to improve customer satisfaction, the
Company plans to augment capacity by adding a total of 61 new cell sites in
1997. In addition, the Company plans to expand its geographic coverage into
northern Mexico by acquiring or forming strategic alliances with cellular
concession holders or by acquiring PCS licenses in the 1.9 GHz frequency band.
Revitalized Customer Service. Iusacell's marketing strategy emphasizes
proactive and timely customer service. The Company utilizes welcome packages,
customer satisfaction calls, Executive Blue Chip programs for corporate
customers and customized billing to communicate its commitment to its customers.
In addition, Iusacell's customer service centers offer "one-stop-shopping" for
cellular, paging, long distance, local telephony and data transmission services
as a convenience to its customers. Iusacell continues to focus on reducing its
fraud rate, as evidenced by its plan to deploy CDMA technology with its proven
encryption benefits. The Company is considering other fraud prevention measures,
including the introduction of authenticated handsets and fingerprinting for
analog signals, the investigation of cloning activities and restrictions on
international long distance dialing. Iusacell is also installing a new prepay
operating system which is expected to improve customer satisfaction through
automated card activation and account information, provide voice messaging and
other value-added services, and to lower the cost of support for prepay
services.
Realignment of Organizational Structure. Iusacell has consolidated its
business divisions in order to increase operating efficiencies, to facilitate
cross-marketing of services and to reduce duplicative costs. Overall headcount
was reduced by approximately 10% in April 1997 with the elimination of over 230
positions not directly associated with sales and distribution. Furthermore, the
Company has signed a long-term lease in Mexico City that will consolidate
corporate activities previously conducted at five separate locations.
Redesigned Brand Image and Promotional Campaigns. Iusacell recently
launched its newly designed brand logo and product packages with a new
advertising campaign targeted at higher usage customers. For the first time, all
product offerings will be marketed under the single, well-recognized IUSACELL
brand name. As a result, the Company expects to increase brand awareness and
customer loyalty, thereby increasing usage in its addressable market.
Local Telephony Service Offerings. Iusacell has historically provided
local telephony in Mexico on a limited basis through a mobile nationwide IMTS
radiotelephony network and through both rural and public cellularbased telephony
programs. The Company also has approximately 18,000 customers who participate in
a trial of local wireless service in the 450 MHz frequency band, which the
Company began in 1994. The Company plans to expand its 450 MHz service or pursue
other alternatives for the provision of local telephony on a larger scale,
including limited zone product offerings in the 800 MHz (cellular) or 1.9 GHz
(PCS) frequency bands using digital technology that permits mobility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Local Telephony in the 450 MHz Frequency Band; CDMA Overlay."
Strategic Price Increases for Cellular Service. Since April 1997, Iusacell
has announced a weighted average increase of 15% for the per minute airtime
price on its contract and prepay plans and has announced a weighted average
increase of 8.3% for the fixed monthly charge on all its contract plans. The
Company intends to implement future price increases to the extent economic and
competitive conditions permit. For a discussion of the Company's experiences
with the recent price increases, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation-Recent Developments."
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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. Two concessions were granted in
each region, one to Telcel and the other to an independent operator, in order to
provide an alternative for cellular customers. In addition, Telmex was required
to interconnect non-wireline 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 wireline
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 now substantially completed the
privatization process.
Telcel obtained the wireline cellular concession in each of the nine
cellular regions and is therefore Mexico's largest cellular operator. The
non-wireline concession holders and the regions in which they serve are: (i)
Baja Celular, S.A. de C.V. in Region 1; (ii) Movitel del Noroeste, S.A. de C.V.
in Region 2; (iii) Telefonia Celular de Norte, S.A. de C.V. in Region 3; (iv)
Celular de Telefonia, S.A. de C.V. in Region 4 ; (v) Portatel del Sureste, S.A.
de C.V. in Region 8; and (vi) subsidiaries of the Company in Regions 5, 6, 7 and
9. Motorola, Inc. is a controlling or significant shareholder in the
aforementioned five non-Company concession holders. Telcel is the sole
competitor for each non-wireline 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 full open competition
commenced in January 1997. Currently, a presubscription balloting process is
being conducted on a city by city basis to enable customers to choose a long
distance provider.
The SCT has also granted long distance concessions to the following
applicants: (i) Alestra S. de R.L. de C.V.; (ii) Avantel, S.A. de C.V.; (iii)
Marcatel S.A. de C.V.; (iv) Investcom, S.A. de C.V.; (v) Miditel, S.A. de C.V.;
(vi) Amaritel, S.A. de C.V.; (vii) PCM "Extensa", S.A. de C.V.; (viii) Bestel,
S.A. de C.V. (ix) Telinor, S.A. de C.V.; and (x) Iusatel, S.A. de C.V.
("Iusatel"), a subsidiary of Iusacell. Each concession has a nationwide scope
and a thirty-year term and authorizes domestic and international long distance
services and value-added services, including voice and data transmission
services.
The Mexican government has initiated the liberalization process for
competition in local telephony service. Accordingly, the SCT has already granted
three concessions for local telephone service and has officially announced its
plans to auction spectrum in the 450 MHz, 1.9 GHz (PCS) and 3.4-3.7 GHz
frequency bands for local wireless service during the fall of 1997.
Growth Opportunities
Underserved Telephony Market. The Company believes that there is
substantial unmet demand for telephone service in Mexico as demonstrated by the
relatively low level of wireline and cellular penetration and the long customer
wait for landline service. According to the International Telecommunications
Union ("ITU"), an agency of the United Nations, as of December 31, 1995, there
were approximately 9.6 lines per 100 inhabitants in Mexico, which is lower than
the teledensity rates in certain other Latin American countries and
substantially lower than those in developed countries such as the United States.
The ITU forecasts that Mexican teledensity will reach 14.6 lines per 100
inhabitants by the end of the year 2000.
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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,
1995.
Selected Telephone Penetration
Lines in service per
Country 100 inhabitants(1)
- ------- ------------------
United States........................................... 62.6
Uruguay................................................. 19.6
Argentina............................................... 16.0
Chile................................................... 13.2
Venezuela............................................... 11.1
Colombia................................................ 10.0
Mexico.................................................. 9.6
Brazil.................................................. 7.5
Peru.................................................... 4.7
- ----------
(1) Source: International Telecommunications Union-World Telecommunications
Development Report 1997.
Expected Recovery in Consumer Spending. The Company expects consumer
spending to recover following the recent economic crisis in Mexico. According to
WEFA forecasts, GDP growth is expected to be 5.4% and 6.4% in 1997 and 1998,
respectively. With GDP per capita expected to increase by an average of 4.0%
during this period based on an annual population growth rate of 1.8% (as
forecasted by WEFA), the Company anticipates increased demand for its services.
Changing Competitive Dynamics
The Company's cellular competitor is Telcel, a wholly owned subsidiary of
Telmex, which holds the wireline cellular concessions in all nine regions of
Mexico. The Company believes that Telmex faces increasing competition,
especially in the long distance market, which was fully opened to competition in
January 1997. Telmex's major long distance competitors include two joint
ventures in which AT&T and MCI are the strategic partners.
In late 1995, the Company brought a suit charging Telmex with unlawfully
cross-subsidizing Telcel's cellular phone operations. The Company believes that
the increased competition in the long distance market is hindering Telmex's
ability to continue to cross-subsidize Telcel. See "-Legal Proceedings."
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
non-wireline cellular 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 non-wireline cellular concessions in Regions 5, 6 and 7.
Regions 5, 6, 7 and 9 are among the most attractive cellular markets in Mexico
based upon total POPs and demographic characteristics. These regions cover a
contiguous geographic area in central Mexico, which allows Iusacell to achieve
certain 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
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sector, although it has recently begun to develop as an automobile manufacturing
center. Region 7 includes Puebla, Veracruz and Acapulco and contains major
operations of the Mexican petrochemical industry.
Subscribers and System Usage
As of March 31, 1997, Iusacell had a total of 137,425 cellular subscribers
in Region 9. Of this number, 68% were contract plan subscribers and 32% were
prepay customers. According to Company customer profiles, professionals comprise
a large portion of its Region 9 cellular subscriber base. The Company offers a
number of value-added services designed specifically to fulfill the demands of
this important group of contract subscribers. For example, Iusacell offers
secretarial services and provides English-speaking operators to serve the large
English-speaking market in Region 9. The Company also provides financial news
reporting, emergency services, entertainment information, reservations services
and sports reports. The Company believes that these value-added services help
increase contract subscriber usage and also enhance Iusacell's market image as a
full service cellular provider. Furthermore, the Company also believes that a
strong distribution network is necessary in order to develop and sustain a
significant presence in this important market. The Company believes it has
particularly strengthened its competitive position in Region 9 by entering into
a distribution contract with Precel, which increased the Company's number of
independent distributors in Region 9 by 40%. See "-Marketing
Strategy-Distribution."
As of March 31, 1997, Iusacell had a combined total of 113,302 cellular
subscribers in Regions 5, 6 and 7. Of this number, 61% were contract plan
subscribers and 39% were prepay customers. The Company 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, than on
the benefits that value-added services provide. Although few value-added
services are currently being offered to contract subscribers, Iusacell is
evaluating the feasibility of offering a broader range of value-added services
similar to those offered to its contract subscribers in Region 9.
The table below sets forth information regarding the cellular subscriber
base for Region 9 and Regions 5, 6 and 7 combined at the dates or for the
periods indicated.
Selected Cellular Subscriber Base Data
<TABLE>
<CAPTION>
Year Ended December 31, Three Months
------------------------------------ Ended March 31,
1994 1995 1996 1997
-------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Region 9
Total POPs (in millions) ............... 23.3 23.8 24.3 24.5
Covered POPs (in millions) ............. 19.9 20.3 22.1 22.3
Percentage of population covered ....... 85.4% 85.3% 91.0% 91.0%
Subscribers:
Contract ............................. 127,138 129,099 94,218 94,108
Prepay ............................... -- 1,399 36,100 43,317
-------- -------- -------- --------
Total ......................... 127,138 130,498 130,318 137,425
Non-wireline penetration(1) ............ 0.55% 0.55% 0.54% 0.56%
Average monthly MOUs per subscriber(2) . 186 154 133 126
Nominal average monthly cellular revenue
per subscriber(3) .................... Ps.586 Ps.469 Ps. 496 Ps. 490
Nominal average monthly cellular revenue
per subscriber(4) .................... U.S.$178 U.S.$73 U.S.$65 U.S.$62
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Regions 5, 6 and 7 Combined
Total POPs (in millions) ............... 38.9 39.7 40.3 40.6
Covered POPs (in millions) ............. 19.6 20.0 23.4 23.8
Percentage of population covered ....... 50.4% 50.4% 58.1% 58.6%
Subscribers:
Contract ............................. 67,585 79,703 67,059 68,747
Prepay ............................... -- -- 35,529 44,555
-------- -------- -------- --------
Total ................................ 67,585 79,703 102,588 113,302
Non-wireline penetration(1) ............ 0.17% 0.20% 0.25% 0.28%
Average monthly MOUs per subscriber(2) . 165 117 94 86
Nominal average monthly cellular revenue
per subscriber(3) .................... Ps. 612 Ps. 457 Ps. 481 Ps. 442
Nominal average monthly cellular revenue
per subscriber(4) .................... U.S.$186 U.S.$71 U.S.$63 U.S.$56
</TABLE>
(1) Non-wireline penetration represents the end of period non-wireline
subscribers divided by the end of period POPs.
(2) Average monthly MOUs per subscriber is calculated by dividing the total
MOUs for the respective period by the average number of subscribers for
such period and dividing the resulting quotient by the number of months in
such period.
(3) Nominal average monthly cellular revenue per subscriber is calculated by
dividing the total cellular service revenue for the respective period (in
nominal Pesos) by the average number of subscribers for such period and
dividing the resulting quotient by the number of months in such period.
(4) Calculated as described in Note (3) above, converted to U.S. dollars using
the Noon Buying Rate for the relevant period. See "Exchange Rates."
Contract Churn
Contract churn measures both voluntarily and involuntarily disconnected
subscribers. The Company calculates 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. Voluntarily
disconnected subscribers encompass subscribers who choose to (i) no longer
subscribe to cellular service, (ii) become a prepay customer of the Company or
(iii) obtain cellular service (either on a contract or a prepay basis) from the
Company's competitor. Involuntarily disconnected subscribers encompass customers
whose service is terminated after failing to meet the Company's payment
requirements. The Company believes that a significant part of its contract churn
in 1996 and the first quarter of 1997 was due to customers switching from its
contract plans to a prepay program. Following the introduction of Telcel's
prepay program in February 1996, the Company launched its Control Plus prepay
plan in June 1996 in order to attract, service and retain subscribers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Increase in Prepay Subscriber Base."
Prepay Turnover
Currently, a prepay customer is no longer considered a customer of the
Company when 60 days have 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. The Company's
current prepay customers who want to continue to have cellular service must
choose to (i) continue to be prepay customers of the Company by purchasing
another card, (ii) become contract customers of the Company or (iii) become
customers (either on a contract or a prepay basis) of Telcel. Due to the higher
turnover among its prepay customers, the Company is attempting to migrate its
qualified prepay customers to contract plans, where customer loyalty and
retention have been historically higher. The Company is evaluating different
methods of determining turnover, as the current method is dependent upon, among
other things, the number of days of use the Company permits before expiration of
prepay cards (currently 60 days). Iusacell is installing a new prepay operating
system which the Company expects will better track those customers who turn
over. Iusacell anticipates that this new operating
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system, together with initiatives to increase the number of distribution points
for prepay cards, improve customer care and otherwise improve the convenience of
the Company's prepay program, will enhance the Company's ability to retain
prepay customers. See "Risk Factors-Mexican Governmental, Political, Economic
and Social Factors," "-Increased Competition; Disputes with Telmex" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Increase in Prepay Subscriber Base."
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 non-wireline cellular 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 mark-up. 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
non-wireline operators are settled monthly. Interconnection charges owed to
Telmex and long-distance charges owed to the carrier 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. During
1996, in-roaming fees and usage revenue represented 3.2% of Iusacell's total
revenues.
Iusacell has signed over sixty agreements with United States and other
foreign operators to provide its subscribers with international roaming
capabilities. These operators include Bell Atlantic NYNEX 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.
Other Services
Paging
On December 14, 1995 the Company and Infomin formed Infotelecom as a joint
venture to market national and international paging services. The Company owns
51% of Infotelecom, while Infomin owns the other 49%. 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. Due to restrictions on foreign
ownership under the paging concession, however, Infomin cannot contribute its
paging license to the joint venture so long as Bell Atlantic continues to
control the management of Iusacell and the Company continues to hold more than
49% of the voting shares of Infotelecom. See "Risk Factors-Potential Lack of
Control Over Certain Subsidiaries."
Pursuant to a marketing agreement that the Company has entered into with
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.
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Infotelecom began marketing paging services in August 1996 and service is
now provided in Mexico City, Guadalajara, Monterrey, Puebla, Cuernavaca, Toluca
and Ciudad Juarez. Infotelecom plans to expand the marketing of paging services
to 30 cities by 2001. The Company plans to take advantage of its existing
cellular network and of its operating and administrative resources in order to
achieve cost efficiencies in the provision of paging services. As of March 31,
1997, Infotelecom had 6,203 paging customers.
Under the joint venture agreement, the Company and Infomin valued the
Infomin paging concession at U.S.$10.5 million, and the Company agreed to fund
the first U.S.$10.5 million of Infotelecom's capital needs before Infomin would
be required to make pro rata cash contributions. Auctions for paging spectrum
held after execution of this joint venture agreement have valued nationwide
paging concessions as low as Ps. 1.0 million. Because of this valuation
disparity and the restrictions against foreign ownership of Infomin's paging
concession, Iusacell is exploring alternatives for the provision of paging
services. As of March 31, 1997, the Company had loaned Infotelecom approximately
Ps. 61.4 million (U.S.$7.7 million) to fund capital expenditures and operating
losses. In the event the Company determines, independently or jointly with
Infomin, to abandon or liquidate the Infotelecom joint venture, there can be no
assurance as to how much, if any, of such loaned amounts Iusacell would be able
to recover.
Long Distance
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
subscriber base in Mexico pursuant to the 30-year concession Iusatel was awarded
from the SCT on October 16, 1995. The Company's competitors in long distance
include the nine other companies granted concessions as well as Telmex, the
former long distance monopoly. The Company believes that competition in the
Mexican long distance market will stimulate growth in demand for long distance
service.
The Company currently provides long distance service using its own
switches and transmission equipment and a combination of fiber optic lines,
satellite transmission and lines leased from Telmex. At March 31, 1997, the
Company provided long distance service in 21 cities to approximately 275,000
customers, approximately 269,000 of which were existing customers for the
Company's other services, and anticipates providing service in at least 60
cities by mid-1998. The Company has chosen not to commit significant marketing
resources to the current presubscription balloting process among long distance
providers in Mexico and has fared poorly in initial balloting results.
The Company's long distance concession provides for certain coverage and
technological investment requirements. If the Company does not satisfy such
requirements, it could be subject to certain fines and penalties and potentially
lose its long distance concession. The Company is currently evaluating the
commercial feasibility of complying with the concession and may request that
relevant government authorities modify the terms of such concession to reflect
the results of such evaluation and any corresponding revisions to Iusacell's
business plan. See "-Government Regulation-Concessions and Permits-Long Distance
Concession" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation-Liquidity and Capital Resources-Capital Expenditures."
Local 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 non-commercial customers across
Mexico. As of March 31, 1997, Iusacell had 1,598 IMTS radiotelephone subscribers
with average monthly billings of approximately Ps. 848 (U.S.$107) per customer.
Iusacell is considering the cessation of IMTS service with the migration of IMTS
subscribers to other wireless services or local telephony services.
The Company 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 the Company's
concessions for the provision of cellular telephone service and utilizes the
Company's cellular network to provide telecommunications coverage in
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areas with little or no basic service. As of March 31, 1997, Iusacell had 2,630
cellular telephones in service under its public and rural telephony programs.
As of March 31, 1997, Iusacell was providing, on a trial basis pending
approval from the SCT, local wireless service in the 450 MHz frequency band to
17,980 customers in selected markets in Mexico. The Company believes that there
is substantial unmet demand for telephone service in Mexico as demonstrated by
the relatively low level of residential, business line and cellular penetration
and long customer wait for landline service. See "-The Telecommunications
Industry in Mexico-Growth Opportunities." Iusacell has developed a rate plan for
local wireless service in the 450 MHz frequency band which, while differing in
some respects from the plan used by Telmex, would result in a target revenue
range which approximates a typical Telmex customer's monthly bill.
The Company 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 the Company
reached agreement on a process by which the Company 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
certain 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 scheduled by the Mexican government for
the fall of 1997. Until the conclusion of such auctions, Iusacell has received a
provisional authorization to use 450 MHz spectrum to provide local wireless
service to up to 50,000 subscribers.
As a result of the delays experienced by the Company and the uncertainty
relating to the Company's ability, at a commercially acceptable cost, to obtain
concessions to provide local wireless service in the 450 MHz frequency band, the
Company 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 permits mobility. If the
Company 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, and
the Company would record substantial non-cash losses in writing off assets
relating to its 450 MHz local wireless service. See "-Government
Regulation-Concessions and Permits-Local Telephony", "Risk Factors-Ability to
Implement New Services" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Local Telephony in the 450 MHz Frequency
Band; CDMA Overlay."
In expanding its local telephone services, the Company plans to capitalize
on synergies between its cellular and local wireless services, utilizing its
existing cellular network for connections with the local subscribers' premises.
Furthermore, the Company believes that local wireless service requires a lower
infrastructure investment per line than landline service.
Iusacell also has applied for a license to provide local wireline service,
including dedicated circuits, local switching and data service. While the
Company currently does not anticipate that the provision of local wireline
service will become a significant part of its services, the Company 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. The Company
provides both public and private data transmission through its cellular network,
utilizing CDPD technology. The Company provides its data transmission services
primarily to the financial services and consumer products industries.
Marketing Strategy
With the assumption of control by Bell Atlantic, Iusacell has redefined
its strategy for achieving profitable growth, particularly in its cellular
business. The Company seeks to increase its average monthly revenue per
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subscriber, increase its cellular subscriber base, decrease the cost of
acquiring additional subscribers, reduce contract churn and prepay turnover by
improving its marketing efforts to its existing and potential cellular
subscribers.
The Company'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.
Contract Subscribers
Contract subscribers seek uninterrupted mobile cellular service, including
long distance, access to high-quality customer service and the ability to choose
among value-added services such as call waiting and *911 services, all for one
monthly fee.
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 the Company's premium plans. The Company is aggressively pursuing customer
growth in this segment through targeted marketing and distribution (customer
service centers, corporate representatives, direct salesforce), advertising
campaigns (business and leisure publications, moving billboards) and pricing
plans.
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. The Company plans to continue to
generate revenue from this segment through targeted distribution (customer
service centers, direct salesforce, distributors), advertising and pricing
plans.
While the Company 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. The
Company targets this segment through its 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 customers.
Prepay Subscribers
Since the inception of the Company's prepay plan in 1996, the number of
prepay subscribers has grown to represent approximately 35% of Iusacell's
subscribers at March 31, 1997. A prepay subscriber can activate a cellular phone
at a Company customer service center, purchase a prepaid card with a fixed
amount of credit to be used over a period of no more than 60 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 cellular service
(including long distance, but without roaming capability and limited access to
*911 emergency service) until the credit is fully used or until the card expires
at the end of 60 days, whichever occurs first.
The prepay market is composed of customers who typically cannot afford to
purchase a contract plan, do not have the credit profile required to purchase a
contract plan or seek cellular services for emergency or limited use only.
Iusacell believes that prepay plans are attractive to a wide range of cellular
customers. In addition to helping customers control costs, Control Plus has no
monthly bill and allows customers to prepay for cellular services in cash.
Iusacell is now marketing these features to new classes of potential customers.
Currently, prepay subscribers lose their phone numbers 60 days following the
purchase and activation of their most recently purchased card, whether or not
there is credit remaining on such card. The Company has recently implemented a
program under which prepay customers can reacquire their number for a fee within
30 days after expiration. In an effort to discourage turnover, the Company
charges an activation fee for prepay subscribers. The Company has recently
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waived this fee in response to market conditions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Increase in Prepay
Subscriber Base."
Iusacell believes the prepay service offerings provide an opportunity to
improve margins due to higher average per minute airtime charges, the lower cost
to acquire prepay subscribers and the absence of billing costs, credit concerns
and payment risk. Iusacell is installing a new prepay operating system, allowing
it to better track the usage patterns and identity of its prepay subscribers.
The new operating system also is expected to improve customer satisfaction
through automated reactivation, voice messaging and other value-added services,
and to lower the cost of support for prepay services. The Company anticipates
that the new operating system, together with initiatives to increase the number
of distribution points for prepay cards, will improve customer care and
otherwise improve the convenience of the Company's prepay program, and will
enhance the Company's ability to retain prepay customers.
Distribution
Iusacell targets the various segments of its subscriber base through five
sales and distribution channels: customer service centers, independent
distributors, corporate representatives, a direct salesforce and commission
sales agents. The Company is aggressively increasing the number of its points of
distribution in order to acquire additional subscribers.
Historically, Iusacell's salesforce compensation was based largely upon
salary and a commission structure which encouraged the sale of prepay cards.
Since the assumption of control of the Company by Bell Atlantic, the Company has
overhauled its sales compensation plan. The new plan, implemented in May 1997,
is designed to motivate the salesforce within each distribution channel through
monetary incentives. In addition, this new plan will provide training so that
the salesforce is encouraged to activate profitable and loyal accounts,
cross-sell the full line of the Company's service offerings and maintain the
Iusacell standards in advertising, promotions and customer service.
Customer Service Centers. Iusacell has reconfigured each of its customer
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 to increase average monthly revenue per subscriber
through cross-selling, the Company plans to significantly increase the number of
Iusacell-owned and operated customer service centers by the end of 1999,
incorporating a new, uniform store design. In 1997, in addition to opening a
number of new customer service centers, the Company expects to complete the
redesign of its existing 57 owned and operated customer service centers.
Independent Distributors. In order to broaden its market, Iusacell
maintains relationships with a broad network of 61 exclusive distributors in 164
locations. This includes a new distribution contract with Precel, formerly one
of Telcel's largest distributors, to obtain exclusive distribution in 75
locations. The Company's distribution arrangement with Precel increased the
number of Company locations in Regions 5, 7 and 9, by 7, 3 and 65 locations,
respectively, and significantly reduced Telcel's distribution presence in Mexico
City. In order to ensure that Iusacell's standards are maintained at all
distribution points, the Company provides assistance to its distributors in
training, promotions and advertising and provides information on its customer
base to allow the distributors to service the Company's customers effectively.
Corporate Representatives. To service the needs of its large corporate and
other high-usage customers, the Company has created a dedicated corporate sales
group, which, at March 31, 1997, included 70 full-time sales representatives.
This group of trained representatives seeks to increase sales to high-usage
customers by (i) "bundling" combinations of services into customized packages
designed to meet customers' requirements, (ii) developing and marketing new
services to satisfy the demands of such customers and (iii) educating corporate
purchasing managers about alternative pricing plans and services. The Company
plans to increase the size and geographic reach of this salesforce in the
future.
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Direct Salesforce. As of March 31, 1997, the Company 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. The
Company carefully selects, trains and motivates this salesforce to maintain
Iusacell's service standards.
Commission Sales Agents. The Company retains commission agents as a
flexible salesforce in Regions 5, 6 and 7. The agents function as cellular
service brokers for the Company, working out of their own premises to better
target their customers. These agents provide additional distribution outlets
with minimal Company support. As of March 31, 1997, the Company had an
arrangement with 59 commission sales agents who distribute the Company's product
with no direct costs to Iusacell.
Advertising
Iusacell has launched an integrated media plan emphasizing the benefits of
the Company's products and supported by the Iusacell brand image, the logo for
which was recently redesigned. For the first time, all product offerings are
under the single, well-recognized IUSACELL brand name. The media plan targets
the Company's subscribers through a coordinated print, radio, television and
fixed and moving outdoor advertising campaign. A key element of this integrated
media plan is the periodic agency review wherein the sales results of a given
campaign are evaluated. The integrated media plan enables the Company to
negotiate more favorable advertising rates. Print advertisements prominently
feature an ad-response telephone number to solicit new customer inquiries. A
24-hour line is staffed with trained representatives who are equipped to answer
questions regarding services and products. The Company believes that this
24-hour line helps to convey the image of Iusacell as a high-quality, customer
service-oriented telecommunications service provider.
Customer Service
Iusacell views superior customer service as essential in order to
distinguish itself in the competitive Mexican cellular telecommunications
market. The Company provides training for its customer service representatives
to ensure that each customer receives prompt attention, informed answers to any
inquiries and satisfactory resolution of any concerns. The Company believes that
enhanced customer service, especially after-sales support, is integral in
developing brand loyalty and supports the efforts of its salesforce to
cross-sell the Company's services and products. For prepay customers, Iusacell
is installing a new operating system that will better track the usage patterns
and identities of these subscribers. The new operating system will improve
customer satisfaction through automated activation, voice messaging and other
value-added services and will lower the cost of support services. To further
enhance customer service, Iusacell has installed dedicated personal computer
terminals linked to the Company's billing system so that each customer service
representative, either personally or through the 24-hour service line, 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, will allow Iusacell to better tailor its
marketing strategy to each customer. Along with providing information as to how
the Company 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 the Company's services and
products.
Pricing
Since 1994, Iusacell has offered 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 certain number of free
minutes per month. Additionally, the Company's prepay program markets cards
which credit a finite number of Pesos to a customer's account, to be utilized
over a period of no more than 60 days.
The contract pricing plans are designed to target high, moderate and
low-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. The Company offers the Productivity and Premium plans which
are specifically targeted at the high end of the market.
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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. The Company offers the Flex
75 and Flex 150 plans to satisfy the needs of the moderate-usage contract
subscriber base. In addition, on June 7, 1997, the Company launched its Ganador
(Winner) plan which is distinct in that it offers, at no additional charge,
three-way-dialing, call forwarding and call waiting, and comes with a choice of
handsets, including the latest model from Nokia. To satisfy the more limited
needs of the low-usage contract subscribers, the Company offers the Security,
Standard and Tu Tiempo plans, which offer a moderately priced, fixed monthly
charge coupled with a high per minute airtime charge and relatively few free
minutes.
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 Control Plus Ps. 500 cards) or roaming, generally already own
a handset and often cannot afford to or do not have the credit profile to
purchase contract plan cellular services. Other prepay customers include
vacationers and travelling business people who require cellular service for
short periods of time. In addition to helping customers control costs, Control
Plus has no monthly bill and allows customers to prepay for cellular services in
cash. In June 1996, the Company introduced Control Plus, a prepay cellular
telephone service whereby a customer may bring a handset to a customer service
center for activation and purchase a prepay card in denominations of Ps. 100,
Ps. 250 and Ps. 500 from a customer service center or any of a variety of
vendors, including newsstands, lottery stands, supermarkets and other retail
outlets. Once the card is purchased and the handset is activated, the customer
can call the Company with the card's serial number to credit the corresponding
value of cellular service to the customer's account. When this credit occurs,
the service is active and ready for the customer's use. A phone number is
assigned at the time of activation. That number is terminated when 60 days have
elapsed from the date of the last credit.
With the exception of Tu Tiempo and Control Plus, all packages include a
selection of free cellular handsets. The table below sets forth the various
contract and prepay plan rate options implemented by the Company as of May 20,
1997 (except in the case of Ganador, which was introduced on June 7, 1997).
Cellular Rate Options
<TABLE>
<CAPTION>
Fixed Peak Non-Peak Free Contract
Monthly Activation per Minute per Minute Monthly Period
Charge Fee (1) Charge (2) Charge (2) Minutes (months)
----------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Plans:
Premium................. Ps. 1,039 Ps. -- Ps. 1.80 Ps. 1.25 600 12
Productivity ........... 729 -- 2.30 1.65 300 12
Flex 150 ............... 419 -- 2.60 1.75 150 18
Flex 75 ................ 259 -- 3.30 2.15 75 18
Ganador ................ 299 -- 2.25 1.30 100 18
Standard ............... 239 -- 2.60 1.95 30 24
Security ............... 169 -- 3.90 2.25 30 24
Tu Tiempo .............. 99 149 2.75 2.75 -- --
C300 ................... 569 140 1.50 1.00 300 6
R150 ................... 259 130 2.25 1.40 150 12
Prepay Plans:
Control Plus Ps.500 Card -- -- 2.78 2.78 -- NA
Control Plus Ps.250 Card -- 49 3.16 3.16 -- NA
Control Plus Ps.100 Card . -- 99 3.45 3.45 -- NA
</TABLE>
- ----------
(1) Iusacell waives activation fees from time to time in response to market
conditions. It is currently waiving the activation fees for its Control
Plus cards.
(2) Peak per minute charges currently apply to usage between 8:00 A.M. and
10:00 P.M. Monday through Friday. Non-peak per-minute charges apply at all
other times.
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Since April 1997, the Company has announced two price increases for its
cellular plans. On April 1, 1997, the Company announced a weighted average
increase of 15% 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 the Company's contract and prepay plans,
weighted by the ratio of each plan's contribution to overall airtime revenues
during the month of April 1997. On May 20, 1997, the Company announced a
weighted average increase of 8.3% for the fixed monthly charges on all its
contract plans. This weighted average price increase was calculated by applying
the actual price increases announced on May 20, 1997 for all the Company's
contract plans, weighted by the ratio of each plan's contribution to overall
monthly fixed charges during the month of April 1997.
For a discussion of the Company's experiences with the recent price
increases, see "Management's Discussion and Analysis of Financial Condition and
Results of Operation-Recent Developments." Since Iusacell announced these price
increases, Telcel has responded by raising the per minute prices on its prepay
plans. The Company intends to continually review its market pricing and will
attempt to increase prices, if economic and competitive conditions permit, to
keep pace with inflation. See "Risk Factors-Mexican Governmental, Political,
Economic and Social Factors" and "-Increased Competition; Disputes with Telmex."
Activation, Billing and Collection Procedures
The Company 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 in an
amount equal to double the assigned credit limit. For Control Plus customers,
activation time is 30 minutes or less. The Company believes that its ability to
activate a cellular telephone number promptly gives the Company a competitive
advantage over Telcel.
The Company mitigates its credit exposure in four ways: (i) for those
customers paying by credit card, by obtaining a credit report from the Bureau
Nacional de Credito ("National Credit Bureau"), a Mexican affiliate of
TransUnion Corporation; (ii) 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; (iii) by requiring that
customers paying by credit card purchase a bond, which provides for payment in
the event of customer defaults; and (iv) by utilizing prepay cards, which
eliminate all credit risk.
The Company has instituted customer retention procedures whereby 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, thereby 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. The Company
believes that these procedures are effective in reducing the number of billing
disputes with subscribers and losses due to cellular fraud.
Billing is administered using a customized version of Bell Canada's "Link"
billing system in Regions 6, 7 and 9 and the Communication Administration System
in Region 5. The Company's current billing and call-rating capacity is
sufficient to service its existing subscriber base. In connection with the
planned implementation of CDMA, the Company plans to upgrade its current billing
system to accommodate future subscriber growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation-Liquidity and Capital
Resources-Capital Expenditures." The Company compiles billing information on a
real-time basis by transmitting the information via dedicated microwave
facilities from the Company's switching stations to its billing system.
Protective and disaster recovery measures are taken in connection with all
billing information. Iusacell continues to evaluate alternative billing and
account management system solutions in order to accommodate future growth.
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Network and Equipment
Cellular Services
Iusacell's integrated cellular network is currently composed of five
cellular switches, 236 cell sites and 42 repeaters, and covers approximately 70%
of total regional POPs. Iusacell currently uses analog technology to link its
subscribers and its cellular network. The Company plans to launch a digital CDMA
overlay network in 1998, which will significantly enhance network performance.
The overlay will begin in Region 9 in the first quarter of 1998, with the
remaining regions to be completed during the remainder of that year.
The Company has elected to deploy CDMA technology instead of TDMA
technology based on its and Bell Atlantic's evaluation of the two technologies.
For the past year, Iusacell has used TDMA technology for internal purposes
across 106 cell sites in Region 9. Bell Atlantic is successfully using CDMA
technology in several of its U.S. markets to favorable customer response. CDMA
offers significantly greater call-carrying capacity and superior voice quality
and is more compatible for future upgrading than TDMA. The Company believes that
it will be the first cellular operator in Mexico to launch a fully digital CDMA
network. Iusacell will maintain transmitting equipment to serve both analog and
digital formats, and the Company expects to market dual-mode cellular telephones
capable of sending and receiving both analog and digital transmissions. See
"Risk Factors-Rapid Technological Change." Depending on the choice of vendor for
CDMA equipment, the Company may be required to discontinue using a substantial
portion of its existing network infrastructure, particularly the TDMA technology
now being used for internal purposes in Region 9 and, accordingly, could record
substantial non-cash losses in respect thereof. The Company cannot anticipate
the magnitude of any such potential write-off at this time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Local
Telephony in the 450 MHz Frequency Band; CDMA Overlay."
Iusacell's cellular network consists of digital switching systems that are
capable of serving multiple markets. Regions 6, 7 and 9 are served by four
Northern Telecom DMS 250 (MTX) switches, and Region 5 is served by one Motorola
switch (EMX 2500). All switching equipment is fully networked. Iusacell
installed its first mobile switching center in 1989 in Region 9 and currently
operates 141 cell sites, 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 95 cell sites, resulting in cellular telephone
coverage in all major population centers as well as along the principal highway
routes in the regions. Iusacell plans to install an additional 39 cell sites and
31 repeaters in its regions during 1997 in an effort to increase geographic
coverage, as well as boost call-carrying capacity within areas already covered.
The Company 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. The entire microwave network
consists of 329 individual microwave point to point links (hops). 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.
The Company has a network operations and control center in Mexico City,
which oversees, administers and provides technical support to all regions. The
Company plans to upgrade its control center, utilizing a more flexible platform,
capable of adjusting to an increasingly more complex network. This effort is
currently under evaluation and implementation of the new system is expected
during the first half of 1998.
Other Services
Iusacell provides paging services primarily using its own cellular network
facilities. For long distance, the Company uses fiber optics and
state-of-the-art digital systems. In particular, Iusacell uses its three long
distance switches and its own transmission equipment, as well as other
facilities leased from Telmex.
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Iusacell provides private data transmission services primarily using
excess capacity in the Company's microwave backbone in its existing cellular
network in Region 9, its X.25 packet switching network and its nationwide
satellite transmission through Satelitron, S.A. de C.V. ("Satelitron"), a shared
hub for private networks which is being developed as part of a joint venture
with Hughes Network Systems and other entities. Iusacell also provides private
and public data transmission through its cellular network, utilizing CDPD
technology.
The Company's local wireless network, if implemented in the 450 MHz
frequency band, is expected to be based on the most modern digital switching,
transmission and subscriber connection equipment that is readily available and
commercially feasible. The Company intends to utilize its existing
infrastructure to the extent possible. If the Company opts to provide local
wireless service through its 800 MHz or 1.9 GHz frequency bands, the digital
technology that would be employed would offer additional features such as
out-of-zone mobility.
In April 1994, the Company and Northern Telecom Limited ("Nortel") entered
into a five-year, U.S.$315.0 million agreement (the "Nortel Agreement") pursuant
to which Nortel has in the past supplied and, upon approval of the Company's
technical and economic plans by the SCT, will continue to 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. The Nortel Agreement is
currently suspended and will terminate if the Company's technical and economic
plans for the 450 MHz project are not approved by, or if the Company does not
receive a concession to provide local wireless telephony in the 450 MHz
frequency band from, the SCT on or before December 31, 1997. The Company has
made U.S.$26.8 million in purchases under the Nortel Agreement to date and, if
the suspension is lifted, anticipates making a total of U.S.$288.2 million in
additional purchases under the agreement. In addition, the Company has made an
advance payment of U.S.$15.0 million for future purchases as required under the
agreement. The Company has also entered into a U.S.$5.0 million agreement with
Nortel for the purchase of 12,000 450 MHz local wireless terminals and a
U.S.$82.0 million purchase agreement with Telrad Telecommunications Electronics
Industries, Ltd. ("Telrad") for terminals. Although the Company believes that it
has no further liability under the Telrad contract and would have no further
liability under the Nortel Agreement if it were unable to acquire the necessary
concession or receive the required approval from the SCT on or before December
31, 1997, there can be no assurance that Telrad or Nortel will not seek legal
redress against the Company or that Telrad or Nortel will not succeed in
obtaining damages from the Company. See "Risk Factors-Ability to Implement New
Services" and "-Mexican Government Regulation."
Infrastructure Synergies
While cellular transmitters are unique to cellular service, towers can be
used for cellular and paging transmissions, and the same physical infrastructure
(land, shelter, etc.) can be used for cellular, paging and long distance
equipment. Synergies also exist in maintenance, workforce training and equipment
purchasing. For example, since plugs (electronic circuit boards used in
switches) can be used in both cellular and long distance switches, a
proportionately lower inventory of plugs can be maintained. The Company 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 the Company'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 wireline cellular 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, roaming capabilities, value-added
services, breadth of coverage area and, more recently, price. Operators are
largely free to set their own rates, provided such rates are set on the basis of
cost. See "-Government Regulation."
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While Iusacell currently faces limited competition from entities providing
telecommunications services utilizing other existing technologies, the Company
will likely face increased competition from technologies being developed or to
be developed in the future. Emerging technologies such as enhanced specialized
mobile radio, PCS and satellite telephone will compete with current cellular
services. The Mexican government has announced its intention to auction spectrum
in the 450 MHz, 1.9 GHz (PCS) and 3.4-3.7 GHz frequency bands in the fall of
1997. Several of the Company's competitors have announced their intention to
enter these auctions to obtain access to the local wireless markets.
In paging services, the Company competes with established companies such
as Comunicaciones MTEL (Skytel), S.A. de C.V., Enlaces Radiofonicos, S.A. de
C.V. (Digitel), Telecomunicaciones Elektra, S.A. de C.V. (Biper), Grupo Radio
Beep, S.A. de C.V., Codime and Buscatel, S.A. de C.V., a Telmex subsidiary. In
addition, several new concessions have been awarded in the last year. Other
companies have publicly announced their intention to provide similar services in
Mexico.
In providing long distance telephone service, Iusacell faces competition
from ten other concession holders, including Telmex and joint venture companies
in which AT&T and MCI have beneficial ownership interests. Presubscription
balloting is currently taking place in certain cities whereby telephone
customers choose their long distance carrier. The Company has chosen not to
commit significant marketing resources to the balloting process and has fared
poorly in initial balloting results.
In the local telephony market, the Company expects to face significant
competition from both Telmex, the existing monopoly, and new competitors
entering this market through the upcoming 450 MHz and 1.9 GHz (PCS) auctions.
In providing data transmission services, Iusacell competes for customers
with Telmex and Telecom. In addition, the Company believes that the current
Mexican data transmission industry includes over 1,000 private networks that
provide data transmission services.
International Joint Ventures
On September 30, 1997, the Company consummated the sale of its direct and
indirect minority interests in its Ecuadorean cellular company, Conecel, and its
Ecuadorean paging company Corptilor, S.A. to a corporation controlled by the
controlling shareholder of the majority shareholder of these companies. At the
closing, Iusacell received U.S.$29.4 million in cash consideration for its
direct interests in these companies and anticipates receiving an additional
U.S.$3.4 million in respect of its indirect interests by the end of 1997.
In December 1996, Iusacell agreed to sell its wholly-owned subsidiary,
Iusatel Chile, a Chilean long distance company, to Inversiones Druma, S.A.
("Inversiones") for U.S.$5.0 million. The sale transaction also includes a
capitalization of U.S.$13.3 million of obligations of the Company to Iusatel
Chile. In March 1997, Inversiones notified Iusacell that it seeks to rescind the
transaction due to alleged omissions and misrepresentations and therefore was
not going to pay the purchase price. Iusacell intends to seek to enforce the
December 1996 agreement.
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Government Regulation
Telecommunications systems in Mexico are regulated by the SCT and the
Mexican Federal Telecommunications Commission, an independent regulatory body
within the SCT, pursuant to the Ley Federal de Telecomunicaciones (the "1995
Telecommunications Law"), which became effective on June 8, 1995, although
certain rules set forth in the Ley de Vias Generales de Comunicacion, the
Reglamento de Telecomunicaciones and the rules promulgated thereunder
(collectively, 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; and the
granting, revocation and modification of concessions and permits. In particular,
concessions and permits granted under the Original Communications Laws (which is
the case for most concessions and permits granted to the Company and its
subsidiaries) should be governed by the Original Communications Laws, except for
provisions included in the 1995 Telecommunications Law which 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.
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. Concessions
specify, among other things, (i) the type of network, system or service, (ii)
the allocated spectrum, if applicable, (iii) the geographical region in which
the holder of the concession may provide the service, (iv) the required capital
expenditure program, (v) the term during which such service may be provided,
(vi) 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 (vii) any other
rights and obligations affecting the concession holder. In addition to
concessions, the SCT may also grant permits for (i) establishing, operating or
exploiting private telecommunications services not constituting a public network
and (ii) 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 Ley de Inversion Extranjera
(the "Foreign Investment Law"), concessions may only be granted to Mexican
individuals and to Mexican corporations whose foreign investment participation
does not exceed 49% of the voting shares thereof or who 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. There are no
foreign investment participation restrictions in respect of operations conducted
under permits. See "Risk Factors-Potential Lack of Control Over Certain
Subsidiaries."
A concession or a permit may be terminated pursuant to the 1995
Telecommunications Law upon: (i) expiration of its term, (ii) resignation by the
concession holder or the permit holder, (iii) revocation, (iv) expropriation or
(v) dissolution or bankruptcy of the concession holder or the permit holder.
A concession or a permit may be revoked prior to the end of its term under
certain circumstances, such as: (i) unauthorized interruption of service, (ii)
the taking of any action that impairs the rights of other concessionaires or
permit holders, (iii) failure to comply with the obligations or conditions
specified in the concession or permit, (iv) failure to provide interconnection
services with other holders of telecommunications concessions and permits, (v)
loss of the concession or permit holder's Mexican nationality, (vi) unauthorized
assignment, transfer or encumbrance of the concession or permit, any rights
thereunder or assets used for the exploitation of the concession or permit,
(vii) failure to pay to the Mexican government its fee for the concession
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or, where applicable, its participation in the revenues of the holder of the
concession and (viii) participation of any foreign government in the capital
stock of the holder of the concession. 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 related assets 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 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, such party
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, such determination will be made by an independent appraiser.
Iusacell is not aware of any instance in which the SCT has exercised any of the
foregoing 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.
("SOS"), on April 1, 1957, as amended (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. 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 radiocommunication 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 determining whether to approve these plans, the SCT is authorized
to consider whether the plans sufficiently address factors such as the public
interest and efficiency and uniformity in telecommunications throughout Mexico.
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 such renewal.
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, thereby 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 radiotelephone 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 ranges 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.
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In accordance with the 1995 Telecommunications Law, SOS applied to renew
the Original Concession in March 1995. Given the nearly 10 years remaining on
the term of the Original Concession, the Company does not expect any definitive
determination by the SCT with respect to the renewal application in the near
term.
Cellular Concessions. Mexico is divided into nine cellular regions. The
SCT has allocated cellular telephone system frequencies in each region from the
825-835 and 870-880 MHz frequency bands ("Band A") and from the 835-845 and
880-890 MHz frequency bands ("Band B") of the radio spectrum. In each region,
Telcel, the holder of the wireline cellular concession, is assigned Band B, and
the holder of the non-wireline cellular concession in each region is assigned
Band A.
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 Comcel, Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V. ("Portacel") and Telecomunicaciones del Golfo, S.A. de
C.V. ("Telgolfo"), respectively. See Note 2 to the Audited Consolidated
Financial Statements. 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 Band A. In consideration for these
authorizations and concessions, the subsidiaries made initial payments to the
Mexican government and, in addition, must make payments as follows:
Percent of Gross
Revenues Payable To
Mexican Government
------------------
Comcel............................................... 8%
Portacel............................................. 7
Telgolfo............................................. 8
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 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 certain
conditions set forth 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, the Company 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. As a result,
Infomin will be unable to contribute its paging license to the joint venture so
long as Bell Atlantic continues to control the management of Iusacell and
Iusacell continues to hold more than 49% of the voting shares of Infotelecom.
See "Risk Factors-Potential Lack of Control over Certain Subsidiaries" and
"-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 Concession. Iusacell's right to provide international long
distance services is based upon a long distance concession granted by the SCT to
Iusatel 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. Pursuant to
the concession, Iusatel is required to comply with certain technical
specifications and must serve with its own facilities a minimum of 60 cities by
May 31, 1998
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and 22 additional cities by December 31, 2000. See "-Other Services-Long
Distance" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources-Capital Expenditures."
Local Telephony. Iusacell believes its right to provide local telephony
service is derived from the Original Concession. The Original Concession, as
originally granted, permitted the Company to provide radiocommunications service
to vehicle-mounted terminal equipment nationwide. In 1986, the SCT amended the
Original Concession to authorize the Company to provide fixed public
radiotelephony service in rural areas nationwide in accordance with plans to be
approved by the SCT. In 1990, the Reglamento de Telecomunicaciones was
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. The Company 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 the Company reached agreement on a
process by which the Company 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 certain 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 scheduled by the Mexican government for the fall of 1997. Until
the conclusion of such auctions, Iusacell has received a provisional
authorization to use 450 MHz spectrum to provide local wireless service to up to
50,000 subscribers.
The Company 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. If the Company were to determine that it would be preferable to pursue
such an alternative, the acquisition of concessions, other regulatory approvals
and the payment of substantial fees could be required. See "Risk Factors-Ability
to Implement New Services" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Local Telephony in the 450 MHz
Frequency Band; CDMA Overlay."
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 nationwide to provide data transmission services.
Satellite Transmission Permit. On December 15, 1991, Satelitron, a joint
venture formed among Hughes Network Systems, Iusacell and two other investors,
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.
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.
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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: (i) secretarial service, (ii) voice mail
and (iii) 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 aforementioned
payments to the Mexican government.
Foreign Ownership Restrictions
Pursuant to the 1995 Telecommunications Law and the Foreign Investment
Law, holders of concessions to provide telecommunications services in Mexico
(including long distance and local telephony, but not 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 the Company and its subsidiaries 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. Iusacell intends to comply with
this requirement by transferring 51% of the voting shares of these subsidiaries
to Mexican nationals while retaining a larger equity interest through the
ownership of "neutral" limited-voting shares (inversion neutra).
Iusacell has commenced discussions with Mexican nationals with respect to
the sale of the requisite voting interest in Iusatelecomunicaciones and Iusatel.
Iusacell intends that, as part of any such transfer, it will enter into a
shareholders agreement with the purchaser that will contain adequate protections
for Iusacell, including governance rights commensurate with Iusacell's equity
interest in such subsidiaries. There can be no assurance, however, that a sale
can be effected on such terms, or at all, or whether such terms will be
acceptable to the Mexican Foreign Investment Bureau. See "Risk Factors-Potential
Lack of Control Over Certain Subsidiaries."
In order to participate in the auctions for concessions for microwave
frequencies scheduled to be held in July 1997, the Company recently formed a
joint venture with Mr. Jose Ramon Elizondo, a Director of the Company and a
Mexican investor. The Mexican Foreign Investment Commission 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 PCS and
wireless local loop frequencies, the Company also recently formed a joint
venture with Mr. Jose Ramon Elizondo. The Company will soon petition the Mexican
Foreign Investment Commission to approve a capital structure substantially
similar to that authorized for Iusatel, Iusatelecomunicaciones and the microwave
joint venture.
The concession pursuant to which the Company commercializes paging
services is also subject to foreign ownership restrictions. See "-Concessions
and Permits-Paging."
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 certain 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
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power. All tariffs for telecommunications services (other than value-added
services) must be registered with the Federal Telecommunications Commission
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 would 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 or 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 telecommunications
equipment, is largely dependent on satisfying certain conditions contained in
the 1996 Act and any regulations promulgated thereunder.
As a company affiliated with Bell Atlantic, the operations of Iusacell had
been subject to the Decree and the various waivers granted thereunder. 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 also subject to certain
prohibitions on discrimination in handling traffic to and from the United States
and limitations on interests it could own in international cables and satellite
facilities to and from the United States. Finally, an FTE was subject to
prohibitions on exporting to the United States any telecommunications equipment
or CPE manufactured outside the United States.
The 1996 Act eliminated the restrictions under the Decree that preclude an
FTE from providing the United States "half" of traffic originating in a foreign
county, from exporting to the United States telecommunications equipment or CPE
manufactured outside the United States and, subject to the same conditions that
Bell Atlantic must satisfy under the 1996 Act and any regulations promulgated
thereunder only with respect to interLATA (long distance) telecommunications
services originating in Bell Atlantic's local exchange territories, from
providing interLATA (long distance) telecommunications services between points
in the United States or international long distance service originating in the
United States and owning international telecommunications facilities in the
United States. 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 "transit" traffic (that
is, international telecommunications traffic which, though routed through the
United States, neither originates nor terminates in the United States) through
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 point of interconnection is, and the traffic originates, outside the
states where Bell Atlantic's subsidiaries provide local exchange telephone
service. Activities permitted by the 1996 Act are not subject to the
prohibitions set forth in the Decree and the waivers issued thereunder on
discrimination in handling traffic to and from the United States and on
limitations on interests an FTE could own in international cables and satellite
facilities to and from the United States.
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In 1996, Iusatel applied for and received authorization under Section 214
of the 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 in anticipation of the consummation of the 1996
Share Conversion Agreement (as defined). Upon the completion of the
restructuring of Iusatel to comply with the 1995 Telecommunications Law and the
Foreign Investment Law, Iusatel and such Peralta Group entity will seek to
formally return control of the Section 214 Authorization to Iusatel. The Company
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
the Company chooses to engage in such activities, no definitive prediction can
be made as to the specific impact of such activities on the Company's business,
financial condition or results of operations.
Other laws of the United States may restrict certain activities of
Iusacell by virtue of Bell Atlantic's ownership interest. Such laws may include
the United States Trading with the Enemy Act, the United States Cuban Democracy
Act, the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 and
other laws and regulations that restrict trade with, and investments in, certain
countries, including Cuba, and the United States Foreign Corrupt Practices Act.
The New Shareholders Agreement contains, and the predecessor agreement
thereto contained, certain provisions, designed to require Iusacell to refrain
from taking any actions that would cause Bell Atlantic to be in violation of
applicable law.
Employees
As of March 31, 1997, the Company and its subsidiaries had an aggregate of
2,339 full-time and part-time employees, of whom approximately 23% were members
of a labor union. In April 1997, as part of its reorganization, Iusacell
implemented a headcount reduction. As of May 31, 1997, Iusacell had
approximately 1,996 employees. The Company has never experienced a work stoppage
and management considers its relationship with its employees to be good.
Properties
Throughout the regions served by its cellular operations, Iusacell
operates 57 customer service centers and a total of 236 cell sites, 42
repeaters, five mobile switching centers, two switches for local wireless
service and three switches for long distance service.
The Company generally leases the land where the Iusacell customer service
centers, cell sites 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. The Company generally owns its cellular
network equipment subject to certain liens.
Legal Proceedings
Although Iusacell is a party to certain legal proceedings in the ordinary
course of its business, the Company's management believes that none of these
proceedings, individually or in the aggregate, is likely to have a material
adverse effect on the Company.
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. 170.0 million (U.S.$21.8 million) of which Ps. 22.2
million (U.S.$2.8 million) constituted value-added tax and Ps. 28.6 million
(U.S.$3.7 million) were accounted for as interest expense. The billed, disputed
interconnection charges had totalled approximately Ps. 79 million (U.S.$9.9
million) as of March 31, 1997.
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In August 1997, the Company and Telmex also entered into amendments to the
current interconnection agreement pursuant to which Iusacell agreed to pay
Telmex an interim interconnection rate of Ps. 0.31 (U.S.$0.04) per minute
retroactive to June 1, 1997 (as opposed to the Ps. 0.45 (U.S.$0.056) per minute
rate previously charged by Telmex) and Telmex agreed to extend to the Company
the 38% discount available to other large business customers for use of its long
distance network. Iusacell and Telmex are currently negotiating the terms of an
entirely new interconnection agreement the terms of which will also be
retroactive to June 1, 1997. The Company anticipates that this new
interconnection agreement will implement an even lower interconnection rate and
will provide for some form of reciprocal payments by Telmex for interconnecting
with Iusacell's networks.
A ruling by the Federal Competition Commission is still pending on the
suit filed by the Company 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. Telmex and Telcel filed eight motions
against the suit, all of which motions were rejected by the Federal Competition
Commission. In February 1997, the Federal Competition Commission imposed a fine
of Ps. 847,500 (U.S.$107,537) on Telmex and Telcel for their refusal to provide
the expert appointed by the Company with the necessary information to prepare
his opinion on the cross-subsidies claim. 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. A Mexican appellate
court recently ruled against Telmex and Telcel on these matters. The Company is
now awaiting the determination by the Federal Competition Commission on the
process by which the expert appointed by the Company shall engage in discovery
in connection with the preparation of his opinion.
Mitsubishi Electronics America, Inc. ("Mitsubishi") filed a complaint in
the United States on July 18, 1996 against the Company, Bell Atlantic and Bell
Atlantic Latin American Holdings, Inc. alleging, among other things, that the
Company breached a purported contract for the purchase of 60,000 local wireless
telephone terminals at a cost of U.S.$510 each. The Company's motions to dismiss
the complaint for lack of personal jurisdiction and on substantive grounds were
rejected, although the court reserved judgment on the Company's motion to
dismiss for forum non conveniens. The Company is unable at this time to estimate
its potential liability, if any, and accordingly has not created any contingency
reserve with respect to the litigation.
On August 2, 1996, the SCT ordered Comcel, the Company's Region 5
concession holder, to pay a Ps. 50.3 million (U.S.$6.3 million) penalty for
alleged late payments of fees in connection with the original granting of the
cellular concession for Region 5. Comcel filed a request for review of the order
with the SCT on August 22, 1996, which in October 1997 ruled in Comcel's favor
and rescinded the penalty in its entirety.
The Company's minority partners in Rentacell, S.A. de C.V. ("Rentacell"),
by notarized letter, charged the Company with (i) failing to provide it with
certain developmental and operational support services purportedly mandated by
contract and (ii) using software purportedly owned by Rentacell to operate
Iusacell's prepay business. The Company and its partners in Rentacell have
reached a verbal settlement of their various business disputes, pursuant to
which Iusacell has agreed to pay such Rentacell partners Ps. 18.5 million in
consideration of the purchase of the 30% of the shares of capital stock of
Rentacell which the Company does not already own. The Company expects the
settlement to be formalized and consummated during the fourth quarter of 1997.
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CONTROLLING SHAREHOLDERS
The Peralta Group currently owns approximately 47.7% of the economic
interest of Iusacell and approximately 52.3% of the Company's voting rights.
Bell Atlantic currently owns approximately 42.1% of the economic interest of
Iusacell and approximately 44.6% of the Company's voting rights. The following
table sets forth the ownership of all classes of the capital stock of Iusacell
by the Peralta Group and Bell Atlantic. Excluding shares held by the Peralta
Group as disclosed below, the Company's remaining directors and executive
officers as a group own less than 1% of the outstanding Series D shares and less
than 5% of the outstanding Series L shares.
Identity of
Title of Class Person or Group Amount Owned Percent of Class
- -------------- --------------- ------------ ----------------
Series A...................... Peralta Group 332,966,159 44.6%
Bell Atlantic 413,787,251 55.4
Series B...................... Bell Atlantic 5,562,450 100.0
Series D...................... Peralta Group 158,613,110 84.9
Series L...................... Peralta Group 27,834,000 18.6
Bell Atlantic 38,792,690 25.9
In February 1997, Bell Atlantic and the Peralta Group consummated certain
of the transactions contemplated by the 1996 Share Conversion Agreement entered
into among the Peralta Group, Bell Atlantic and the Company (the "1996 Share
Conversion Agreement"). As a result of the surrender to the Company by Bell
Atlantic and the Peralta Group of shares of certain series of the Company's
capital stock for conversion into shares of other series of the Company's
capital stock, Bell Atlantic obtained management control of Iusacell despite the
Peralta Group maintaining a majority of the voting rights pertaining to the
Company's capital stock. Bell Atlantic paid the Peralta Group U.S.$50.0 million
as consideration for such conversions. In addition, Bell Atlantic granted the
Peralta Group put options with respect to all outstanding shares of the Company
held by the Peralta Group; the Peralta Group has the right to put one-third of
the total number of its current outstanding Iusacell shares to Bell Atlantic on
December 31 of each of 1997, 1998 and 1999 at a per share price of U.S.$0.85,
U.S.$0.96 and U.S.$1.07, respectively. In order to effect the change of
management control, the bylaws of the Company were amended. Pursuant to these
amendments to Iusacell's bylaws, Bell Atlantic has the ability to determine the
outcome of any action requiring the approval of the Company's shareholders,
except that the Peralta Group's concurrence is currently required in order to
change the nationality, corporate nature or corporate purpose of the Company, to
amend the Company's bylaws, to merge or dissolve the Company, to spin off parts
of the Company, to increase the fixed capital of the Company, to issue bonds or
preferred capital stock, to redeem shares of capital stock, to cancel the
registration of the Series L Shares of the Company on the Mexican Stock Exchange
or any other securities exchange, to sell or acquire, or exercise withdrawal
rights with respect to, shares of other companies if the relevant consideration
exceeds 20% of the stockholders' equity of the Company and with respect to any
other matter which, pursuant to applicable law or the Company's bylaws, may
require a special quorum at the relevant shareholders meeting.
In accordance with the bylaws of the Company and the Amended and Restated
Shareholders Agreement dated as of February 18, 1997 (the "New Shareholders
Agreement"), Iusacell's Board of Directors consists of 21 members. The Series A
shareholders have the right to appoint ten Series A Directors and their
alternates, the Series B shareholders have the right to appoint nine Series B
Directors and their alternates, the Series D shareholders have the right to
appoint one Series D Director and an alternate and the Series L shareholders
have the right to appoint one Series L Director and an alternate. Pursuant to
the New Shareholders Agreement, Bell Atlantic and the Peralta Group each have
the right to nominate two Series A Directors and their respective alternates and
have agreed to vote their respective Series A shares to elect all such nominees.
Bell Atlantic and the Peralta Group have also agreed to consult with each other
to attempt to agree upon the remaining six Series A Directors and their
alternates; in the absence of any such agreement, Bell Atlantic, as holder of a
majority of the Series A Shares, has the right to nominate and elect such
remaining Series A Directors and their alternates.
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The Company's bylaws provide that resolutions of the Board of Directors
shall be valid when approved by a majority of the vote of the members present,
including the favorable vote of at least one Series A Director and one Series B
Director. 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 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 at least one Series A Director, one Series B Director and
one Series D Director. The following transactions are subject to a supermajority
vote by the Company's Board of Directors: (i) acquisitions of
non-telecommunications businesses for a purchase price in excess of U.S.$30.0
million; (ii) certain acquisitions, joint ventures and mergers within the
telecommunications business involving assets in excess of U.S.$100.0 million;
(iii) certain dispositions of assets for a consideration in excess of U.S.$30.0
million in any twelve month period; (iv) certain incurrences of indebtedness
after January 1, 1998 in an amount exceeding U.S.$100.0 million in the aggregate
within any twelve month period; (v) certain issuances of capital stock in an
amount exceeding U.S.$50.0 million in the aggregate within any twelve month
period; (vi) entering into, amending or terminating contracts with or for the
benefit of certain affiliates of the Company, except for any renewals or
extensions on substantially similar terms of certain consulting and seconded
employee arrangements with Bell Atlantic affiliates; (vii) 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
(viii) certain terminations of concessions relating to telecommunications
operations.
After January 1, 1998, each of Bell Atlantic Latin America Holdings, Inc.
("BALAH") and Bell Atlantic International, Inc. ("BAII"), acting on behalf of
itself, its affiliates and its transferees, and one member of the Peralta Group,
acting on behalf of the Peralta Group and its transferees, will have the right
to cause Iusacell to facilitate two registered secondary public offerings of its
shares, subject to certain minimum ownership requirements. In addition, after
January 1, 1998, each of BALAH and BAII and such Peralta Group member has a
one-time option to cause 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 Shareholders
Agreement also provides that if Iusacell registers any equity securities for a
primary or secondary offering after January 1, 1998, it must permit BALAH and
BAII 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.
Iusacell has agreed to bear all expenses of any of the above-described primary
or secondary offerings (other than the fees of counsel to the holders of the
registration rights). In addition, the Company 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.
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MANAGEMENT
Iusacell is currently managed by a 21-member Board of Directors (the
"Board of Directors"). The Directors nominated by Bell Atlantic have the power
under the Company's bylaws to approve, without the affirmative vote of any other
Directors, all resolutions of the Board of Directors. However, the New
Shareholders Agreement grants the Peralta Group supermajority rights with
respect to certain transactions. See "Controlling Shareholders."
Pursuant to the New Shareholders Agreement, Mr. Lawrence T. Babbio,
Jr., Vice Chairman of Bell Atlantic, automatically became the Chairman of the
Board of Directors of Iusacell upon the death of Mr. Alejo Peralta, founder of
Iusacell, on April 8, 1997. That position was reaffirmed at the annual
shareholders' meeting of Iusacell on April 10, 1997.
Generally, the Board of Directors is authorized to elect or appoint
Iusacell's executive officers as well as officers of wholly owned subsidiaries
and employees or agents of the Company. However, Mr. Babbio (or his successor as
Chairman of the Board of Directors, as the case may be) has the power under the
New Shareholders Agreement to appoint and dismiss the Chief Executive Officer,
President, Director General, Chief Operating Officer and Director of the
Cellular Division of Iusacell. If Bell Atlantic no longer has control of the
Board of Directors, the Chief Financial Officer and the two principal officers
responsible for strategic and network planning at Iusacell will continue to be
nominated by Bell Atlantic, provided that Bell Atlantic maintains certain
minimum ownership requirements.
Directors and Executive Officers
The following table sets forth certain information with respect to
the current directors and principal executive officers of the Company:
Name Age Position(s)
--- --------------------------------------
Lawrence T. Babbio, Jr.......... 52 Chairman of the Board of Directors and
Series A Director
* Thomas A. Bartlett.............. 39 President and Chief Executive Officer
and Series B Director
Fulvio V. del Valle............. 47 Director General
* Edward R. Kingman, Jr........... 49 Executive Vice President and Chief
Operating Officer and Series L Director
* Howard F. Zuckerman............. 53 Vice President-Finance and Audit and
Chief Financial Officer and Series B
Director
Carlos Peralta Quintero......... 45 Series A Director
Luis Felipe Gonzalez Munoz...... 42 Series A Director
William O. Albertini............ 54 Series A Director
Dennis F. Strigl................ 51 Series A Director
Manuel Somoza Alonso............ 50 Series A Director
Jose Ramon Elizondo Anaya....... 43 Series A Director
Rodolfo Garcia Muriel........... 52 Series A Director
Gabriel Alarcon Velazquez....... 60 Series A Director
Eduardo Rihan Azar.............. 75 Series A Director
Thomas R. McKeough.............. 50 Series B Director
* Noah S. Asher................... 35 Vice President-Administration and
Series B Director
* Ruben G. Perlmutter............. 39 Vice President-Mergers and Acquisitions
and General Counsel and Series B
Director
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Mack E. Treece.................. 38 Series B Director
Robert Van Brunt................ 44 Series B Director
Fernando de Ovando.............. 45 Series B Director
Javier Martinez del Campo Lanz.. 39 Series B Director
Ernesto Canales Santos.......... 56 Series D Director
- ----------
(*) Indicates an employee of Bell Atlantic who is currently serving as an
officer of Iusacell pursuant to consulting or secondment arrangements. See
"Risk Factors- Dependence on Bell Atlantic Personnel" and "Certain
Transactions."
Lawrence T. Babbio, Jr. has been a member of the Board of Directors
of 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 August
1997, Mr. Babbio was elected 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 and Compaq Computer
Corporation. Mr. Babbio holds an undergraduate degree in electrical engineering
from Stevens Institute of Technology and received an M.B.A. from New York
University.
Carlos Peralta Quintero has been a member of the Board of Directors
of Iusacell since October 1992 and served as Vice Chairman of the Company from
October 1992 to February 1997. He also currently serves as vice chairman of
Grupo Industrial IUSA, S.A. de C.V. Mr. Peralta founded the Mexican Association
of Non-Wireline Cellular Telephone Licensees, is a member of the board of
directors of the Cellular Telephone Industry Association and was actively
involved in the formation, and is currently honorary chairman of, the Asociacion
Latinoamericana de Telefonia Celular, A.C. Mr. Peralta is also a member of the
boards of directors of Cambridge Lee Industries Ltd. and Alper Holdings Ltd.
Thomas A. Bartlett has been a member of the Board of Directors of
Iusacell since September 1995 and President and Chief Executive Officer of the
Company since February 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
three years prior thereto, 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.
Fulvio V. del Valle has been the Director General of Iusacell since
June 1997. 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 thereto, 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 January 1996. 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.
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Gabriel Alarcon Velazquez has been a member of the Board of
Directors of Iusacell since November 1993. He is currently president and chief
executive officer of the Mexican newspaper El Heraldo de Mexico, Grupo Alarcon,
S.A. de C.V. and Cadena Real, S.A. de C.V. He is also currently on the board of
directors of Grupo Financiero Bancomer, S.A. de C.V. and Grupo Financiero
Interacciones, S.A. de C.V. Mr. Alarcon was chief executive officer of Portacel
from 1989 to 1993. Mr. Alarcon holds a degree in business administration from
Instituto Tecnologico Autonomo de Mexico.
William O. Albertini has been a member of the Board of Directors of
Iusacell since November 1993. Since 1967, Mr. Albertini has served in a variety
of capacities with affiliates of Bell Atlantic and its predecessors. In August
1997, Mr. Albertini was elected group vice president and chief financial officer
of the Global Wireless Group of Bell Atlantic. Mr. Albertini served as executive
vice president of Bell Atlantic between February 1995 and August 1997 and as
chief financial officer of Bell Atlantic from February 1991 until August 1997.
From February 1991 until February 1995, he served as vice president of Bell
Atlantic. He currently serves on the board of directors of Bell Atlantic,
American Water Works Company, Inc. and Compass Capital Funds. Mr. Albertini
holds an undergraduate degree from the University of Notre Dame, an M.B.A. from
Lehigh University and a master's degree from the Massachusetts Institute of
Technology.
Noah S. Asher has been Vice President-Administration of Iusacell and
a member of the Board of Directors of Iusacell since February 1997. Mr. Asher
has served in two capacities for Bell Atlantic International Wireless since
March 1995-as vice president of Latin American operations from September 1996
until February 1997 and as chief financial officer from March 1995 until
September 1996. For more than four years prior thereto, Mr. Asher worked in a
variety of financial management capacities for Scott Paper Company, including
more than two years as the financial manager of Grupo Crisoba, S.A. de C.V., a
Scott Paper Company joint venture based in Mexico City, and eighteen months in
Brussels, Belgium as manager of European treasury. From September 1984 until May
1987, Mr. Asher was employed as an auditor by Coopers & Lybrand. Mr. Asher is a
Certified Public Accountant. Mr. Asher holds an undergraduate degree in
economics and a masters degree in international relations from the University of
Pennsylvania and an M.B.A. from the Wharton School of Business.
Ernesto Canales Santos has been a member of the Board of Directors
of Iusacell since November 1993. Mr. Canales is a founding partner of Canales y
Rios Zertuche, S.C., a law firm formed in 1988. 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., Grupo Financiero InverMexico, S.A. de
C.V., Grupo Financiero Promex-Finamex, S.A. de C.V., and Banco del Atlantico.
Mr. Canales is also a commissioner of Telecab, S.A. de C.V., and a member of the
Patronato del Museo de Historia Mexicana. Mr. Canales holds a law degree from
Escuela Libre de Derecho and a master's degree in comparative law from Columbia
University.
Fernando de Ovando has been a member of the Board of Directors of
Iusacell since February 1997 and was the Secretary of the Company 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
serves on the board of directors of Grupo Financiero Inverlat, S.A. de C.V. and
Q.B. Industrias, S.A. de C.V., and is a member of the boards of directors and/or
secretary of several other 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 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 thereto, 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 Embotelladoras, S.A. de C.V., Grupo Financiero BanCrecer, S.A., Grupo
Marti, S.A., Q Tel, S.A. de C.V., TV Azteca, 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.
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Rodolfo Garcia Muriel was an alternate member of the Board of
Directors of the Company from November 1993 to May 1994 and became a Director 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 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 thereto,
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. and Hilpar, 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.
Edward R. Kingman, Jr. has been Executive Vice President and Chief
Operating Officer of Iusacell since February 1997 and a member of the Board of
Directors of Iusacell since April 1997. Prior thereto, between December 1993 and
February 1997, he served as Senior Vice President, Chief Financial Officer and
Treasurer of Iusacell, and was an alternate member of the Board of Directors
from April 1995 until April 1997. Previously, Mr. Kingman served as vice
president of finance at Bell Atlantic Network Services, Inc., executive director
of finance for Bell Atlantic Network Services, Inc., principal financial
executive, treasurer and controller for Bell Atlantic-Washington, D.C. (formerly
The Chesapeake and Potomac Telephone Company) and treasurer of each of Bell
Atlantic-Maryland (formerly The Chesapeake and Potomac Telephone Company of
Maryland), Bell Atlantic-Virginia (formerly The Chesapeake and Potomac Telephone
Company of Virginia) and Bell Atlantic-West Virginia (formerly The Chesapeake
and Potomac Telephone Company of West Virginia). Mr. Kingman holds an
undergraduate degree in communications from the American University. Mr.
Kingman's post-graduate training includes an M.B.A. from the American University
and he has advanced post-graduate training in finance from Harvard University
and the University of Pennsylvania.
Javier Martinez del Campo Lanz has been a member of the Board of
Directors of Iusacell since February 1997. Mr. Martinez del Campo has been a
partner in the law firm of De Ovando y Martinez del Campo, S.C. and its
predecessors since 1984. Mr. Martinez del Campo serves on the board of directors
of Grupo Gigante, S.A. de C.V. and is a member of the boards of directors or
secretary of several other Mexican subsidiaries of foreign corporations. Mr.
Martinez del Campo holds a law degree from the Universidad Anahuac and a masters
degree in comparative law from the University of San Diego.
Thomas R. McKeough has been a member of the Board of Directors of
Iusacell since June 1994. Since 1984, Mr. McKeough has been a member of the
legal department of Bell Atlantic and its affiliates, with principal
responsibilities for mergers and acquisitions and for the legal affairs of Bell
Atlantic Enterprises International, Inc. for more than five years. In December
1994, Mr. McKeough was elected vice president-mergers and acquisitions and
associate general counsel of Bell Atlantic. Prior thereto, from December 1992 to
December 1994, Mr. McKeough served as assistant general counsel of Bell
Atlantic, and from November 1988 to December 1992 as general attorney, mergers
and acquisitions and enterprises. Mr. McKeough holds an undergraduate degree
from Providence College and a law degree from the University of Pennsylvania Law
School.
Ruben G. Perlmutter has served as Vice President, Mergers &
Acquisitions and General Counsel and a member of the Board of Directors of
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
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thereto, 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.
Eduardo Rihan Azar was an alternate member of the Board of Directors
from November 1993 to May 1994 and has been a member of the Board of Directors
of Iusacell since May 1994. Mr. Rihan is president of Acco Mexicana, S.A. de
C.V., Wearever de Mexico, S.A. de C.V., Mex-Internacional, S.A. de C.V.,
Inmobiliaria Chihuahua, S.A. de C.V. and Promotora de Maquiladoras DNC, S.A. de
C.V. Mr. Rihan serves as a member of the board of directors of Baja del Mar,
S.A. de C.V., Grupo Iusa, S.A. de C.V. and Desarrollo Industrial de Tijuana,
S.A. de C.V. Mr. Rihan attended the University of Southern California where he
studied chemical engineering.
Manuel Somoza Alonso has been a member of the Board of Directors of
Iusacell since February 1997. Since 1966, Mr. Somoza has served in a variety of
capacities within the banking and brokerage industries. Since April 1996, Mr.
Somoza has served as chairman of the board of directors of Somoza, Cortina y
Asociados, Casa de Bolsa and, since December 1996, as chairman of the board of
directors of Grupo Financiero BanCrecer, S.A. Prior thereto, from November 1991
through June 1995, Mr. Somoza served as director general of Grupo Financiero
Invermexico, S.A. de C.V. and, from April through June 1995, as director general
of Banco Mexicano. Mr. Somoza serves on the board of directors of Bolsa Mexicana
de Valores, S.A. de C.V., Corporacion Industrial San Luis, S.A. de C.V. and
Mexicana de Inversiones Femac, S.A. de C.V. Mr. Somoza holds an undergraduate
degree in economics from Universidad Anahuac and received an M.B.A. from the
Instituto Tecnologico y de Estudios Superiores de Monterrey.
Dennis F. Strigl has been a member of the Board of Directors of
Iusacell since April 1997 and was a member of the Board of Directors 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 thereto,
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 holds an
undergraduate degree in business administration from Canisius College and an
M.B.A. from Fairleigh Dickinson University.
Mack E. Treece has been a member of the Board of Directors of
Iusacell since February 1997. Since 1985, Mr. Treece has served in a variety of
finance and treasury capacities with affiliates of Bell Atlantic. In September
1996, he was appointed chief financial officer of Bell Atlantic's international
wireless operations. Prior thereto, Mr. Treece served as chief financial officer
of Eurotel Praha, S.R.D. and Eurotel Bratislava, S.R.D. between July 1993 and
September 1996, as managing director of Bell Atlantic Financial Services
International, B.V. from July 1992 until July 1993, as director of financing for
Bell Atlantic Financial Services International from January 1990 until July
1992, and as the manager for the debt portfolio of Bell Atlantic Financial
Services, Inc. from 1987 until January 1990. Mr. Treece received an
undergraduate degree in commerce with a concentration in finance and marketing
from the University of Virginia and an M.B.A. from Widener University.
Robert Van Brunt has been a member of the Board of Directors of
Iusacell since February 1997. Since December 1984, Mr. Van Brunt has served in a
variety of business development, planning and financial analysis capacities with
affiliates of Bell Atlantic. In January 1996, Mr. Van Brunt was appointed vice
president, investments for Bell Atlantic's international wireless operations.
Prior thereto, between November 1993 and December 1995, Mr. Van Brunt served as
vice president, wireless operations and investments for Bell Atlantic
International, Inc. and its Bell Atlantic's international wireless operations.
Between October 1989 and November 1993, Mr. Van Brunt served as vice president,
business development for Bell Atlantic Mobile Systems, Inc. From 1975 to 1984,
Mr. Van Brunt was employed as an accountant and auditor by Deloitte, Haskins &
Sells. Mr. Van Brunt received an undergraduate degree in commerce, with a
concentration in accounting, from Rider University.
Howard F. Zuckerman has been Vice President and Chief Financial
Officer of Iusacell since February 1997 and a member of the Board of Directors
of Iusacell since April 1997. Since March 1984, Mr. Zuckerman has served in a
variety of financial management positions with affiliates of Bell Atlantic. In
May 1993, he was appointed vice president, finance of the carrier services
division (serving the United States interexchange carrier market) of Bell
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Atlantic Network Services, Inc., the service company for Bell Atlantic's
regulated operations. For more than nine years prior thereto, Mr. Zuckerman had
served in a variety of executive capacities with Bell Atlantic Enterprises
International, Inc. and related affiliates of the unregulated businesses of Bell
Atlantic, including chief financial officer of Bell Atlantic Investment
Development Corporation from 1988 to 1992 and director of accounting of Bell
Atlantic Enterprises, Inc. From 1975 to 1983, Mr. Zuckerman held financial
management positions with Squibb Corporation, a diversified pharmaceutical
company based in the United States, and was appointed an Assistant Corporate
Controller in July 1982. From 1970 to 1975, Mr. Zuckerman was employed by the
audit division of the New York office of Arthur Andersen & Co. Mr. Zuckerman is
a Certified Public Accountant in New York and New Jersey. He holds an economics
degree from Cornell University and an M.B.A. from the University of Chicago.
Alternate Directors
The Company'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 Marco Antonio de la Torre Barranco, Gabriel Alarcon
Brockmann, Victor Barreiro Cortes, Antonio Cortina Icaza, Carlos Garcia Muriel,
Ignacio Gomez Morin, Roberto Legriba Castilla, Alejandro Portilla Garceran,
Manuel Romano M. and Pedro Santamarina N. The Series B Alternate Directors are
Katherine A. Dunne, Jose Estandia F., Teresa Gomez Fernandez del Castillo,
Silvia Malagon Soberanes, Armando Olivares, Pilar Olmedo Martell, and Xavier
Sanchez Gavito. The Series D Alternate Director is Francisco Jose Flores
Melendez. The Series L Alternate Director is David A. Riffelmacher.
Committees of the Board of Directors
The Company has established Executive, Finance and Audit, Human
Resources and Compensation, and Strategic Planning and Technology 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 each of the Series A and Series B shareholders, except for
decisions on matters over which the New Shareholders Agreement provides for a
supermajority vote. See "Controlling 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. Albertini, Asher, Babbio, Bartlett, Canales,
McKeough, Peralta and Strigl. The Finance and Audit Committee recommends the
Company's independent public accountants, reviews Iusacell's annual consolidated
financial statements, provides oversight of Iusacell's auditing, accounting,
financial reporting and internal control functions, and reviews with management
and the Company's independent public accountants the plans and results of the
auditing function. The members of the Finance and Audit Committee are Messrs.
Albertini, Bartlett, Canales, Gonzalez, McKeough and Treece. The Human Resources
and Compensation Committee reviews, evaluates and makes recommendations to the
Board of Directors regarding Iusacell's executive compensation standards and
practices, including salaries, bonus distributions, grants under the Stock
Purchase Plan (as defined) and deferred compensation arrangements. The members
of the Human Resources and Compensation Committee are Messrs. Asher, Bartlett,
McKeough and Rihan. The Strategic Planning and Technology Committee reviews and
advises management with respect to long-term business goals, strategies and
resource allocations, and monitors and assesses the Company's technology
strategies, policies and investments. The members of the Strategic Planning and
Technology Committee are Messrs. Babbio, Bartlett, Peralta and Strigl.
Compensation
The aggregate amount of compensation paid by the Company during the
year ended December 31, 1996 to all directors and executive officers as a group
was Ps. 32.8 million (U.S.$4.1 million). As part of its general compensation
policy, the Company conducts periodic reviews of its management and employees to
determine bonus compensation.
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Executive Employee Stock Purchase Plan
In March 1997, Iusacell adopted an executive employee stock purchase
plan (the "Stock Purchase Plan") in order to help retain key executives and
better align their interests with those of the Company. 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 the Company, determines the executive employees to whom
Series L Shares of Iusacell will be offered for purchase under the Stock
Purchase Plan. The Technical Committee 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 (which will be the closing price for the Series L
Shares on the Mexican Stock Exchange on the business day selected by the
Technical Committee as the date of sale), 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 granted under the Stock Purchase Plan
cannot exceed 4.9% of the aggregate number of issued and outstanding Iusacell
shares.
In December 1996, the shareholders of Iusacell approved the issuance
of 7,812,500 Series L Shares for sale under the Stock Purchase Plan. In March,
June and September 1997, the Human Resources and Compensation Committee and, in
April, June and September 1997, the Technical Committee of the Company's Board
of Directors granted purchase rights with respect to a total of 8,663,963 Series
L Shares to 44 executive employees at a purchase price of Ps. 8.48 per Series L
Share in April 1997 and Ps. 13.82 per Series L Share in June 1997, and Ps. 14.00
per Series L Share in September 1997. All such purchase rights vest either in
three equal annual installments commencing a year after the date of grant or in
a lump sum two years after the date of the grant.
As of October 1, 1997, purchase rights with respect to 7,212,716
Series L Shares were outstanding, and purchase rights with respect to 1,451,247
Series L Shares had been forfeited.
CERTAIN TRANSACTIONS
General Policy
The Company adopted a policy on transactions with related parties in
November 1993 in connection with the acquisition by Bell Atlantic of its
holdings in the Company. This policy provides that the Company 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 (other than
transactions with, between or among wholly-owned subsidiaries), including any
member of the Peralta Group and Bell Atlantic and its subsidiaries, which is not
at a price and on other terms at least as favorable to the Company or the
subsidiary as those which could be obtained on an arm's-length basis from an
unaffiliated third party. Because certain of the transactions described below
were effected before adoption of this policy, certain of these transactions were
not necessarily effected on an arm's-length basis.
Bell Atlantic Facility
Prior to or concurrently with the closing of the Financing, Bell
Atlantic and the Company will enter into a debenture purchase agreement to
elaborate the terms of the Bell Atlantic Facility. The convertible subordinated
debentures (the "Debentures") to be issued under the Bell Atlantic Facility will
mature on December 31, 1999, and will 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 the Subordination Agreement (as defined) described below.
The principal amount of the Debentures will be convertible at any
time prior to maturity into Series A Shares of the Company at a conversion price
of U.S.$0.70 per share. Any Debentures issued in lieu of cash interest will be
convertible at any time prior to maturity into Series A Shares at a conversion
price equal to the average closing price on the New York Stock Exchange of the
American Depository Receipts evidencing Series D American Depositary Shares and
Series L American Depositary Shares of the Company over 10 trading days
preceding such
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interest payment date. The Debentures will be transferable only to affiliate of
Bell Atlantic, subject to certain exceptions to be agreed upon.
Bell Atlantic has entered into a subordination agreement
(the "Subordination Agreement") with Chase, as administrative agent under the
Credit Facility, the Trustee (as defined herein), on behalf of the holders of
the Notes, and the Company. The Subordination Agreement provides that no
payments of principal, interest or other amounts may be made with respect to the
Debentures if a default or event of default has occurred and is continuing or
would result therefrom under the Credit Facility or the Indenture. In addition,
the Subordination Agreement also prohibits the payment of principal, cash
interest and other amounts (except for certain withholding taxes) except to the
extent permitted under the covenant described in "Description of Notes-Certain
Covenants-Limitation on Restricted Payments." The Credit Agreement contains a
similar prohibition on such payments. No amendments, waivers or other
modifications of the Bell Atlantic Facility that would or could have a negative
adverse effect on the holders of the Notes will be permitted except with the
consent of the Required Lenders (as defined under the Credit Facility) and the
consent of the Trustee or the holders of a majority of the principal amount of
the Notes. Breaches of the Subordination Agreement by Bell Atlantic or the
Company will constitute a default under the Credit Facility and the Indenture.
Iusacell intends to satisfy its future funding needs with borrowings
under the Credit Facility and from other independent sources such as additional
bank debt, export credit agency financing and vendor financing. If such
financing is not available, the Company intends to borrow under the Bell
Atlantic Facility. Iusacell may also use the Bell Atlantic Facility to cover any
short-term funding deficiencies. Because Bell Atlantic controls Iusacell, there
can be no assurance, however, that Iusacell will be permitted to borrow under
the Bell Atlantic Facility. The Indenture permits the Company to borrow up to an
aggregate amount of U.S.$12.0 million under the Bell Atlantic Facility for
purposes of funding Iusacell's local 450 MHz wireless subsidiary, which
initially will be an Unrestricted Subsidiary under the Indenture. Any Debentures
issued in connection with such borrowings must be promptly converted into Series
A Shares of Iusacell. In the Subordination Agreement, Bell Atlantic will
covenant not to cause or permit the termination of the Bell Atlantic Facility.
During the first and second quarters of 1997, the Company borrowed
an aggregate principal amount of U.S.$25.0 million in BANZHI Loans. See "Use of
Proceeds."
Other Transactions
Iusacell and certain subsidiaries of 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 certain seconded
employees. Seconded employees generally agree to expatriate assignments of two
to three years duration, with such employees' salaries being paid by Bell
Atlantic and reimbursed by the Company. Bell Atlantic charges the Company for
the provision of consulting services at cost. With respect to consulting
services rendered in the 1996 fiscal year, Iusacell has been invoiced by Bell
Atlantic for a total of U.S.$3.6 million, which amount includes a fixed
management consulting fee of U.S.$1.1 million for the services of certain senior
Bell Atlantic officials, U.S.$1.5 million in reimbursement of the actual cost of
seconded employees and U.S.$1.1 million in respect of other consulting services.
As part of the 1996 Share Conversion Agreement, consulting services for 1997
after the close of business on February 18, 1997 and for subsequent years will
not include a fixed management consulting fee for the services provided by
certain senior Bell Atlantic officials. With respect to consulting services
rendered in the first quarter of 1997, Iusacell has been invoiced by Bell
Atlantic for a total of U.S.$0.7 million in respect of consulting services and
U.S.$0.7 million for reimbursement of the actual cost of seconded employees. See
"Risk Factors-Dependence on Bell Atlantic Personnel."
Pursuant to the 1996 Share Conversion Agreement, in February 1997,
Fiusa Pasteje, S.A. de C.V., a member of the Peralta Group ("FIUSA"), and BAII,
an affiliate of Bell Atlantic, converted U.S.$37.2 million and U.S.$32.9 million
of Iusacell indebtedness, respectively, into Series A Shares and Series D Shares
at a conversion price of U.S.$0.70 per share. The indebtedness converted by
FIUSA represented indebtedness acquired by FIUSA
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from Merrill Lynch International Bank Limited, Merchant Bank in August 1996
(plus accrued interest thereon) and U.S.$6.0 million in loans made to Iusacell
by FIUSA in December 1996 and January 1997 at an annual interest rate of LIBOR
plus 500 basis points (plus accrued interest thereon). FIUSA received 4,390,619
Series A Shares and 48,754,000 Series D Shares upon such conversion. The
indebtedness converted by BAII represented indebtedness acquired by BAII from
Chase in February 1997 and U.S.$6.0 million in loans made to Iusacell by BAII in
January and February 1997 at an annual interest rate of LIBOR plus 500 basis
points (plus accrued interest thereon). BAII received 47,017,491 Series A Shares
upon such conversion. See "Controlling Shareholders."
Desarrollo de Sistemas de Seguridad Privada, S.A. de C.V.
("Desarrollo"), a member of the Peralta Group, and Sistecel S.A. de C.V., a
wholly owned subsidiary of the Company, entered into a Services Agreement dated
January 2, 1996 pursuant to which Desarrollo provided security and secretarial
services for Mr. Peralta. The total amount charged by Desarrollo to Iusacell in
1996 was approximately U.S.$400,000. As part of the 1996 Share Conversion
Agreement, this arrangement was terminated effective at the close of business on
February 18, 1997.
Inmobiliaria Montes Urales 460, S.A. de C.V., a subsidiary of the
Company, leases office space to Servicios Corporativos IUSA, S.A. de C.V.
("Servicios"), a member of the Peralta Group pursuant to one-year leases which
are re-priced on January 1 of each year. Currently, payments under the lease
equal U.S.$15,347 per month. In addition, Servicios has agreed to pay Iusacell
Ps. 0.7 million for the purchase of certain vehicles for Mr. Carlos Peralta.
The Peralta Group owns Fraccionadora y Constructora Mexicana, S.A.
de C.V. ("Fracomex"), a company engaged in real estate investment and management
that has entered into lease agreements with certain subsidiaries of the Company.
The total amount paid by Iusacell to Fracomex per month is approximately
U.S.$27,000 (such amount being based upon the market rate for such services). In
1996 these payments totalled approximately U.S.$320,000.
In 1996, Inmobiliaria Reforma Lomas Altas, S.A. de C.V., a company
controlled by the Peralta Group, acquired certain office space from a subsidiary
of Iusacell for approximately Ps. 16.4 million.
Industrias Unidas, S.A. de C.V. ("IUSA"), a company controlled by
the Peralta Group, leases land, buildings, houses and a warehouse to Iusacell at
IUSA's industrial complex in Pasteje. In addition, IUSA has agreed to sell to
Iusacell equipment to provide energy and air conditioning services to the leased
buildings. Iusacell pays IUSA approximately U.S.$26,600 per month for the
foregoing leases and paid Ps. 1.6 million for the purchased equipment. In
addition, Iusatelecomunicaciones, a subsidiary of the Company, has agreed to pay
to IUSA approximately Ps. 32,200 for reimbursement of payroll and related
expenses for workers providing technical service in Pasteje. In turn, IUSA has
agreed to pay Iusacell for cellular telephone services provided in the
operations of automatic teller machines installed at Pasteje, at cost plus 10%.
Iusacell owns 68.3% of Cellular Solutions de Mexico, S.A. de C.V.
("Cellular Solutions"), a company involved in the sale of cellular accessories.
Mr. Marco Antonio de la Torre Barranco, an alternate director of the Company,
owns the remaining 31.7% of Cellular Solutions. Iusacell and Mr. de la Torre own
70% and 15%, respectively, of Rentacell, S.A. de C.V., a company engaged in the
Mexican cellular telephone rental business. Iusacell owns 75% of Promotora
Celular, S.A. de C.V. ("Promotora"), a company involved in distributing cellular
services for Iusacell. Mr. de la Torre owns 10% of Promotora.
Mr. Marco Antonio Mestre Cardenas, an Alternate Director of Iusacell
until December 1996, is the controlling shareholder of Administracion de
Riesgos, Agente de Seguros S.A., a company which provides insurance brokerage
services for Iusacell.
Iusacell and Jose Ramon Elizondo Anaya, a Director of the Company,
have organized Punto-a-Punto Iusacell, S.A. de C.V. to participate in the
auctions for microwave frequencies scheduled to be held in July 1997. Iusacell
owns 94.9% of the economic interest and 49% of the voting shares of this
company; Mr. Elizondo owns 51% of the voting shares thereof.
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DESCRIPTION OF CREDIT FACILITY
The Credit Facility was provided by a syndicate of banks and other
financial institutions, led by Chase, as administrative agent (in such capacity,
the "Agent"), in an aggregate principal amount of U.S.$225.0 million. Chase
Securities Inc., one of the Initial Purchasers, acted as advisor, arranger and
syndication agent in connection with the Credit Facility. The following is a
summary of the principal terms of the Credit Facility and is subject to and
qualified in its entirety by reference to the definitive credit documentation
relating hereto, which will be available upon request from the Company when
completed.
Structure. The Credit Facility consists of (i) the five-year senior
secured Term Facility in an aggregate principal amount of U.S.$125.0 million and
(ii) the five-year senior secured Revolving Credit Facility in an aggregate
principal amount of U.S.$100.0 million. Although the Company obtained a
commitment from the lenders under the Term Facility to lend an aggregate
principal amount of U.S.$150.0 million thereunder, the Company only borrowed an
aggregate principal amount of U.S.$125.0 million under the Term Facility.
Borrowings under the Term Facility, together with the net proceeds from the
Offering, were used to refinance the Existing Indebtedness and to fund certain
capital expenditures of the Company as described under "Use of Proceeds."
Proceeds of borrowings under the Revolving Credit Facility will be used to fund
other capital expenditures and for general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Guarantees, Security. The obligations of the Company under the
Credit Facility are unconditionally guaranteed, jointly and severally, by each
of the Subsidiary Guarantors. The Credit Facility and the guarantees thereof are
secured by, subject to applicable regulatory approvals, (i) a valid and
perfected first priority pledge of all the capital stock and equity interests
held by the Company, any guarantors thereunder or any subsidiary owning an
interest in any of such guarantors, subject to certain exceptions, and (ii) all
cellular concessions and, to the extent related to such concessions, all assets
used in the construction, exportation, repair and maintenance of the relevant
means of communications, and all capital contributions, cash in hand and
receivables and rights arising for the benefit of the relevant concessions. See
"Risk Factors-Asset Encumbrance; Subordination of Subsidiary Guarantees,"
"-Holding Company Structure," "-Possible Limitations on Enforceability of
Guarantees" and "Description of Notes-Ranking."
Availability. The availability of the Credit Facility is subject to
various conditions precedent typical of bank loans, including the absence of any
material adverse change on the part of the Company in particular or in the
financial, banking or capital markets in general. Loans under the Term Facility
were made available in a single drawing on July 25, 1997 (the "Closing Date"),
subject to an additional drawing as described below. Amounts repaid or prepaid
under the Term Facility may not be reborrowed. Loans under the Revolving Credit
Facility will be available at any time after the Closing Date and prior to the
termination of the Revolving Credit Facility commitments, which will not be
later than the first anniversary of the Closing Date. Amounts repaid or prepaid
under the Revolving Credit Facility may be reborrowed prior to the termination
of the Revolving Credit Facility. The Company may request from time to time
until December 31, 1999 that the commitments and loans under the Term Facility
or the Revolving Credit Facility be increased in an aggregate principal amount
not to exceed U.S.$100.0 million (with a minimum increase of U.S.$25.0 million).
Amortization, Interest. Loans outstanding under each of the Term
Facility and the Revolving Credit Facility bear interest at a rate per annum
equal to (at the Company's option) (i) one-, two-, three- or six-month LIBOR
plus 1.75% or (ii) an Alternate Base Rate (equal to the higher of the Agent's
prime rate, the reserve adjusted secondary market rate for certificates of
deposit plus 1% per annum and the Federal Funds effective rate plus 1/2 of 1%
per annum). The Term Facility has amortization requirements of U.S.$18.8 million
in 2000, U.S.$51.2 million in 2001 and U.S.$55.0 million in 2002. Assuming the
Revolving Credit Facility is fully drawn, it will have amortization requirements
of U.S.$15.0 million in 2000, U.S.$41.0 million in 2001 and U.S.$44.0 million in
2002.
Each of the Term Facility and the Revolving Credit Facility will
mature on the fifth anniversary of the Closing Date.
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Prepayments. The Company may prepay loans and permanently reduce
commitments under the Credit Facility, in whole or in part, at any time. In
addition, the Company will be required to make mandatory prepayments of loans
under the Term Facility (and, after the Term Facility shall have been prepaid in
full, to prepay and reduce commitments under the Revolving Credit Facility) in
amounts equal to (i) 50% of the Company's consolidated excess cash flow for each
fiscal year and (ii) 100% of the net proceeds of asset dispositions (other than
from dispositions of the Company's interests in its Ecuadorean and Chilean
investments, the Company's corporate headquarters and certain asset sales in the
ordinary course of business). However, up to 50% of the net proceeds of any such
asset disposition may be held by the Company for reinvestment in certain assets
and, if so reinvested within 12 months from the date of such disposition, will
not be required to be applied to prepay and reduce loans and commitments under
the Credit Facility. Prepayments will be applied ratably against the remaining
amortization payments due in respect of the Term Facility or the Revolving
Credit Facility, as the case may be.
Fees. The Company is required to pay the lenders under the Credit
Facility, on a quarterly basis, a commitment fee equal to 0.50% per annum on the
undrawn portion of the commitments under the Revolving Credit Facility. The
Company is also required to pay annual administration fees and agent,
arrangement and other similar fees.
Covenants. The Credit Facility contains a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness or
amend other debt instruments and material agreements, pay dividends or make
distributions, create liens on assets, enter into sale and leaseback
transactions and other lease financings, make loans or investments, make
acquisitions, engage in mergers or consolidations, change the business conducted
by the Company and its subsidiaries, or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. In addition,
under the Credit Facility, the Company is required to comply with specified
financial ratios and tests, including minimum interest coverage ratios, maximum
leverage ratios and maximum capital expenditure levels.
Events of Default. The Credit Facility contains customary events of
default, including defaults relating to payments, breach of representations and
warranties, breach of covenants, cross-defaults and cross-acceleration to
certain other indebtedness, certain events of bankruptcy and insolvency,
judgment defaults, actual or asserted invalidity of any security interest,
change of control, any adverse event with respect to cellular concessions or
material permits, any governmental action to compulsorily acquire a substantial
part of the assets of the Company and any event limiting the acquisition or
transfer of foreign exchange by the Company in performing its obligations under
the Credit Facility.
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DESCRIPTION OF NOTES
General
The Old Notes were issued and the New Notes offered hereby will be
issued under an Indenture dated as of July 25, 1997 (the "Indenture"), among the
Company, the Subsidiary Guarantors and First Union National Bank, as Trustee
(the "Trustee"), a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part thereof by the TIA (as
defined). For purposes of this Section "Description of Notes" only, the term
"Company" shall mean Grupo Iusacell, S.A. de C.V. alone, and shall not include
any of its subsidiaries. Certain terms used herein and not otherwise defined
have the meanings set forth in "-Certain Definitions."
The New Notes will have terms substantially identical in all
material respects to the Old Notes (except that the New Notes will not (i)
contain terms with respect to transfer restrictions under the Securities Act and
(ii) contain certain provisions that would require an increase in their interest
rates were the Old Notes not exchanged for New Notes, or otherwise be registered
pursuant to the Securities Act, within specified periods. The New Notes will not
be listed on any stock exchange nor quoted on NASDAQ.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee, at 40 Broad
Street, New York, New York 10004), except that, at the option of the Company,
payment of interest may be made by check mailed to the registered Holders of the
Notes at their registered addresses.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of U.S.$1,000 and any integral multiple of U.S.$1,000.
No service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Terms of the New Notes
The New Notes will be unsecured senior obligations of the Company,
of U.S.$150.0 million aggregate principal amount, and will mature on July 15,
2004. Each New Note will bear interest at a rate per annum shown on the front
cover of this Prospectus from July 25, 1997, or from the most recent date to
which interest has been paid or provided for, payable in cash semiannually to
Holders of record at the close of business on January 1 or July 1 immediately
preceding the interest payment date on January 15 and July 15 of each year,
commencing January 15, 1998.
Optional Redemption
The Notes will be redeemable, at the option of the Company, in whole
or in part, at any time on or after July 15, 2001, and prior to maturity, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed as a percentage of principal amount), 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), if redeemed during the 12-month period commencing on July 15 of the years
set forth below:
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Redemption
Period Price
- ------ ----------
2001.......................................... 105.000%
2002.......................................... 102.500%
2003.......................................... 100.000%
In addition, at any time and from time to 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 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 110% 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 Notes must remain outstanding after each such redemption.
Selection
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although 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
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
Redemption for Tax Reasons
The Notes 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 Notes (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 regulations or rulings 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, regulations or rulings, which amendment,
change, application or interpretation becomes effective on or after July 15,
1997, 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 Note 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 (i) 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 (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.
Prior to the publication of any notice of redemption pursuant to
this provision, the Company will deliver to the Trustee (a) 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
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occurred and (b) 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 provision.
Additional Amounts
All payments in respect of the Notes 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 or
any Subsidiary Guarantor, as appropriate, 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 Note to the extent:
(a) 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 Note and Mexico or any political
subdivision thereof or taxing authority therein, other than the holding of
such Note and the receipt of payments with respect to such Note;
(b) of any such taxes, duties, assessments or other governmental
charges with respect to a Note 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 the Indenture, whichever occurs later,
except to the extent that the Holder of such Note would have been entitled
to such Additional Amounts on presenting such Note for payment on any date
during such 30-day period; or
(c) of any such estate, inheritance, gift or other similar taxes
imposed with respect to such Note.
Any reference herein, 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 Amounts which may be payable.
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.
Ranking
The indebtedness evidenced by the New Notes, like the Old Notes,
will be unsecured Senior Indebtedness of the Company, will rank pari passu in
right of payment with all existing and future Senior Indebtedness of the
Company, will be senior in right of payment to all existing and future
Subordinated Obligations of the Company and will be Guaranteed on an unsecured,
senior subordinated basis by Subsidiaries of the Company which generate a
substantial majority of the Company's revenue, and certain future Subsidiaries
of the Company. The Notes and the Subsidiary Guarantees will be effectively
subordinated to any Secured Indebtedness of the Company and its subsidiaries
(including Indebtedness under the Credit Facility) to the extent of the value of
the assets securing such Secured Indebtedness. See Note 20 to the Audited
Consolidated Financial Statements.
As further described below, the payment of any Subsidiary Guarantee
will be subordinate in right of payment to the prior payment in full of all
Designated Senior Indebtedness. Each Subsidiary Guarantee will rank pari passu
with all other Senior Subordinated Indebtedness of the applicable Subsidiary
Guarantor and will be senior in right of payment to all existing and future
Subordinated Obligations of such Subsidiary Guarantor. The Company has agreed
that no Subsidiary Guarantor will Incur any Indebtedness that is subordinate in
right of payment to any Senior Indebtedness of such Subsidiary Guarantor unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness of a
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Subsidiary Guarantor is not deemed to be subordinate or junior to Secured
Indebtedness merely because it is unsecured. The Notes and the Subsidiary
Guarantees will also be effectively subordinated to Indebtedness (including
trade payables), contingent liabilities and obligations in respect of any
Preferred Stock of Subsidiaries, including future Subsidiaries, of the Company
that are not Subsidiary Guarantors. The Company's Ownership Regulated
Subsidiaries and non-Wholly Owned Subsidiaries will not be Subsidiary
Guarantors. In addition, the Subsidiary Guarantees could be effectively
subordinated to all the obligations of the Subsidiary Guarantors under certain
circumstances. See "Risk Factors-Asset Encumbrance; Subordination of Subsidiary
Guarantees," "-Holding Company Structure" and "- Possible Limitations on
Enforceability of Guarantees."
At March 31, 1997, after giving effect to the Financing and the
application of the proceeds thereof as described under "Use of Proceeds," the
outstanding Senior Indebtedness of the Company and the Subsidiary Guarantors
would have been Ps. 2,183.0 million (U.S.$275.3 million), of which Ps. 991.3
million (U.S.$125.0 million) would have been Secured Indebtedness, assuming no
amounts would have been outstanding under the U.S.$100.0 million senior secured
Revolving Credit Facility. Although the Indenture and the Credit Facility
contain limitations on the amount of additional Indebtedness which the Company
and the Restricted Subsidiaries may Incur, the amount of such additional
Indebtedness could be substantial. See "-Certain Covenants-Limitation on
Indebtedness." At March 31, 1997, the aggregate balance sheet liabilities
(including trade payables and accrued liabilities but excluding intercompany
payables) of Subsidiaries of the Company which were not Subsidiary Guarantors
was Ps. 64.4 million (U.S.$8.1 million).
The Subsidiary Guarantors may not pay any principal of, or premium
(if any) or interest on, the Notes or make any deposit for the purpose of the
discharge of liabilities under the Indenture, or otherwise purchase, redeem or
otherwise retire any Notes pursuant to the Subsidiary Guarantees (collectively,
"pay the Notes"), if (i) any amount due in respect of any Designated Senior
Indebtedness is not paid when due or (ii) any other default under any Designated
Senior Indebtedness occurs and the maturity thereof is accelerated in accordance
with its terms, unless, in either case, such default has been cured or waived
and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, the Subsidiary Guarantors may pay
the Notes without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from the Representative of the Designated
Senior Indebtedness with respect to which either of the events set forth in
clauses (i) and (ii) of the immediately preceding sentence has occurred and is
continuing.
During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Subsidiary Guarantors may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to the Company) of written notice (a "Blockage Notice") of such default
from the Representative of the Designated Senior Indebtedness specifying an
election to effect a Payment Blockage Period and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated (i) by written notice to
the Trustee and the Company from the Representative of the Designated Senior
Indebtedness, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the Representative of the Designated Senior
Indebtedness or holders of Designated Senior Indebtedness have accelerated the
maturity of such Designated Senior Indebtedness, the Subsidiary Guarantors may
resume payments on the Notes after the end of such Payment Blockage Period,
including any missed payments. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of a Subsidiary
Guarantor upon a total or partial liquidation or dissolution or reorganization
of or similar proceeding relating to such Subsidiary Guarantor or its property,
the holders of Designated Senior Indebtedness will be entitled to receive
payment in full of such Designated Senior Indebtedness before Holders of the
Notes are entitled to receive any such payment, and, until all Designated Senior
Indebtedness is paid in full, any payment or distribution to which Holders of
the Notes would be entitled but for the subordination provisions of the
Indenture will be made to holders of such Designated Senior Indebtedness as
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their respective interests may appear. If a payment or distribution is made to
Holders of the Notes that, due to the subordination provisions of the Indenture,
should not have been made to them, such Holders are required to hold such
payment or distribution in trust for the holders of Designated Senior
Indebtedness and pay it over to them as their respective interests may appear.
If payment of the Notes is accelerated because of an Event of
Default and a demand for payment is made on a Subsidiary Guarantor pursuant to
the Subsidiary Guarantee, the Trustee shall promptly notify the holders of
Designated Senior Indebtedness or the Representative of such holders of such
demand. If any Designated Senior Indebtedness is outstanding, no Subsidiary
Guarantor may pay the Notes until five Business Days after such holders or the
Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, the Subsidiary Guarantors may pay the Notes only
if the subordination provisions of the Indenture otherwise permit payment at
that time.
By reason of the subordination provisions contained in the
Indenture, and the security interests in the assets of the Company and its
Subsidiaries granted in favor of the holders of Indebtedness under the Credit
Facility (or that may be granted in the future to holders of other Designated
Senior Indebtedness), such holders may recover more, ratably, than the Holders
of the Notes in the event of the insolvency of the Company.
The terms of the subordination provisions described above will not
apply to payments from money or the proceeds of U.S. Government Obligations held
in trust by the Trustee for the payment of principal of and interest on the
Notes pursuant to the provisions described under "-Defeasance."
Subsidiary Guarantees
The Subsidiary Guarantors and, in the future, certain other
subsidiaries of the Company (as described below), as primary obligors and not
merely as sureties, will unconditionally Guarantee on an unsecured, senior
subordinated basis the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes, whether for payment of principal of or
interest on the Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Subsidiary Guarantors being herein called the
"Guaranteed Obligations") by executing a Subsidiary Guarantee. Such Subsidiary
Guarantors will agree to pay, in addition to the amount stated above, any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders in enforcing any rights under the Subsidiary Guarantee.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Subsidiary Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders and their successors, transferees and
assigns. Each of the Company's existing Wholly Owned Subsidiaries (including
those holding the Company's four cellular service concessions) will be a
Subsidiary Guarantor, other than those engaged in the Company's long-distance,
local 450 MHz wireless and certain microwave operations, each of which is
expected to become a majority-owned Subsidiary of the Company following the
Issue Date in accordance with applicable laws and regulations restricting
foreign ownership of such Subsidiaries and other than those Subsidiaries whose
assets have a fair market value of less than U.S.$10,000. See
"Business-Government Regulation." The Company currently has seven non-Wholly
Owned Subsidiaries (the Company's Colombian and Chilean Subsidiaries, as well as
the Subsidiaries engaged in the Company's paging, satellite transmission,
accessories and hotel services businesses and a Subsidiary engaged in
distribution activities), none of which will initially be Subsidiary Guarantors.
The Company will cause each Person (other than an Ownership Restricted
Subsidiary) that becomes a Restricted Subsidiary following the Issue Date to
execute and deliver to the Trustee a Subsidiary Guarantee at such time as such
Person becomes a Restricted Subsidiary. The Company will also cause each
Subsidiary of the Company (other than an Ownership Restricted Subsidiary) in
existence on the Issue Date which is not a Subsidiary Guarantor to execute and
deliver a Subsidiary Guarantee upon the earlier of the time that the Company or
a Restricted Subsidiary acquires 100% of the outstanding Capital Stock thereof
and the time that such Subsidiary is not prohibited from making such Guarantee
without the approval of such Subsidiary's other shareholders and, in either
case, such Subsidiary is a Restricted Subsidiary. The Company will cause each
Ownership Regulated Subsidiary to execute and deliver a Subsidiary Guarantee
upon the later of the time that applicable laws and regulations shall not
prohibit the making of such a Subsidiary Guarantee and the time that such
Subsidiary is not prohibited from making such Guarantee
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without the approval of such Subsidiary's other shareholders and, in either
case, such Ownership Regulated Subsidiary is a Restricted Subsidiary. However,
in no event shall the Company be required to cause a Subsidiary of the Company
to become a Subsidiary Guarantor if, at the applicable time, the aggregate fair
market value of such Subsidiary's assets is less than U.S.$10,000; provided,
however, that, subject to the foregoing three sentences, at such time as the
aggregate fair market value of such assets equals or exceeds U.S.$10,000, the
Company shall cause such Subsidiary to execute and deliver a Subsidiary
Guarantee. See "-Certain Covenants-Future Subsidiary Guarantors" and "Risk
Factors-Asset Encumbrance; Subordination of Subsidiary Guarantees."
If a Subsidiary Guarantee were to be rendered voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally, it could be
subordinated by a court to all other obligations (including Guarantees and other
contingent liabilities) of the applicable Subsidiary Guarantor and, depending on
the amount of such obligations, a Subsidiary Guarantor's liability on its
Subsidiary Guarantee could be reduced to zero. See "Risk Factors-Possible
Limitations on Enforceability on Guarantees."
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate
with, merge with or into, or transfer all or substantially all its assets to,
any other Person to the extent described below under "- Certain Covenants-Merger
and Consolidation." If the Capital Stock of a Subsidiary Guarantor is sold by
the Company or any Subsidiary of the Company (or any pledgee of the Company)
where, after such sale, such Subsidiary Guarantor is no longer a Subsidiary of
the Company, or if a Subsidiary Guarantor is consolidated or merged with or into
any person other than the Company or a Subsidiary where such Subsidiary
Guarantor is not the surviving entity to such consolidation or merger, such
Subsidiary Guarantor shall be automatically and unconditionally released and
discharged from all obligations under its Subsidiary Guarantee and the Indenture
without any further action required on the part of the Trustee or any Holder,
provided such sale, consolidation or merger (or, in the case of a sale by such a
pledgee, the disposition of the proceeds of such sale) complies with the
covenant described below under "-Certain Covenants-Limitation on Sales of Assets
and Subsidiary Stock."
Change of Control
Upon the occurrence of any of the following events (each a "Change
of Control"), each Holder will have the right to require the Company to
repurchase 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 repurchase (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date):
(i) (A) the Permitted Holders 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;
(ii) the Permitted Holders 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 (ii),
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);
(iii) (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 (ii) 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 the
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Company and (B) the Permitted Holders "beneficially own" (as defined in
clause (ii) above), 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 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 (iii), 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 (iii)), 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 (i) 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); or
(iv) 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.
Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating: (1) that a
Change of Control has occurred and that such Holder has the right to require the
Company 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); (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 notice is mailed); and (4) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes purchased.
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 Notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company 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.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchasers. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The occurrence of certain of the events which would constitute a
Change of Control would constitute a default under the Credit Facility. Future
Indebtedness of the Company 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 the Company 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 the Company. Finally, the Company's
ability to pay cash to the Holders upon a repurchase may be limited by the
Company'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.
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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 or any Restricted Subsidiary
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 July 15, 1999 and 6.5:1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur the following Indebtedness: (i) 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) and any Refinancing Indebtedness with respect thereto, 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 pursuant to this clause (i) and then outstanding, shall
not exceed U.S.$350.0 million less the sum of (A) the aggregate amount of
Indebtedness Incurred and then outstanding pursuant to clause (ix) below and (B)
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"; (ii)
Subordinated Obligations under the Bell Atlantic Facility or under other credit
facilities granted to the Company by Strategic Investors, provided that (A) any
such other credit facility shall have a final maturity that is no less than one
year later than the final maturity of the Notes and shall otherwise be on terms
no less favorable to the Holders than the terms of the Bell Atlantic Facility as
in effect on the Issue Date (including with respect to the subordination and
other provisions set forth in the Subordination Agreement) and (B) participation
by any member of the Peralta Group in such other credit facility shall be
limited to a pro-rata portion thereof corresponding to the portion of the
outstanding Capital Stock of the Company then beneficially owned by the Peralta
Group; (iii) 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; (iv) Indebtedness represented by the
Notes, any Indebtedness (other than the Indebtedness described in clauses (i)
through (iii) above) outstanding on the Issue Date and any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this clause
(iv), clause (viii) below or paragraph (a) above; (v) Indebtedness (A) not in
excess of an amount equal to the sum of (1) U.S.$5.0 million in respect of
performance bonds, bankers' acceptances, letters of credit and surety bonds
provided by the Company and the Restricted Subsidiaries in the ordinary course
of their business and which do not secure other Indebtedness and (2) U.S.$10.0
million with respect to any such performance bonds provided to secure
telecommunications concessions, permits and similar governmental instruments of
the Company and the Restricted Subsidiaries or (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; (vi) 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, when added to all other Indebtedness Incurred pursuant
to this clause (vi) and then outstanding, will not exceed U.S.$15.0 million;
(vii) Indebtedness represented by the Subsidiary Guarantees and Guarantees of
Indebtedness Incurred pursuant to clause (i) above; (viii) Indebtedness incurred
in connection with the Company making an offer to purchase the Notes pursuant to
any Change of Control, as described above under the heading "Change of Control,"
provided that 100% of the proceeds of such Indebtedness shall be used to
repurchase Notes or to pay expenses or fees of the Company reasonably incurred
in connection therewith; (ix) 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.$100.0 million less the amount, if any, by which all Indebtedness
Incurred and then outstanding pursuant to clause (i) above exceeds U.S.$250.0
million; and (x) Indebtedness Incurred by the Company, all the proceeds of which
are promptly used by the trust
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administering the Company's executive employees' stock purchase plan to purchase
from the Company shares of the Company's Series L Common Stock, provided that
such Indebtedness is repaid in full within three Business Days following the
date of Incurrence.
(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 (i) will be subordinated to the Notes to at
least the same extent as such Subordinated Obligation, (ii) has a Stated
Maturity no earlier than the Stated Maturity of such Subordinated Obligation and
(iii) 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 covenant, 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 covenant, (i)
Indebtedness Incurred pursuant to the Credit Facility prior to or on the date of
the Indenture shall be treated as Incurred pursuant to clause (i) of paragraph
(b) above, (ii) 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 (iii) 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, 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.
(e) The Company will not permit any Subsidiary Guarantor to,
directly or indirectly, Incur any Indebtedness that is subordinate or junior in
right of payment to any other Senior Indebtedness of such Subsidiary Guarantor
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. No
Subsidiary Guarantor will, directly or indirectly, Guarantee any Indebtedness of
the Company that is subordinated in right of payment to any other Indebtedness
of the Company unless such Guarantee is subordinate in right of payment to, or
ranks pari passu with, the applicable Subsidiary Guarantee. In addition, a
Subsidiary Guarantor may not, directly or indirectly, Incur any Secured
Indebtedness which is not Senior Indebtedness of such Subsidiary Guarantor
unless contemporaneously therewith effective provision is made to secure the
applicable Subsidiary Guarantee equally and ratably with (or on a senior basis
to, in the case of Indebtedness subordinated in right of payment to such
Subsidiary Guarantee) such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
Limitation on Indebtedness of Non-Guarantor Subsidiaries.
Notwithstanding the covenant "- Limitation on Indebtedness" above, the Company
shall not permit any Restricted Subsidiary which is not a Subsidiary Guarantor
to, directly or indirectly, Incur any Indebtedness except: (i) Indebtedness
outstanding on the Issue Date and any Refinancing Indebtedness with respect
thereto; and (ii) Indebtedness Incurred pursuant to clause (iii), (v) or (ix) of
paragraph (b) under "- Limitation on Indebtedness".
Limitation on Restricted Payments. (a) The Company will not, and
will not permit any Restricted Subsidiary, directly or indirectly, to (i)
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), (ii) 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, (iii) 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
acquisition), (iv) pay any principal, cash interest or other amounts with
respect to the Bell Atlantic
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Facility (other than for Mexican withholding taxes with respect to interest paid
in kind in the form of additional Debentures in an amount not to exceed 15% of
the aggregate principal amount of such additional Debentures) or (v) 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: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company could not Incur at least U.S.$1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"-Limitation on Indebtedness"; or (3) 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: (A) the excess of (I) Cumulative EBITDA over (II) the product of 1.5 and
Cumulative Interest Expense; (B) 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 (B) to the extent that such payments are not
financed, directly or indirectly, by the Company or any Subsidiary of the
Company); (C) the amount by which Senior 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 Senior 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 (D) the amount equal to the net reduction in
Investments (excluding any Joint Venture Investment) in Unrestricted
Subsidiaries resulting from (i) payments of dividends, repayments of the
principal of loans or advances or other transfers of assets to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in
each case as provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary,
which amount was included in the calculation of the amount of Restricted
Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) 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 (A) such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments under clause
(3) of the foregoing paragraph (a) and (B) the Net Cash Proceeds from such sale
will be excluded from clause (3)(B) of the foregoing paragraph (a) but only to
the extent of the Net Cash Proceeds applied to such purchase or redemption; (ii)
any purchase or redemption 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 or
the Subsidiary Guarantees, 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 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
(3) of the foregoing paragraph (a); (iii) 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 (3) of the foregoing paragraph (a); or (iv) 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 (3) of the foregoing paragraph (a).
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
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consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (ii) make any loans or advances to the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except: (1) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (2) 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 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; (3) any encumbrance or restriction pursuant to an agreement constituting
Refinancing Indebtedness of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this covenant or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2) of
this covenant or this clause (3); provided, however, that the encumbrances and
restrictions contained in any such refinancing agreement or amendment are no
less favorable to the Noteholders than encumbrances and restrictions contained
in such agreements; (4) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, or (B) 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; and (5) 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.
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 (i) 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, (ii) 85% 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, except that (A) up to 80%
of the consideration received by the Company in connection with any disposition
of the Company's equity interests in Conecel may be in the form of promissory
notes that must be paid in cash within three years following the consummation of
such disposition and (B) this clause (ii) shall not apply to any disposition of
the Company's equity interests in Iusatel Chile, and (iii) 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 (or is
required by the terms of any Senior Indebtedness), (x) to prepay, repay or
purchase Senior Indebtedness (other than Senior Indebtedness owed to the Company
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 (y) 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 Notes pursuant to and subject to the conditions set forth in section
(b) 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, the Company 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.
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For the purposes of this covenant, (x) 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 (y) 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 Notes pursuant to the fourth sentence of paragraph (a) of this covenant, the
Company will be required to use the Excess Proceeds to purchase Notes tendered
pursuant to an offer by the Company for the Notes (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)
in accordance with the procedures (including prorationing in the event of
oversubscription) set forth in the Indenture.
(c) 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 Notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company 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. (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 (i) that 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, (ii) that, 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 (iii) 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 prohibit
(i) any Restricted Payment permitted to be paid pursuant to the covenant
described under "-Limitation on Restricted Payments," (ii) the payment of
reasonable fees to directors of the Company and its Subsidiaries who are not
employees of the Company or its Subsidiaries, (iii) transactions pursuant to the
Secondment Agreement, provided that, in the event such transactions involve 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 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, (iv) transactions pursuant to the Master Technical Services
Agreement, provided that, in the event such transactions involve 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, (v) transactions pursuant to the Bell Atlantic Facility or (vi) any
transaction between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries.
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 except: (i) to
the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute
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a Subsidiary of the Company, (iii) in respect of capital contributions to
Restricted Subsidiaries which are not Wholly Owned Subsidiaries and (iv) in
connection with the recapitalization of any Ownership Regulated Subsidiary that
results in Persons other than the Company owning a majority of the Voting Stock
thereof. Any such sale or issuance permitted by clause (ii), (iii) or (iv) 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. 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 Subsidiaries
of the Company), whether owned on the Issue Date or thereafter acquired,
securing any obligation unless contemporaneously therewith (or prior thereto)
effective provision is made to secure the Notes or the Subsidiary Guarantees, as
the case may be, 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 or the
relevant Subsidiary Guarantee) such obligation. The preceding sentence will not
require the Company or any Restricted Subsidiary to secure the Notes or the
relevant Subsidiary Guarantee in any manner if the Lien consists of Permitted
Liens.
Provision of Financial Information. So long as any Notes are
outstanding, the Company will file with the Trustee and provide Holders of
Notes: (i) 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); (ii)
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 (iii) 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 Notes (i) within 180 days after the end of each fiscal year
of the Company, annual audited consolidated financial statements and (ii) 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.
Future Subsidiary Guarantors. The Company will cause: (i) each
Person (other than an Ownership Regulated Subsidiary) that becomes a Restricted
Subsidiary following the Issue Date to execute and deliver to the Trustee a
Subsidiary Guarantee at the time such Person becomes a Restricted Subsidiary;
(ii) each Subsidiary (other than an Ownership Regulated Subsidiary) in existence
on the Issue Date which is not a Subsidiary Guarantor on the Issue Date to
execute and deliver to the Trustee a Subsidiary Guarantee upon the earlier of
the time that such Subsidiary becomes a Wholly Owned Subsidiary and the time
that such Subsidiary is not prohibited from making such Guarantee without the
approval of such Subsidiary's other shareholders, and, in either case, such
Subsidiary is a Restricted Subsidiary; and (iii) each Ownership Regulated
Subsidiary to execute and deliver to the Trustee a Subsidiary Guarantee upon the
later of the time that applicable laws and regulations shall not prohibit the
Guarantee of the Notes by such Ownership Regulated Subsidiary and the time that
such Subsidiary is not prohibited from making such Guarantee without the
approval of such Subsidiary's other shareholders, and, in either case, such
Ownership Regulated Subsidiary is a Restricted Subsidiary. References in this
covenant to "other shareholders" shall not include the Company or any of its
Affiliates. However, in no event will the Company be required to cause a
Subsidiary of the Company to become a Subsidiary Guarantor if the aggregate fair
market value of such Subsidiary's assets is less than U.S.$10,000; provided,
however, that, subject to the foregoing three sentences, at such time as the
aggregate fair market value of such assets equals or exceeds U.S.$10,000, the
Company shall cause such Subsidiary to execute and deliver a Subsidiary
Guarantee.
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.
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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 (a) the Company or such
Subsidiary would be entitled to (i) 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 Non-Guarantor Subsidiaries" and (ii) create a Lien on such
property securing such Attributable Debt without securing the Notes or the
Subsidiary Guarantees, as the case may be, pursuant to the covenant described
under "-Limitation on Liens" and (b) the transfer of such property is permitted
by, and the Company applies the proceeds of such transaction in compliance with,
the covenant described under "-Limitation on Sale of Assets and Subsidiary
Stock".
Merger and Consolidation
Neither the Company nor any Subsidiary Guarantor will consolidate
with or merge with or into any Person (other than a consolidation or merger of a
Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor
and other than a consolidation or merger of a Subsidiary Guarantor where the
resulting or surviving Person is not the Company or a Subsidiary of the
Company), or in one transaction or a series of transactions, sell, convey,
transfer, lease or dispose of all or substantially all its assets, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") will be
a corporation 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 or such Subsidiary Guarantor, as the
case may be, under the Notes and the Indenture; (ii) 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; (iii) 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 the covenant described under
"-Limitation on Indebtedness"; (iv) in the case of a conveyance, transfer, lease
or disposition of all or substantially all of the Company's or any Subsidiary
Guarantor's assets, such assets shall have been transferred as an entirety or
virtually as an entirety to one Person; and (v) 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 the Indenture. In addition, the Company 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, the Company or such Subsidiary Guarantor,
as the case may be, 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 or obligations
pursuant to the Subsidiary Guarantees, as the case may be.
Notwithstanding the foregoing clauses (ii) and (iii), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
Defaults
An Event of Default is defined in the Indenture as (i) a default in
any payment of interest on any Note when due, continued for 30 days, (ii) 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, (iii) the failure by the Company or any Subsidiary Guarantor to
comply with its obligations under the covenant described under "-Merger and
Consolidation" above, (iv) the failure by the Company 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"
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above (in each case, other than a failure to purchase Notes), (v) the failure by
the Company or any Subsidiary Guarantor to comply for 60 days after notice with
its other agreements contained in the Notes or the Indenture, (vi) 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"), (vii) certain events
of bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (viii) 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 (the "judgment default provision"), (ix) any
Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Subsidiary Guarantor denies or
disaffirms its obligations under the Indenture or any Subsidiary Guarantee and
such Default continues for 10 days (the "guarantee default provision") or (x)
the failure by Bell Atlantic, the Company or any of their respective successors,
assigns or other Transferees (as defined in the Subordination Agreement) to
comply with any of its obligations under the Subordination Agreement.
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 (iv) or (v) will not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clause (iv) or (v) after receipt
of such notice.
If an Event of Default (other than a Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company 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 the Company 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 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 (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) 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 (v) 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.
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The Indenture provides that 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, the Company 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. The Company 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 the
Company is taking or proposes to take in respect thereof.
Amendments and Waivers
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,
(i) reduce the amount of Notes whose Holders must consent to an amendment or
waiver, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) 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, (v) make any Note payable
in money other than that stated in the Note, (vi) 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, (vii) make any change in the
amendment or waiver provisions which require each Holder's consent, (viii)
modify the Subsidiary Guarantees in any manner adverse to the Holders or (ix)
make any change in the subordination provisions with respect to the Subsidiary
Guarantees that adversely affects the rights of any Holder under such
provisions. However, no amendment or waiver may make any change that adversely
affects the rights under the subordination provisions of any holder of
Designated Senior Indebtedness of any Subsidiary Guarantor then outstanding
unless the holders of such Designated Senior Indebtedness (or any group or
representative thereof) consent to such change.
Without the consent of any Holder, the Company 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 the
Company under the Indenture (provided that the Company delivers to the Trustee
(i) 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 (ii)
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), to
change the subordination provisions to limit or terminate the benefits of any
holder of Designated Senior Indebtedness of the Subsidiary Guarantors, to add
further Guarantees with respect to the Notes or to release Subsidiary Guarantors
from the Subsidiary Guarantees as provided by the terms of the Indenture, to
secure the Notes, to add to the covenants of the Company for the benefit of the
Noteholders or to surrender any right or power conferred upon the Company, 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.
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After an amendment under the Indenture becomes effective, the
Company 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.
The Subordination Agreement may be amended with the consent of the
Holders of a majority in principal amount of the Notes then outstanding and, in
certain circumstances, by the Trustee without the consent of any Holder.
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 the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company 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 a selection 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
The Company 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. The Company at any time may 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 the
Company, the judgment default provision and the guarantee default provision
described under "Defaults" above and the limitations contained in clause (iii)
under "Merger and Consolidation" above ("covenant defeasance"). If the Company
exercises its legal defeasance option or its covenant defeasance option, each
Subsidiary Guarantor will be released from all of its obligations with respect
to its Subsidiary Guarantee.
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 Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated because
of an Event of Default specified in clause (iv), (v) with respect to
Subsidiaries of the Company, (vi), (vii) with respect to Subsidiaries of the
Company, (viii) or (ix) under "Defaults" above or because of the failure of the
Company to comply with clause (iii) under "Merger and Consolidation" above.
In order to exercise either defeasance option, the Company 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 (i)
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 times 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 (ii) 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.
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Concerning the Trustee
First Union National Bank is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
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 were brought in Mexico seeking to
enforce in Mexico the Company's obligations under the Notes, the Company would
not be required to discharge such obligations in Mexico in a currency other than
Mexican currency. 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. Such
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 the Company and each Subsidiary
Guarantor will irrevocably appoint CT Corporation System as its 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
"Additional Assets" means (i) 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, (ii) the costs of improving or developing any
property owned by the Company or a Restricted Subsidiary which is used in a
Related Business and (iii) 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 the Company 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 the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) 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)
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the covenant described under "-Certain Covenants-Limitation on Restricted
Payments", (iv) Permitted Securitization Transactions and (v) Joint Venture
Investments to the extent permitted pursuant to clause (ix) of the definition of
"Permitted Investment."
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, (i) 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 (ii)
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 (i)
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 (ii)
the sum of all such payments.
"Bell Atlantic Facility" means the debenture purchase agreement,
which will be entered into prior to or on the Issue Date, between the Company
and Bell Atlantic, without giving effect to any subsequent amendment, waiver or
other modification thereof.
"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 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.
"Chase" means The Chase Manhattan Bank.
"Code" means the Internal Revenue Code of 1986, as amended.
"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 (i) all
intercompany items between the Company and any Restricted Subsidiary and (ii)
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 and its Subsidiaries in such period
but not included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) noncash interest expense, (v)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financing, (vi) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any 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
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Guarantee, (vii) net costs associated with Hedging Obligations (including
amortization of fees and premiums) permitted under the Indenture, (viii)
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 Wholly Owned Subsidiary and (ix) 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: (i) 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 (iv) 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 (iii) below) and (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; (ii) 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; (iii) 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, except that (A) subject to the limitations contained
in clause (iv) 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; (iv) 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; (v) any extraordinary gain or loss; and (vi) 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 the Company 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 (a)(3)(D) 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): (i) the excess of cost over fair
market value of assets or businesses acquired; (ii) 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; (iii) 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; (iv) minority
interests in Consolidated Subsidiaries held by Persons other than the Company or
any Restricted Subsidiary; (v) treasury stock; (vi) 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 (vii) 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 the Company,
"Consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of the Company 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 or prior to
the Issue Date, as amended, waived or otherwise modified from time to time,
among the Company, 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 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.
"Designated Senior Indebtedness" means (i) Senior Indebtedness under
the Credit Facility and (ii) any Refinancing Indebtedness with respect thereto
Incurred in accordance with the provisions described in clause (i) of paragraph
(b) under "-Certain Covenants-Limitation on Indebtedness" which constitutes
Senior Indebtedness and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness", provided that, in the case of the foregoing clause (ii),
at the date of determination, the aggregate principal amount of such Senior
Indebtedness then outstanding, together with any available lending commitment
with respect thereto, is not less than $35.0 million.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by 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 (i) matures or is or could become mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is or could become
convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) 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), (i) 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 (ii)
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: (i) income and asset tax expense and employee profit
sharing expense, (ii) Consolidated Interest Expense, (iii) depreciation expense,
(iv) amortization expense, (v) foreign exchange losses that are reported below
the "Operating profit (loss)" line on the Company's consolidated income
statements and (vi) 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:
(i) income and asset tax benefit, (ii) foreign exchange gains that are reported
below the "Operating profit (loss)" line on the Company's consolidated
statements of income, and (iii) 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. 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 Subsidiary without prior approval (or with
approval that has been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its stockholders.
"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, (i) if such property has a Fair Market
Value of less than U.S.$5.0 million, by an Officer of the Company or (ii) if
such Property has a Fair Market Value in excess of U.S.$5.0 million, by a
majority of the Board of Directors and evidenced by a resolution, dated within
30 days of the relevant transaction, 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.
"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 (i) 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 (ii) 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 or a Subsidiary
Guarantor (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Person at the time it becomes a Subsidiary or a
Subsidiary Guarantor, as the case may be; 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
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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), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) 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 six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Debt of such Person; (vi) 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); (vii) 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;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) 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 (x) zero, if such Hedging Obligation is permitted pursuant
to clause (b)(v)(B) of "-Certain Covenants-Limitation on Indebtedness" or (y)
the notional amount of such Hedging Obligation, if such Hedging Obligation is
not so permitted.
"Initial Purchasers" means Chase Securities Inc. and Salomon
Brothers Inc.
"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 such Person), 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," (i) "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
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) 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 (ii) 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 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
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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.
"Leverage Ratio" means the ratio of (i) the outstanding consolidated
Indebtedness of a Person and its Subsidiaries (or in the case of the Company,
the Restricted Subsidiaries) divided by (ii) 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 C.V., 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 (i) 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, (ii) 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 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, (iii) 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 (iv) 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.
"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 the Company.
"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 Infotelecom (paging
services), Iusatel (long distance services), Iusatelecomunicaciones (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).
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"Permitted Holders" means Bell Atlantic and any Affiliate of Bell
Atlantic.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) 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; (ii) 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;
(iii) Temporary Cash Investments; (iv) 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; (v) 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;
(vi) 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;
(vii) 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; (viii) any securities or other
Investments received in compliance with the covenant described under "-Certain
Covenants-Limitation on Sales of Assets and Subsidiary Stock"; (ix) Joint
Venture Investments in an aggregate amount not to exceed the greater of (A)
U.S.$50 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; and (x) Iusatelecomunicaciones as an Unrestricted Subsidiary in an
aggregate amount not to exceed U.S.$12.0 million, provided such Investment is
made with the proceeds of borrowings under the Bell Atlantic Facility that are
promptly converted into Capital Stock of the Company pursuant to the terms of
the Bell Atlantic Facility.
"Permitted Liens" means, with respect to any Person, (a) 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; (b) 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; (c) Liens for
property taxes not yet due or payable or subject to penalties for non-payment
and which are being contested in good faith by appropriate proceedings; (d)
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; (e) 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; (f) Liens on property
or assets that are the subject of Indebtedness permitted under clause (ix) of
paragraph (b) under "-Certain Covenants-Limitation on Indebtedness" (other than
the Refinancing Indebtedness referred to in such clause (ix) which Refinancing
Indebtedness shall be the subject of clause (o) below); provided, however, that
(x) 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, (y) such
Indebtedness is Incurred solely for the purpose of financing the acquisition,
construction or lease of such property or asset and (z) 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; (g) Liens
existing on the Issue Date; (h) 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; (i) Liens on
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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; (j) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Company or a Wholly Owned Subsidiary; (k) Liens securing
Hedging Obligations so long as the related Indebtedness is, and is permitted to
be under the Indenture, secured by a Lien on the same property securing such
Hedging Obligations; (l) 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;
(m) leases and subleases (other than Sale/Leaseback Transactions) 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; (n) 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); and (o) 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 (f), (g), (h) and (i); provided, however, that (x) 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 (y) the Indebtedness
secured by such Lien at such time is not increased to any amount greater than
the sum of (A) the outstanding principal amount or, if greater, committed amount
of the Indebtedness described under clause (f), (g), (h) or (i) at the time the
original Lien became a Permitted Lien under the Indenture and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement.
"Permitted Securitization Transaction" means any sale, discount,
conveyance or other disposition of receivables generated through the Company's
Consolidated operations that (i) 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),
(ii) is made pursuant to bona fide transactions with third parties for Fair
Market Value, (iii) 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 (i) 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 (iv) 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.
"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: (i) if,
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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,
(ii) 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 (iii) 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.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of
the deferred purchase price of property, 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 (ii)
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.
"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 the Company 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
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced, (ii) 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, (iii) the Refinancing Indebtedness shall not be senior in
right of payment to the Indebtedness being refinanced and (iv) 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, if any, owed, 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 (x) Indebtedness of a Restricted Subsidiary that
refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"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.
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"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.
"Secured Indebtedness" means any Indebtedness of the Company or a
Restricted Subsidiary secured by a Lien.
"Senior Indebtedness" means all Indebtedness of the Company or a
Restricted Subsidiary including interest thereon, whether outstanding on the
Issue Date or thereafter Incurred, unless in the instrument creating or
evidencing such Indebtedness or pursuant to which the same is outstanding it is
provided, in the case of the Company or a Restricted Subsidiary which is not a
Subsidiary Guarantor, that such obligations are junior in right of payment to
the Notes or, in the case of a Subsidiary Guarantor, that such obligations are
not superior in right of payment to the applicable Subsidiary Guarantee;
provided, however, that Senior Indebtedness shall not include (i) any obligation
of the Company or any Subsidiary of the Company to any other Subsidiary of the
Company, (ii) any liability for federal, state, local, foreign or other taxes
owed or owing by the Company or any Subsidiary of the Company, (iii) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) (a) any Indebtedness or obligation of the Company or a
Restricted Subsidiary (whether or not a Subsidiary Guarantor) which is
subordinate or junior in any respect to any other Indebtedness or obligation of
the Company or such Restricted Subsidiary, including Subordinated Obligations,
and (b) any Indebtedness or obligation of a Subsidiary Guarantor which ranks
pari passu in right of payment with the applicable Subsidiary Guarantee, (v) any
obligations with respect to any Capital Stock or (vi) any Indebtedness Incurred
in violation of the Indenture.
"Senior Subordinated Indebtedness" means, with respect to a
Subsidiary Guarantor, its Subsidiary Guarantee and any other Indebtedness of
such Subsidiary Guarantor that specifically provides that such Indebtedness is
to rank pari passu with such Subsidiary Guarantee and is not by its terms
subordinated to any Indebtedness or other obligation of such Subsidiary
Guarantor which is not Senior Indebtedness.
"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.
"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.
"Subordinated Obligation" means any Indebtedness (whether
outstanding on the Issue Date or thereafter Incurred) of the Company or any
Restricted Subsidiary that is subordinate or junior in right of payment to the
Notes or the Subsidiary Guarantees, as the case may be, pursuant to a written
agreement.
"Subordination Agreement" means the Subordination Agreement dated as
of or prior to the Issue Date, among Bell Atlantic, Chase, as administrative
agent under the Credit Facility, and the Trustee, on behalf of the Holders.
"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 (i) such Person or (ii) one or
more Subsidiaries of such Person; provided, however, that each Ownership
Regulated Subsidiary shall be deemed to be
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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.
"Subsidiary Guarantee" means any Guarantee of the Notes that may
from time to time be executed and delivered by a Subsidiary of the Company
pursuant to the terms of the Indenture.
"Subsidiary Guarantor" means any Subsidiary that has issued a
Subsidiary Guarantee.
"Temporary Cash Investments" means any of the following: (i) 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);
(ii) 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.;
(iii) 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.;
(iv) 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;
(v) 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.;
(vi) instruments backed by letters of credit of institutions
satisfying the requirements of clause (ii) above;
(vii) 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;
(viii) any other instruments issued or guaranteed by the Mexican
government and denominated and payable in pesos and having a maturity of 365
days or less from the date of acquisition;
(ix) 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
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(x) investment funds which invest solely in any of the instruments
described in clauses (i) through (ix) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
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 (i) Iusatelecomunicaciones (local
wireless service), (ii) 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 (iii) 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 "-Certain
Covenants-Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary, including Iusatelecomunicaciones, to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation (x) the Company could Incur U.S.$1.00 of additional
Indebtedness under paragraph (a) of "-Certain Covenants-Limitation on
Indebtedness" and (y) 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 (i) in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) 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.
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company, the Subsidiary Guarantors and the Initial Purchasers
entered into the Exchange and Registration Rights Agreement prior to the
issuance of the Old Notes. Pursuant to the Exchange and Registration Rights
Agreement, the Company and the Subsidiary Guarantors agreed, among other things,
that if (i) because of any change in law or applicable interpretations thereof
by the Commission or its staff, the Company and the Subsidiary Guarantors are
not permitted to effect the Exchange Offer as contemplated hereby, (ii) for any
other reason the Exchange Offer is not consummated by January 21, 1998, (ii) an
Initial Purchaser so requests with respect to Notes or Private Exchange Notes
(as defined) not eligible to be exchanged for New Notes in the Exchange Offer,
(iv) any applicable law or interpretations do not permit one or more holders of
Notes to participate in the Exchange Offer, (v) any holder of Notes that
participates in the Exchange Offer does not receive freely transferable New
Notes in exchange for tendered Notes, or (vi) the Company so elects, then the
Company and the Subsidiary Guarantors will file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
Transfer Restricted Securities by such holders who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means (i) each Old Note until the date on which such Note has been
exchanged for a freely transferable New Note in the Exchange Offer, (ii) each
Old Note or Private Exchange Note 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 Old Note or Private Exchange
Note 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.
The Company and the Subsidiary Guarantors will use their reasonable
best efforts to consummate the Exchange Offer as promptly as practicable, but in
any event prior to January 21, 1998. If applicable, the Company and the
Subsidiary Guarantors will use their reasonable best efforts to keep the Shelf
Registration Statement effective for a period of two years after the Issue Date.
If the Exchange Offer is not consummated on or prior to January 21,
1998, or, if applicable, the Shelf Registration Statement is filed and declared
effective on or prior to December 22, 1997 but shall thereafter cease to be
effective (at any time that the Company and the Subsidiary Guarantors 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, a "Registration Default"), the Company and each of the
Subsidiary Guarantors will be obligated, jointly and severally, 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
U.S.$0.192 per week per U.S.$1,000 principal amount of transfer Restricted
Securities held by such holder until the Exchange Offer is consummated or the
Shelf Registration Statement is declared effective or 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 Notes on semi-annual payment dates
which correspond to interest payment dates for the Notes. Following the cure of
all Registration Defaults, the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that
the Company (i) shall make available for a period of 180 days after the
consummation of the Exchange Offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale of any
such New Notes and (ii) shall pay all expenses incident to the Exchange Offer
(including reasonable, customary and documented expenses of one counsel, in each
relevant jurisdiction, to the Initial Purchasers) and will indemnify certain
holders of the Notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act. A broker-dealer which delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act and will
be bound by the provisions of the exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
If, prior to the consummation of the Exchange Offer, any person
holds any Notes 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 of Notes is not entitled to participate in the
Exchange Offer, the Company will, upon the request of any such holder,
simultaneously with the delivery of the New Notes in the Exchange Offer, issue
and deliver to any such holder, in exchange for the Old Notes held by such
holder, a like aggregate principal amount of debt securities
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of the Company (the "Private Exchange Notes") that are identical in all material
respects to the New Notes, except for the transfer restrictions relating to such
Private Exchange Notes, and the Company shall use its reasonable best efforts to
cause the Private Exchange Notes to bear the same CUSIP number as the New Notes.
Each holder of Old Notes who wishes to exchange such Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business; (ii) it has no arrangement
or understanding with any person to participate in the distribution of the New
Notes; (iii) it is not an "affiliate" (as defined in Rule 405 under the
Securities act) of the Company, a Subsidiary Guarantor or an Exchanging Dealer
(as defined), or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable; and (iv) it is not an Initial Purchaser holding Notes that
have, or that are reasonably likely to have, the status of an unsold allotment
in an initial distribution.
If the holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, the
distribution of the New Notes. If the holder is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities (an
"Exchanging Dealer"), it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.
Holders of the Old Notes will be required to make certain
representations to the Company (as described above) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their Old
Notes included in the Shelf Registration Statement and benefit form the
provisions regarding liquidated damages set forth in the preceding paragraphs. A
holder who sells Old Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sale and will be bound by the provisions of the Exchange and
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations).
For so long as Notes are outstanding and the Company is no longer a
reporting company under the Exchange Act, the Company and the Subsidiary
Guarantors will continue to provide to holders of the Notes and to prospective
purchasers of the Notes the information required by Rule 144A(e)(4) under the
Securities act, unless the Company is exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act.
The foregoing description of the Exchange and Registration Rights
Agreement is a summary only, does not purport to be complete and is qualified in
its entirety by reference to all provisions of the Exchange and Registration
Rights Agreement. The Company will provide a copy of the Exchange and
Registration Rights Agreement to prospective purchasers of Notes identified to
the Company by an Initial Purchaser upon request.
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UNITED STATES TAXATION
The following is Rogers & Wells', New York, opinion regarding the
material United States Federal income tax consequences resulting from the
beneficial ownership of New Notes and the exchange of the Old Notes for the New
Notes. This summary does not purport to consider all the possible United States
Federal tax consequences of the purchase, ownership and disposition of the New
Notes and is not intended to reflect the individual tax position of any
beneficial owner. The summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions, all as currently
in effect and all subject to change at any time, perhaps with retroactive
effect. It deals only with Notes held as capital assets by initial purchasers
(unless otherwise specified) and does not purport to deal with purchasers 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" for tax purposes, or persons whose
functional currency (as defined in section 985 of the Code) is not the United
States 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 New Notes
or the Holders thereof. Prospective holders of the New Notes should consult
their own tax advisors concerning the application of United States Federal
income tax laws to their particular situations as well as any consequences of
the exchange, ownership and disposition of the Notes arising under the laws of
any other taxing jurisdiction.
As used herein, the term "United States Holder" or "U.S. Holder"
means a beneficial owner of a New Note who or which is (i) a citizen or resident
of the United States, (ii) a corporation created or organized in or under the
laws of the United States or of any state thereof (including the District of
Columbia), or (iii) any other person who is subject to United States Federal
income taxation on a net income basis with respect to the Notes. As used herein,
the term "non-United States Holder" or "non-U.S. Holder" means a beneficial
owner of a Note that is not a United States Holder. In the case of a holder of
Notes that is a partnership for United States 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.
Tax Consequences to United States Holders
Payments of Interest and Additional Amounts
Generally, payments of interest and Additional Amounts will be
taxable to a United States Holder as ordinary income at the time such payments
are accrued or are received, in accordance with the United States Holder's
regular method of accounting for Federal income tax purposes.
Market Discount
A Note will be treated as purchased at a market discount (a "Market
Discount Note") if the amount for which a United States Holder purchased the
Note is less than the Note's stated redemption price at maturity and such excess
is greater than or equal to 1/4 of one percent of such Note's stated redemption
price at maturity multiplied by the number of complete years to the Note's
maturity. If such excess is not sufficient to cause the Note to be a Market
Discount Note, then such excess constitutes "de minimis market discount."
Any gain recognized on the maturity or disposition of a Market
Discount Note will be treated as ordinary income to the extent that such gain
does not exceed the accrued market discount on such Note. Alternatively, a U.S.
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such election shall apply to all debt
instruments with market discount acquired by the electing U.S. Holder on or
after the first day of the first year to which the election applies and may not
be revoked without the consent of the IRS.
Market discount accrues on a straight-line basis unless the U.S.
Holder elects to accrue such market discount on a constant yield basis. Such an
election shall apply only to the Note with respect to which it is made
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and may not be revoked without the consent of the IRS. A U.S. Holder of a Market
Discount Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
Acquisition Premium
Generally, a United States Holder that purchases a New Note for an
amount that is in excess of its principal amount due at maturity will be
considered to have purchased the New Note with "amortizable bond premium" equal
to such excess. A U.S. Holder of such a New Note may elect to amortize such
premium using a constant yield method over the remaining term of the New Note
and may offset interest and Additional Amounts otherwise required to be included
in respect of the New Note during any taxable year by the amortized amount of
such excess for the taxable year. Any election to amortize bond premium with
respect to any Note (or general debt obligation) applies to all taxable debt
obligations held by the Holder at the beginning of the first taxable year to
which the election applies and to all debt obligations thereafter acquired in
all subsequent tax years. The election may not be revoked without the consent of
the IRS.
On June 27, 1996, the Treasury Department proposed new Regulations
concerning the proper tax treatment of amortizable bond premium. The newly
proposed Regulations would substantially revise existing Regulations concerning
the amortization of bond premium. The proposed effective date of the newly
proposed Regulations is 60 days after the date that the Regulations are
finalized. Until such time as the proposed Regulations become effective, the
treatment of amortizable bond premium continues to be governed by the existing
Regulations. U.S. Holders of New Notes should consult their own tax advisers
concerning the appropriate treatment of amortizable bond premium.
Sale, Exchange or Retirement of a Note
Except as discussed above, upon the sale, exchange or retirement of
a New Note, a United States Holder generally will recognize taxable gain or loss
equal to the difference between the amount realized on the sale, exchange or
retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the New Note. A U.S. Holder's adjusted
tax basis in a New Note generally will equal such U.S. Holder's initial
investment in the New Note increased by any accrued market discount included in
income, and decreased by the amount of any principal payments and any
amortizable bond premium applied to reduce interest or Additional Amounts with
respect to such New Note. Such gain or loss generally will be long-term capital
gain or loss if the New Note has been held for more than one year at the time of
such sale, exchange or retirement.
Foreign Tax Credit
Interest and Additional Amounts
Interest and Additional Amounts paid on Notes will constitute income
from sources outside the United States, and, with certain exceptions, will be
grouped together with other items of "passive" income, for purposes of computing
the foreign tax credit allowable to a U.S. Holder. If the interest and
Additional Amounts are subject to a withholding tax imposed by a foreign country
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 foreign
tax credit. If a U.S. Holder is predominantly engaged in the active conduct of a
banking, insurance, financing or similar business, the interest and Additional
Amounts may be considered "financial services income" for purposes of computing
the foreign tax credit.
Effect of Withholding Taxes
A United States Holder will be required to include foreign
withholding taxes, if any, imposed on payments on a New Note (including any
Additional Amounts payable by the Company) in gross income as interest income.
Such treatment will be required regardless of whether, as will generally be
true, the Company is required to pay
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additional amounts so that the amount of Mexican withholding taxes does not
reduce the net amount actually received by the Holder of the New Note.
Subject to certain limitations, a U.S. Holder may be entitled to a
credit against its United States Federal income tax liability, or a deduction in
computing its United States Federal taxable income, for foreign income taxes
withheld by the Company (which, as described above, would include amounts
withheld on Additional Amounts paid by the Company with respect to Mexican
taxes). A U.S. Holder may be required to provide the IRS with a certified copy
of the receipt evidencing payment of withholding tax imposed in respect of
payments on the New Notes in order to claim a foreign tax credit in respect of
such foreign withholding tax.
Non-U.S. Holders
Subject to the discussion of backup withholding below, (a) payment
of principal, interest and Additional Amounts by the issuer to a Non-U.S. Holder
will not be subject to United States Federal income or withholding tax, (b) gain
realized by a Non-U.S. Holder on the sale or redemption of the New Notes is not
subject to United States Federal income tax or withholding tax and (c) the New
Notes are not subject to United States Federal estate tax, if held by an
individual who was a Non-U.S. Holder at the time of his death. Special rules may
apply in the case of Non-U.S. Holders (i) that are engaged in a U.S. trade or
business, (ii) that are former citizens or former long-term residents of the
United States, "controlled foreign corporations," "foreign personal holding
corporations," corporations which accumulate earnings to avoid U.S. Federal
income tax, and certain foreign charitable organizations, each within the
meaning of the Code, or (iii) certain non-resident aliens individuals who are
present in the United States for 183 days or more during a taxable year. Such
persons are urged to consult their U.S. tax advisor before exchanging Notes.
Information Reporting and Backup Withholding
For each calendar year in which the New Notes are outstanding, each
DTC participant or indirect participant holding an interest in a New Note on
behalf of a beneficial owner of a New Note and each paying agent making payments
in respect of a New Note will generally be required to provide the IRS with
certain information, including such beneficial owner's name, address and
taxpayer identification number (either such beneficial owner's Social Security
number or its employer identification number, as the case may be), and the
aggregate amount of interest, principal and 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
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 New 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 New Note may be required to
"backup" withhold a tax equal to 31% of each payment of interest, principal and
Additional Amounts with respect to New Notes. This backup withholding tax is not
an additional tax and may be credited against the beneficial owner's United
States Federal income tax liability if the required information is furnished to
the IRS. Compliance with the identification procedures contained within IRS Form
W-8 will establish an exemption from information reporting and backup
withholding for those non-U.S. Holders who are not exempt recipients.
Prospective purchasers of New Notes are advised to consult their own
tax advisers as to the consequences of an exchange of New Notes, including,
without limitation, (i) the applicability and effect of any state, local or
non-U.S. tax laws to which they may be subject, and of any legislative or
administrative changes in law, (ii) the United States Federal income tax
consequences of foreign withholding taxes by the Company (and of the payment by
the Company of Additional Amounts with respect thereto) and (iii) the
availability of a credit or deduction for foreign withholding taxes.
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Exchange Offer
No gain or loss will be realized for U.S. federal income tax
purposes upon an exchange of the Old Notes for the New Notes pursuant to the
Exchange Offer, because the Old Notes will be exchanged for property that does
not differ materially either in kind or extent from the Old Notes. A U.S. Holder
will have the same basis and holding period in the New Notes that it had in the
Old Notes immediately prior to the exchange.
The Company believes that the possibility of liquidated damages
being paid to U.S. Holders upon a Registration Default, as described in
"Exchange and Registration Rights Agreement", will not cause the New Notes to be
deemed to be issued with more than a de minimis amount of original issue
discount. If, contrary to the Company's expectations, liquidated damages become
payable upon the New Notes, such payments would be included in the U.S. Holder's
income as interest income. The time at which such liquidated damages would be so
included would depend upon the facts at the time liquidated damages become
payable.
Under Treasury regulations dealing with contingent payments, a
holder might be required to include liquidated damages in income in a period
prior to the receipt of cash in respect thereof.
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MEXICAN TAXATION
The following is a summary of the principal consequences under
Mexican federal tax law, as currently in effect, and the Tax Treaty (as defined
below), of the purchase, ownership and disposition of the New Notes by an
initial purchaser that is not a resident of Mexico and that will not hold New
Notes or a beneficial interest therein in connection with the conduct of a trade
or business through a permanent establishment or a fixed base in Mexico (a
"Foreign Holder"). For purposes of Mexican taxation, an individual is a resident
of Mexico if such person has established his home in Mexico, unless such person
has resided in another country for more than 183 days, whether consecutive or
not, during a calendar year and can demonstrate that such person has become a
resident of that country for tax purposes. In general, a legal entity
established under Mexican law is a resident of Mexico. A permanent establishment
or a fixed base in Mexico will be regarded as a resident of Mexico, and such
permanent establishment or fixed base will be required to pay taxes in Mexico in
accordance with applicable law in respect of all income attributable thereto.
This summary is based on the federal tax laws of Mexico as in effect
on the date of this Prospectus, as well as regulations thereunder now in effect.
All of the foregoing are subject to change, which change could apply
retroactively and could affect the validity of this summary.
Prospective purchasers of the New Notes should consult their tax
advisors as to Mexican or other tax consequences of the purchase, ownership and
disposition of the New Notes, including the application to their particular
situations of the tax considerations discussed below, as well as the application
of state, local, foreign or other tax laws.
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 Tax Evasion with
Respect to Taxes on Income and Protocols thereto (collectively, the "Tax
Treaty"). The Tax Treaty is currently in effect and provisions of the Tax Treaty
that may affect holders of the New Notes that are residents of the United States
(as defined in the Tax Treaty) are summarized below. The United States and
Mexico have also entered into an agreement that covers the exchange of
information with respect to tax matters.
Mexico has also entered into and is negotiating several other
similar tax treaties for the avoidance of double taxation with several other
countries. Prospective purchasers of the New Notes should consult their own tax
advisors as to the tax consequence, if any, of such treaties.
Taxation of Payments of Interest and Principal
Under Mexico's Income Tax Law (the "Income Tax Law"), payments of
interest made by the Company in respect of the New Notes to a Foreign Holder
will be subject to a Mexican withholding tax assessed at a rate of 15% assuming
that the New Notes are, as contemplated, (i) placed outside of Mexico through a
bank or broker (as is the case), and (ii) as expected, registered with the
Special Section of the RNVI. Pursuant to the Income Tax Law, payments of
interest made by the Company in respect of the New Notes to a Foreign Holder
will be subject to a reduced 4.9% Mexican withholding tax rate (the "Reduced
Rate") if (x) the effective beneficiary resides in a country which has entered
into a treaty to avoid double taxation with Mexico which is in effect, (y) the
requirements for the application of a lower rate established in the applicable
treaty are satisfied and (z) the requirements set forth in (i) and (ii) above
are satisfied.
Notwithstanding the foregoing, pursuant to general rules issued by
the Ministry of Finance and Public Credit (the "Reduced Rate Regulation"),
payments of interest made by the Company to Foreign Holders with respect to the
New Notes will be subject to withholding taxes imposed at the Reduced Rate until
March 1998 (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 such interest, if (a) the requirements set forth in (i) and
(ii) above are satisfied, (b) the Company timely files with the Ministry of
Finance and Public Credit certain information relating to the issuance of the
New Notes and this
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Prospectus after completion of the transaction contemplated by this Prospectus,
(c) the Company timely files with the Ministry of Finance and Public Credit,
after the date of each interest payment under the New Notes, information
representing that no party related to the Company (which is defined under the
Reduced Rate Regulation as parties other than (x) shareholders of the Company
that own, directly or indirectly, individually or collectively with related
persons (within the meaning of the Reduced Rate Regulation) more than 10% of the
voting stock of the Company, or (y) corporations more than 20% of the stock of
which is owned directly or indirectly, individually or collectively, with
related persons of the Company), directly or indirectly, is the effective
beneficiary of 5% or more of the aggregate amount of each such interest payment,
and (d) the Company maintains records which evidence compliance with (c) above.
In the event the effectiveness of the Reduced Rate Regulation is not
extended beyond March 1998, other reduced rates of Mexican withholding income
tax may apply. In particular under the Tax Treaty, the rate would be reduced to
10% for certain holders that are residents of the United States (within the
meaning of the Tax Treaty) under certain circumstances contemplated therein. The
10% rate will be further reduced to 4.9% starting on January 1, 1999.
Interest paid on New Notes held by a non-Mexican pension or
retirement fund will be exempt from Mexican withholding tax provided any such
fund (i) has been duly incorporated as such pursuant to the laws of its country
of origin, (ii) is exempt from income tax in such country, and (iii) has been
registered with the Ministry of Finance and Public Credit for that purpose.
The Company has agreed, subject to certain exceptions and
limitations, to pay Additional Amounts in respect of the above-mentioned Mexican
withholding taxes to the holders of New Notes. See "Description of New
Notes-Additional Amounts."
Under the Income Tax Law, a Foreign Holder will not be subject to
any Mexican taxes in respect of payments of principal made by the Company in
connection with the Notes.
Taxation of Dispositions
Capital gains resulting from the sale or other disposition of the
New Notes by a Foreign Holder will not be subject to Mexican income or other
taxes.
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 New Notes. A Foreign Holder of New Notes will not be liable for Mexican
estate, gift, inheritance or similar tax with respect to the New Notes.
Exchange Offer
No gain or loss will be realized for Mexican federal income tax
purposes upon an exchange of the Old Notes for the New Notes pursuant to the
Exchange Offer. If liquidated damages are paid by the Company to Foreign Holders
upon a Registration Default, as described under "Exchange and Registration
Rights Agreement," such payment will not be subject to Mexican withholding.
Under current Mexican law, the registration of a New Note in the name of a
person other than the registered tendering holder of the Old Note, absent any
consideration, may result in the imposition of a transfer tax.
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BOOK-ENTRY; DELIVERY AND FORM
The Old Notes were initially issued in the form of two registered
Notes in global form without coupons. Each such global Note was deposited on the
Closing Date with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee of DTC, 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 New Notes issued pursuant to the Exchange Offer will be issued in global
form (the "New Global Note").
DTC has advised the Company 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), 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.
The Company 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 New 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 Cedel 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 interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer New Notes or to pledge the New Notes as collateral will be limited to
such extent.
So long as DTC or its nominee is the registered owner of the New
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by the 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 New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, 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 New 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 a 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 Cedel, if applicable), to
exercise any rights of a holder of New Notes under the Indenture or the New
Global Note. The Company understands that under existing industry practice, in
the event the Company requests any action of holders of New 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 the Company
nor the Trustee will have any responsibility or liability for any aspect of the
records
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relating to or payments made on account of New Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any New 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 New Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the New Global Note,
are registered as the owners thereof for the purpose of receiving such payment
and for any and all other purposes whatsoever. Consequently, neither the Company
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 Cedel 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
If (i) the Company notifies the Trustee in writing that DTC is no
longer willing or able to act as a depositary or DTC ceases to be registered as
a clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of New Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of the New Global Note, New Notes in
physical, certificated form ("Certificated Securities") will be issued to each
person that DTC identifies as the beneficial owner of the New New Notes
represented by the New Global Note. Upon any such issuance, 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 the Company nor the Trustee shall be liable for any delay by
DTC or any Participant (including Euroclear or Cedel) or Indirect Participant in
identifying the beneficial owners of the related New Notes and each of the
Company 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 New
Notes to be issued).
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver this
Prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer who holds Old Notes acquired for its own account as a result of
market-making activities or other trading activities (a "Participating
Broker-Dealer") in connection with resales of New Notes received in exchange for
Old Notes. For a period of 180 days after the Expiration Date, the Company will
make this Prospectus, amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale, provided that such
Participating Broker-Dealer indicates in the Letter of Transmittal that it is a
broker-dealer. In addition, until [ ], 1997, (90 days after the date of this
Prospectus), all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
Neither the Company nor any of the Subsidiary Guarantors will
receive any proceeds from the exchange of Old Notes for New Notes by
broker-dealers. New 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 New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, or 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 broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealers and/or the purchasers of any New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any person that participates in the distribution of such New
Notes may be deemed an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of New Notes and any commissions or
concessions received by any such broker-dealer 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 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 Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. In addition, the Company will make
copies of the Prospectus and any amendment or supplement thereto available to
any broker-dealer for use in connection with any resale of any New Notes for a
period of not less than 90 days after the consummation of the Exchange Offer.
The Company has agreed to pay all expenses incident to the Exchange Offer other
than commissions or concessions of any broker-dealers and will indemnify the
holder of the Old Notes (including Participating Broker-Dealers) participating
in the Exchange Offer against certain liabilities, including liabilities under
the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that
receives New Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in this Prospectus untrue in any material respect or which requires the making
of any changes in this Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented this Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it will extend the 180-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including when broker-dealers shall have received copies
of the supplemented or amended Prospectus necessary to permit resales of New
Notes.
Based on existing interpretations of the Securities Act by the staff
of the Commission set forth in the several no-action letters to third parties,
and subject to the immediately following sentence, the Company believes that the
New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by the holders thereof without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. However, any holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing the New Notes (i) will not be able to rely on the interpretation by
the staff of the Commission set forth in the above-mentioned no-action letters,
(ii) will not be able to tender its Old Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery
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requirements of the Securities Act in connection with any sale or transfer of
the Old Notes unless such sale or transfer is made pursuant to an exemption from
such requirements.
Each holder of the Old Notes (other than certain specified holders)
who wishes to exchange Old Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an affiliate of the Company, (ii) any
New Notes to be received by it were acquired in the ordinary course of its
business and (iii) at the time of the commencement of the Exchange Offer, it has
not arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes. In addition, in connection with
any resales of New Notes, any Participating Broker-Dealer who acquired the Old
Notes of its own account as a result of market-making activities or other
trading activities must deliver a prospectus meeting the requirements of the
Securities Act. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the New Notes (other than a resale of an unsold allotment from the original
sale of the Notes) with this Prospectus. Under the Exchange and Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements,
to use this Prospectus in connection with the resale of such New Notes.
Except as aforesaid, this Prospectus may not be used for any offer
to resell, resale or other retransfer of New Notes.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
There has not been any market for the New Notes. The New Notes will
not be listed on any securities exchange and will not be quoted through NASDAQ.
The Company has been advised by Chase Securities Inc. and Salomon Brothers Inc
that they presently intend to make a market in the New Notes; however, Chase
Securities Inc. and Salomon Brothers Inc are not obligated to do so and any
market making may be discontinued at any time. In addition, such market making
activity may be limited during the Exchange Offer. See "Exchange and
Registration Rights Agreement." Therefore, there can be no assurance that an
active market for the New Notes will develop or as to the liquidity of any such
market.
LEGAL MATTERS
Certain legal matters will be passed upon by Rogers & Wells, New
York, New York, special United States counsel for Iusacell, with respect to
matters of New York law, and by De Ovando y Martinez del Campo, S.C., Mexico
City, Mexico, special Mexican counsel to Iusacell, with respect to matters of
Mexican law. As to certain matters of Mexican law, Rogers & Wells will rely,
without independent verification, on the opinion of De Ovando y Martinez del
Campo, S.C.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Grupo Iusacell, S.A. de
C.V. and subsidiaries as of and for the years ended December 31, 1995 and 1996,
have been included herein in reliance on the report of Coopers & Lybrand,
Despacho Roberto Casas Alatriste, given on the authority of that firm as experts
in accounting and auditing. The consolidated financial statements of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of and for the year ended December
31, 1994, have been included herein in reliance on the report of Mancera, S.C.,
a member of Ernst & Young International, given on the authority of that firm as
experts in accounting and auditing. As stated in the report of Mancera, S.C.,
which appears elsewhere herein, such report is based in part upon the report of
Prieto, Ruiz de Velazco y Cia., S.C., a member of Clark, Kenneth Leventhal, and
in part upon the report of Coopers & Lybrand, Despacho Roberto Casas Alatriste.
With respect to the Unaudited Consolidated Financial Statements of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of and for the three month period
ended March 31, 1996 and 1997, appearing in this Prospectus, Coopers & Lybrand,
Despacho Roberto Casas Alatriste have applied
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review procedures in accordance with standards for reviews established by the
Mexican Institute of Accountants, which do not differ in any significant respect
from the standards established by the American Institute of Certified Public
Accountants. However, their report dated July 15, 1997 appearing elsewhere
herein does not express an opinion on the Unaudited Consolidated Financial
Statements of Grupo Iusacell, S.A. de C.V. Coopers & Lybrand, Despacho Roberto
Casas Alatriste has not carried out any significant or additional audit tests
beyond those which would have been necessary if their report had not been
included in this Prospectus. Accordingly, the degree of reliance on their report
on such information should be restricted in the light of the limited nature of
the review procedures applied. Coopers & Lybrand, Despacho Roberto Casas
Alatriste are not subject to the liability provisions of the Securities Act of
1933 for their report on the unaudited interim consolidated financial
information because their report is not a "report" or "a part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act. The pro forma condensed
balance sheet of Grupo Iusacell, S.A. de C.V. and subsidiaries as of March 31,
1997, and the pro forma condensed statements of income for the year ended
December 31, 1996 and the three month period ended March 31, 1997, appearing in
this Prospectus, have been reviewed by Coopers & Lybrand, Despacho Roberto Casas
Alatriste, independent accountants, as stated in their report appearing
elsewhere herein.
156
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
Reports of Independent Accountants....................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-6
Consolidated Income Statements for the years ended December 31, 1994, 1995 and 1996...................... F-7
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1994, 1995
and 1996............................................................................................... F-8
Consolidated Statements of Changes in Financial Position for the years ended December 31, 1994, 1995 and
1996................................................................................................... F-9
Notes to Audited Consolidated Financial Statements....................................................... F-10
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
Review Report of Independent Accountants................................................................. F-43
Consolidated Balance Sheets as of March 31, 1996 and 1997................................................ F-44
Consolidated Income Statements for the three months ended March 31, 1996 and 1997........................ F-45
Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1996 and
1997................................................................................................... F-46
Consolidated Statements of Changes in Financial Position for the three months ended March 31, 1996 and
1997................................................................................................... F-47
Notes to Unaudited Consolidated Financial Statements..................................................... F-48
Report of Independent Accountants on Unaudited Pro Forma Consolidated Financial Information.............. F-69
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Grupo Iusacell, S.A. de C.V.:
We have audited the accompanying consolidated balance sheet of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in stockholders' equity,
and changes in financial position for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards in Mexico, which are not significantly different than U.S. auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
As of December 31, 1996, the Company established a reserve for restructuring
costs for Ps.145,192,000, which was charged to the income statement as an
extraordinary expense (see Notes 2, 4.d and 8.b to the consolidated financial
statements).
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, 1996 and 1995,
and the consolidated results of its operations, changes in stockholders' equity
and changes in its consolidated financial position for the years then ended, 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, 1996 and 1995 and the
total amount of stockholders' equity at December 31, 1996 and 1995 to the extent
summarized in Note 19 to the consolidated financial statements.
COOPERS & LYBRAND
Despacho Roberto Casas Alatriste
Juan Manuel Ferron Solis
PUBLIC ACCOUNTANT
Mexico City, D.F., Mexico.
February 21, 1997
(June 26, 1997 for
Note 20 and September
30, 1997 for Note 18.b,
18.c and 18.d)
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Grupo Iusacell, S.A. de C.V. and Subsidiaries
We have audited the consolidated balance sheet of Grupo lusacell, S.A. de
C.V. and subsidiaries as of December 31, 1994 and the related consolidated
income statements, changes in stockholders' equity and changes in financial
position, for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of two consolidated subsidiaries in 1994, which statements
reflect total revenues constituting 14% of the related consolidated total. Those
financial statements were audited by other independent auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to data
included for these subsidiaries, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards in Mexico and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 and the reports of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Grupo lusacell, S.A.
de C. V. and subsidiaries as of December 31, 1994 and the consolidated results
of operations changes in stockholders' equity, and changes in its consolidated
financial position for the year then ended in conformity with accounting
principles generally accepted in Mexico which differ in certain respects from
those followed in the United States (see Note 19 to the consolidated Financial
Statements).
Mancera, S.C.
A Member of Ernst & Young
International, L.L.P.
Mexico City,
February 17, 1995
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
SOS Telecomunicaciones, S.A. de C.V.
We have audited the balance sheet of SOS Telecomunicaciones, S.A. de C.V. at
December 31, 1994, and the related statements of income, changes in
stockholders' equity, and changes in financial position for the year then ended.
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 audit in accordance with generally accepted auditing
standards in Mexico and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SOS Telecomunicaciones, S.A.
de C.V. at December 31, 1994, and the results of their operations, changes in
stockholders' equity and changes in its financial position for the year then
ended in conformity with accounting principles generally accepted in Mexico
which differ in certain respects from those followed in the United States.
Prieto, Ruiz de Velasco y Cia., S.C.
Ignacio Pineda Luna C.P.A.
PARTNER
Mexico City
February 10, 1995
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Comunicaciones Celulares de Occidente, S.A. de C.V.
We have audited the balance sheet of Comunicaciones Celulares de Occidente,
S.A. de C.V. as of December 31, 1994, and the related statements of income,
changes in stockholders' equity, and changes in financial position for the year
then ended. 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 not significantly different than U.S. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects the financial position of Comunicaciones Celulares de
Occidente, S.A. de C.V. and subsidiaries as of December 31, 1994, and the
consolidated results of its operations, changes in stockholders' equity and
changes in its consolidated financial position for the year then ended, in
conformity with accounting principles generally accepted in Mexico, which vary
in certain respects from accounting principles generally accepted in the United
States.
COOPERS & LYBRAND
Despacho Roberto Casas Alatriste
Juan Manuel Ferron Solis
PUBLIC ACCOUNTANT
Mexico City, D.F., Mexico.
February 10, 1995
F-5
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents.................................................................. Ps. 178,102 Ps. 96,750
Accounts receivable:
Trade, net of Ps.118,479 and Ps.98,988 of allowance for doubtful accounts (Note 4.d)..... 178,637 140,359
Related parties (Note 5)................................................................. 33,590 7,522
Recoverable taxes and other.............................................................. 60,661 86,003
------------- -------------
272,888 233,884
------------- -------------
Inventories (Note 6)....................................................................... 162,661 106,437
------------- -------------
Total current assets................................................................... 613,651 437,071
INVESTMENT IN ASSOCIATED COMPANIES (Note 7).................................................. 86,220 93,516
PROPERTY AND EQUIPMENT, net (Note 8)......................................................... 4,286,080 3,307,418
OTHER ASSETS, net (Note 9)................................................................... 744,483 660,763
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES OVER BOOK VALUE, net of accumulated
amortization of Ps.117,202 in 1995 and Ps.165,600 in 1996 (Note 4.i)....................... 1,555,168 1,462,276
------------- -------------
Total assets........................................................................... Ps.7,285,602 Ps.5,961,044
============= =============
LIABILITIES
CURRENT:
Notes payable (Note 10).................................................................... Ps. 686,529 Ps. 744,428
Current portion of long-term debt (Note 10)................................................ 140,971 112,332
Trade accounts payable (Note 11)........................................................... 886,306 461,588
Related parties (Note 5)................................................................... 71,242 374,061
Taxes and other payables................................................................... 271,433 367,798
Income tax (Note 12)....................................................................... 1,237 6,507
Employee profit sharing (Note 12).......................................................... 341 132
------------- -------------
Total current liabilities................................................................ 2,058,059 2,066,846
------------- -------------
LONG-TERM DEBT (Note 10)..................................................................... 832,426 547,949
TRADE ACCOUNTS PAYABLE, LONG-TERM (Note 11).................................................. 5,191 10,328
COMMITMENTS AND CONTINGENCIES (Notes 4.K and 13)............................................. 1,954 2,015
------------- -------------
Total liabilities........................................................................ 2,897,630 2,627,138
------------- -------------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Note 14):
Capital stock:
Nominal.................................................................................... 2,356,153 2,356,153
Restatement................................................................................ 2,872,580 2,872,580
------------- -------------
5,228,733 5,228,733
------------- -------------
Capital contributed:
Nominal.................................................................................... 18,655 18,655
Restatement................................................................................ 37,689 37,689
------------- -------------
56,344 56,344
------------- -------------
5,285,077 5,285,077
------------- -------------
EARNED CAPITAL (Note 15):
Accumulated losses:
Legal reserve.............................................................................. 3,080 3,080
For prior years............................................................................ (326,193) (1,095,439)
For the year............................................................................... (769,246) (363,263)
------------- -------------
(1,092,359) (1,455,622)
Excess (deficit) from restatement.......................................................... 220,876 (501,112)
------------- -------------
Total majority stockholders' equity...................................................... 4,413,594 3,328,343
MINORITY INTEREST............................................................................ (25,622) 5,563
------------- -------------
Total stockholders' equity............................................................. 4,387,972 3,333,906
------------- -------------
Total liabilities and stockholders' equity............................................. Ps.7,285,602 Ps.5,961,044
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES
Services.................................................... Ps. 2,003,185 Ps. 1,615,433 Ps. 1,463,998
Telephone equipment and other revenues...................... 273,278 287,840 236,140
--------------- --------------- ---------------
2,276,463 1,903,273 1,700,138
--------------- --------------- ---------------
COST OF SALES
Cost of services............................................ 582,161 592,259 536,737
Cost of telephone equipment and other....................... 134,363 159,761 131,651
--------------- --------------- ---------------
716,524 752,020 668,388
--------------- --------------- ---------------
Gross profit.............................................. 1,559,939 1,151,253 1,031,750
OPERATING EXPENSES............................................ 969,131 840,650 736,547
DEPRECIATION AND AMORTIZATION (Notes 4.h
and 8)...................................................... 583,217 669,711 604,602
--------------- --------------- ---------------
Operating profit (loss)................................... 7,591 (359,108) (309,399)
--------------- --------------- ---------------
INTEGRAL FINANCING COST (GAIN) (Notes 4.b and 16)
Interest expense, net....................................... 204,024 173,249 281,067
Foreign exchange loss (gain), net........................... 524,647 705,137 (62,115)
Gain on net monetary position............................... (49,969) (501,535) (348,293)
--------------- --------------- ---------------
678,702 376,851 (129,341)
--------------- --------------- ---------------
EQUITY PARTICIPATION IN NET (INCOME) LOSS OF ASSOCIATED
COMPANIES (Note 7).......................................... (3,098) 39,141 5,993
--------------- --------------- ---------------
Loss from continuing operations before assets tax employee
profit sharing, minority interest and extraordinary
item...................................................... (668,013) (775,100) (186,051)
--------------- --------------- ---------------
PROVISIONS FOR (Note 12)
Assets tax.................................................. 32,462 29,093 35,199
Employee profit sharing..................................... 647 2,082 --
--------------- --------------- ---------------
33,109 31,175 35,199
--------------- --------------- ---------------
Loss before minority interest and extraordinary item...... (701,122) (806,275) (221,250)
MINORITY INTEREST............................................. 45 37,029 3,179
--------------- --------------- ---------------
Loss before extraordinary item.............................. (701,077) (769,246) (218,071)
EXTRAORDINARY ITEM
Reorganization charge (Notes 2, 4.d and 8.b)................ -- -- 145,192
--------------- --------------- ---------------
Net loss for the year....................................... (Ps. 701,077) (Ps. 769,246) (Ps. 363,263)
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
1994, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF
CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
ACCUMULATED LOSSES
CAPITAL ----------------------------------------- (DEFICIT)
STOCK CAPITAL LEGAL FOR THE PRIOR EXCESS FROM MINORITY
SUBSCRIBED CONTRIBUTIONS RESERVE YEAR YEARS RESTATEMENT INTEREST
-------------- -------------- --------- -------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... Ps.3,562,076 Ps.56,344 Ps.3,080 Ps.(205,078) Ps.579,962 Ps.85,019 Ps.11,338
Application of 1993 net
loss................... 205,078 (205,078)
Sale of capital stock.... 1,824,341
Costs of stock issuance.. (157,684)
Recognition of the
effects of inflation on
the financial
statements............. 559,051
Minority interest for the
year................... (4,092)
Net loss for the year.... (701,077)
Balance at December 31,
1994................... 5,228,733 56,344 3,080 (701,077) 374,884 644,070 7,246
-------------- ------------- --------- ------------- -------------- ------------- -----------
Application of 1994 net
loss................... 701,077 (701,077)
Recognition of the
effects of inflation on
the financial
statements............. (423,194)
Minority interest for the
year................... (32,868)
Net loss for the year.... (769,246)
Balance at December 31,
1995................... 5,228,733 56,344 3,080 (769,246) (326,193) 220,876 (25,622)
-------------- ------------- --------- ------------- -------------- ------------- -----------
Application of 1995 net
loss................... 769,746 (769,246)
Recognition of the
effects of inflation on
the financial
statements............. (721,988)
Minority interest for the
year................... 31,185
Net loss for the year.... (363,263)
Balance at December 31,
1996................... 5,228,733 56,344 3,080 (363,263) (1,095,439) (501,112) 5,563
============== ============= ========= ============= ============== ============= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
--------------
<S> <C>
Balance at December 31,
1993................... Ps.4,092,741
Application of 1993 net
loss................... --
Sale of capital stock.... 1,824,341
Costs of stock issuance.. (157,684)
Recognition of the
effects of inflation on
the financial
statements............. 559,051
Minority interest for the
year................... (4,092)
Net loss for the year.... (701,077)
--
Balance at December 31,
1994................... 5,613,280
-------------
Application of 1994 net
loss................... --
Recognition of the
effects of inflation on
the financial
statements............. (423,194)
Minority interest for the
year................... (32,868)
Net loss for the year.... (769,246)
Balance at December 31,
1995................... 4,387,972
-------------
Application of 1995 net
loss................... --
Recognition of the
effects of inflation on
the financial
statements............. (721,988)
Minority interest for the
year................... 31,185
Net loss for the year.... (361,263)
Balance at December 31,
1996................... 3,333,906
=============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Loss before extraordinary item...................................... (Ps. 701,077) (Ps. 769,246) (Ps. 218,071)
Items not requiring the use of resources:
Depreciation and amortization..................................... 592,182 674,912 604,602
Equity participation in net loss (income) of associated
companies....................................................... (3,098) 39,141 5,993
Minority interest................................................. (45) (37,029) (3,179)
------------- ------------- -------------
(112,038) (92,222) 389,345
Resources provided by (used in) operating activities:
Trade accounts receivable......................................... (71,258) 124,035 38,278
Related parties................................................... 99,838 39,877 328,887
Recoverable taxes and other....................................... (48,230) 79,188 (25,342)
Inventories....................................................... (112,076) 47,692 56,224
Trade accounts payable............................................ 495,130 272,617 (419,582)
Taxes and other payables.......................................... (20,807) 85,560 96,365
Income tax........................................................ -- 1,237 5,270
Employee profit sharing........................................... 300 (842) (209)
Other............................................................. 555 186 61
------------- ------------- -------------
Resources provided by operating activities before extraordinary
item.......................................................... 231,415 557,328 469,297
Extraordinary item: Reorganization charge........................... -- -- 145,192
------------- ------------- -------------
Resources provided by operating activities...................... 231,415 557,328 324,105
------------- ------------- -------------
FINANCING ACTIVITIES:
(Payments of) proceeds from long-term debt........................ 556,009 27,765 (104,869)
Principal payments on long-term debt.............................. (675,436) (437,928) (302,293)
Net change in notes payable....................................... (324,169) 624,898 57,898
Proceeds from issuance of common stock, net of costs of
issuance.......................................................... 1,666,655 -- --
------------- ------------- -------------
Resources provided by (used in) financing activities............ 1,223,061 214,735 (349,264)
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment................................ (1,229,942) (471,262) (211,247)
Sale (acquisition) of common stock of associated companies........ (153,787) (51,305) 21,074
Disposal (purchase) of other assets............................... (529,427) (328,755) 133,980
------------- ------------- -------------
Resources used in investing activities.......................... (1,913,156) (851,322) (56,193)
------------- ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................... (458,681) (79,259) (81,352)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR.............. 716,042 257,361 178,102
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR.................... Ps. 257,361 Ps. 178,102 Ps. 96,750
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-9
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
1. ENTITY AND NATURE OF BUSINESS
Grupo Iusacell, S.A. de C.V. (the "Company") is a holding company which was
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 proximate market areas ("Regions") in Mexico. In
October 1995, the Company received a concession from the Mexican Government to
operate as a long distance carrier and started its operations in this market on
August 11, 1996. During 1996, the Company signed a joint venture agreement for
the operation of nationwide and international paging services. The Company
started to provide paging services in August 1996.
The Peralta Family and Bell Atlantic Corporation ("Bell Atlantic") hold
substantial ownership interests (direct or indirect) in the Company.
On November 26, 1996, the Company's shareholders announced that they signed
an agreement in principle to change the management control of Grupo Iusacell,
S.A. de C.V., from the Peralta Family to Bell Atlantic, subject to certain
Mexican Government approvals. Bell Atlantic assumed such management control on
February 18, 1997 (see Notes 14 and 18).
The Company and its subsidiaries are referred to collectively herein as the
"Group" or "Grupo Iusacell".
2. ACQUISITIONS AND GROUP REORGANIZATION
ACQUISITION OF REGION 6 AND 7
In 1993, the Company obtained ownership of Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V. ("Portacel") and Telecomunicaciones del Golfo, S.A. de
C.V. ("Telgolfo"). Portacel and Telgolfo hold the non-wireline cellular
concessions for Region 6 and Region 7, respectively.
The cost incurred in 1993 to acquire control of Portacel and Telgolfo
amounted to Ps. 850,574, of which Ps. 725,610 represented the excess of
investment cost over the book value.
In February 1994 the Company purchased the remaining minority ownership
interest of Telgolfo for Ps. 51,843, of which Ps. 48,256 represented the excess
of investment cost over the book value.
ACQUISITION OF REGION 5
In 1993, the Company acquired 67% of Hermes Telecomunicaciones, S.A. de C.V.
("Hermes"), a company that owns 51% of Comunicaciones Celulares de Occidente,
S.A. de C.V. ("Comcel"). Comcel holds the non-wireline cellular concession for
Region 5. The Company could not exercise significant influence over Comcel as an
arbitration proceeding was initiated by a minority shareholder of Comcel.
Although this arbitration was settled in November 1993, the settlement agreement
provided for a stand-still arrangement until January 3, 1994. The expenses
related to the arbitration were charged to excess of cost of investment in
subsidiaries over book value in 1994. Accordingly, the Company's investment in
Comcel was accounted for using the cost basis of accounting from the date of
acquisition through December 30, 1993. In December 1993, the Company reached an
agreement to purchase the remaining interests in both Comcel and Hermes. The
Company's cost of acquiring Comcel and Hermes totaled Ps. 1,110,674, of which
Ps. 900,422 represented the excess of investment cost over the book value.
F-10
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
OTHER ACQUISITIONS
In 1994, the Company acquired 51% of Telecomunicaciones Digitales
Internacionales, S.A. de C.V. (now Iusatel Chile, S.A. de C.V.). The Company
purchased this ownership interest for Ps. 20,430, which was the book value of
the shares acquired. During 1996, the Company increased its ownership in Iusatel
Chile, S.A. de C.V. from 51% to 100% through the capitalization of certain
liabilities and the payment of U.S.$100 to the minority shareholders. In
December 1996, the Company sold its debt and equity in Iusatel Chile, S.A. de
C.V. for U.S.$5,000. Payment was received in the form of three promissory notes
which mature between March and July 1997.
In August 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. The cost to acquire this interest was Ps. 32,859, of
which Ps. 23,277 represented the excess of investment cost over the book value.
In March 1995, the Company increased its ownership interest in Telecel through a
capital contribution of Ps. 772. Through this contribution, the Company
increased its ownership in Telecel from 63.25% to 70.14%.
On December 13, 1994, Iusacell, S.A. de C.V. (subsidiary company) acquired
99.99% of Inmobiliaria Montes Urales 460, S.A. de C. V.. The cost was Ps.
70,977, of which Ps. 13,337 represented the excess of investment cost over the
book value.
In August 1995, the Company acquired from a related party 100% of Iusatel,
S.A. de C.V. Starting August 11, 1996 Iusatel began to provide national and
international long distance basic telephone services pursuant to a concession
received from the Mexican Government in October 1995.
In August 1995, the Company incorporated as a new subsidiary, Grupo Iusacell
de Nicaragua, S.A.. This company holds the shares of a company named Radio
Telefonia Rural de Nicaragua, S.A. which in July 1995 entered into a joint
venture agreement with the Nicaraguan Telecommunications Ministry for the
provision of fixed wireless local telephone services. In May 1996, the
Nicaraguan Telecommunications Ministry revoked the agreement. As of December 31,
1996, the Company has not made any investment in this project and has no
commitments for any such investments.
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, S.A. de C.V., which is owned 51% and 49% by the Company
and Infomin, respectively. The Company committed to contribute up to
U.S.$10,500; as of December 31, 1996 the Company has invested U.S.$3,300 in the
joint venture.
In January 1996, the Company increased its ownership in Rentacell, S.A. de
C.V. from 33.33% to 70%. As of December 31, 1995 the investment in Rentacell,
S.A. de C.V. was accounted for using the equity method. Starting January 1996,
the Company consolidated the assets, liabilities and operating results of this
subsidiary which rents cellular phones.
F-11
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
GROUP REORGANIZATION
In late 1995 and during 1996, the Company's subsidiaries were reorganized.
This reorganization consisted of the following operations:
At an extraordinary stockholders' meeting held on December 29, 1995, the
subsidiaries, Telcom Celular, S.A. de C.V. (Region 7) and Portacom, S.A. de C.V.
(Region 6) were merged with and into Iusacell, S.A. de C.V.. This merger was
made based on the financial statements of the three companies as of December 31,
1995.
At an extraordinary stockholders' meeting held on December 29, 1995,
Servicios Corporativos Iusacell, S.A. de C.V. was merged with and into Sistecel,
S.A. de C.V.. This merger was made based on the financial statements of both
companies as of December 31, 1995.
At an extraordinary stockholders' meeting held on December 31, 1996, the
respective stockholders of Hermes Telecomunicaciones, S.A. de C.V., 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 will not perform any
transactions except those necessary to wind-up their pending businesses.
At the end of 1996, and based on the reorganization of the Company and the
change in the managerial and administrative control of the Group, the Company
established a reserve of Ps. 145,192 for the restructuring expenses associated
with the reorganization. The plan provides for the termination of 252 employees
in the second quarter of 1997. This reserve, due to its characteristics of being
non-recurrent and unusual, has been presented as an extraordinary item in the
consolidated income statement. This reserve is as follows:
<TABLE>
<S> <C>
Provision for loss on sale of building........................... Ps.76,318
Employee severance............................................... 28,313
Fixed assets obsolescence reserve................................ 35,125
Change in estimate for allowance for doubtful accounts........... 5,436
</TABLE>
F-12
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
SUMMARY
The subsidiary companies which are included within the consolidated
financial statements are as follows (directly or indirectly):
<TABLE>
<CAPTION>
OWNERSHIP
AS OF
DECEMBER 31,
------------------------
SUBSIDIARY 1995 1996
- --------------------------------------------------------------------------- ----- -----
<S> <C> <C>
S.O.S. Telecomunicaciones, S.A. de C.V..................................... 100% 100%
Iusacell, S.A. de C.V...................................................... 100% 100%
Servicios Corporativos Iusacell, S.A. de C.V............................... 100% --
Sistecel, S.A. de C.V...................................................... 100% 100%
Satelitron, S.A. de C.V.................................................... 51% 51%
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%
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% 100%
Hermes Telecomunicaciones, S.A. de C.V..................................... 100% 100%
Inmobiliaria Montes Urales 460, S.A. de C.V................................ 100% 100%
Portacom, S.A. de C.V...................................................... 100% --
Portaserv, S.A. de C.V..................................................... 100% 100%
Telcom Celular, S.A. de C.V................................................ 100% --
Mexican Cellular Investments, Inc.......................................... 100% 100%
Iusanet, S.A. de C.V....................................................... 100% 100%
Iusatel Chile, S.A. de C.V................................................. 51% --
Compania Colombiana de Telefonia Celular, S.A.............................. 70% 70%
Promotora Celular, S.A. de C.V............................................. 75% 75%
Cellular Solutions de Mexico, S.A. de C.V.................................. 68% 68%
Iusatelecomunicaciones, S.A. de C.V........................................ 100% 100%
Iusatel, S.A. de C.V....................................................... 100% 100%
Grupo Iusacell Nicaragua, S.A.............................................. 100% 100%
Infotelecom, S.A. de C.V................................................... -- 51%
Rentacell, S.A. de C.V..................................................... 33% 70%
</TABLE>
F-13
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
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 for the two periods have been
presented in thousands of constant Mexican pesos as of March 31, 1997 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 December 31, 1994, 1995 and 1996, presented in the
financial statements and in the notes have been restated based on the inflation
rate in order to present them in pesos of purchasing power as of March 31, 1997.
B) CONSOLIDATED FINANCIAL STATEMENTS
Those companies in which the Group holds 50% or more of the capital stock
and exercises control over operating and financing activities are included in
the consolidated financial statements.
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
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 statements are presented in Mexican pesos, the currency that, based on
the Mexican laws, must be used to prepare the accounting records of the Company
and of its Mexican subsidiaries. All amounts presented in the 1994, 1995 and
1996 consolidated financial statements are expressed in thousands of Mexican
pesos.
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 and thereafter, requires the
restatement of all comparative financial statements to constant Mexican pesos as
F-14
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
of the date of the most recent balance sheet presented. Accordingly, the
consolidated financial statements have been restated as follows:
- Consolidated income statements for the current and prior year have been
restated to constant Mexican pesos as of December 31, 1996 using the NCPI
(National Consumer Price Index), published by Banco de Mexico (The
Mexican Central Bank) 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 appropriate presentation of the statement of changes in
financial position where financial statements have been restated to
constant pesos as of the latest balance sheet date. Bulletin B-12
identifies the generation 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 activities, nor from financing activities.
The items which 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 the net realizable
value.
Property and equipment other than real estate are stated at net replacement
cost. Real estate properties are stated at their fair market value. Net
replacement cost and fair market values were determined from appraisals
performed by independent appraisers registered with the Comision Nacional
Bancaria y de Valores (Mexican National Banking and Securities Commission). The
last appraisal is dated December 31, 1996.
Property and equipment are depreciated using the straight-line method, based
on the restated values. Useful lives are determined by independent appraisers.
The average annual rates used by the Company are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Buildings and facilities................................................ 3% 3% 3%
Communication equipment................................................. 7% 8% 10%
Furniture and fixtures.................................................. 11% 9% 8%
Transportation equipment................................................ 17% 19% 15%
Computer equipment...................................................... 23% 23% 21%
Cellular rental telephones.............................................. 41% 50% 49%
</TABLE>
Investments in associated companies are accounted for using the equity
method based on the investees' equity adjusted for the effects of inflation in
accordance with Bulletin B-10.
F-15
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
Restatement of stockholders' equity:
The common stock and retained earnings 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 March 31, 1997.
The excess or deficit from restatement of capital 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 cost (gain):
Integral financing result comprises 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 currency
other than Mexican pesos result from fluctuations in exchange rates from the
date transactions are recorded to the time of settlement or valuation at the end
of the period.
Gains and losses from 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. Otherwise, if monetary liabilities are less
than monetary assets, there is a resulting loss from monetary position.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of short term, fixed rate
investments and bank deposits. The Company 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 Company cancels services to those customers with invoices that are 60
days past due. Beginning in 1996, the Company began to fully reserve accounts
receivable that were 90 days past due. Prior to 1996, the Company fully reserved
accounts receivable over 120 days past due. The accumulated effect at the
beginning of the year for the change of this estimate was Ps. 5,406 and such
amount is presented as part of the reorganization reserve. During 1994, 1995 and
1996 the Company wrote off accounts receivable against this allowance for Ps.
39,202, Ps. 72,997 and Ps. 70,909, respectively. The charge to income for the
year, to increase the allowance for doubtful accounts, amounted to Ps. 63,555,
Ps. 82,576 and Ps. 70,909, in 1994, 1995 and 1996, respectively.
F-16
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
E) INVESTMENT IN ASSOCIATED COMPANIES
Long-term investments in common stock of companies in which the Group owns
not less than 20% nor more than 50% of the entity's voting common stock and over
which the Company can exercise significant influence are accounted for using the
equity method. 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 their restatement of non-monetary assets. There are
immaterial transactions with such associated companies that have been eliminated
before recognizing the equity method.
Investments of less than 20% of an entity's voting common stock or over
which the Company cannot exercise significant influence are stated at cost.
F) CELLULAR TELEPHONES
Cellular telephones given to customers through an exclusive service
contract, are amortized over the initial contract period. The amortization is
periodically reviewed and adjusted if the customer does not fulfill the original
agreement. The cost of such telephones is included in other assets, net of
amortization.
The cost of cellular telephones sold to customers is recorded as a cost of
telephone equipment sold. Telephones leased to customers are included in fixed
assets and are depreciated over the initial contract period, generally two
years.
G) CONCESSIONS
Costs related to the acquisition of concessions issued 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
a twenty year period, which is the period of the concession. The Mexican
Government requires that the Company comply with the specific requirements of
each concession. The Company has substantially complied with such requirements
through December 31, 1996, except for certain informational requirements of the
authorities. The Company believes this does not expose the concession to any
regulatory risk.
H) ADVERTISING
Prepaid media advertising costs are included in other assets in the
accompanying balance sheet. Such costs are expensed, as incurred, and are
included in current operating expenses. Advertising expenses amounted to Ps.
191,809, Ps. 109,319 and Ps. 113,399, for 1994, 1995 and 1996, respectively.
F-17
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
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. 81,571, Ps. 81,269 and Ps. 92,892 in 1994, 1995 and
1996, respectively.
The carrying amount 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 taxes are provided 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 Company did not make a
provision for deferred taxes as of December 31, 1994, 1995 and 1996.
Employee profit sharing is a statutory labor obligation payable to employees
which is determined on the basis of each subsidiary's pre-tax income as adjusted
in accordance with the provisions of the Mexican Labor Law and the Mexican Tax
Law.
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, 1996, the average seniority of the employees is less than 3 years.
Also, in accordance with Mexican Labor Law, the Company is liable for
severance payments to employees who are dismissed under certain circumstances.
Such compensation is recognized when paid.
The Company has no employee pension plans and does not provide any other
post retirement benefits.
L) REVENUE RECOGNITION
Cellular air time is recorded as revenue when provided. Sales of equipment
and related services are recorded when goods and services are delivered.
Cellular access charges are billed in advance and
F-18
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
recognized when the services are provided. Other revenue, mainly from paging and
long distance services, are recognized on provision of these services.
M) 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 resulting
exchange differences being recognized as exchange gains or losses.
5. RELATED PARTIES
The Peralta Family and Bell Atlantic hold substantial ownership interests
(direct or indirect) in the Company. In addition, the Peralta Family 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
Company.
A summary of related party accounts and notes receivable as of December 31,
is as follows:
<TABLE>
<CAPTION>
1995 1996
------------ -----------
<S> <C> <C>
IUSA and related entities......................................... Ps. 29,642 Ps. 4,418
Peralta Family entities........................................... 3,948 3,104
------------ -----------
Total........................................................... Ps. 33,590 Ps. 7,522
============ ===========
</TABLE>
Accounts receivable result from the sale of cellular telephone services,
operating lease contracts and the transfer during 1995 to IUSA of the investment
in a real estate project.
Accounts and notes payable to related parties as of December 31, are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ --------------
<S> <C> <C>
IUSA and related entities...................................... Ps. 17,948 Ps. 725
Peralta Family entities........................................ 21 557
FIUSA Pasteje.................................................. -- 303,140
Bell Atlantic.................................................. 53,273 69,639
------------ --------------
Total........................................................ Ps. 71,242 Ps. 374,061
============ ==============
</TABLE>
The payable accounts result from the leasing of some facilities and services
received. The notes payable to FIUSA Pasteje and Bell Atlantic result from the
financing of the Company's operations.
F-19
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
5. RELATED PARTIES (CONTINUED)
Following is an analysis of the related party transactions described above
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Service revenue................................... Ps. 7,178 Ps. 11,530 Ps. 9,927
Lease income...................................... 426 2,333 2,112
Interest income................................... 9,678 436 --
------------ ------------ ------------
Total income.................................. Ps. 17,282 Ps. 14,299 Ps. 12,039
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ --------------
<S> <C> <C> <C>
Commission expenses.............................. Ps. 10,029 Ps. 16,791 Ps. 3,287
Technical expenses............................... 21,558 36,473 63,307
Lease expenses................................... 2,217 2,614 6,354
Interest expense................................. 6,894 14,730 31,501
Operating expenses............................... -- 11,755 6,741
------------ ------------ --------------
Total expenses............................... Ps. 40,698 Ps. 82,363 Ps. 111,190
============ ============ ==============
</TABLE>
6. INVENTORIES
As of December 31, inventories are made up by the following:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Cellular telephones and accessories........................... Ps. 144,738 Ps. 86,840
Allowance for obsolete and slow-moving inventories............ 52,176 34,279
-------------- --------------
Net....................................................... 92,562 52,561
Advances to suppliers......................................... 70,099 53,876
-------------- --------------
Total inventories......................................... Ps. 162,661 Ps. 106,437
============== ==============
</TABLE>
7. INVESTMENT IN ASSOCIATED COMPANIES
As of December 31, the Group's investment in associated companies is as
follows:
<TABLE>
<CAPTION>
1995 1996
--------------------------- ---------------------------
ENTITY OWNERSHIP INVESTMENT OWNERSHIP INVESTMENT
- -------------------------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Editorial Celular, S.A. de C.V........ 40.00% Ps. 3,676 40.00% Ps. 2,327
Consorcio Ecuatoriano de
Telecomunicaciones, S.A............. 27.53% 74,601 27.53% 81,511
Rentacell, S.A. de C.V................ 33.33% (290) -- --
Other................................. 8,233 9,678
---------- ----------
Total............................. Ps. 86,220 Ps. 93,516
========== ==========
</TABLE>
F-20
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
7. INVESTMENT IN ASSOCIATED COMPANIES (CONTINUED)
Starting in 1996, Rentacell, S.A. de C.V. is being consolidated (see Note
2).
Summarized financial information for these associated companies accounted
for by the equity method as of and for the years ended December 31, 1995 and
1996, is as follows:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Total assets.................................................. Ps. 552,980 Ps. 477,900
Total liabilities............................................. 346,838 253,421
Revenues...................................................... 280,126 260,034
Gross income (loss)........................................... (13,947) 13,515
Net income (loss)............................................. (54,008) 5,664
Group's share of net loss..................................... (39,141) (5,993)
</TABLE>
8. PROPERTY AND EQUIPMENT
a) At December 31, property and equipment consist of:
<TABLE>
<CAPTION>
1995 1996
---------------- ----------------
<S> <C> <C>
Buildings and facilities.................................. Ps. 1,086,365 Ps. 975,519
Communication equipment................................... 3,845,372 3,209,722
Furniture and fixtures.................................... 59,715 64,188
Transportation equipment.................................. 32,094 36,333
Computer equipment........................................ 177,771 177,032
Cellular rental telephones................................ 22,816 24,701
---------------- ----------------
5,224,133 4,487,495
Accumulated depreciation.................................. (1,322,334) (1,487,966)
---------------- ----------------
3,901,799 2,999,529
Land...................................................... 41,425 34,956
Construction in progress.................................. 224,602 157,356
Advances to suppliers..................................... 118,254 115,577
---------------- ----------------
Ps. 4,286,080 Ps. 3,307,418
================ ================
</TABLE>
b) Depreciation expense was Ps. 171,036, Ps. 292,812 and Ps. 304,199 for
1994, 1995 and 1996, respectively. In 1996, the Company established an
obsolescence reserve of Ps. 35,125 for certain communication equipment, which is
included in the accumulated depreciation and is part of the restructuring
expenses classified as an extraordinary item.
F-21
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
9. OTHER ASSETS
At December 31, other assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Concessions..................................................... Ps. 172,790 Ps. 161,715
Cellular telephones to be amortized............................. 260,225 94,920
Prepaid expenses................................................ 69,068 46,726
Advertising expenses............................................ 59,479 --
Preoperating expenses........................................... 152,018 352,416
Other........................................................... 30,903 4,986
------------- -------------
Ps. 744,483 Ps. 660,763
============= =============
</TABLE>
Cellular telephones amortization expense was Ps. 272,120, Ps. 292,224 and
Ps. 207,510 in 1994, 1995 and 1996, respectively.
Preoperating expenses mainly represent the investment in the Project 450
(see Note 17).
10. NOTES PAYABLE AND LONG-TERM DEBT
At December 31, the notes payable and long-term debt consist of the
following:
Notes payable at December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Short-term loan of U.S.$24,282 bearing interest at a variable rate of LIBOR plus
5.75% and maturing on February 28, 1997........................................... Ps. -- Ps. 202,436
Unsecured business short-term loan of U.S.$65,000 bearing interest at a variable
rate of LIBOR plus 4% and maturity dates from February through March 1997......... 511,921 541,992
Short-term loan of Ps. 6,000 bearing interest at a fixed rate of 57% and maturing on
February 23, 1996................................................................. 8,111 --
Short-term loan of U.S.$4,842 bearing interest at a fixed rate of 5.30% and maturing
on March 13, 1996................................................................. 48,863 --
Short-term loan of U.S.$5,086 bearing interest at a fixed rate of 10.25% and
maturing on March 13, 1996........................................................ 51,319 --
Short-term loan of U.S.$6,296 bearing interest at variable rates that range from
11.09% to 11.8% and maturity dates from April to November 1996.................... 65,871 --
Other............................................................................... 444 --
------------- -------------
Total........................................................................... Ps. 686,529 Ps. 744,428
============= =============
</TABLE>
F-22
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Long-term debt at December 31, consists of:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Medium term loan of U.S.$134 bearing interest at a variable rate
of LIBOR plus 3% and maturing on February 18, 1998. Interest
and principal are payable semiannually commencing August
1993.......................................................... Ps. 2,340 Ps. 1,118
Long-term loan of U.S.$2,096 bearing interest at a rate of
Treasury Notes plus 5% maturing September 30, 1998. Interest
and principal are payable semiannually commencing September
1993.......................................................... 32,893 17,474
Obligations for equipment under capitalized leases for U.S.$593
at a variable rate of LIBOR plus 2.5% maturing on December 28,
1998. Interest and principal are payable semiannually
commencing June 1994.......................................... 9,501 4,943
Long-term loan of U.S.$18,000 bearing interest at a variable
rate of LIBOR plus 2.9375% maturing December 2001. Interest
and principal are payable semiannually commencing June 15,
1994.......................................................... 113,777 150,069
Long-term loan of U.S.$3,333 bearing interest at a rate of LIBOR
plus 2.4375% maturing April 15, 2002. Interest and principal
are payable semiannually commencing April 1993................ 41,210 27,786
Long-term loan of U.S.$7,935 bearing interest at a rate of
12.55% maturing on July 15, 2002. Interest and principal are
payable semiannually commencing January 1994.................. 96,857 66,155
Long-term loan of U.S.$33,952 bearing interest at a variable
rate of LIBOR plus 4% maturing on January 28, 2004. Interest
and principal are payable semiannually commencing June
1994.......................................................... 380,312 283,057
</TABLE>
F-23
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Long-term loan of U.S.$13,156 bearing interest at a variable
rate of LIBOR plus 3.75% maturing on November 14, 2004.
Interest and principal are payable semiannually commencing
July 1994..................................................... Ps. 25,438 Ps. 109,679
Long-term loan of U.S.$10,726 bearing interest at a variable
rate of LIBOR plus 2.9375% maturing on December 19, 2001.
Interest and principal are payable semiannually commencing
March 1996.................................................... 112,214 --
Long-term loan of U.S.$16,445 bearing interest at a variable
rate of LIBOR plus 3.75% maturing on November 14, 2004.
Interest and principal are payable semiannually commencing May
1995.......................................................... 154,845 --
Other........................................................... 4,010 --
------------- -------------
Total........................................................... Ps. 973,397 Ps. 660,281
Less current portion.......................................... 140,971 112,332
------------- -------------
Ps. 832,426 Ps. 547,949
============= =============
</TABLE>
LIBOR at December 31, 1996 was 6%.
Certain loan agreements, among other conditions, impose certain restrictive
covenants such as maintenance of certain ratios, restrictions on incurring of
additional debt, and restrictions on the sale or lease of the Group's assets.
Long term maturities for the years subsequent to December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR
- ------------------------------------------------------------------------------- -------------
<S> <C>
1998........................................................................... Ps. 111,339
1999........................................................................... 100,069
2000........................................................................... 100,067
2001........................................................................... 100,067
2002........................................................................... 51,903
2003 and thereafter............................................................ 84,504
-------------
Ps. 547,949
=============
</TABLE>
At December 31, 1996 unused lines of credit totaled Ps. 665,763 (U.S.$
85,000). The Company has paid no commitment fees for these lines of credit.
At December 31, 1995 and 1996 assets collateralizing long-term debt include
substantially all assets, (including the Government concessions) of Region 5 and
6, and their property and equipment.
The Group leases certain communication equipment and transportation
equipment under agreements which are classified as capital leases. Most
equipment leases have purchase options at the end of
F-24
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
the original lease term. Leased capital assets, included in property and
equipment at December 31, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Communication equipment............................................ Ps. 21,585 Ps. 24,204
Transportation equipment........................................... 2,477 --
----------- -----------
Total equipment leased......................................... 24,062 24,204
Accumulated depreciation........................................... (3,797) (4,766)
----------- -----------
Net equipment leased........................................... Ps. 20,265 Ps. 19,438
=========== ===========
</TABLE>
11. TRADE ACCOUNTS PAYABLE
At December 31, trade accounts payable consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Current accounts................................................ Ps. 306,316 Ps. 270,851
Notes payable................................................... 579,990 190,737
------------- -------------
Total......................................................... Ps. 886,306 Ps. 461,588
------------- -------------
Long-term notes payable......................................... Ps. 5,191 Ps. 10,328
============= =============
</TABLE>
As of December 31, 1996, the Company has only partially paid amounts
invoiced by Telefonos de Mexico, S.A. de C.V. ("Telmex") since it believes that
Telmex did not have the legal right to charge certain invoiced amounts. These
disputed charges are being negotiated with Telmex. At December 31, 1996 the
Company has established adequate reserves to cover these liabilities.
Additionally, the Group's subsidiaries have claimed from Telmex the payment of
certain fees for reciprocal termination charges which the Company has the right
to collect, based on the Federal Telecommunications Law (Ley Federal de
Telecomunicaciones) published on June 7, 1995 and the regulations issued
thereunder.
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING
In December 1993, the Mexican tax authorities granted the Group permission
to file a consolidated income tax return commencing with the tax year beginning
January 1, 1994.
The income tax rate is 34%. The provision for income tax differs from the
statutory income tax rate due to temporary and permanent differences in the
determination of the 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 important permanent items are the differences between
book and tax depreciation, the goodwill amortization and non-deductible
expenses.
F-25
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING (CONTINUED)
In accordance with Mexican accounting principles, no deferred taxes have
been provided on temporary differences since such differences are of a recurring
nature and their realization cannot be foreseen in a defined period of time.
The 1.8% (2% in 1994) 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% assets tax
paid may be utilized as a credit against future income tax in the years in which
the Company 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 National Consumer Price Index when used. As of December
31, 1996, the net assets tax available as a carry forward is Ps. 83,194.
At December 31, 1996, 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 LOSS AMOUNT OF LOSS EXPIRATION YEAR
- -------------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
1991............................................................................ Ps. 17,474 2001
1992............................................................................ 260 2002
1993............................................................................ 388,931 2003
1994............................................................................ 821,344 2004
1995............................................................................ 424,397 2005
1996............................................................................ 28,166 2006
</TABLE>
These losses are indexed for inflation from the year incurred to the sixth
month of the year utilized. Accordingly, these amounts include the inflation up
to June 1996. Losses include Ps. 237,327 and Ps. 157,684 of capital stock
issuance costs expensed for tax purposes in 1993 and 1994. Such amounts were
charged to stockholders' equity in the consolidated 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 years ended December 31, 1994 and 1996 there was no
profit sharing expense. In the year ended December 31, 1995 employee profit
sharing expense amounted to Ps. 2,082.
F-26
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING (CONTINUED)
The effective rate reconciliation as of December 31, is as follows:
<TABLE>
<CAPTION>
DESCRIPTION 1994 1995 1996
- ------------------------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Income tax benefit at statutory rate.............................. (Ps.226,934) (Ps.263,534) (Ps.124,867)
Add (deduct):
Inventory purchases less cost of sales........................ (40,123) (83,518) (33,775)
Depreciation and amortization (19,682) (122,454) (100,667)
Differences between interest and inflationary gains or
losses...................................................... 25,699 206,516 152,498
Net assets tax................................................ 31,422 29,093 35,199
Application of income tax loss carryforwards.................. 192,119 150,993 10,193
Provision for doubtful accounts............................... 13,662 6,706 (1,313)
Telephones to be amortized.................................... (23,643) 79,513 54,164
Goodwill amortized............................................ 27,733 23,729 25,631
Other......................................................... 52,209 2,050 18,136
-------------- -------------- --------------
Effective income tax expense at effective rate.................... Ps.32,462 Ps.29,093 Ps.35,199
============== ============== ==============
</TABLE>
The effective income tax expense represents basically 1.8% tax on assets,
which is the alternative minimum tax in Mexico.
13. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996 the Company has the following commitments and
contingent liabilities:
a) The Company has entered into operating lease agreements for
administrative offices, sales branches, and service facilities. Such lease
agreements expire at various dates through 2002. Some contain options for
renewal. Rental expense was Ps. 42,267, Ps. 50,921 and Ps. 50,046 for the years
ended December 31, 1994, 1995 and 1996, respectively.
Future minimum rental payments under existing leases with terms in excess of
one year as of December 31, 1996 are as follows:
1997............................................................. Ps.33,007
1998............................................................. 17,489
1999............................................................. 15,038
2000............................................................. 11,652
Thereafter....................................................... 6,249
b) For the taxes and penalties that the tax authorities may collect if they
disagree with the criteria applied by the Company regarding the calculation of
some taxes, rights and federal contributions as a result of prior years' tax
returns. As of this date there has been no notification of disagreement from the
authorities. In February 1996, the Tax authorities (Secretaria de Hacienda y
Credito Publico) started an audit in three companies of the Group (Grupo
Iusacell, S.A. de C.V., Iusacell, S.A. de C.V. and SOS
F-27
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Telecomunicaciones, S.A. de C.V.). The Company does not anticipate that any tax
difference or penalties will be originated by this audit which would be material
to the Company's financial position, results of operations or liquidity.
c) Mitsubishi Electronics America Inc. filed a complaint in the United
States on July 18, 1996 against Grupo Iusacell, S.A. de C.V. and Bell Atlantic
Corporation. Essentially, Mitsubishi alleges that it had a contract with Grupo
Iusacell for the sale of telephone terminals and that Iusacell has breached the
contract by not purchasing the terminals. Mitsubishi alleges the contract was
for the sale of 60,000 units at a cost of U.S.$0.510 each. Grupo Iusacell has
filed a motion to dismiss for lack of personal jurisdiction. Based on the
opinion of external lawyers and because of the pending motions it is too early
to evaluate the possibility of settlement or the extent of Grupo Iusacell's
exposure, if any, to loss by judgment.
d) In 1996, the Company received a notification from the authorities
requesting the payment of surcharges related to the purchase completed in three
installments in 1990 of the Region 5 concession. This Region was bought by Grupo
Iusacell in 1993 (see Note 2). The opinion of external counsel is that this
request is legally unfounded.
14. CONTRIBUTED CAPITAL
Series A, B and D represent shares entitling the holder of each share to one
vote at the Company's stockholders' meetings. The stockholders of Series L
shares may vote only in limited circumstances as described in the Company's
by-laws. Stockholder actions on certain matters require approval by both Series
A and Series B stockholders.
Series A shares must always represent not less than 51% of the capital stock
with full voting rights and, until February 1997, were only acquirable by
Mexicans. Series B, D and L shares may be acquired by foreigners or Mexicans.
Series B and D shares cannot exceed 24.5% of the total capital stock. Series
L shares cannot exceed 19% of the total capital stock. Series L shares are not
considered in determining the amount or proportion of foreign investment in the
Company as long as the shares are listed on the Mexican Stock Exchange.
In May 1994, the stockholders authorized a 10 for 1 stock split applicable
to all outstanding shares of capital stock at December 31, 1993. Information
contained in these consolidated financial statements has been retroactively
adjusted to reflect this split.
On May 20, 1994, 28,291,350 series D and 66,013,150 series L shares were
issued and sold through a public offering for Ps. 1,824,341. Capital stock
includes Ps. 1,426,371 of amounts paid in excess of nominal value. Fees charged
by outside advisors for assisting in this sale amounted to Ps. 157,684 and were
charged to stockholders' equity. In addition 23,957,620 series A shares were
converted into an equal number of series L shares. The converted series A shares
were canceled.
As mentioned in Note 1, on November 26, 1996, the Company's shareholders
signed an agreement in principle to change the controlling interest of Grupo
Iusacell to Bell Atlantic. Following the signed
F-28
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
14. CONTRIBUTED CAPITAL (CONTINUED)
agreement, on December 18, 1996, at an extraordinary stockholders' meeting, the
following resolutions modifying the Company's by-laws were adopted:
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, for 366,769,760 Series "A" shares.
3) The conversion of 100,000,000 Series "A" shares for 100,000,000
Series "D" shares.
These resolutions were subject to the authorizations requested before the
Foreign Investment National Commission and the Competition Federal Commission
(see Note 18).
Subject to the above mentioned authorizations and the adoption of such
resolutions, the stockholders decided to increase the fixed portion of the
capital stock by up to Ps. 766,000 through the issuance of up to 74,163,591
Series "A" shares and up to 54,407,837 Series "D" shares. The present holders of
the Series "D" shares had the right to acquire additional Series "D" shares in
order to allow them to keep their actual ownership proportion; this right
expired fifteen days after the publication of these resolutions in the Diario
Oficial de la Federacion (Mexican Federal Official Journal) (See Note 18). After
such term expires the remaining shares will be offered for their subscription
and payment as follows:
a) Up to 57,142,857 Series "A" shares to Bell Atlantic Latin America
Holdings, Inc. through the capitalization of certain liabilities.
b) Up to 17,020,734 Series "A" shares and up to 54,407,837 Series "D"
shares to FIUSA Pasteje, S.A. de C.V. through the capitalization of certain
liabilities.
At the same stockholders' meeting, a Stock Purchase Plan for the Company's
executives was approved. In this regard, the stockholders decided to increase
the fixed portion of the capital stock of up to Ps. 106,000 through the issuance
of up to 15,625,000 Series "L" shares. The present holders of the Series "L"
shares had the right to acquire additional shares in order to allow them to keep
their actual ownership proportion; this right expired fifteen days after the
publication of these resolutions in the Diario Oficial de la Federacion (Mexican
Federal Official Journal). After such term expires the remaining shares will be
canceled, except for 7,812,500 shares which will be designated to the above
mentioned Stock Purchase Plan.
F-29
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
14. CONTRIBUTED CAPITAL (CONTINUED)
The changes in the number of shares of common stock for the period January
1, 1994 through December 31, 1996 are analyzed as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------
<S> <C>
January 1, 1994 balance (restated for stock split)........................ 887,319,930
May 20, 1994--issuance of common stock through primary public
offering.............................................................. 94,304,500
-----------------
December 31, 1994 balance................................................. 981,624,430
No changes.............................................................. --
-----------------
December 31, 1995 balance................................................. 981,624,430
No changes.............................................................. --
-----------------
December 31, 1996 balance................................................. 981,624,430
=================
</TABLE>
At December 31, 1995 and 1996, the authorized and outstanding shares of
common stock, without par value, consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Series A.................................................................. 428,575,540
Series B.................................................................. 205,562,450
Series D.................................................................. 204,920,220
Series L.................................................................. 142,566,220
-----------------
Total................................................................... 981,624,430
=================
</TABLE>
15. EARNED CAPITAL
In accordance with the Mexican Corporate Law, a legal reserve must be
created, and annually increased by 5% of the annual net earnings until it
reaches 20% of the common stock amount. This reserve is not available for
dividends, but may be used to reduce a deficit or may be transferred to capital.
As defined in the Federal Income Tax Law, a tax on dividends is calculated
based on the paid dividends which exceed the taxable net income. The accumulated
taxable net income of the Company as of December 31, 1996 was approximately Ps.
68,477.
The Company cannot pay dividends until it collects them from its
subsidiaries. Two subsidiaries (Comcel in Region 5 and Portacel in Region 6)
have bank debt that partially restricts their ability to pay dividends to the
holding company if certain financial ratios are not met. As of December 31,
1996, such ratios were met. Both companies have accumulated losses at December
31, 1996.
F-30
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
The earned capital accounts consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- ------------- --------------
<S> <C> <C> <C>
Legal reserve.................................................... Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years.............................. (325,251) (942) (326,193)
Net loss for the year............................................ (805,911) 36,665 (769,246)
Excess from restatement.......................................... -- 220,876 220,876
---------------- ------------ --------------
Total.......................................................... (Ps. 1,129,663) Ps. 258,180 (Ps. 871,483)
================ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- -------------- ----------------
<S> <C> <C> <C>
Legal reserve................................................. Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years........................... (1,131,162) 35,723 (1,095,439)
Net loss for the year......................................... (515,635) (152,372) (363,263)
Deficit from restatement...................................... -- (501,112) (501,112)
---------------- -------------- ----------------
Total....................................................... (Ps. 1,645,298) (Ps. 311,436) (Ps. 1,956,734)
================ ============== ================
</TABLE>
16. FOREIGN CURRENCY POSITION
The balance sheet as of December 31, includes assets and liabilities
denominated in U.S. dollars as follows:
<TABLE>
<CAPTION>
1995 1996
--------------- ---------------
<S> <C> <C>
Monetary assets................................................................ U.S.$ 16,028 U.S.$ 12,752
Monetary liabilities........................................................... 234,538 254,629
--------------- ---------------
Net liability position in U.S. dollars....................................... U.S.$ 218,510 U.S.$ 241,877
--------------- ---------------
Equivalent in nominal Mexican pesos............................................ Ps. 1,691,180 Ps. 1,894,502
=============== ===============
</TABLE>
F-31
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
16. FOREIGN CURRENCY POSITION (CONTINUED)
During 1994, 1995 and 1996, interest expense paid and interest income
collected on assets and liabilities denominated in U.S. dollars were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income.................................................. U.S.$ 2,935 U.S.$ 7,749 U.S.$ 18,298
Interest expense................................................. 14,660 28,779 52,011
-------------- -------------- --------------
Net interest expense........................................... U.S.$ 11,725 U.S.$ 21,030 U.S.$ 33,713
-------------- -------------- --------------
-------------- -------------- --------------
Equivalent in nominal Mexican pesos.............................. Ps.58,566 Ps.162,764 Ps.264,057
============== ============== ==============
</TABLE>
The exchange rate as of December 31, 1994, 1995 and 1996 was Ps. 4.995, Ps.
7.7396 and Ps. 7.8325 per U.S.$ 1, respectively. At the issuance date of these
consolidated financial statements the exchange rate in effect was Ps. 7.778 per
U.S.$ 1.
17. PROJECT 450
During 1994, the Company created a subsidiary to be in charge of providing
fixed wireless local telephony services (Project 450). At December 31, the
following has been incurred during the start-up phase of the project:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Fixed assets.............................................................. Ps.454,081 Ps.422,407
Capitalized interest...................................................... 32,306 144,032
Inventory................................................................. 14,809 21,263
Pre-operating expenses.................................................... 43,006 64,086
------------- -------------
Total..................................................................... Ps.544,202 Ps.651,788
============= =============
</TABLE>
Capitalized interest and pre-operating expenses are included in "Other
assets" in the attached consolidated balance sheet (see Note 9).
The Company has an agreement with a foreign supplier under which it
anticipates buying approximately U.S.$ 315,000 of network switching equipment
and radio base station equipment as well as associated software and technical
services for the development of the local wireless network, in a five year
period commencing when the Ministry of Communications and Transportation ("SCT")
grants the required licenses. The SCT has announced that by the end of 1997 it
will auction the frequencies in the 450 MHz band to enable operators to provide
services therein.
The realization of these assets is subject to the acquisition of this
frequency. However, the Company's management believes that at least 75% of such
fixed assets could be used in its cellular operations.
18. SUBSEQUENT EVENTS
a) New Share Ownership
On February 12, 1997, Grupo Iusacell's new share ownership and management
control structure described more fully in the Notes 1 and 14, received the
required Mexican Government authorizations.
F-32
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
18. SUBSEQUENT EVENTS (CONTINUED)
The increase in the fixed portion of the capital stock, agreed at the
extraordinary stockholder's meeting held on December 18, 1996 (see Note 14), was
approved on February 18, 1997. The subscription of shares was as follows:
a) Bell Atlantic........................... 47,017,491 Series "A" shares
b) Peralta Family.......................... 4,390,619 Series "A" shares
48,754,000 Series "D" shares
After such subscription and the resolutions adopted to modify the Company's
by-laws, 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.
b) Telmex Settlement
On August 14, 1997, a settlement was reached with Telmex for disputed
cellular interconnection charges and other services. As a result of the
settlement the Company paid a total amount of Ps.170,000 to Telmex related
to disputed amounts for the period June 1995 to May 1997. Of this total
amount, Ps.22.2 million pesos constituted value-added tax and Ps.28.6
million pesos were accounted for as interest expense. As of December 31,
1996, the Company had sufficient accruals to cover the amounts in dispute at
that date.
c) Sale of Conecel
On September 30, 1997, the Company sold its direct interest in Consorcio
Ecuatoriano de Telecomunicaciones and its Ecuadorean paging company,
Corptilor, S.A. for U.S.$29.4 million and expects to record a gain on the
sale.
d) Purchase of Rent A Cell
The Company has agreed to purchase the remaining 30% of Rent a cell which it
did not already own for Ps.18,500. The Company's management expects the
purchase to take place during October 1997.
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
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, 1994, 1995 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 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 statements carrying amounts and the related
tax basis of assets and liabilities. Under U.S. GAAP, the effect on deferred
taxes of a change in tax rates 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 in 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% (2% in
1994) tax on the Company's net assets which may be used to offset future income
tax obligations. Under Mexican GAAP
F-33
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
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.
B) CAPITALIZED INTEREST
Under Mexican GAAP, capitalization of interest on assets under construction
is allowed but not required. For Mexican GAAP purposes the Company began
capitalizing interest on January 1, 1995. Prior to such date interests costs
were expensed for Mexican GAAP. Under Mexican GAAP, interest on those
obligations which are identified as relating to construction projects is subject
to capitalization. For U.S. GAAP purposes interest is capitalized by applying
the weighted average rate of borrowings to the average amount of accumulated
expenditures for the asset. In 1994, the interest capitalized under Mexican GAAP
was adjusted to reconcile with U.S. GAAP. For the years ended December 31, 1995
and 1996, there was no difference in the amounts capitalized under Mexican and
U.S. GAAP. As of December 31, 1995 and 1996, the capitalized interest amounted
to Ps. 30,351 and Ps.160,540 respectively.
C) ACQUISITIONS
Under Mexican GAAP, assets and liabilities of acquired subsidiaries are
carried over to the acquiring entity's financial statements at their book value
as of the date of acquisition. The excess of cost over such book value is
recorded as "excess of cost of investment in subsidiaries over book value"
("goodwill") in the accompanying balance sheets.
Under U.S. GAAP, for acquisitions accounted for using the purchase method,
the cost of acquiring another entity is allocated to the tangible and
identifiable intangible assets based on their fair values at the date of
acquisition and liabilities assumed are recorded at their then current fair
values. Any excess of cost over such fair values is recorded as goodwill.
In the accompanying balance sheet the concessions acquired in the
acquisitions of Regions 5, 6 and 7, have been recorded at their book value under
Mexican GAAP and not at their fair value as required by U.S. GAAP. Substantially
all goodwill recorded under Mexican GAAP would be assigned to cellular
concessions under U.S. GAAP. However, since acquired concessions are amortized
over the same twenty year period as goodwill, there is no effect on U.S. GAAP
net income or stockholders' equity.
D) INVESTMENT IN PROJECT 450
Under Mexican GAAP amounts of capital expenditures, the related finance
costs and pre-operating costs related to the Project 450 have been capitalized.
Under U.S. GAAP the amount of these pre-operating costs that meet the
definition of deferred start up costs would be expensed as incurred.
F-34
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
E) 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) EARNINGS (LOSS) PER SHARE
Until 1997, there was no requirement for the disclosure of earnings per
share ("EPS") under Mexican GAAP. Under U.S. GAAP, disclosure of earnings per
share is required for public companies. Accordingly, EPS has been computed for
the years ended December 31, 1994, 1995 and 1996, based on the weighted average
number of common shares outstanding during such periods.
G) 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.
H) EXTRAORDINARY ITEM
In the financial statements prepared in accordance with Mexican GAAP amounts
of Ps.145,192 relating to restructuring charges have been classified as an
extraordinary item. Under U.S. GAAP such amounts would be classified as
operating expenses.
F-35
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
I) 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------------- --------------- ---------------
Net loss as reported under Mexican GAAP....................... (Ps. 701,077) (Ps. 769,246) (Ps. 363,263)
Deferred income taxes......................................... 59,380 242,148 179,675
Income tax benefit of stock issuance costs, recorded in
capital..................................................... (53,613) -- --
Deferred profit sharing....................................... 14,014 -- --
Capitalized interest expense.................................. (5,447) --
Project 450 investment........................................ -- -- (64,106)
Gain on net monetary position................................. 1,660 163,856 105,957
--------------- --------------- ---------------
Net loss under U.S. GAAP...................................... (Ps. 685,083) (Ps. 363,242) (Ps. 141,737)
=============== =============== ===============
Weighted average number of shares outstanding (thousands)... 945,711 981,624 981,624
=============== =============== ===============
Net loss per share (in Mexican pesos)....................... (Ps. 0.72) (Ps. 0.37) (Ps. 0.14)
=============== =============== ===============
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Stockholders' equity as reported under Mexican GAAP........... Ps. 5,613,280 Ps. 4,387,972 Ps. 3,333,906
Minority interest........................................... (7,245) 25,622 (5,563)
Capitalized interest expense................................ 71,785 -- --
Deferred income taxes....................................... (244,350) (702,430) (251,726)
Project 450 investment...................................... -- -- (64,106)
--------------- --------------- ---------------
Stockholders' equity as reported under U.S. GAAP............ Ps. 5,433,470 Ps. 3,711,164 Ps. 3,012,511
=============== =============== ===============
</TABLE>
In 1994 the income tax benefit of Ps. 53,613 relating to stock issuance
costs, included in the above reconciliation of net loss to U.S. GAAP, would be
recorded directly in the capital contributions account in stockholders' equity
under U.S. GAAP.
J) 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.
F-36
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------------- ------------- -------------
Operating activities:
Net loss under U.S. GAAP.......................................... (Ps. 685,083) (Ps. 363,242) (Ps. 141,737)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation.................................................. 171,036 292,812 304,200
Amortization.................................................. 417,628 382,101 300,402
Equity in loss (earnings) of associated companies........... (3,098) 39,141 5,994
Increase in allowance for doubtful accounts..................... 75,378 82,576 70,909
Increase in allowance for obsolete and slow-moving
inventories................................................... 33,553 52,176 4,109
Minority interest............................................... (45) (37,029) (3,179)
Deferred income taxes and employee profit sharing............... (19,781) (242,148) (179,675)
Gain (loss) on net monetary position and foreign exchange
losses........................................................ 472,986 (665,391) (608,533)
Group reorganization reserve.................................... -- -- 145,192
Other........................................................... 18,871 -- --
Changes in operating assets and liabilities:
Accounts receivable............................................. (119,488) 7,354 (86,829)
Inventories..................................................... (145,628) (4,484) 52,117
Trade accounts payable and related parties...................... 594,967 489,536 (67,425)
Taxes and other payable......................................... (20,807) 205,372 127,717
Income tax...................................................... 300 395 5,061
Other........................................................... (3,584) 186 61
--------------- ------------- -------------
Net cash provided by (used in) operating activities............... 787,205 239,355 (71,616)
--------------- ------------- -------------
Financing activities:
Proceeds from notes payable and long-term debt.................. 567,640 1,710,543 138,284
Payments of notes payable and long-term debt.................... (1,525,241) (1,177,836) (275,089)
Proceeds from issuance of capital stock
net of issuance costs......................................... 1,614,029 -- --
--------------- ------------- -------------
Total cash provided by (used in) financing activities............. 656,428 532,707 (136,805)
--------------- ------------- -------------
Investing activities:
Purchase of property and equipment, net......................... (Ps. 1,136,754) (Ps. 471,262) (Ps. 211,247)
Acquisition of Regions and investment in associated companies,
net of cash acquired.......................................... (153,786) (51,305) 21,074
Purchase of other assets........................................ (611,773) (328,754) 317,242
--------------- ------------- -------------
Total cash (used in) provided by investing activities............. (1,902,313) (851,321) 127,069
--------------- ------------- -------------
</TABLE>
F-37
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1994 1995 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Net decrease in cash and cash equivalents......................... Ps. (458,680) Ps. (79,259) Ps. (81,352)
Cash and cash equivalents investments at beginning of year........ 716,041 257,361 178,102
--------------- ------------- -------------
Cash and cash equivalents investments at end of year.............. Ps. 257,361 Ps. 178,102 Ps. 96,750
=============== ============= =============
Interest expense paid............................................. Ps. 145,271 Ps. 138,874 Ps. 164,430
=============== ============= =============
Income tax paid................................................... Ps. 29,185 Ps. 22,518 Ps. 31,592
=============== ============= =============
</TABLE>
Supplemental disclosure of non-cash activities:
As detailed in Note 2, the sale of the investment in Iusatel Chile and the
increase in the participation in the equity of Rentacell, are non-cash
operations.
(2) Deferred income taxes
(i) The charge for income taxes for the years ended December 31, 1994, 1995
and 1996 was as follows
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1994 1995 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Current Income Tax................................................ Ps. 53,613 Ps. -- Ps. --
Asset tax not offset by current taxes............................. 32,462 29,093 35,199
Deferred taxes.................................................... (59,380) (242,148) (179,675)
--------------- ------------- -------------
Total............................................................. Ps. 26,695 Ps.(213,055) Ps.(144,476)
=============== ============= =============
</TABLE>
(ii) Significant components of deferred income taxes under U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1995 1996
-------------- ------------------------------------------------
SFAS 109 applied SFAS 109 applied
to Mexican GAAP to US GAAP Total
balances adjustments
---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Deferred liabilities:
Inventories.................................................. Ps. 55,304 Ps. 36,188 Ps. -- Ps. 36,188
Property and equipment....................................... 1,169,468 898,438 -- 898,438
Cellular telephones to be amortized.......................... 88,476 32,273 -- 32,273
Concessions.................................................. 37,531 11,068 -- 11,068
-------------- ------------ -------------- ------------
Total deferred tax liabilities................................. 1,350,779 977,967 -- 977,967
============== ============ ============== ============
Deferred assets:
Allowance for doubtful accounts.............................. Ps. 39,117 Ps. 33,656 Ps. -- Ps. 33,656
Net operating loss and tax credit carryforward............... 684,757 696,743 -- 696,743
Group reorganization reserve................................. -- 49,365 -- 49,365
Preoperating expenses........................................ -- -- 21,796 21,796
Allowance for deferred tax assets............................ (75,526) (53,526) (21,796) (75,322)
-------------- ------------ -------------- ------------
Total deferred tax assets...................................... 648,348 726,238 -- 726,238
============== ============ ============== ============
Net Deferred tax liabilities................................... Ps. 702,431 Ps. 251,729 Ps. -- Ps. 251,729
============== ============ ============== ============
</TABLE>
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. 192,550, Ps. 664,365 and (Ps. 271,029) for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-38
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
The Company has recorded a deferred tax asset of Ps. 726,240 reflecting the
benefit of tax loss carryforwards (see paragraph 2 above), which expire in
varying amounts between 2001 and 2006. 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 deferred tax asset will be realized. However, 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.
3) 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, 1995 and
1996.
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value.
Notes payable: The carrying amount approximates fair value because of the
relatively short period of time between the origin of the obligations and their
expected settlement.
Management believes that the fair value of the Company's long-term debt
is not materially different to its carrying value due to the fact that:
(i) Most of the Company's long-term debt is at variable interest
rates.
(ii) The fixed rate debt is at interest rates which are not
materially different from market rates.
Consequently the carrying values and the fair values of the Company's
long-term debt are as follows:
<TABLE>
<CAPTION>
1995 1996
----------------------------- -----------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Ps. 973,397 Ps. 973,397 Ps. 660,281 Ps. 660,281
============== ============ ============== ============
</TABLE>
4) Economic environment
The Company is a Mexican corporation with substantially all its operations
situated in Mexico and approximately 99.5% of its revenues in 1996 resulted from
sales 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 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 handsets, cellular sites and
other telecommunication equipment, while their pricing and receivable are quoted
and stated in Mexican pesos.
F-39
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
19. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
5) Disclosure of certain significant risks and uncertainties
The carrying values of the Company's property, plant and equipment are
dependent on the assumption that these assets will continue to be used in the
operations of the Company.
The Company is currently:
i) Planning to introduce digital CDMA technology into its
communications system. The extent to which the current communication
equipment of the Company will become obsolete will depend on the extent to
which digital technology is introduced and the compatibility of the choice
of the digital technology with the Company's existing technology. As yet the
Company has not made a decision regarding the extent of the digital roll out
nor the choice of the equipment supplier.
ii) Exploring alternatives to Project 450 in the provision of local
telephony services. The Company has not made a decision whether to continue
Project 450 or to pursue alternatives and accordingly, is continuing its
trial program to provide local wireless service in the 450 MHz frequency
band.
Based on any such decisions, it is reasonably possible that the estimated
useful lives of the Company's communication equipment will be reduced
significantly in the near term. As a result, the carrying amount of the
Company's communication equipment may be reduced materially in the near term.
The Financial Accounting Standards Board has issued several new pronouncements
that include the following:
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities after December 31, 1996, is not expected to have a material effect
on the financial position and results of operations of the Company due to the
absence of material transactions of this nature.
SFAS 128, "Earnings per Share", effective for financial statements issued for
periods ending after December 15, 1997, simplifies the calculation of earnings
per share by excluding the requirement to calculate common stock equivalents.
Additionally, a restatement of all previously reported earnings per share data
is required as well as a dual presentation of basic and diluted EPS for all
entities with complex capital structures. The new standard has no impact on
historically reported earnings per share by the Company.
SFAS No. 129, "Disclosure of Information about Capital Structure", effective for
fiscal years beginning after December 15, 1997, establishes guidelines for the
reporting and presentation of information about various securities outstanding
and requires disclosure of information about the liquidation preference of
preferred stock and the redemption requirements of all issues of capital stock
that are redeemable in each of the five years following the date of the latest
statement of financial position presented. This standard is not expected to have
a material effect on the disclosures in the financial statements due to the
absence of preferred stock and redeemable capital stock.
SFAS 130, "Reporting Comprehensive Income", effective for fiscal years beginning
after December 15, 1997, 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. It 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; it does not
address issues of recognition or measurement. The Company is currently assessing
the impact of adoption of this standard on its financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", effective for fiscal years beginning after December 15, 1997,
establishes guidelines for the way that public enterprises report information
about operating segments in financial statements. This statement also
established guidelines for related disclosures about products and services,
geographic areas, and major customers. The Company is currently assessing the
impact of adoption of this standard on its financial statements.
20. CONDENSED CONSOLIDATED INFORMATION
In June 1997, the Company is considering issuing U.S.$125,000 of senior
unsecured notes (the "Notes") as part of its refinancing program. The Notes will
be guaranteed on a senior subordinated, unsecured basis pursuant to guarantees
by most of the Company's subsidiaries both directly and indirectly wholly-owned.
The following condensed consolidating information presents:
1. The Parent Company with its investments in subsidiaries accounted for on
the equity method.
2. Condensed combined balance sheet as of December 31, 1996 and condensed
combined statement of income for the year then ended, for the guarantor
subsidiaries.
3. Condensed combined balance sheet as of December 31, 1996 and condensed
combined statement of income for the year then ended, for the non-guarantor
subsidiaries.
4. Elimination entries necessary to consolidate the Parent Company and all
of its subsidiaries.
The condensed information does not include the cash flow statements, since
the non-guarantor subsidiaries are immaterial for this effect.
The condensed information of 1994 and 1995 is not presented since the
non-guarantor subsidiaries were inconsequential in those years.
F-40
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
<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. 78,358 Ps. 11,169 Ps. 4,968 Ps. 2,255 Ps. 96,750
Accounts receivable:
Trade.......................... -- 137,144 24,272 (21,057) 140,359
Related parties................ 220,826 125,583 -- (338,887) 7,522
Recoverable taxes and other.... 12,952 94,919 46,961 (68,829) 86,003
------------- ------------- -------------- -------------- -------------
312,136 368,815 76,201 (426,518) 330,634
Inventories...................... 10,161 63,094 27,835 5,347 106,437
------------- ------------- -------------- -------------- -------------
Total current assets............. 322,297 431,909 104,036 (421,171) 437,071
------------- ------------- -------------- -------------- -------------
Investment in associated
companies...................... 1,440,304 24,028 -- (1,370,816) 93,516
Property and Equipment, net...... 1,724,593 1,095,194 496,528 (8,897) 3,307,418
Other assets..................... 37,992 263,426 360,835 (1,490) 660,763
Excess of investment cost over
book value 1,441,336 20,885 -- 55 1,462,276
------------- ------------- -------------- -------------- -------------
Total assets..................... Ps. 4,966,522 Ps. 1,835,442 Ps. 961,399 Ps. (1,802,319) Ps. 5,961,044
============= ============= ============== ============== =============
LIABILITIES
Current Liabilities:
Notes payable.................... Ps. 744,428 Ps. 55,574 Ps. -- Ps. (55,574) Ps. 744,428
Current portion of long-term
debt........................... 56,758 -- -- 55,574 112,332
Trade accounts payable........... 306,545 122,079 34,843 (1,879) 461,588
Related parties.................. -- -- 712,946 (338,885) 374,061
Taxes and other payable.......... 172,971 272,879 19,399 (97,319) 367,930
Income tax....................... 6,228 85 194 -- 6,507
------------- ------------- -------------- -------------- -------------
Total current liabilities........ 1,286,930 450,617 767,382 (438,083) 2,066,846
------------- ------------- -------------- -------------- -------------
Long-term debt................... 340,921 207,028 -- -- 547,949
Trade accounts payable, long-
term........................... 10,328 -- -- -- 10,328
Commitments and contingencies.... -- 1,918 42 55 2,015
------------- ------------- -------------- -------------- -------------
Total liabilities................ 1,638,179 659,563 767,424 (438,028) 2,627,138
------------- ------------- -------------- -------------- -------------
Stockholders' equity:
Capital contributions............ 5,285,077 2,583,684 295,461 (2,879,145) 5,285,077
Earned capital................... (1,956,734) (1,407,805) (101,486) 1,509,291 (1,956,734)
Minority interest................ -- -- -- 5,563 5,563
------------- ------------- -------------- -------------- -------------
Total stockholders' equity....... 3,328,343 1,175,879 193,975 (1,364,291) 3,333,906
------------- ------------- -------------- -------------- -------------
Total liabilities and
stockholders' equity........... Ps. 4,966,522 Ps. 1,835,442 Ps. 961,399 Ps. (1,802,319) Ps. 5,961,044
============= ============= ============== ============== =============
Total stockholders' equity
under Mexican GAAP............. Ps. 3,328,343 Ps. 1,175,879 Ps. 193,975 Ps. (1,364,291) Ps. 3,333,906
Minority interest................ (5,563) (5,563)
Deferred income taxes............ (141,592) (46,530) (64,764) 1,160 (251,726)
Project 450 investment........... (64,106) (64,106)
------------- ------------- -------------- -------------- -------------
Total stockholders' equity
under US GAAP.................. Ps. 3,186,751 Ps. 1,065,243 Ps. 129,211 Ps. (1,368,694) Ps. 3,012,511
============= ============= ============== ============== =============
</TABLE>
F-41
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1994, 1995 AND 1996
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND THOUSANDS OF U.S. DOLLARS)
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. 311,997 Ps. 2,398,900 Ps. 90,870 Ps. (1,101,629) Ps. 1,700,138
Total cost of sales............ 5,436 1,073,409 67,059 (477,516) 668,388
-------------------------------------------------------------------------------
Gross profit................. 306,561 1,325,491 23,811 (624,113) 1,031,750
Operating expenses............. 66,627 1,177,328 42,555 (549,963) 736,547
Depreciation and
amortization................. 246,343 357,121 1,403 (265) 604,602
------------- -------------- -------------- --------------- --------------
Operating loss............... (6,409) (208,958) (20,147) (73,885) (309,399)
------------- -------------- -------------- --------------- --------------
Integral financing cost:
Interest expense, net........ 106,308 30,751 82,551 61,457 281,067
Foreign exchange loss, net..... (59,835) (1,052) (1,228) (62,115)
Gain from monetary position.... (151,257) (57,127) (81,580) (58,329) (348,293)
------------- -------------- -------------- --------------- --------------
(104,784) (27,428) (257) 3,128 (129,341)
------------- -------------- -------------- --------------- --------------
Equity participation in net
income (loss) of associated
companies.................... 300,964 -- -- (294,971) 5,993
Provisions for:
Assets tax................... 20,918 50,869 (177) (36,411) 35,199
Employee profit sharing...... -- -- -- -- --
------------- -------------- -------------- --------------- --------------
20,918 50,869 (177) (35,411) 35,199
------------- -------------- -------------- --------------- --------------
Minority interest.............. -- (2,770) -- (409) (3,179)
------------- -------------- -------------- --------------- --------------
Extraordinary item............. 139,756 5,436 -- -- 145,192
Net loss for the year.......... Ps. (363,263) Ps. (235,065) Ps. (19,713) Ps. 254,778 Ps. (363,263)
============= ============== ============== =============== ==============
Net loss for the year
under Mexican GAAP........... Ps. (363,263) Ps. (235,065) Ps. (19,713) Ps. 254,778 Ps. (363,263)
Deferred income taxes.......... 83,354 96,321 179,675
Project 450 investment......... (64,106) (64,106)
Gain on net monetary position.. (141,517) 247,474 105,957
------------- -------------- -------------- --------------- --------------
Net gain (loss) for the year
under US GAAP................ Ps. (421,426) Ps. 44,624 Ps. (19,713) Ps. 254,778 Ps. (141,737)
============= ============== ============== =============== ==============
</TABLE>
F-42
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated financial statements of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of March 31, 1997 and 1996, and for
the three-month periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with generally accepted auditing standards
in Mexico, which are not significantly different than U.S. auditing standards. A
review of interim financial information consists principally of applying
analytical procedures to financial data and making inquires 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 financial statements for them to be in
conformity with generally accepted accounting principles.
Coopers & Lybrand
Despacho Roberto Casas Alatriste
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D.F. Mexico
April 18, 1997
F-43
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents.................................................................. Ps. 178,959 Ps. 57,950
Accounts receivable:
Trade, net of Ps.127,519 and Ps.99,171 of allowance for doubtful accounts (Note 4.d)..... 205,199 144,501
Related parties (Note 5)................................................................. 32,201 8,946
Recoverable taxes and other.............................................................. 55,782 148,600
------------- -------------
293,182 302,047
------------- -------------
Inventories (Note 6)....................................................................... 124,136 71,759
------------- -------------
Total current assets................................................................... 596,277 431,756
INVESTMENT IN ASSOCIATED COMPANIES (Note 7).................................................. 73,730 94,931
PROPERTY AND EQUIPMENT, net (Note 8)......................................................... 3,912,568 3,353,392
OTHER ASSETS, net (Note 9)................................................................... 680,065 705,131
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES OVER BOOK VALUE, net of accumulated
amortization of Ps.138,436 in 1996 and Ps.185,869 in 1997 (Note 4.i)....................... 1,519,405 1,433,662
------------- -------------
Total assets........................................................................... Ps.6,782,045 Ps.6,018,872
============= ============
LIABILITIES
CURRENT:
Notes payable (Note 10).................................................................... Ps. 813,945 Ps. 793,353
Current portion of long-term debt (Note 10)................................................ 126,892 105,907
Trade accounts payable (Note 11)........................................................... 688,130 256,709
Related parties (Note 5)................................................................... 77,745 119,536
Taxes and other payables................................................................... 233,583 371,286
Income tax (Note 12)....................................................................... 3,370 17,071
Employee profit sharing (Note 12).......................................................... 902 124
------------- -------------
Total current liabilities................................................................ 1,944,567 1,663,986
------------- -------------
LONG-TERM DEBT (Note 10)..................................................................... 727,650 506,272
TRADE ACCOUNTS PAYABLE, LONG TERM (Note 11).................................................. 4,061 8,300
COMMITMENTS AND CONTINGENCIES (Notes 4.k and 13)............................................. 1,979 2,123
------------- -------------
Total liabilities........................................................................ 2,678,257 2,180,681
------------- -------------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Note 14):
Capital stock:
Nominal.................................................................................... 2,356,153 2,937,742
Restatement................................................................................ 2,872,580 2,873,013
------------- -------------
5,228,733 5,810,755
------------- -------------
Capital contributed:
Nominal.................................................................................... 18,655 18,655
Restatement................................................................................ 37,689 37,689
------------- -------------
56,344 56,344
------------- -------------
5,285,077 5,867,099
------------- -------------
EARNED CAPITAL (Note 15):
Accumulated losses:
Legal reserve.............................................................................. 3,080 3,080
For prior years............................................................................ (1,095,439) (1,458,702)
For the year............................................................................... 105,915 (32,249)
------------- -------------
(986,444) (1,487,871)
Excess (deficit) from restatement.......................................................... (165,958) (546,148)
------------- -------------
Total majority stockholders' equity...................................................... 4,132,675 3,833,080
MINORITY INTEREST............................................................................ (28,887) 5,111
------------- -------------
Total stockholders' equity............................................................. 4,103,788 3,838,191
------------- -------------
Total liabilities and stockholders' equity............................................. Ps.6,782,045 Ps.6,018,872
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-44
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31,1997)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
REVENUES
Services........................................................................ Ps. 398,599 Ps. 318,766
Telephone equipment and other revenues.......................................... 53,918 51,474
------------- -------------
452,517 370,240
------------- -------------
COST OF SALES
Cost of services................................................................ 131,148 103,645
Cost of telephone equipment and other........................................... 20,249 28,317
------------- -------------
151,397 131,962
------------- -------------
Gross profit.................................................................. 301,120 238,278
OPERATING EXPENSES................................................................ 176,776 167,295
DEPRECIATION AND AMORTIZATION (Notes 4.h
and 8).......................................................................... 157,933 132,883
------------- -------------
Operating loss................................................................ (33,589) (61,900)
------------- -------------
INTEGRAL FINANCING (GAIN) (Notes 4.b and 16)
Interest expense, net........................................................... 73,035 54,810
Foreign exchange (gain) loss, net............................................... (49,822) 16,890
Gain on net monetary position................................................... (167,075) (111,600)
------------- -------------
(143,862) (39,900)
------------- -------------
EQUITY PARTICIPATION IN NET LOSS (INCOME) OF ASSOCIATED COMPANIES (Note 7)........ 72 (331)
------------- -------------
Income (loss) from continuing operations before assets tax, employee profit
sharing, and minority interest................................................ 110,201 (21,669)
------------- -------------
PROVISIONS FOR (Note 12)
Assets tax...................................................................... 8,109 10,822
Employee profit sharing......................................................... 32 --
------------- -------------
8,141 10,822
------------- -------------
Income (loss) before minority interest........................................ 102,060 (32,491)
MINORITY INTEREST................................................................. 3,855 (242)
------------- -------------
Net income (loss) for the year.................................................. Ps. 105,915 (Ps. 32,249)
============= =============
Weighted Average number of shares outstanding (thousands)......................... 981,624 1,035,094
============= =============
Net earnings (loss) per share (in pesos).......................................... Ps 0.11 Ps (0.03)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-45
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
1994, 1995 AND 1996 AND THE THREE
MONTH PERIOD ENDED MARCH 31, 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF
CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
ACCUMULATED LOSSES
CAPITAL ----------------------------------------- (DEFICIT)
STOCK CAPITAL LEGAL FOR THE PRIOR EXCESS FROM
SUBSCRIBED CONTRIBUTIONS RESERVE YEAR YEARS RESTATEMENT
-------------- -------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......... Ps.3,562,076 Ps.56,344 Ps.3,080 Ps.(205,078) Ps.579,962 Ps.85,019
Application of 1993 net loss.......... 205,078 (205,078)
Sale of capital stock................. 1,824,341
Costs of stock issuance............... (157,684)
Recognition of the effects of
inflation on the financial
statements.......................... 559,051
Minority interest for the year........
Net loss for the year................. (701,077)
Balance at December 31, 1994.......... 5,228,733 56,344 3,080 (701,077) 374,884 644,070
-------------- ------------- --------- ------------- -------------- -------------
Application of 1994 net loss.......... 701,077 (701,077)
Recognition of the effects of
inflation on the financial
statements.......................... (423,194)
Minority interest for the year........
Net loss for the year................. (769,246)
Balance at December 31, 1995.......... 5,228,733 56,344 3,080 (769,246) (326,193) 220,876
-------------- ------------- --------- ------------- -------------- -------------
Application of 1995 net loss.......... 769,746 (769,246)
Recognition of the effects of
inflation on the financial
statements.......................... (721,988)
Minority interest for the year........
Net loss for the year................. (363,263)
Balance at December 31, 1996.......... 5,228,733 56,344 3,080 (363,263) (1,095,439) (501,112)
-------------- ------------- --------- ------------- -------------- -------------
Application of 1996 net loss.......... 363,263 (363,263)
Increase of capital stock............. 582,022
Recognition of the effects of
inflation on the financial
statements.......................... (45,036)
Minority interest for the period......
Net loss for the period............... (32,249)
Balance at March 31, 1997............. Ps.5,810,755 Ps.56,344 Ps.3,080 Ps.(32,249) Ps.(1,458,702) Ps.(546,148)
============== ============= ========= ============= ============== =============
<CAPTION>
TOTAL
MINORITY STOCKHOLDERS'
INTEREST EQUITY
----------- --------------
<S> <C> <C>
Balance at December 31, 1993.......... Ps.11,338 Ps.4,092,741
Application of 1993 net loss.......... --
Sale of capital stock................. 1,824,341
Costs of stock issuance............... (157,684)
Recognition of the effects of
inflation on the financial
statements.......................... 559,051
Minority interest for the year........ (4,092) (4,092)
Net loss for the year................. (701,077)
--
Balance at December 31, 1994.......... 7,246 5,613,280
----------- -------------
Application of 1994 net loss.......... --
Recognition of the effects of
inflation on the financial
statements.......................... (423,194)
Minority interest for the year........ (32,868) (32,868)
Net loss for the year................. (769,246)
Balance at December 31, 1995.......... (25,622) 4,387,972
----------- -------------
Application of 1995 net loss.......... --
Recognition of the effects of
inflation on the financial
statements.......................... (721,988)
Minority interest for the year........ 31,185 31,185
Net loss for the year................. (361,263)
Balance at December 31, 1996.......... 5,563 3,333,906
----------- -------------
Application of 1996 net loss.......... --
Increase of capital stock............. 582,022
Recognition of the effects of
inflation on the financial
statements.......................... (45,036)
Minority interest for the period...... (452) (452)
Net loss for the period............... (32,249)
Balance at March 31, 1997............. 5,111 Ps.3,838,191
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-46
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1997
(NOTES 1, 2, 3 AND 4)
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS OF
CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) for the year.................................................... Ps.105,915 Ps. (32,249)
Items not requiring the use of resources:
Depreciation and amortization................................................. 157,933 132,883
Equity participation in net loss (income) of associated companies............. 72 (331)
Minority interest............................................................. (3,855) (242)
------------- -------------
260,065 100,061
------------- -------------
Resources provided by (used in) operating activities:
Trade accounts receivable....................................................... (26,912) (4,907)
Related parties................................................................. 7,967 (253,952)
Recoverable taxes and other..................................................... 4,760 (63,065)
Inventories..................................................................... 38,206 34,098
Trade accounts payable.......................................................... (197,557) (204,335)
Taxes and other payable......................................................... (37,362) 5,493
Income tax...................................................................... 2,136 10,600
Employees profit sharing........................................................ 563 (7)
Other........................................................................... 27 119
------------- -------------
Resources provided by (used in) operating activities.......................... 51,893 (375,895)
------------- -------------
FINANCING ACTIVITIES:
(Payments of) proceeds from long-term debt...................................... Ps.(83,456) Ps. 236,173
Principal payments on long-term debt............................................ (33,490) (280,678)
Net change in notes payable..................................................... 128,760 52,550
Increase of capital stock....................................................... -- 582,022
------------- -------------
Resources provided by financing activities.................................... 11,814 590,067
------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment.............................................. (13,222) (31,608)
Sale (acquisition) of common stock of associated companies...................... 12,247 (1,594)
Disposal (purchase) of other assets............................................. (62,430) (219,064)
Minority interest............................................................... 540 (179)
------------- -------------
Resources used in investing activities........................................ (62,865) (252,445)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. 842 (38,273)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................. 178,117 96,223
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ Ps.178,959 Ps. 57,950
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-47
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
1. ENTITY AND NATURE OF BUSINESS
Grupo Iusacell, S.A. de C.V. (the "Company") is a holding Company which was
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 proximate market areas ("Regions") in Mexico. In
October 1995, the Company received a Concession from the Mexican Government to
operate as a long distance carrier and started its operations in this market on
August 11, 1996. During 1996, the Company signed a joint venture agreement for
the operation of nationwide and international paging services. The Company
started to provide paging services in August, 1996.
The Peralta Family and Bell Atlantic Corporation ("Bell Atlantic") hold
substantial ownership interests (direct or indirect) in the Company.
On November 26, 1996, the Company's shareholders announced that they signed
an agreement in principle to change the management control of Grupo Iusacell,
S.A. de C.V., from the Peralta Family to Bell Atlantic, subject to certain
Mexican Government approvals. Bell Atlantic assumed such management control on
February 18, 1997. (See Note 14.)
The Company and its subsidiaries are referred to collectively herein as the
"Group" or "Grupo Iusacell".
2. ACQUISITIONS AND GROUP REORGANIZATION
ACQUISITION OF REGION 6 AND 7
In 1993, the Company obtained ownership of Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V. ("Portacel") and Telecomunicaciones del Golfo, S.A. de
C.V. ("Telgolfo"). Portacel and Telgolfo hold the non-wireline cellular
concessions for Region 6 and Region 7, respectively.
The cost incurred in 1993 to acquire control of Portacel and Telgolfo
amounted to Ps.845,939, of which Ps.721,656 represented the excess of investment
cost over the book value.
In February 1994 the Company purchased the remaining minority ownership
interest of Telgolfo for Ps.51,560, of which Ps.47,993 represented the excess of
investment cost over the book value.
ACQUISITION OF REGION 5
In 1993, the Company acquired 67% of Hermes Telecomunicaciones, S.A. de C.V.
("Hermes"), a company that owns 51% of Comunicaciones Celulares de Occidente,
S.A. de C.V. ("Comcel"). Comcel holds the non-wireline cellular concession for
Region 5. The Company could not exercise significant influence over Comcel as an
arbitration proceeding was initiated by a minority shareholder of Comcel.
Although this arbitration was settled in November 1993, the settlement agreement
provided for a stand-still arrangement until January 3, 1994. The expenses
related to the arbitration were charged to excess of cost of investment in
subsidiaries over book value in 1994. Accordingly, the Company's investment in
Comcel was accounted for using the cost basis of accounting from the date of
acquisition through December 31, 1993. In December 1993, the Company reached an
agreement to purchase the remaining interests in both Comcel and Hermes. The
Company's cost of acquiring Comcel and Hermes totaled Ps.1,104,622, of which
Ps.895,515 represented the excess of investment cost over book value.
F-48
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
OTHER ACQUISITIONS
In 1994, the Company acquired 51% of Telecomunicaciones Digitales
Internacionales, S.A. de C.V. (now Iusatel Chile, S.A. de C.V.). The Company
purchased this ownership interest for Ps.30,319, which was the book value of the
shares acquired. During 1996, the Company increased its ownership in Iusatel
Chile, S.A. de C.V. from 51% to 100% through the capitalization of certain
liabilities and the payment of U.S.$100 to the minority shareholders. In
December 1996, the Company sold its debt and equity in Iusatel Chile, S.A. de
C.V. for U.S.$5,000. Payment was received in the form of three promissory notes
which mature between March and July 1997.
In August 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. The cost to acquire this interest was Ps.32,680, of
which Ps.23,150 represented the excess of investment cost over book value. In
March 1995, the Company increased its ownership interest in Telecel through a
capital contribution of Ps.767. Through this contribution, the Company increased
its ownership in Telecel from 63.25% to 70.14%.
On December 13, 1994, Iusacell, S.A. de C.V. (subsidiary company) acquired
99.99% of Inmobiliaria Montes Urales 460, S.A. de C.V. The cost was Ps.70,591,
of which Ps.13,264 represented the excess of cost of investment over book value.
In August 1995, the Company acquired from a related party 100% of Iusatel,
S.A. de C.V. Starting August 11, 1996 this company began to provide national and
international long distance basic telephone pursuant to a concession received
from the Mexican Government in October 1995.
In August 1995, the Company incorporated as a new subsidiary, Grupo Iusacell
de Nicaragua, S.A..This company holds the shares of a company named Radio
Telefonia Rural de Nicaragua, S.A. which in July 1995 entered into a joint
venture agreement with the Nicaraguan Telecommunications Ministry for the
provision of fixed wireless local telephone services. In May 1996, the
Nicaraguan Telecommunications Ministry revoked the agreement. As of December 31,
1996, the Company has not made any investment in this project and has no
commitments for any such investments.
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, S.A. de C.V., which is owned 51% and 49% by the Company
and Infomin, respectively. The Company committed to contribute up to
U.S.$10,500; as of December 31, 1996 the Company has invested U.S.$3,300 in the
joint-venture.
In January 1996, the Company increased its ownership in Rentacell, S.A. de
C.V. from 33.33% to 70%. As of December 31, 1995 the investment in Rentacell,
S.A. de C.V. was accounted for using the equity method. Starting January 1996,
the Company consolidated the assets, liabilities and operating results of this
subsidiary which rents cellular phones.
In December 1996, the Company increased its ownership in Promotora Celular,
S.A. de C.V. from 75% to 100% through the capitalization of certain liabilities.
F-49
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
GROUP REORGANIZATION
In late 1995 and during 1996, the Company's subsidiaries were reorganized.
This reorganization consisted of the following operations:
At an extraordinary stockholders' meeting held on December 29, 1995, the
subsidiaries, Telcom Celular, S.A. de C.V. (Region 7) and Portacom, S.A. de C.V.
(Region 6) were merged with and into Iusacell, S.A. de C.V. This merger was made
based on the financial statements of the three companies as of December 31,
1995.
At an extraordinary stockholders' meeting held on December 29, 1995,
Servicios Corporativos Iusacell, S.A. de C.V. was merged with and into Sistecel,
S.A. de C.V. This merger was made based on the financial statements of both
companies as of December 31, 1995.
At an extraordinary stockholders' meeting held on December 31, 1996, the
respective stockholders of Hermes Telecomunicaciones, S.A. de C.V., 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 will not perform any
transactions except for those necessary to wind-up their pending businesses.
F-50
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
2. ACQUISITIONS AND GROUP REORGANIZATION (CONTINUED)
SUMMARY
The subsidiary companies which are included within the consolidated
financial statements are as follows (directly or indirectly):
<TABLE>
<CAPTION>
OWNERSHIP AS OF
MARCH 31,
------------------------
<S> <C> <C>
SUBSIDIARY 1996 1997
- ----------------------------------------------------------------------------------- ----- -----
S.O.S. Telecomunicaciones, S.A. de C.V............................................. 100% 100%
Iusacell, S.A. de C.V.............................................................. 100% 100%
Sistecel, S.A. de C.V.............................................................. 100% 100%
Satelitron, S.A. de C.V............................................................ 51% 51%
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%
Telecomunicaciones del Golfo, S.A. de C.V.......................................... 100% 100%
Inflight Phone de Mexico, S.A. de C.V.............................................. 100% 100%
GMD Comunicaciones, S.A. de C.V.................................................... 100% 100%
Hermes Telecomunicaciones, S.A. de C.V............................................. 100% 100%
Inmobiliaria Montes Urales 460, S.A. de C.V........................................ 100% 100%
Portaserv, S.A. de C.V............................................................. 100% 100%
Mexican Cellular Investments, Inc.................................................. 100% 100%
Iusanet, S.A. de C.V............................................................... 100% 100%
Iusatel Chile, S.A. de C.V......................................................... 51% --
Compania Colombiana de Telefonia Celular, S.A...................................... 70% 70%
Promotora Celular, S.A. de C.V..................................................... 75% 100%
Cellular Solutions de Mexico, S.A. de C.V.......................................... 68% 68%
Iusatelecomunicaciones, S.A. de C.V................................................ 100% 100%
Iusatel, S.A. de C.V............................................................... 100% 100%
Grupo Iusacell Nicaragua, S.A...................................................... 100% 100%
Infotelecom, S.A. de C.V........................................................... -- 51%
Rentacell, S.A. de C.V............................................................. 33% 70%
</TABLE>
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 for the two periods have been
presented in thousands of constant Mexican pesos as of March 31, 1997 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 March 31, 1996, presented in the financial statements and
in the notes have been restated based on the 1996 inflation rate in order to
present them in Mexican pesos of purchasing power as of March 31, 1997.
F-51
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
3. BASIS OF PRESENTATION (CONTINUED)
In management's opinion, the interim consolidated financial statements as of
March 31, 1996 and 1997 include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results for such an
interim period. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted; however, the Company believes that the
disclosures made are adequate to make the information presented not misleading.
The Unaudited Consolidated Financial Statements as of March 31, 1996 and
1997 and for the three-month periods then ended, have been prepared in
accordance with Mexican GAAP. Significant differences between Mexican and U.S.
GAAP are described in note 19 to the Audited Consolidated Financial Statements
included elsewhere herein. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations--U.S. GAAP Reconciliation". As of
March 31, 1996 and 1997, and for the three-month periods then ended, there are
no significant variations that are not quantified with respect to their
occurrence in the Audited Consolidated Financial Statements as of December 31,
1994, 1995, and 1996.
B) CONSOLIDATED FINANCIAL STATEMENTS
Those companies in which the Group holds 50% or more of the capital stock
and exercises control over operating and financing activities are included in
the consolidated financial statements.
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
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 statements are presented in Mexican pesos, the currency that, based on
the Mexican laws, must be used to prepare the accounting records of the Company
and of its Mexican subsidiaries. All amounts presented in the 1996 and 1997
consolidated financial statements are expressed in thousands of Mexican pesos.
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 and thereafter, requires the
restatement of all comparative financial statements to constant Mexican pesos as
F-52
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
of the date of the most recent balance sheet presented. Accordingly, the
consolidated financial statements have been restated as follows:
- Consolidated income statements for the current and prior year have been
restated to constant Mexican pesos as of March 31, 1997 using the NCPI
(National Consumer Price Index), published by Banco de Mexico (The
Mexican Central Bank) from the periods in which the transactions (income
and expenses) ocurred.
- Bulletin B-12, "Statement of Changes in Financial Information", issued by
the Mexican Institute of Public Accountants ("Bulletin B-12"), addresses
the appropriate presentation of the statement of changes in financial
position where financial statements have been restated to constant pesos
as of the latest balance sheet date. Bulletin B-12 identifies the
generation 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.
The items which 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 NPCI, without exceeding the net realizable
value.
Property and equipment other than real estate are stated at net replacement
cost. Real estate properties are stated at their fair market value. Net
replacement cost and fair market values were determined from appraisals
performed by independent appraisers registered with the Comision Nacional
Bancaria y de Valores (Mexican National Banking and Securities Commission). The
last appraisal is dated March 31, 1997.
Property and equipment are depreciated using the straight-line method, based
on the restated values. Useful lives are determined by independent appraisers.
The average annual rates used by the Company are as follows:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Buildings and facilities....................................................... 3% 3%
Communication equipment........................................................ 10% 9%
Furniture and fixtures......................................................... 8% 9%
Transportation equipment....................................................... 15% 17%
Computer equipment............................................................. 21% 21%
Cellular rental telephones..................................................... 49% 50%
</TABLE>
Investments in associated companies are accounted for using the equity
method based on the investees' equity adjusted for the effects of inflation in
accordance with Bulletin B-10.
Restatement of stockholders' equity:
The common stock and retained earnings 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 March 31, 1997.
F-53
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
The excess or deficit from restatement of capital 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 or below the increase attributable to
general inflation as measured by the NCPI.
Integral financing result:
Integral financing result comprises 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 currency
other than Mexican pesos result from fluctuations in exchange rates from the
date transactions are recorded to the time of settlement or valuation at the end
of the period.
Gains and losses from 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. Otherwise, if monetary liabilities are less
than monetary assets, there is a resulting loss from monetary position.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of short term, fixed rate
investments and bank deposits. 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 Company cancels service to those customers with invoices that are 60
days past due. Beginning in 1996, the Company began to fully reserve accounts
receivable that were 90 days past due. Prior to 1996, the Company fully reserved
accounts receivable over 120 days past due. The accumulated effect at the
beginning of the year for the change of this estimate was Ps.5,406 and such
amount is presented as part of the reorganization reserve. The charge to income
for the period, to increase the allowance for doubtful accounts, amounted to
Ps.21,503 and Ps.5,368, in 1996 and 1997, respectively.
E) INVESTMENT IN ASSOCIATED COMPANIES
Long-term investments in common stock of companies in which the Group owns
not less than 20% nor more than 50% of the entity's voting common stock and over
which the Company can exercise significant influence are accounted for using the
equity method. 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 their restatement of non-monetary assets.
Investments of less than 20% of an entity's voting common stock or over
which the Company can not exercise significant influence are stated at cost.
F) CELLULAR TELEPHONES
Cellular telephones given to customers through an exclusive service contract
are amortized over the initial contract period. The amortization is periodically
reviewed and adjusted if the customer does not
F-54
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
fulfill the original agreement. The cost of such telephones are included in
other assets, net of amortization.
The cost of cellular telephones sold to customers is recorded as a cost of
telephone equipment sold. Telephones leased to customers are included in fixed
assets and are depreciated over the initial contract period, generally two
years.
G) CONCESSIONS
Costs related to the acquisition of concessions issued 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
a twenty year period, which is the period of the concession. The Mexican
Government requires that the Company comply with the specific requirements of
each concession. The Company has substantially complied with such requirements
through March 31, 1997, except for certain informational requirements of the
authorities. The Company believes this does not expose the concessions to any
regulatory risk.
H) ADVERTISING
Prepaid media advertising costs are included in other assets in the
accompanying balance sheet. Such costs are expensed as incurred and are included
in current operating expenses. Advertising expenses amounted to Ps.26,670 and
Ps.36,730, for 1996 and 1997, 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.19,855 and Ps.20,269 in 1996 and 1997, respectively.
The carrying amount 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 Employee
Profit Sharing", issued by the Mexican Institute of Public Accountants
("Bulletin D-4"), under which deferred income taxes are provided 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 Company did not make a
provision for deferred taxes as of March 31, 1996 and 1997.
Employee profit sharing is a statutory labor obligation payable to employees
which is determined on the basis of each subsidiary's pre-tax income as adjusted
in accordance with the provisions of the Mexican Labor Law and the Mexican Tax
Law.
F-55
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
4. ACCOUNTING POLICIES (CONTINUED)
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.
Also, in accordance with Mexican Labor Law, the Company is liable for
severance payments to employees who are dismissed under certain circumstances.
Such compensation is recognized when paid.
The Company has no employee pension plans and does not provide any other
post retirement benefits.
L) REVENUE RECOGNITION
Cellular air time is recorded as revenue when provided. 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 revenue, mainly paging and long distance services, are
recognized on provision of these services.
M) 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 resulting
exchange differences being recognized as exchange gains or losses.
N) NEW ACCOUNTING BULLETINS
As of January 1, 1997, the Company adopted the following new bulletins:
1. The Fifth Amendment to Bulletin B-10 requires that the amounts for
non-monetary assets be restated only for changes in the NCPI after December 31,
1996. The specific cost method will no longer be used. Replacement cost at
December 31, 1996 will become the basis for future adjustments for general price
level increases. In May 1997, changes to this Amendment were proposed for
approval of the Mexican Accounting Stardards Commission.
2. Bulletin B-14 requires the disclosure of basic and diluted earnings per
share and the basis for calculating such amounts.
5. RELATED PARTIES
The Peralta Family and Bell Atlantic hold substantial ownership interests
(direct or indirect) in the Company. In addition, the Peralta Family holds
ownership interests in various other entities, primarily
F-56
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
5. RELATED PARTIES (CONTINUED)
Industrias Unidas, S.A. de C.V. ("IUSA") and related entities which are
customers of or suppliers to the Company.
A summary of related party accounts and notes receivable as of March 31, is
as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
IUSA and related entities........................................ Ps. 25,703 Ps. 3,367
Peralta Family entities.......................................... 6,498 5,579
------------ ------------
Total........................................................ Ps. 32,201 Ps. 8,946
============ ============
</TABLE>
Accounts receivable result from the sale of cellular telephone services,
operating lease contracts and the transfer during 1995 to IUSA of the investment
in a real estate project.
Accounts and notes payable to related parties as of March 31, are as
follows:
<TABLE>
<CAPTION>
1996 1997
------------ --------------
<S> <C> <C>
IUSA and related entities...................................... Ps. 16,972 Ps. --
Peralta Family entities........................................ 1,842 2,381
FIUSA Pasteje.................................................. -- 497
Bell Atlantic.................................................. 58,931 116,658
------------ --------------
Total...................................................... Ps. 77,745 Ps. 119,536
============ ============
</TABLE>
The payable accounts result from the leasing of some facilities and services
received. The notes payable to FIUSA Pasteje and Bell Atlantic result from the
financing of the Company's operations.
F-57
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
6. INVENTORIES
As of March 31, inventories are made up by the following:
<TABLE>
<CAPTION>
1996 1997
------------- -----------
<S> <C> <C>
Cellular telephones and accesories............................... Ps.111,578 Ps.66,620
Allowance for obsolete and slow-moving inventories............... (44,683) (26,827)
------------- -----------
Net............................................................ Ps. 66,895 Ps.39,793
Advances to suppliers............................................ 57,241 31,966
------------- -----------
Total inventories.............................................. Ps.124,136 Ps.71,759
============= ===========
</TABLE>
7. INVESTMENT IN ASSOCIATED COMPANIES
As of March 31, the Company's investment in associated companies is as
follows:
<TABLE>
<CAPTION>
1997
--------------------------
<S> <C> <C>
ENTITY OWNERSHIP INVESTMENT
- ------------------------------------------------------------------- ------------- -----------
Editorial Celular, S.A. de C.V..................................... 40.00% Ps. 2,498
Consorcio Ecuatoriano de Telecomunicaciones, S.A................... 27.53% 86,506
Other.............................................................. 5,927
-----------
Total.......................................................... Ps.94,931
===========
</TABLE>
Since 1996, Rentacell, S.A. de C.V. has been consolidated, see Note 2.
F-58
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
8. PROPERTY AND EQUIPMENT
a) At March 31, property and equipment consisted of:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Buildings and facilities.................................... Ps.1,043,510 Ps. 974,547
Communication equipment..................................... 3,527,283 3,183,566
Furniture and fixtures...................................... 61,082 65,384
Transportation equipment.................................... 31,395 36,527
Computer equipment.......................................... 162,000 178,277
Cellular rental telephones.................................. 23,127 24,539
--------------- ---------------
Ps.4,848,397 Ps.4,462,840
Accumulated depreciation.................................... (1,302,541) (1,518,513)
--------------- ---------------
Ps.3,545,856 Ps.2,944,327
Land........................................................ 36,679 34,767
Construction in progress.................................... 213,574 140,879
Advances to suppliers....................................... 116,459 233,419
--------------- ---------------
Ps.3,912,568 Ps.3,353,392
=============== ===============
</TABLE>
b) Depreciation expense was Ps.77,071 and Ps.73,326 for 1996 and 1997,
respectively. In 1996 the Company established an obsolescence reserve of
Ps.34,152 for certain communication equipment, which is included in the
accumulated depreciation and is part of the restructuring expenses classified as
an extraordinary item.
9. OTHER ASSETS
At March 31, other assets consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Concessions..................................................... Ps.170,412 Ps.158,100
Cellular telephones to be amortized............................. 171,380 77,041
Prepaid expenses................................................ 66,295 44,263
Advertising expenses............................................ 35,345 28,309
Preoperating expenses........................................... 218,567 389,014
Other........................................................... 18,066 8,404
------------- -------------
Ps.680,065 Ps.705,131
============= =============
</TABLE>
Cellular telephones amortization expense was Ps.58,319 and Ps.34,395 in 1996
and 1997, respectively.
Preoperating expenses mainly represent the investment in Project 450 (See
Note 17).
F-59
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
10. NOTES PAYABLE AND LONG-TERM DEBT
At March 31, the notes payable and long-term debt consisted of the
following:
Notes payable at March 31, are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Short-term loan of U.S.$35,175 bearing interest at a variable
rate of LIBOR plus 4% and maturing on
August 22, 1997............................................... Ps. -- Ps.278,326
Unsecured business short term loan of U.S.$65,000 bearing
interest at a variable rate of LIBOR plus 4% and maturity
dates from February through March 1997........................ 188,350 514,319
Short-term loan of U.S.$40,666 bearing interest at a fixed rate
of LIBOR + 9/16 + 5.5% and maturing on June 28, 1996.......... 382,970 --
Short-term loan of U.S.$5,900 bearing interest at a fixed rate
of LIBOR + 9/16 + 5.5 and maturing on
May 10, 1996.................................................. 55,563 --
Short-term loan U.S.$3,000 bearing interest at a fixed rate of
LIBOR + 9/16 + 5.5 and maturing on
April 18, 1996................................................ 28,253 --
Short-term loan of U.S.$5,308 bearing interest at a fixed rate
of 5.30% and maturing on May 15, 1996......................... 48,377 --
Short-term loan of U.S.$5,576 bearing interest at a fixed rate
of 10.25% and maturing on May 15, 1996........................ 50,818 --
Short-term loan of U.S.$6,296 bearing interest at variable rates
that range from 11.09% to 11.8% and maturity dates from April
to November 1996.............................................. 59,291 --
Other........................................................... 323 708
------------- -------------
Total....................................................... Ps.813,945 Ps.793,353
============= =============
</TABLE>
Long-term debt at March 31, consisted of:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Medium term loan of U.S.$179 bearing interest at a variable rate
of LIBOR plus 3% and maturing on
February 18, 1998. Interest and principal are payable
semiannually commencing August 1993........................... Ps. 1,684 Ps. --
Long-term loan of U.S.$2,096 bearing interest at a rate of T.
Notes plus 5% maturing September 30, 1998. Interest and
principal are payable semiannually commencing September
1993.......................................................... 24,673 16,585
</TABLE>
F-60
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Obligations for equipment under capitalized leases for U.S.$593
at a variable rate of LIBOR plus 2.5% maturing on December 28,
1998. Interest and principal are payable semiannually
commencing June 1994.......................................... 8,552 4,692
Long-term loan of U.S.$20,707 bearing interest at a variable
rate of LIBOR plus 2.9375% maturing December 2001. Interest
and principal are payable semiannually commencing June 15,
1994.......................................................... 195,007 135,359
Long-term loan of U.S.$3,333 bearing interest at a rate of
5.8125% maturing April 15, 2002. Interest and principal are
payable semiannually commencing April 1993.................... 37,095 26,373
Long-term loan of U.S.$7,274 bearing interest at a rate of
12.55% maturing on July 15, 2002. Interest and principal are
payable semiannually commencing January 1994.................. 80,957 57,555
Long-term loan of U.S.$33,809 bearing interest at a variable
rate of LIBOR plus 4% maturing on December 17, 2003. Interest
and principal are payable semiannually commencing June
1994.......................................................... 363,884 267,519
Long-term loan of U.S.$13,156s bearing interest at a variable
rate of LIBOR plus 3.75% maturing on November 14, 2004.
Interest and principal are payable semiannually commencing
July 1994..................................................... Ps.139,382 Ps.104,096
Other........................................................... 3,308 --
------------- -------------
Total....................................................... Ps.854,542 Ps.612,179
Less current portion.................................... 126,892 105,907
------------- -------------
Ps.727,650 Ps.506,272
============= =============
</TABLE>
Certain loan agreements, among other conditions, impose certain restrictive
covenants such as maintenance of certain ratios, restrictions on incurring of
additional debt, and restrictions on the sale or lease of the Company's assets.
At March 31, 1997 total unused lines of credit totaled Ps.672,571
(U.S.$85,000). The Company has paid no commitment fees for these lines of
credit.
At March 31, 1996 and 1997 assets collateralizing long-term debt include
substantially all assets, (including the Government concessions) of Region 5 and
6, and other property and equipment.
The Group leases certain communication equipment and transportation
equipment under agreements which are classified as capital leases. Most
equipment leases have purchase options at the end of
F-61
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
the original lease term. Leased capital assets, included in property and
equipment at March 31, 1996 and 1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Communication equipment............................................ Ps.19,684 Ps.24,072
Transportation equipment........................................... 2,477 --
----------- -----------
Total equipment leased........................................... Ps.22,161 Ps.24,072
Accumulated depreciation........................................... (4,105) (5,241)
----------- -----------
Net equipment leased............................................. Ps.18,056 Ps.18,831
=========== ===========
</TABLE>
11. TRADE ACCOUNTS PAYABLE
At March 31, trade accounts payable consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Current accounts................................................ Ps.209,248 Ps.225,381
Note payable.................................................... 478,882 31,328
------------- -------------
Total....................................................... Ps.688,130 Ps.256,709
------------- -------------
Long-term notes payable......................................... Ps. 4,061 Ps. 8,300
============= =============
</TABLE>
As of March 31, 1997, the Company has only partially paid amounts invoiced
by Telefonos de Mexico, S.A. de C.V. ("Telmex") since it believes that Telmex
did not have the legal right to charge certain invoiced amounts. These disputed
charges are being negotiated with Telmex. At March 31, 1997 the Company has
established adequate reserves to cover these liabilities. Additionally, the
Group's subsidiaries have claimed from Telmex the payment of certain fees for
reciprocal termination changes which the Company has the right to collect based
on the Federal Telecommunications Law (Ley Federal de Telecomunicaciones)
published on June 7, 1995 and the regulations issued thereunder.
12. INCOME TAX, ASSETS TAX AND EMPLOYEE PROFIT SHARING
In December 1993, the Mexican tax authorities granted the Group permission
to file a consolidated income tax return commencing with the tax year beginning
January 1, 1994.
The provision for income tax differs from the statutory income tax rate due
to temporary and permanent differences in the determination of the 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
important permanent items are the differences between book and tax depreciation,
the goodwill amortization and non deductible expenses.
In accordance with Mexican accounting principles, no deferred taxes have
been provided on temporary differences since such differences are of a recurring
nature and their realization cannot be foreseen in a defined period of time.
F-62
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
The 1.8% (2% in 1994) 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% assets tax
paid may be utilized as a credit against future income tax in the years in which
the Company 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 National Consumer Price Index when used. As of March
31,1997, the net assets tax available as a carry forward is Ps.88,069.
At March 31, 1997, 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 LOSS AMOUNT OF LOSS EXPIRATION YEAR
- ----------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
1991......................................................................... Ps. 22,192 2001
1992......................................................................... 330 2002
1993......................................................................... 49,394 2003
1994......................................................................... 1,043,107 2004
1995......................................................................... 538,984 2005
1996......................................................................... 35,771 2006
</TABLE>
These losses are indexed for inflation from the year incurred to the year
utilized. Accordingly, these amounts include the inflation up to June 1996.
Losses include Ps.156,825 and Ps.236,034 of capital stock issuance costs
expensed for tax purposes in 1993 and 1994. Such amounts were charged to
stockholders' equity in the consolidated financial statements.
Employee profit sharing is generally computed on taxable income, with
adjustments to exclude inflationary effects and the restatement of depreciation
expense. For the three months ended March 31, 1996 and 1997 there was no profit
sharing expense.
13. COMMITMENTS AND CONTINGENCIES
As of March 31, 1997 the Company has the following commitments and
contingent liabilities:
a) The Company has entered into operating lease agreements for
administrative offices, sales branches, and service facilities. Such lease
agreements expire at various dates through 2002. Some contain options for
renewal. Rental expense was Ps.13,785 and Ps.13,309 for the periods ended
March 31, 1996 and 1997, respectively.
Future minimum rental payments under existing leases with terms in excess of
one year as of December 31, 1996 are as follows:
1997............................................................. Ps.33,007
1998............................................................. 17,489
1999............................................................. 15,038
2000............................................................. 11,652
Thereafter....................................................... 6,249
F-63
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
b) For the taxes and penalties that the tax authorities may collect if
they disagree with the criteria applied by the Company regarding the
calculation of some taxes, rights and federal contributions as a result of
prior years' tax returns. As of this date there has been no notification of
disagreement from the authorities. In February 1996, the Tax authorities
(Secretaria de Hacienda y Credito Publico) started an audit in 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.). The Company does not anticipate
that any tax difference or penalties will be originated by this audit which
would be material to the Company's financial position or results of
operation.
c) Mitsubishi Electronics America Inc. filed a complaint in the United
States on July 18, 1996 against Grupo Iusacell, S.A. de C.V. and Bell
Atlantic Corporation. Essentially, Mitsubishi alleges that it had a contract
with Grupo Iusacell for the sale of telephone terminals and that Iusacell
has breached the contract by not purchasing the terminals. Mitsubishi
alleges the contract was for the sale of 60,000 units at a cost of
U.S.$0.510 each. Grupo Iusacell has filed a motion to dismiss for lack of
personal jurisdiction. Based on the opinion of external lawyers and because
of the pending motions it is too early to evaluate the possibility of
settlement or the extent of Grupo Iusacell's exposure, if any, to loss by
judgment.
d) In 1996, the Company received a notification from the authorities
requesting the payment of surcharges related to the purchase completed in
three installments in 1990 of the Region 5 concession. This Region was
bought by Grupo Iusacell in 1993 (see Note 2). The opinion of external
counsel is that this request is legally unfunded.
14. CONTRIBUTED CAPITAL
At March 31, 1996 and 1997, the issued and outstanding shares of common
stock of the Company, without par value, are made up as follows:
<TABLE>
<CAPTION>
1996 1997
-------------- ----------------
<S> <C> <C>
Series A................................................... 428,575,540 746,753,410
Series B................................................... 205,562,450 5,562,450
Series D................................................... 204,920,220 186,904,725
Series L................................................... 142,566,220 142,658,784
-------------- ----------------
Total.................................................. 981,624,430 1,081,879,369
============== ================
</TABLE>
Series A, B and D represent shares entitling the holder of each share to one
vote at the Company's stockholders' meetings. The stockholders of Series L
shares may vote only in limited circumstances as described in the Company's
by-laws. Stockholder actions on certain matters require approval by both Series
A and Series B stockholders.
Series A shares must always represent not less than 51% of the capital stock
with full voting rights and, until February 1997, were only acquirable by
Mexicans. Series B, D and L shares may be acquired by foreigners or Mexicans.
F-64
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
Series B and D shares cannot exceed 24.5% of the total capital stock. Series
L shares cannot exceed 19% of the total capital stock. Series L shares are not
considered in determining the amount or proportion of foreign investment in the
Company as long as the shares are listed on the Mexican Stock Exchange.
In May 1994, the stockholders autorized a 10 for 1 stock split applicable to
all outstanding shares of capital stock at December 31, 1993. Information
contained in these consolidated financial statements has been retroactively
adjusted to reflect this split.
On May 20, 1994, 28,291,350 series D and 66,013,150 series L shares were
issued and sold through a public offering for Ps.1,824,341. Capital stock
includes Ps.1,426,371 of amounts paid in excess of nominal value. Fees charged
by outside advisors for assisting in this sale amounted to Ps.157,684 and where
charged to stockholders' equity. In addition 23,957,620 series A shares were
converted into an equal number of series L shares. The converted series A shares
were canceled.
As it is mentioned in Note 1, on November 26, 1996, the Company's
shareholders signed an agreement in principle to change the controlling interest
of Grupo Iusacell to Bell Atlantic. Following the signed agreement, on December
18, 1996, at an extraordinary stockholders' meeting, the following resolutions
modifying the Company's by-laws were adopted:
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, for 366,769,760 Series "A" shares.
3) The conversion of 100,000,000 Series "A" shares for 100,000,000
Series "D" shares.
These resolutions were subject to the authorizations requested before the
Foreign Investment National Commission and the Competition Federal Commission.
Subject to the above mentioned authorizations and the adoption of such
resolutions, the stockholders decided to increase the fixed portion of the
capital stock by up to Ps. 766,000 through the issuance of up to 74,163,591
Series "A" shares and up to 54,407,837 Series "D" shares. The present holders of
the Series "D" shares had the right to acquire additional Series "D" shares in
order to allow them to keep their actual ownership proportion; this preferential
right expired fifteen days after the publication of these resolutions in the
Diario Oficial de la Federacion (Mexican Federal Official Journal). After such
term expires the remaining shares will be offered for their subscription and
payment as follows:
a) Up to 57,142,857 Series "A" shares to Bell Atlantic Latin American
Holdings, Inc. through the capitalization of certain liabilities.
b) Up to 17,020,734 Series "A" shares and up to 54,407,837 Series "D"
shares to FIUSA Pasteje, S.A. de C.V. through the capitalization of certain
liabilities.
At the same stockholders' meeting, a Stock Purchase Plan for the Company's
executives was approved. In this regard, the stockholders decided to increase
the fixed portion of the capital stock of up to Ps. 106,000 through the issuance
of up to 15,625,000 Series "L" shares. The present holders of the Series "L"
shares had the right to acquire additional shares in order to allow them to keep
their actual ownership proportion; this preferential right expired fifteen days
after the publication of these resolutions
F-65
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
in the Diario Oficial de la Federacion (Mexican Federal Official Journal). After
such term expires the shares will be canceled, except for 7,812,500 shares which
will be designated to the above mentioned Stock Purchase Plan.
On February 12, 1997, Grupo Iusacell's new share ownership and management
control structure described more fully in the Notes 1 and 14, received the
required Mexican Government authorizations.
The increase in the fixed portion of the capital stock, agreed at the
extraordinary stockholder's meeting held on December 18, 1996 (see Note 14), was
approved on February 18, 1997. The subscription of shares was as follows:
Bell Atlantic........................ 47,017,491 Series "A" shares
Peralta Family....................... 4,390,619 Series "A" shares
48,754,000 Series "D" shares
After such subscription and the resolutions adopted to modify the Company's
by-laws, 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.
15. EARNED CAPITAL
In accordance with the Mexican Corporate Law, a legal reserve must be
created, and annually increased by 5% of the annual net earnings until it
reaches 20% of the common stock amount. This reserve is not available for
dividends, but may be used to reduce a deficit or may be transferred to capital.
As defined in the Federal Income Tax Law, a tax on dividends is calculated
based on the paid dividends which exceed the taxable net income. The accumulated
taxable net income of the Company as of March 31, 1997 is approximately
Ps.72,490.
The Company cannot pay dividends until it collects them from its
subsidiaries. Two subsidiaries (Comcel in Region 5 and Portacel in Region 6)
have bank debt that partially restricts their ability to pay dividends to the
holding company if certain financial ratios are not met. As of March 31, 1997,
such ratios were met. Both companies have accumulated losses at March 31, 1997.
F-66
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
The earned capital accounts consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- -------------- ----------------
<S> <C> <C> <C>
Legal reserve............................................... Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years......................... (1,131,162) 35,723 (1,095,439)
Net loss for the year....................................... 50,722 55,193 105,915
Deficit from restatement.................................... -- (165,958) (165,958)
---------------- -------------- ----------------
Total....................................................... Ps.(1,078,941) Ps. (73,461) Ps.(1,152,402)
================ ============== ================
<CAPTION>
MARCH 31, 1997
---------------------------------------------------
ACCUMULATED
ADJUSTMENTS
HISTORICAL FOR
VALUE INFLATION TOTAL
---------------- --------------- ----------------
<S> <C> <C> <C>
Legal reserve............................................... Ps. 1,499 Ps. 1,581 Ps. 3,080
Accumulated losses from prior years......................... (1,646,797) 188,095 (1,458,702)
Net loss for the year....................................... (109,012) 76,763 (32,249)
Insufficiency from restatement.............................. -- (546,148) (546,148)
---------------- -------------- ----------------
Total....................................................... Ps.(1,754,310) Ps.(279,709) Ps.(2,034,019)
================ ============== ================
</TABLE>
16. FOREIGN CURRENCY POSITION
The balance sheet as of March 31, includes assets and liabilities
denominated in U.S. dollars as follows:
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
<S> <C> <C>
Monetary assets....................................... U.S. $ 25,255 U.S. $ 24,316
Monetary liabilities.................................. 234,708 213,412
------------------ ------------------
Net liability position in U.S. dollars................ U.S. $ 209,453 U.S. $ 189,096
------------------ ------------------
Equivalent in nominal Mexican pesos................... Ps. 1,580,930 Ps. 1,496,241
================== ==================
</TABLE>
F-67
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1996 AND 1997
(ADJUSTED FOR PRICE-LEVEL CHANGES AND EXPRESSED IN THOUSANDS
OF CONSTANT MEXICAN PESOS AS OF MARCH 31, 1997 AND
THOUSANDS OF U.S. DOLLARS)
During 1996 and 1997, interest expense paid and interest income collected on
assets and liabilities denominated in U.S. dollars were as follows:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Interest income.............................................. U.S.$ 110 U.S.$ 38
Interest expense............................................. 1,149 3,602
-------------- --------------
Net interest expense..................................... U.S.$ 1,039 U.S.$ 3,564
-------------- --------------
Equivalent in nominal Mexican pesos.......................... Ps. 7,842 Ps. 28,201
============== ==============
</TABLE>
The exchange rate as of March 31, 1996 and 1997 was Ps.7.5479 and Ps.7.9126
per 1 U.S. Dollar, respectively. At the issuance date of these consolidated
financial statements the exchange rate in effect was Ps.7.778 per 1 U.S. Dollar.
17. PROJECT 450
During 1994, the Company created a subsidiary to be in charge of providing
fixed wireless telephony services (Project 450). At March 31, 1997, the
following has been incurred during the start-up phase of the project:
Fixed assets................................................... Ps.434,192
Capitalized interest........................................... 182,100
Inventory...................................................... 20,961
Pre-operating expenses......................................... 66,160
----------
Total.......................................................... Ps.703,413
==========
Capitalized interest and pre-operating expenses are included in "Other
assets" in the attached consolidated balance sheet (see Note 9). The Company is
currently participating in trials of the service. The Company has an agreement
with a foreign supplier under which it anticipates buying approximately
U.S.$315,000 of network switching equipment and radio base station equipment as
well as associated software and technical services for the development of the
local wireless network, in a five year period commencing when the Ministry of
Communications and Transportation ("SCT") grants the required licenses. The SCT
has announced that by the end of 1997 it will auction the frequencies in the 450
MHz band to enable operators to provide services therein.
The realization of these assets is subject to the acquisition of this
frequency. However, the Company's management believes that at least 75% of such
fixed assets could be used in its cellular operations.
F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
To the Board of Directors of
Grupo Iusacell, S.A. de C.V.:
We have reviewed the pro forma adjustments reflecting the transactions
described in the notes to the pro forma consolidated financial statements and
the application of those adjustments to the historical amounts for Grupo
Iusacell, S.A. de C.V. and subsidiaries ("the Company") in the pro forma
condensed balance sheet of the Company as of March 31, 1997, and the pro forma
condensed statements of income for the year ended December 31, 1996 and the
three month period ended March 31, 1997, included in this Offering Memorandum.
The historical condensed statement of income for the year ended December 31,
1996 is derived from the historical audited consolidated statement of income of
the Company, appearing elsewhere herein. The historical condensed statement of
income for the three month period ended March 31, 1997 and the historical
condensed balance sheet as of March 31, 1997 were derived from the unaudited
financial statements of the Company as of, and for the period ended, March 31,
1997 appearing elsewhere in this Offering Memorandum. Such pro forma adjustments
are based upon management's assumption described in the notes to the pro forma
consolidated financial statements. Our review was conducted in accordance with
standards established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary in the
circumstances.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on the pro forma financial information.
Accordingly, we do not express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transaction described in the notes to the pro forma consolidated statement
of income occurred at an earlier date. However, the pro forma consolidated
statement of income is not necessarily indicative of the results of operations
that would have been attained had the above-mentioned transactions actually
occurred earlier.
Based on our review, nothing came to our attention that caused us to believe
that management's assumptions do not provide a reasonable basis for presenting
the significant effects directly attributable to the above-mentioned
transactions described in the notes to the pro forma consolidated financial
statements, that the related pro forma adjustments do not give appropriate
effect to those assumptions, or that the pro forma column does not reflect the
proper application of those adjustments to the historical financial statement
amounts in the pro forma consolidated statements of income for the year ended
December 31, 1996 and the three month period ended March 31, 1997 and the pro
forma consolidated balance sheet as of March 31, 1997.
COOPERS & LYBRAND
Despacho Roberto Casas Alatriste
Juan Manual Ferron Solis
Public Accountant
Mexico City, Mexico
July 15, 1997
F-69
<PAGE>
No dealer, salesperson or other person has
been authorized to give any information or
make any representations not contained in
this Prospectus in connection with the offer
made hereby and, if given or made, no such
information or representation should be
relied upon as having been authorized by the
Company or the Initial Purchasers. Neither
the delivery of this Prospectus nor any sale
made hereunder shall, under any
circumstances, create an implication that
there has been no change in the information
set forth herein or in the affairs of the
Company since the date hereof. This
Prospectus does not constitute an offer to
sell or solicitation of an offer to buy the
New Notes by anyone in any jurisdiction in
which such offer or solicitation is not
authorized or in which the person making such
offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to
make such offer or solicitation.
TABLE OF CONTENTS
Summary.......................................... 1
Risk Factors..................................... 16
Use of Proceeds.................................. 36
Exchange Rates................................... 37
Ratio of Earnings to Fixed Charges............... 37
Capitalization................................... 38
Selected Historical and Pro Forma Consolidated
Financial and Operating Data.................... 40
Unaudited Pro Forma Consolidated Financial
Information..................................... 45
Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 52
Bell Atlantic Relationship....................... 73
Business......................................... 75
Controlling Shareholders......................... 101
Management....................................... 103
Certain Transactions............................. 109
Description of Credit Facility................... 112
Description of Notes............................. 114
Exchange and Registration Rights Agreement....... 144
United States Taxation........................... 146
Mexican Taxation................................. 150
Book-Entry; Delivery and Form.................... 152
Plan of Distribution............................. 154
Legal Matters.................................... 155
Independent Accountants.......................... 155
Index to Consolidated Financial Statements....... F-1
Glossary of Certain
Telecommunications Terms....................... A-1
Form of Transferee Letter of Representation...... B-1
Until , 1997 all dealers effecting
transactions in the registered securities,
whether or not participating in this
distribution, may be required to deliver a
prospectus. This is in addition to the
obligation of dealers to deliver a prospectus
when acting as underwriters and with respect
to their unsold allotments or subscriptions.
US$150,000,000
Grupo Iusacell,
S.A. de C.V.
Offer to Exchange All
Outstanding 10%
Senior Notes due 2004
for 10% Series B Senior
Notes due 2004
--------
Prospectus
--------
Dated , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Mexican law, when an officer of a corporation acts within the scope
of his authority, the corporation will answer for any resulting liabilities or
expenses.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The exhibits shall be provided upon filing.
3.1 -- By-laws (estatutos) of Grupo Iusacell, S.A. de C.V.*
3.2 -- By-laws (estatutos) of SOS Telecomunicaciones, S.A. de
C.V.
3.3 -- By-laws (estatutos) of Iusacell, S.A. de C.V.
3.4 -- By-laws (estatutos) of Sistecel, S.A. de C.V.
3.5 -- By-laws (estatutos) of Comunicaciones Celulares de
Occidente, S.A. de C.V.
3.6 -- By-laws (estatutos) of Telecomunicaciones del Golfo, S.A.
de C.V.
3.7 -- By-laws (estatutos) of Sistemas Telefonicos Portatiles
Celulares, S.A. de C.V.
3.8 -- By-laws (estatutos) of Inmobiliaria Montes Urales 460,
S.A. de C.V.
3.9 -- By-laws (estatutos) of Iusanet, S.A. de C.V.
3.10 -- By-laws of Mexican Cellular Investments, Inc.
4.1 -- Indenture, dated as of July 25, 1997, among Registrant,
First Union National Bank, as Trustee, and holders from
time to time of the Notes.**
4.2 -- Form of Note (contained in Exhibit 4.1).
4.3 -- Exchange and Registration Rights Agreement dated July 15,
1997 among Registrant, the Subsidiary Guarantors, Chase
Securities Inc. and Salomon Brothers Inc.**
5.1 -- Opinion of De Ovando y Martinez del Campo, S.C., Mexican
counsel to the Registrant, regarding the legality of the
Notes registered hereby.**
5.2 -- Opinion of Rogers & Wells, U.S. counsel to the
Registrant, regarding the legality of the Notes
registered hereby.
8.1 -- Opinion of Rogers & Wells, U.S. counsel to the
Registrant, regarding tax matters.**
10.1 -- U.S.$225.0 million Loan Agreement dated as of July 25,
1997 among the Registrant, Chase Securities Inc.; as
arranger, and The Chase Manhattan Bank as administrative
agent and collateral agent.
10.2 -- U.S.$150.0 million Debenture Purchase Agreement dated
July 25, 1997 between the Registrant and Bell Atlantic
International, Inc.**
12.1 -- Ratio of Earnings to Fixed Charges in accordance with
Mexican GAAP.**
12.2 -- Ratio of Earnings to Fixed Charges in accordance with
U.S. GAAP.**
15.1 -- Acknowledgment by Coopers & Lybrand, Despacho Roberto
Casas Alatriste.
21.1 -- List of subsidiaries of Grupo Iusacell, S.A. de C.V.**
23.1 -- Consent of Coopers & Lybrand, Despacho Roberto Casas
Alatriste.
23.2 -- Consent of Mancera, S.C., a member of Ernst & Young
International, L.L.P.
23.3 -- Consent of Prieto, Ruiz de Velasco y Cia., S.C.
23.4 -- Consent of De Ovando y Martinez del Campo, S.C.(contained
in Exhibit 5.1).
23.5 -- Consent of Rogers & Wells (contained in Exhibit 5.2).
24.1 -- Powers of attorney (included on signature page to
Registration Statement).
25.1 -- Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 of First Union National Bank on
Form T-1 pursuant to the Indenture dated July 25, 1997.**
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.
----------
* Previously filed under the Form 20-F Annual Report.
** Previously filed under the Registration Statement on Form
F-4/S-4 filed on October 8, 1997.
<PAGE>
(b) Financial Statement Schedules:
The Schedule of Valuation and Qualifying Accounts is attached hereto.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (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 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 part of this
Registration Statement as of the time it was declared effective.
(3) For the purpose of determining any liabilities 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 this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means; and (ii) to
arrange or provide for a facility in the U.S. for the purpose of
responding to such requests. The undertaking in subparagraphs (i) above
includes information contained in documents filed subsequent to the
effective date of the 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 the registration statement when it became effective.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, Grupo Iusacell, S.A. de C.V., and the Subsidiary Gurantors, SOS
Telecomunicaciones, S.A. de C.V., Iusacell, S.A. de C.V., Sistecel, S.A. de
C.V., Comunicaciones Celulares de Occidente, S.A. de C.V., Telecomunicaciones
del Golfo, S.A. de C.V., Sistemas Telefonicos Portatiles Celulares, S.A. de.
C.V., Inmobiliaria Montes Urales 460, S.A. de C.V., Iusanet, S.A. de C.V. and
Mexican Cellular Investments, Inc., each 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
October 29, 1997.
GRUPO IUSACELL, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Vice President-Mergers and
Acquisitions and General Counsel
SOS TELECOMUNICACIONES, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
IUSACELL, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
<PAGE>
SISTECEL, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
COMUNICACIONES CELULARES DE
OCCIDENTE, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
TELECOMUNICACIONES DEL GOLFO, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
SISTEMAS TELEFONICOS PORTATILES
CELULARES, S.A. de C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
<PAGE>
INMOBILIARIA MONTES URALES 460, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
IUSANET, S.A. DE C.V.
By: /s/ Fulvio V. del Valle
-------------------------------------
Fulvio V. del Valle
Director General
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
Director
MEXICAN CELLULAR INVESTMENTS, INC.
By: /s/ Ruben G. Perlmutter
-------------------------------------
Ruben G. Perlmutter
President, General Counsel and Director
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Grupo Iusacell, S.A.
de C.V., do hereby constitute and appoint Fulvio V. del Valle and Ruben G.
Perlmutter, 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 Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable 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 Fulvio V. del Valle 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 Grupo
Iusacell, S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere
y designamos a Fulvio V. del Valle y Ruben G. Perlmutter, 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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Grupo Iusacell, S.A. de C.V.
cumpla con todos los requisitos del "Securities Act" de 1933, segun texto
vigente y todas las normas, reglamentos y requisitos del "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 Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Lawrence T. Babbio Chairman of the Board of October 29, 1997
- ------------------------------ Directors and Series A
Lawrence T. Babbio, Jr. Director
/s/ Thomas A. Bartlett President and Chief Executive October 29, 1997
- ------------------------------ Officer and Series B Director
Thomas A. Bartlett (Principal Executive Officer)
/s/ Fulvio V. del Valle Director General October 29, 1997
- -----------------------------
Fulvio V. del Valle
_____________________________ Executive Vice President and ________, 1997
Edward R. Kingman, Jr. Chief Operating Officer and
Series L Director
/s/ Howard F. Zuckerman Vice President-Finance and October 29, 1997
- ----------------------------- Audit and Chief Financial
Howard F. Zuckerman Officer and Series B Director
(Principal Financial Officer)
/s/ Noah S. Asher Vice President-Administration October 29, 1997
- ----------------------------- and Series B Director
Noah S. Asher (Principal Accounting Officer)
/s/ Carlos Peralta Quintero Series A Director October 29, 1997
- -----------------------------
Carlos Peralta Quintero
/s/ Luis Felipe Gonzalez Munoz Series A Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
/s/ William O. Albertini Series A Director October 29, 1997
- -----------------------------
William O. Albertini
/s/ Dennis Strigl Series A Director October 29, 1997
- -----------------------------
Dennis Strigl
_____________________________ Series A Director ________, 1997
Manuel Somoza Alonso
<PAGE>
/s/ Jose Ramon Elizondo Anaya Series A Director October 29, 1997
- -----------------------------
Jose Ramon Elizondo Anaya
/s/ Rodolfo Garcia Muriel Series A Director October 29, 1997
- -----------------------------
Rodolfo Garcia Muriel
/s/ Gabriel Alarcon Velazquez Series A Director October 29, 1997
- -----------------------------
Gabriel Alarcon Velazquez
_____________________________ Series A Director ________, 1997
Eduardo Rihan Azar
/s/ Thomas R. McKeough Series B Director October 29, 1997
- -----------------------------
Thomas R. McKeough
/s/ Ruben G. Perlmutter Vice President-Mergers and October 29, 1997
- ----------------------------- Acquisitions and General
Ruben G. Perlmutter Counsel and Series B Director
_____________________________ Series B Director ________, 1997
Mack E. Treece
_____________________________ Series B Director ________, 1997
Robert Van Brunt
/s/ Fernando de Ovando Series B Director October 29, 1997
- -----------------------------
Fernando de Ovando
/s/ Javier Martinez del Campo
Lanz Series B Director October 29, 1997
- -----------------------------
Javier Martinez del Campo Lanz
/s/ Ernesto Canales Santos Series D Director October 29, 1997
- -----------------------------
Ernesto Canales Santos
/s/ Donald J. Puglisi Authorized Representative October 29, 1997
- ----------------------------- in the United States of
Donald J. Puglisi Grupo Iusacell, S.A. de C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of SOS
Telecomunicaciones, S.A. de C.V., do hereby constitute and appoint Fulvio V. del
Valle and Ruben G. Perlmutter, 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 Fulvio V. del
Valle and Ruben G. Perlmutter, or any of them, may deem necessary or advisable
to enable SOS Telecomunicaciones, 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
Fulvio V. del Valle 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 SOS
Telecomunicaciones, S.A. de C.V., otorgamos poder especial en cuanto a derecho
se refiere y designamos a Fulvio V. del Valle y Ruben G. Perlmutter, 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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de
ellos, consideren necesario o conveniente para los fines de que SOS
Telecomunicaciones, S.A. de C.V. cumpla con todos los requisitos del "Securities
Act" de 1933, segun texto vigente y todas las normas, reglamentos y requisitos
del "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
Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, realicen por
virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Iusacell, S.A. de
C.V., do hereby constitute and appoint Fulvio V. del Valle and Ruben G.
Perlmutter, 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 Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable 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 Fulvio V. del Valle 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 Iusacell,
S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere y
designamos a Fulvio V. del Valle y Ruben G. Perlmutter, 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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Iusacell, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "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 Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Sistecel, S.A. de
C.V., do hereby constitute and appoint Fulvio V. del Valle and Ruben G.
Perlmutter, 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 Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable Sistecel,
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 Fulvio V. del Valle 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 Sistecel,
S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere y
designamos a Fulvio V. del Valle y Ruben G. Perlmutter, 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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Sistecel, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "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 Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Comunicaciones
Celulares de Occidente, S.A. de C.V., do hereby constitute and appoint Fulvio V.
del Valle and Ruben G. Perlmutter, 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 Fulvio V. del
Valle and Ruben G. Perlmutter, or any of them, may deem necessary or advisable
to enable Comunicaciones Celulares de Occidente, 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
Fulvio V. del Valle 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
Comunicaciones Celulares de Occidente, S.A. de C.V., otorgamos poder especial en
cuanto a derecho se refiere y designamos a Fulvio V. del Valle y Ruben G.
Perlmutter, 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 Fulvio V. del Valle y Ruben G.
Perlmutter, o cualquiera de ellos, consideren necesario o conveniente para los
fines de que Comunicaciones Celulares de Occidente, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "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 Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Telecomunicaciones del
Golfo, S.A. de C.V., do hereby constitute and appoint Fulvio V. del Valle and
Ruben G. Perlmutter, 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 Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable
Telecomunicaciones del Golfo, 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 Fulvio V. del Valle 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
Telecomunicaciones del Golfo, S.A. de C.V., otorgamos poder especial en cuanto a
derecho se refiere y designamos a Fulvio V. del Valle y Ruben G. Perlmutter,
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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera
de ellos, consideren necesario o conveniente para los fines de que
Telecomunicaciones del Golfo, S.A. de C.V. cumpla con todos los requisitos del
"Securities Act" de 1933, segun texto vigente y todas las normas, reglamentos y
requisitos del "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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos,
realicen por virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Sistemas Telefonicos
Portatiles Celulares, S.A. de C.V., do hereby constitute and appoint Fulvio V.
del Valle and Ruben G. Perlmutter, 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 Fulvio V. del
Valle and Ruben G. Perlmutter, or any of them, may deem necessary or advisable
to enable Sistemas Telefonicos Portatiles Celulares, 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
Fulvio V. del Valle 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 Sistemas
Telefonicos Portatiles Celulares, S.A. de C.V., otorgamos poder especial en
cuanto a derecho se refiere y designamos a Fulvio V. del Valle y Ruben G.
Perlmutter, 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 Fulvio V. del Valle y Ruben G.
Perlmutter, o cualquiera de ellos, consideren necesario o conveniente para los
fines de que Sistemas Telefonicos Portatiles Celulares, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "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 Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Inmobiliaria Montes
Urales 460, S.A. de C.V., do hereby constitute and appoint Fulvio V. del Valle
and Ruben G. Perlmutter, 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 Fulvio V. del Valle and Ruben G.
Perlmutter, or any of them, may deem necessary or advisable to enable
Inmobiliaria Montes Urales 460, 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
Fulvio V. del Valle 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
Inmobiliaria Montes Urales 460, S.A. de C.V., otorgamos poder especial en cuanto
a derecho se refiere y designamos a Fulvio V. del Valle y Ruben G. Perlmutter,
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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera
de ellos, consideren necesario o conveniente para los fines de que Inmobiliaria
Montes Urales 460, S.A. de C.V. cumpla con todos los requisitos del "Securities
Act" de 1933, segun texto vigente y todas las normas, reglamentos y requisitos
del "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
Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, realicen por
virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Iusanet, S.A. de C.V.,
do hereby constitute and appoint Fulvio V. del Valle and Ruben G. Perlmutter,
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 Fulvio V. del Valle and Ruben G. Perlmutter, or
any of them, may deem necessary or advisable to enable Iusanet, 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
Fulvio V. del Valle 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 Iusanet,
S.A. de C.V., otorgamos poder especial en cuanto a derecho se refiere y
designamos a Fulvio V. del Valle y Ruben G. Perlmutter, 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 Fulvio V. del Valle y Ruben G. Perlmutter, o cualquiera de ellos, consideren
necesario o conveniente para los fines de que Iusanet, S.A. de C.V. cumpla con
todos los requisitos del "Securities Act" de 1933, segun texto vigente y todas
las normas, reglamentos y requisitos del "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 Fulvio V. del Valle y Ruben G. Perlmutter, o
cualquiera de ellos, realicen por virtud del presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Fulvio V. del Valle Principal Executive Officer October 29, 1997
- ----------------------------- and Director General and
Fulvio V. del Valle Director
/s/ Howard F. Zuckerman Principal Financial and October 29, 1997
- ----------------------------- Accounting Officer and
Howard F. Zuckerman Alternate Director
/s/ Noah S. Asher Director October 29, 1997
- -----------------------------
Noah S. Asher
/s/ Luis Felipe Gonzalez Munoz Director October 29, 1997
- -----------------------------
Luis Felipe Gonzalez Munoz
_____________________________ Director ________, 1997
Edward R. Kingman, Jr.
/s/ Ruben G. Perlmutter Director October 29, 1997
- -----------------------------
Ruben G. Perlmutter
/s/ Donald J. Puglisi Authorized Representative in October 29, 1997
- ----------------------------- the United States of SOS
Donald J. Puglisi Telecomunicaciones, S.A. de
C.V.
<PAGE>
POWERS OF ATTORNEY AND SIGNATURES
We, the undersigned directors and officers of Mexican Cellular
Investments, Inc., do hereby constitute and appoint Ruben G. Perlmutter as our
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, to do any and all acts and things in our respective names and on
our respective behalves in the capacities indicated below that Ruben G.
Perlmutter may deem necessary or advisable to enable Mexican Cellular
Investments, Inc. 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 Ruben G. Perlmutter shall do or cause to be
done by virtue hereof.
PODER-MANDATO Y FIRMAS
Nosotros, los abajo firmantes directores y ejecutivos de Mexican
Cellular Investments, Inc., otorgamos poder especial en cuanto a derecho se
refiere y designamos a Ruben G. Perlmutter para que actue como nuestro apoderado
y mandatario, con plenos poderes de sustitucion y delegacion para que realice
todos y cualesquiera actos, por cuenta y a nombre nuestro en el caracter que se
indica mas adelante, que Ruben G. Perlmutter considere necesario o conveniente
para los fines de que Mexican Cellular Investments, Inc. cumpla con todos los
requisitos del "Securities Act" de 1933, segun texto vigente y todas las normas,
reglamentos y requisitos del "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 Ruben G. Perlmutter realice por virtud del
presente poder.
<PAGE>
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:
Signature Title Date
--------- ----- ----
/s/ Ruben G. Perlmutter President, General Counsel, October 29, 1997
- ----------------------------- Assistant Secretary and Sole
Ruben G. Perlmutter Director (Principal Executive
Officer)
/s/ Howard F. Zuckerman Vice President, Treasurer and October 29, 1997
- ----------------------------- Chief Financial Officer
Howard F. Zuckerman (Principal Financial Officer
and Principal Accounting Officer)
/s/ Carlos Gutierrez Cardona Secretary October 29, 1997
- -----------------------------
Carlos Gutierrez Cardona
/s/ Norma Urzua Villasenor Assistant Secretary October 29, 1997
- -----------------------------
Norma Urzua Villasenor
<PAGE>
Grupo Iusacell, S.A. de C.V.
Valuation and Qualifying accounts
Years ended December 31, 1994, 1995 and 1996
Adjusted for price-level changes and expressed in thousands of constant
Mexican pesos as of March 31, 1997
<TABLE>
<CAPTION>
COL.A COL.B COL.C COL.D COL.E
- ----------------------------------------- ----------- --------------------------- ----------- ------------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1994
ALLOWANCE FOR OBSOLETE AND SLOW-MOVING Ps. 26,211 Ps. 33,553 Ps. - Ps. - Ps. 59,764
INVENTORIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS 169,376 63,555 - 77,350 155,581
1995
ALLOWANCE FOR OBSOLETE AND SLOW-MOVING 59,764 1,788 - 9,376 52,176
INVENTORIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS 155,581 82,576 - 119,678 118,479
1996
ALLOWANCE FOR OBSOLETE AND SLOW-MOVING 52,176 4,109 - 22,005 34,279
INVENTORIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS 118,479 70,909 - 90,401 98,988
ALLOWANCE FOR OBSOLETE FIXED ASSETS - 111,443 - - 111,443
</TABLE>
EXHIBIT 3.2 - BYLAWS (ESTATUTOS) OF SOS TELECOMUNICACIONES,
S.A. de C.V.
3
<PAGE>
SOS TELECOMUNICACIONES, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "SOS TELECOMUNICACIONES". This
denomination will be followed by the words "Sociedad Anonima de Capital
Variable", or its initials "S.A. de C.V.".
ARTICLE SECOND. The company has as its purpose:
1. The rendering to the public telephonic services on board of vehicles, telex
and data transmission, rural telephony, cellular mobile telephony; as well
as the exploitation of concessions and permits granted for this purpose by
Secretaria de Comunicaciones y Transportes (hereinafter SCT), excluding
those that constitute restricted activities for the foreign investment
sector in accordance to the Foreign Investment Law.
2. Purchase and sale, import, export, distribution, installation, leasing and
in general, all kinds of negotiations and contracting related to telephonic
devices, parts , pieces or components of radiocommunication equipment in
mobile, fixed or portable units, telex, fax, antennas, cellular
radiotelephony parabolic antennas and any other device related to the
transmission of communication signals.
3. Obtain every kind of loans or credits, issue obligations, bonus, business
paper and any other credit title or similar or equivalent instrument, with
the intervention, in its case, of institutions and authorities signalled by
the applicable laws, constituting, in its case, any kind of guarantee, of
any nature; as well as to grant any kind of financing and guarantee in
behalf of the moral persons that are shareholders of the company, or in
which the company has any interest or participation of any nature, as well
as those in which any shareholder of this one has any economical interest.
4. Subscribe, issue, publish, guarantee and in general, negotiate every kind of
credit titles, as well as accept or endorse them.
5. Negotiate and enter into franchises contracts, obtain, acquire, use, dispose
and register trade marks, names or advertising, patents, invention
certificates and acquire or dispose of every kind of industrial property
rights, as well as author rights and to grant or receive licenses or
authorisations for the use or exploitation of such rights in the country or
abroad.
Page 1
<PAGE>
6. To provide every sort of services or assessorship of technical,
administrative, supervision organization, marketing, research, development,
engineering, human resources, public relations character and in general of
any kind of services related to its object matter, as well in the Mexican
Republic or abroad and to receive such services.
7. To grant or take in leasing or commodatum, acquire, possess, permute, alien,
dispose, or lien the property or possession of any kind of immovable real
state, as well as the actual rights over them and personal rights, necessary
or convenient for their social object matter or for the operations or social
object matters or the moral persons that are shareholders of the company, or
in which the company has any interest or participation of any nature, as
well as those in which any shareholder has any economical interest.
8. Acquire under any legal title shares, interests, participation or social
parts of any kind of mercantile or civil companies, as well as domestic as
foreign.
9. In general, to enter into and perform every deeds, contracts and operations
connected, accessories or accidentals that are needed or convenient for the
performance of the above mentioned object matters.
ARTICLE THIRD. The company's duration is indefinite.
ARTICLE FOURTH. The company's domicile is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. The company's actual or future foreign shareholders, are
committed legally before Secretaria de Relaciones Exteriores (Foreign Relations
Ministry) to be considered as nationals in respect of the company's shares they
acquire or that belong to them, as well as the assets, concessions rights,
participation or interests that belong to the company, or as well rights and
obligations derived from the contracts in which the company has an agreement
with Mexican authorities, and no to invoke, by the same reason, the protection
of their governments under the penalty, otherwise, to loose in behalf of the
Nation the social shares that they could have acquired.
CHAPTER II
SOCIAL CAPITAL AND SHARES
ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
Page 2
<PAGE>
The minimum fixed social stock without right to withdraw is $2,444,116.27 (Two
million, four hundred and forty-four thousand, one hundred and sixteen pesos
27/100) Domestic Currency and is divided in 100 shares completely subscribed and
paid.
Social stock shares are divided in the following Seriess:
1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to a vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by fraction VIII of Article 125 of the Ley General de Sociedades
Mercantiles (General Corporations Law). Such certificates or titles shall
satisfy all the requirements established by the above mentioned precept. In the
event of definitive titles, these shall adherent carry the enumerated nominative
coupons that the Administration Council agrees, in order to support the payment
of dividends; likewise, they will have the condition that Article Fifth of this
statutes refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
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stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to the established within article 136 of the General Corporations Law,
in terms and conditions that the Assembly which solves in the matter disposes.
Titles of amortized stocks will remain cancelled. Once that the total number of
called in stocks is known, the Council will be able to state in text of Article
Sixth of social statutes, the new number of stocks in which the minimal part
will be divided without the right to withdraw capital stock, by means of an act
which will be filed and registered within Registro Publico del Comercio
(Business Public Register), along with the act of the Assembly that has agreed
the amortisation, without the necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
Capital increases will be carried out by means of a capitalization of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
In the capital increases by capitalization of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
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The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the celebration date of the respective Assembly, in the event
that the totality of stocks that the capital stocks is divided, had been
represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and conditions which are not more favourable to those to which they had
been offered to the company's stockholders. When the increase is in the variable
part of the capital stock and whenever the Assembly had determined so, the
stocks which do not remain subscribed could be kept in the company's treasury
for their subsequent investment in the way and terms that the same Assembly or,
by a power conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
Capital stock decreases will be carried out in order to face losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decreases will be registered in the Capital Variations' Book
which the company will carry for that purpose.
CHAPTER III
ADMINISTRATION
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ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public Register), as well as to perform the other necessary or proper acts for
the legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special
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ones that require a special clause according to the law, in terms of
articles 2554, first, second and third paragraphs, and 2587 of the Civil
Code for the Federal District and of the correlative arrangements of the
Mexican Republic states' Civil Codes, as well as for the purposes of
articles 11, 46, 47, 134 fraction III, 523, 692 fractions I, II and III,
687, 876, 878, 883 and 884 of Ley Federal del Trabajo (Work's Federal
Law). Therefore, it will represent the company before all kind of
administrative, judicial, federal, of the state, and municipal
authorities, before all kind of agreement and agreement and arbitration
meetings, as well as other work authorities, and before arbitrators and
arbitrators. The former powers include declarative and not limitatively
faculties to present all class of judgements and resources, even that of
protection, and to desist from them; in order to make concessions,
compromise in arbiters, join together and absolve positions, carry out the
cession of goods, reject and receive payments; to argue about, carry out
and verify collective contracts of work; represent the company before work
authorities in labour matters where the enterprise takes part or third
interested, in the initial audience as well as any of the stages of work
right's process; present complaints and charges of penal character, to
forgive and establish itself in co-operation with the Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (General Law
of Credit Titles and Credit Operations.
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts and operations for the company's
objective, except for those expressly kept by the Law or by these Statutes
to the Assembly.
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ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
CHAPTER IV
VIGILANCE
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ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their position until the designated people for substitute them, take
possession of their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organization and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
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ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
performed them, it will be enough with the signature of the Chairman, Secretary
or Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the indicated hour for the Assembly's celebration. Furthermore, in the same
advance the stockholders shall place the titles or certificates representing
their stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
In accordance with article 178 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: i) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be
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valid at the moment that the Secretary can guarantee the records in writing of
the agreement taken according to a text that had circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favourable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSSES
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ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
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2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
If there were losses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the events
indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will be made in accordance with the disposals of the respective chapter of
General Corporations Law.
CHAPTER VIII
SOCIAL EXERCISES
ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
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EXHIBIT 3.3 - BYLAWS (ESTATUTOS) OF IUSACELL, S.A. de C.V.
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IUSACELL, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "IUSACELL". This denomination must be
followed by the words "Sociedad Anonima de Capital Variable", or its initials
"S.A. de C.V.".
ARTICLE SECOND. The company has as object matter:
1. Purchase and Sale, import, export, distribution, installation, leasing and
in general to enter into every kind of negotiations and contracting with
devices and accessories, parts, pieces and components of cellular
telephony equipment.
2. Promotion and contract by third parties the cellular telephony services
rendering to the public, as well as in domestic as international level.
3. Obtain every kind of loans or credits, issue obligations, bonus, business
paper and any other credit title or similar or equivalent instrument, with
the intervention, in its case, of institutions and authorities signalled
by the applicable laws, constituting, in its case, any kind of guarantee,
of any nature; as well as to grant any kind of financing and guarantee in
behalf of the moral persons that are shareholders of the company, or in
which the company has any interest or participation of any nature, as well
as those in which any shareholder of this one has any economical interest.
4. Subscribe, issue, publish, guarantee and in general, negotiate every kind
of credit titles, as well as accept or endorse them.
5. Negotiate and enter into franchises contracts, obtain, acquire, use,
dispose and register trade marks, names or advertising, patents, invention
certificates and acquire or dispose of every kind of industrial property
rights, as well as author rights and to grant or receive licenses or
authorisations for the use or exploitation of such rights in the country
or abroad.
6. To provide every sort of services or assessorship of technical,
administrative, supervision organisation, marketing, research,
development, engineering, human resources, public relations character and
in general of any kind of services related to its object matter, as well
in the Mexican Republic or abroad and to receive such services.
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7. To grant or take in leasing or commodatum, acquire, possess, permute,
alien, dispose, or lien the property or possession of any kind of
immovable real state, as well as the actual rights over them and personal
rights, necessary or convenient for their social object matter or for the
operations or social object matters or the moral persons that are
shareholders of the company, or in which the company has any interest or
participation of any nature, as well as those in which any shareholder has
any economical interest.
8. Acquire under any legal title shares, interests, participation or social
parts of any kind of mercantile or civil companies, as well as domestic as
foreign.
9. In general, to enter into and perform every deeds, contracts and
operations connected, accessories or accidentals that are needed or
convenient for the performance of the above mentioned object matters.
ARTICLE THIRD. The company's duration is indefinite.
ARTICLE FOURTH. The company's address is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. The company's actual or future foreign shareholders, are
committed legally before Secretaria de Relaciones Exteriores (Foreign Relations
Ministry) to be considered as nationals in respect of the company's shares they
acquire or that belong to them, as well as the assets, concessions rights,
participation or interests that belong to the company, or as well rights and
obligations derived from the contracts in which the company has an agreement
with Mexican authorities, and not to invoke, by the same reason, the protection
of their governments under the penalty, otherwise, to loose in behalf of the
Nation the social shares that they could have acquired.
CHAPTER II
SOCIAL CAPITAL AND SHARES
ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
The minimum fixed social stock without right to withdraw is $100,000.00 (One
hundred thousand pesos 00/100 Domestic Currency) and is divided into 100,000
shares completely subscribed and paid.
Social stock shares are divided in the following Seriess:
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1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to a vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by fraction VIII of Article 125 of the Ley General de Sociedades
Mercantiles (General Corporations Law). Such certificates or titles shall
satisfy all the requirements established by the above mentioned precept. In the
event of definitive titles, these shall adherent carry the enumerated nominative
coupons that the Administration Council agrees, in order to support the payment
of dividends; likewise, they will have the condition that Article Fifth of this
statutes refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to
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the established within article 136 of the General Corporations Law, in terms and
conditions that the Assembly which solves in the matter disposes.
Titles and amortized stocks, will remain cancelled. Once that the total number
of called in stocks is known, the Council will be able to state in text of
Article Sixth of social statutes, the new number of stocks in which the minimal
part will be divided without the right to withdraw capital stock, by means of an
act which will be filed and registered within Registro Publico del Comercio
(Business Public Register), along with the act of the Assembly that has agreed
the amortisation, without the necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
Capital increases will be carried out by means of a capitalisation of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
In the capital increases by capitalisation of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the
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celebration date of the respective Assembly, in the event that the totality of
stocks that the capital stocks is divided, had been represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and conditions which are not more favourable to those to which they had
been offered to the company's stockholders. When the increase is in the variable
part of the capital stock and whenever the Assembly had determined so, the
stocks which do not remain subscribed could be kept in the company's treasury
for their subsequent investment in the way and terms that the same Assembly or,
by a power conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
Capital stock decreases will be carried out in order to face losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decrease will be registered in the Capital Variations' Book
which the company will carry for that purpose.
CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
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All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public Register), as well as to perform the other necessary or proper acts for
the legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special ones that require a special clause according to the
law, in terms of articles 2554, first, second and third paragraphs, and
2587 of the Civil Code for the Federal District and of the correlative
arrangements of the Mexican Republic states' Civil Codes, as well as for
the purposes of articles 11, 46, 47, 134 fraction III, 523, 692 fractions
I, II and III, 687, 876, 878, 883 and 884 of Ley Federal del Trabajo
(Work's Federal Law). Therefore, it will represent the company before all
kind of administrative, judicial, federal, of the state, and
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municipal authorities, before all kind of agreement and agreement and
arbitration meetings, as well as other work authorities, and before
arbitrators and arbitrators. The former powers include declarative and not
limitatively faculties to present all class of judgements and resources,
even that of protection, and to desist from them; in order to make
concessions, compromise in arbiters, join together and absolve positions,
carry out the cession of goods, reject and receive payments; to argue
about, carry out and verify collective contracts of work; represent the
company before work authorities in labour matters where the enterprise
takes part or third interested, in the initial audience as well as any of
the stages of work right's process; present complaints and charges of
penal character, to forgive and establish itself in co-operation with the
Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (Credit
Title's and Operations' General Law).
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts and operations for the company's
objective, except for those expressly kept by the Law or by these Statutes
to the Assembly.
ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
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ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
CHAPTER IV
VIGILANCE
ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their
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position until the designated people for substitute them, take possession of
their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organisation and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
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performed them, it will be enough the signature of the Chairman, Secretary or
Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the indicated hour for the Assembly's celebration. Furthermore, in the same
advance the stockholders shall place the titles or certificates representing
their stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
In accordance with article 143 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: i) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be valid at the moment that the Secretary can guarantee the
records in writing of the agreement taken according to a text that had
circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
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Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favorable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSS
ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
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1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
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If there were loses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the events
indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will be made in accordance with the disposals of the respective chapter of
General Corporations Law.
CHAPTER VIII
SOCIAL EXERCISES
ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
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EXHIBIT 3.4 - BYLAWS (ESTATUTOS) OF SISTEL, S.A. de C.V.
5
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SISTECEL, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "SISTECEL". This denomination must be
followed by the words "Sociedad Anonima de Capital Variable", or its initials
"S.A. de C.V.".
ARTICLE SECOND. The company has as its purpose:
1. The assistance, consultation, training and provision of all classes of
services, for its own account or for third parties, to all classes of persons,
firms and institutions, in the areas of contracts, billing, planning,
management, administration, accounting, finances, auditing, taxes, legal
matters, imports, exports, human resources, programming, computing, analysis,
design and implementation of programs, production, systems, marketing,
publicity, feasibility studies and, in general, all matters and services related
directly with the adminstration and management of firms, businesses and
institutions, providing all administrative, finance, accounting services, as
well as billing, client service and, in general, the installation, operation and
exploitation of those services related to the attention to users of public
radiocommunication services.
2. Provide, install, operate and exploit whatever administrative service,
billing service, customer service, inventory control and, ingeneral, whatever
other service related with public telecommunications services concessioned or
authorized by the Federal Government.
3. The purchase, sale, importation, distribution, installation, leasing and in
general all types of negotiations and contracting with radiocommunication
telephonic devices, in mobile or fixed units, telex, telefax, antennas,
parabolic antennas, cellular telphony and whatever other devices related to the
transmission of communication signals.
4. The purchase, sale, importation, distribution, installation and whatever kind
of negotiation related to parts, pieces or components of equipments for radio,
communication, telephone, telex, telefax, antennas, parablic antennas, cellular
telephony and other dedicated to the transmission of signals.
5. Administer, capacitate and train the technical personnel dedicated to the
installation, operation, maintenance and whatever type of services related to
devices of communication and systems of charging, billing of services, attention
to clients and, in general, the provisin of the services referred to in
paragraph (2) above.
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6. To obtain, under any legal title, all kinds of loans, credits, financings and
all the other necessary resources for the accomplishment of social purposes,
including but not limtied to, the issue of debentures, mortgaging bills,
mortgaging or contractual documents obligations and commercial paper with the
intervention of institutions or authorities that the applicable laws indicate;
as well as to grant, under any legal title, all kinds of loans, credits,
financings, guarantees and all the other necessary resources, with or without a
specific guaranty, in relation to the societies or associations from which it is
owner of stocks or where it has participation, as well as those controlling
societies of this company or those affiliated with this company; that is to say
societies which are controlled by the same person who controls this company.
7. To issue, draw, endorse, accept, guarantee, discount, subscribe, acquire,
convey, alienate and in general negotiate all kinds of credit instruments and
negotiable securities, including but not limited to, stocks, obligations, social
parts or participations in other enterprises or businesses;
8. To obtain, acquire, register, negotiate and grant the use and enjoyment of
all kinds of patents, business trade marks and names, franchises, inventions,
processes, options and rights of authorship; to produce and use work susceptible
of protection through royalties and related rights, as well as to acquire the
ownership of rights over the same and to perform all juridical acts in connetion
therewityh, in the country as well as abroad.
9. To provide all kind of services or assistance of a technical, administrative,
supervisory, organizational, marketing, investigation, development, engineering,
human resources, legal, public relations character and, in general, any kind of
services related to industrial or business activities or to enterprises,
societies and associations, either from the Mexican Republic or abroad and to
receive such services.
10. To acquire, possess, import, export, alienate, build, lease, buy, sell, tax,
mortgage, negotiate, take and grant the use and enjoyment by means of any title
permitted by the Law, of personal properties and real estate, as well as duties
on transfer of property on them and personal rights, which are necessary or
proper for its social objective or for the operations of mercantile or civil
societies in which the company has an interest or participation, as well as
those controlling societies of this company and those affiliates this company,
that is to say societies which are controlled by the same person who controls
this company.
11. To perform all kinds of acts and carry out all kinds of contracts,
agreements and operations, whether civil or mercantile, and the performance of
all necessary acts for the development of its social objective.
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12. To project, organize, administer or take part in the capital, financing and
administration of commercial or civil societies or associations of any class,
either national or foreign.
13. To perform and practice all the other business acts that a Mexican
commercial company can legitimately devote itself to under the terms of the Law.
ARTICLE THIRD. The company's duration is indefinite.
ARTICLE FOURTH. The company's address is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. The company's actual or future foreign shareholders are
committed legally before Secretaria de Relaciones Exteriores (Foreign Relations
Ministry) to be considered as nationals in respect of the company's shares they
acquire or that belong to them, as well as the assets, concessions, rights,
participations or interests that belong to the company, as well rights and
obligations derived from the contracts in which the company has an agreement
with Mexican authorities, and not to invoke, by the same reason, the protection
of their governments under the penalty, in the contrary case, of losing for the
benefit the Nation the social shares that they could have acquired.
CHAPTER II
SOCIAL CAPITAL AND SHARES
ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
The minimum fixed social stock without right to withdraw is $50,000.00 (Fifty
thousand pesos 00/100 Domestic Currency) which is divided in 50,000 shares
completely subscribed and paid.
Social stock shares are divided in the following Seriess:
1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
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The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to one vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by fraction VIII of Article 125 of the Ley General de Sociedades
Mercantiles (General Corporations Law). Such certificates or titles shall
satisfy all the requirements established by the above mentioned precept. In the
event of definitive titles, these shall adherent carry the enumerated nominative
coupons that the Administration Council agrees, in order to support the payment
of dividends; likewise, they will have the condition that Article Fifth of this
statutes refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to the established within article 136 of the General Corporations Law,
in terms and conditions that the Assembly which solves in the matter disposes.
Titles of amortized stocks, will remain cancelled. Once that the total number of
called in stocks is known, the Council will be able to state in text of Article
Sixth of social statutes, the new number of stocks in which the minimal part
will be divided without the right to withdraw capital stock, by means of an act
which will be filed and registered within Registro Publico del Comercio
(Business Public Register),
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along with the act of the Assembly that has agreed the amortisation, without the
necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
Capital increases will be carried out by means of a capitalisation of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
In the capital increases by capitalization of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the celebration date of the respective Assembly, in the event
that the totality of stocks that the capital stocks is divided, had been
represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and
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conditions which are not more favourable to those to which they had been offered
to the company's stockholders. When the increase is in the variable part of the
capital stock and whenever the Assembly had determined so, the stocks which do
not remain subscribed could be kept in the company's treasury for their
subsequent investment in the way and terms that the same Assembly or, by a power
conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
Capital stock decreases will be carried out in order to face losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decreases will be registered in the Capital Variations' Book
which the company will carry for that purpose.
CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
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Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public Register), as well as to perform the other necessary or proper acts for
the legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special ones that require a special clause according to the
law, in terms of articles 2554, first, second and third paragraphs, and
2587 of the Civil Code for the Federal District and of the correlative
arrangements of the Mexican Republic states' Civil Codes, as well as for
the purposes of articles 11, 46, 47, 134 fraction III, 523, 692 fractions
I, II and III, 687, 876, 878, 883 and 884 of Ley Federal del Trabajo
(Work's Federal Law). Therefore, it will represent the company before all
kind of administrative, judicial, federal, of the state, and municipal
authorities, before all kind of agreement and agreement and arbitration
meetings, as well as other work authorities, and before arbitrators and
arbitrators. The former powers include declarative and not limitatively
faculties to present all class of judgements and resources, even that of
protection, and to desist from them; in order to make concessions,
compromise in arbiters, join together and absolve positions, carry out the
cession of goods, reject and receive payments; to argue about, carry out
and verify collective contracts of work; represent the company before work
authorities in labour
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matters where the enterprise takes part or third interested, in the
initial audience as well as any of the stages of work right's process;
present complaints and charges of penal character, to forgive and
establish itself in co-operation with the Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (Credit
Title's and Operations' General Law).
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts and operations for the company's
objective, except for those expressly kept by the Law or by these Statutes
to the Assembly.
ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
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Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
CHAPTER IV
VIGILANCE
ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their position until the designated people for substitute them, take
possession of their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
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CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organisation and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
performed them, it will be enough the signature of the Chairman, Secretary or
Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the
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indicated hour for the Assembly's celebration. Furthermore, in the same advance
the stockholders shall place the titles or certificates representing their
stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
In accordance with article 143 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: i) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be valid at the moment that the Secretary can guarantee the
records in writing of the agreement taken according to a text that had
circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
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ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favorable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSS
ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
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4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
If there were losses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
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CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the events
indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will be made in accordance with the disposals of the respective chapter of
General Corporations Law.
CHAPTER VIII
SOCIAL EXERCISES
ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
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EXHIBIT 3.5 - BYLAWS (ESTATUTOS) OF COMUNICACIONES
CELULARES DE OCCIDENTE, S.A. de C.V.
6
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COMUNICACIONES CELULARES DE OCCIDENTE, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "COMUNICACIONES CELULARES DEL
OCCIDENTE". This denomination will be followed by the words "Sociedad Anonima de
Capital Variable", or its initials "S.A. de C.V.".
ARTICLE SECOND. The company has as its purpose:
1. The installation, operation and commercial exploitation of the public service
of mobile cellular radiotelephony, in accordance with the licenses, permits or
concessions which in its case the Secretaria de Comunicaciones y Transportes
(the Communications and Transportation Ministry) may authorize.
2. Acquire in fee or in leasehold and dispose of all types of personal and real
property, as well as transfer duties, that are necessary for its purpose, and to
obtain all types of loans.
3. To project, organize, administer or take part in the capital, financing and
administration of commercial or civil societies or associations of any class,
either national or foreign.
4. To obtain, under any legal title, all kinds of loans, credits, financings and
all the other necessary resources for the accomplishment of social purposes,
including but not limtied to, the issue of debentures, mortgaging bills,
mortgaging or contractual documents obligations and commercial paper with the
intervention of institutions or authorities that the applicable laws indicate;
as well as to grant, under any legal title, all kinds of loans, credits,
financings, guarantees and all the other necessary resources, with or without a
specific guaranty, in relation to the societies or associations from which it is
owner of stocks or where it has participation, as well as those controlling
societies of this company or those affiliated with this company; that is to say
societies which are controlled by the same person who controls this company.
5. To issue, draw, endorse, accept, guarantee, discount, subscribe, acquire,
convey, alienate and in general negotiate all kinds of credit instruments and
negotiable securities, including but not limited to, stocks, obligations, social
parts or participations in other enterprises or businesses;
6. To obtain, acquire, register, negotiate and grant the use and enjoyment of
all kinds of patents, business trade marks and names, franchises, inventions,
processes, options and rights of authorship; to produce and use work susceptible
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of protection through royalties and related rights, as well as to acquire the
ownership of rights over the same and to perform all juridical acts in connetion
therewityh, in the country as well as abroad.
7. To provide all kind of services or assistance of a technical, administrative,
supervisory, organizational, marketing, investigation, development, engineering,
human resources, legal, public relations character and, in general, any kind of
services related to industrial or business activities or to enterprises,
societies and associations, either from the Mexican Republic or abroad and to
receive such services.
8. To acquire, possess, import, export, alienate, build, lease, buy, sell, tax,
mortgage, negotiate, take and grant the use and enjoyment by means of any title
permitted by the Law, of personal properties and real estate, as well as duties
on transfer of property on them and personal rights, which are necessary or
proper for its social objective or for the operations of mercantile or civil
societies in which the company has an interest or participation, as well as
those controlling societies of this company and those affiliates this company,
that is to say societies which are controlled by the same person who controls
this company.
9. To perform all kinds of acts and carry out all kinds of contracts, agreements
and operations, whether civil or mercantile, and the performance of all
necessary acts for the development of its social objective.
10. To perform and practice all the other business acts that a Mexican
commercial company can legitimately devote itself to under the terms of the Law.
ARTICLE THIRD. The company's duration is indefinite.
ARTICLE FOURTH. The company's domicile is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. It is expressly agreed before the Secretaria de
Relaciones Exteriores (Foreign Relations Ministry) that all foreigners that
acquire a social interest or particiaption in the company whall be considered,
by such act, as Mexican, and it shall be understood that they will agree not to
invoke the protection of their governments under penalty, in the case of breach
of agreement, of losing such interest or participatino for the benefit of the
Nation.
CHAPTER II
SOCIAL CAPITAL AND SHARES
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ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
The minimum fixed social stock without right to withdraw is $5,000,000.00 (Five
Million pesos 27/100 Domestic Currency) and is divided in 5,000,000 shares
completely subscribed and paid.
Social stock shares are divided in the following Seriess:
1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to a vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by fraction VIII of Article 125 of the Ley General de Sociedades
Mercantiles (General Corporations Law). Such certificates or titles shall
satisfy all the requirements established by the above mentioned precept. In the
event of definitive titles, these shall adherent carry the enumerated nominative
coupons that the Administration Council agrees, in order to support the payment
of dividends; likewise, they will have the condition that Article Fifth of this
estatutos (by-laws) refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
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ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to the established within article 136 of the General Corporations Law,
in terms and conditions that the Assembly which solves in the matter disposes.
Titles of amortized stocks will remain cancelled. Once that the total number of
called in stocks is known, the Council will be able to state in text of Article
Sixth of social statutes, the new number of stocks in which the minimal part
will be divided without the right to withdraw capital stock, by means of an act
which will be filed and registered within Registro Publico del Comercio
(Business Public Register), along with the act of the Assembly that has agreed
the amortisation, without the necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
Capital increases will be carried out by means of a capitalization of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
In the capital increases by capitalization of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
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In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the celebration date of the respective Assembly, in the event
that the totality of stocks that the capital stocks is divided, had been
represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and conditions which are not more favourable to those to which they had
been offered to the company's stockholders. When the increase is in the variable
part of the capital stock and whenever the Assembly had determined so, the
stocks which do not remain subscribed could be kept in the company's treasury
for their subsequent investment in the way and terms that the same Assembly or,
by a power conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
Capital stock decreases will be carried out in order to absorb losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decreases will be registered in the Capital Variations' Book
which the company will carry for that purpose.
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CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public Register), as well as to perform the other necessary or proper acts for
the legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
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1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special ones that require a special clause according to the
law, in terms of articles 2554, first, second and third paragraphs, and
2587 of the Civil Code for the Federal District and of the correlative
arrangements of the Mexican Republic states' Civil Codes, as well as for
the purposes of articles 11, 46, 47, 134 fraction III, 523, 692 fractions
I, II and III, 687, 876, 878, 883 and 884 of Ley Federal del Trabajo
(Work's Federal Law). Therefore, it will represent the company before all
kind of administrative, judicial, federal, of the state, and municipal
authorities, before all kind of agreement and agreement and arbitration
meetings, as well as other work authorities, and before arbitrators and
arbitrators. The former powers include declarative and not limitatively
faculties to present all class of judgements and resources, even that of
protection, and to desist from them; in order to make concessions,
compromise in arbiters, join together and absolve positions, carry out the
cession of goods, reject and receive payments; to argue about, carry out
and verify collective contracts of work; represent the company before work
authorities in labour matters where the enterprise takes part or third
interested, in the initial audience as well as any of the stages of work
right's process; present complaints and charges of penal character, to
forgive and establish itself in co-operation with the Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (General Law
of Credit Titles and Credit Operations.
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts
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and operations for the company's objective, except for those expressly
kept by the Law or by these Statutes to the Assembly.
ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
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CHAPTER IV
VIGILANCE
ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their position until the designated people for substitute them, take
possession of their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organization and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
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Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
performed them, it will be enough with the signature of the Chairman, Secretary
or Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the indicated hour for the Assembly's celebration. Furthermore, in the same
advance the stockholders shall place the titles or certificates representing
their stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
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In accordance with article 178 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: i) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be valid at the moment that the Secretary can guarantee the
records in writing of the agreement taken according to a text that had
circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favourable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
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CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSSES
ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
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1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
If there were losses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the events
indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will be made in accordance with the disposals of the respective chapter of
General Corporations Law.
CHAPTER VIII
SOCIAL EXERCISES
ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
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EXHIBIT 3.6 - BYLAWS (ESTATUTOS) OF TELECOMUNICACIONES
DEL GOLFO, S.A. de C.V.
7
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TELECOMUNICACIONES DEL GOLFO, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "TELECOMUNICACIONES DEL GOLFO". This
denomination will be followed by the words "Sociedad Anonima de Capital
Variable", or its initials "S.A. de C.V.".
ARTICLE SECOND. The company has as its purpose:
1. The installation, operation and commercial exploitation of the public service
of mobile cellular radiotelephony, in accordance with the licenses, permits or
concessions which in its case the Secretaria de Comunicaciones y Transportes
(the Communications and Transportation Ministry) may authorize.
2. Provide, install, operate and exploit whatever other public service that
could be concessioned or authorized by the Federal Government.
3. The purchase and sale, importation, distribution, installation, leasing and
in general all types of negotiations and contracting with radiocommunication
telephonic devices, in mobile or fixed units, telex, telefax, antennas,
parabolic antennas, cellular telphony and whatever other devices related to the
transmission of communication signals.
4. Acquire in fee or in leasehold and dispose of all types of personal and real
property, as well as transfer duties, that are necessary for its purpose, and to
obtain all types of loans.
5. To project, organize, administer or take part in the capital, financing and
administration of commercial or civil societies or associations of any class,
either national or foreign.
6. To obtain, under any legal title, all kinds of loans, credits, financings and
all the other necessary resources for the accomplishment of social purposes,
including but not limtied to, the issue of debentures, mortgaging bills,
mortgaging or contractual documents obligations and commercial paper with the
intervention of institutions or authorities that the applicable laws indicate;
as well as to grant, under any legal title, all kinds of loans, credits,
financings, guarantees and all the other necessary resources, with or without a
specific guaranty, in relation to the societies or associations from which it is
owner of stocks or where it has participation, as well as those controlling
societies of this company or those affiliated with this company; that is to say
societies which are controlled by the same person who controls this company.
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7. To issue, draw, endorse, accept, guarantee, discount, subscribe, acquire,
convey, alienate and in general negotiate all kinds of credit instruments and
negotiable securities, including but not limited to, stocks, obligations, social
parts or participations in other enterprises or businesses;
8. To obtain, acquire, register, negotiate and grant the use and enjoyment of
all kinds of patents, business trade marks and names, franchises, inventions,
processes, options and rights of authorship; to produce and use work susceptible
of protection through royalties and related rights, as well as to acquire the
ownership of rights over the same and to perform all juridical acts in connetion
therewityh, in the country as well as abroad.
9. To provide all kind of services or assistance of a technical, administrative,
supervisory, organizational, marketing, investigation, development, engineering,
human resources, legal, public relations character and, in general, any kind of
services related to industrial or business activities or to enterprises,
societies and associations, either from the Mexican Republic or abroad and to
receive such services.
10. To acquire, possess, import, export, alienate, build, lease, buy, sell, tax,
mortgage, negotiate, take and grant the use and enjoyment by means of any title
permitted by the Law, of personal properties and real estate, as well as duties
on transfer of property on them and personal rights, which are necessary or
proper for its social objective or for the operations of mercantile or civil
societies in which the company has an interest or participation, as well as
those controlling societies of this company and those affiliates this company,
that is to say societies which are controlled by the same person who controls
this company.
11. To perform all kinds of acts and carry out all kinds of contracts,
agreements and operations, whether civil or mercantile, and the performance of
all necessary acts for the development of its social objective.
12. To perform and practice all the other business acts that a Mexican
commercial company can legitimately devote itself to under the terms of the Law.
ARTICLE THIRD. The company's duration is indefinite.
ARTICLE FOURTH. The company's domicile is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. It is expressly agreed before the Secretaria de
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Relaciones Exteriores (Foreign Relations Ministry) that all foreigners that
acquire a social interest or particiaption in the company whall be considered,
by such act, as Mexican, and it shall be understood that they will agree not to
invoke the protection of their governments under penalty, in the case of breach
of agreement, of losing such interest or participatino for the benefit of the
Mexican Nation.
CHAPTER II
SOCIAL CAPITAL AND SHARES
ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
The minimum fixed social stock without right to withdraw is $7,692,308.00 (Seven
million, six hundred and ninety-two thousand, three hundred and eight pesos
27/100 Domestic Currency) and is divided in 7,692,308 shares completely
subscribed and paid.
Social stock shares are divided in the following Seriess:
1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to a vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by fraction VIII of Article 125 of the Ley General de Sociedades
Mercantiles (General Corporations Law). Such certificates or titles shall
satisfy all the requirements established by the above mentioned precept. In the
event of definitive titles, these
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shall adherent carry the enumerated nominative coupons that the Administration
Council agrees, in order to support the payment of dividends; likewise, they
will have the condition that Article Fifth of this statutes refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to the established within article 136 of the General Corporations Law,
in terms and conditions that the Assembly which solves in the matter disposes.
Titles of amortized stocks will remain cancelled. Once that the total number of
called in stocks is known, the Council will be able to state in text of Article
Sixth of social statutes, the new number of stocks in which the minimal part
will be divided without the right to withdraw capital stock, by means of an act
which will be filed and registered within Registro Publico del Comercio
(Business Public Register), along with the act of the Assembly that has agreed
the amortisation, without the necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
Capital increases will be carried out by means of a capitalization of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
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In the capital increases by capitalization of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the celebration date of the respective Assembly, in the event
that the totality of stocks that the capital stocks is divided, had been
represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and conditions which are not more favourable to those to which they had
been offered to the company's stockholders. When the increase is in the variable
part of the capital stock and whenever the Assembly had determined so, the
stocks which do not remain subscribed could be kept in the company's treasury
for their subsequent investment in the way and terms that the same Assembly or,
by a power conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
Capital stock decreases will be carried out in order to face losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
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The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decreases will be registered in the Capital Variations' Book
which the company will carry for that purpose.
CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public
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Register), as well as to perform the other necessary or proper acts for the
legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special ones that require a special clause according to the
law, in terms of articles 2554, first, second and third paragraphs, and
2587 of the Civil Code for the Federal District and of the correlative
arrangements of the Mexican Republic states' Civil Codes, as well as for
the purposes of articles 11, 46, 47, 134 fraction III, 523, 692 fractions
I, II and III, 687, 876, 878, 883 and 884 of Ley Federal del Trabajo
(Work's Federal Law). Therefore, it will represent the company before all
kind of administrative, judicial, federal, of the state, and municipal
authorities, before all kind of agreement and agreement and arbitration
meetings, as well as other work authorities, and before arbitrators and
arbitrators. The former powers include declarative and not limitatively
faculties to present all class of judgements and resources, even that of
protection, and to desist from them; in order to make concessions,
compromise in arbiters, join together and absolve positions, carry out the
cession of goods, reject and receive payments; to argue about, carry out
and verify collective contracts of work; represent the company before work
authorities in labour matters where the enterprise takes part or third
interested, in the initial audience as well as any of the stages of work
right's process; present complaints and charges of penal character, to
forgive and establish itself in co-operation with the Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (General Law
of Credit Titles and Credit Operations.
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
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6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts and operations for the company's
objective, except for those expressly kept by the Law or by these Statutes
to the Assembly.
ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
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In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
CHAPTER IV
VIGILANCE
ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their position until the designated people for substitute them, take
possession of their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organization and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
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ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
performed them, it will be enough with the signature of the Chairman, Secretary
or Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the indicated hour for the Assembly's celebration. Furthermore, in the same
advance the stockholders shall place the titles or certificates representing
their stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
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The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
In accordance with article 178 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: ) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be valid at the moment that the Secretary can guarantee the
records in writing of the agreement taken according to a text that had
circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
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In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favourable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSSES
ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
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The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
If there were losses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the events
indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will be made in accordance with the disposals of the respective chapter of
General Corporations Law.
CHAPTER VIII
SOCIAL EXERCISES
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ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
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EXHIBIT 3.7 - BYLAWS (ESTATUTOS) OF SISTEMAS TELEFONICAS
PORTATILES CELULARES S.A. de C.V.
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SISTEMAS TELEFONICOS PORTATILES CELULARES, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "SISTEMAS TELEFONICOS PORTATILES
CELULARES". This denomination will be followed by the words "Sociedad Anonima de
Capital Variable", or its initials "S.A. de C.V.".
ARTICLE SECOND. The company has as its purpose:
1. The installation, operation and commercial exploitation of the public service
of mobile cellular radiotelephony, in accordance with the licenses, permits or
concessions which in its case the Secretaria de Comunicaciones y Transportes
(the Communications and Transportation Ministry) may authorize.
2. Acquire in fee or in leasehold and dispose of all types of personal and real
property, as well as transfer duties, that are necessary for its purpose, and to
obtain all types of loans.
3. To project, organize, administer or take part in the capital, financing and
administration of commercial or civil societies or associations of any class,
either national or foreign.
4. To obtain, under any legal title, all kinds of loans, credits, financings and
all the other necessary resources for the accomplishment of social purposes,
including but not limtied to, the issue of debentures, mortgaging bills,
mortgaging or contractual documents obligations and commercial paper with the
intervention of institutions or authorities that the applicable laws indicate;
as well as to grant, under any legal title, all kinds of loans, credits,
financings, guarantees and all the other necessary resources, with or without a
specific guaranty, in relation to the societies or associations from which it is
owner of stocks or where it has participation, as well as those controlling
societies of this company or those affiliated with this company; that is to say
societies which are controlled by the same person who controls this company.
5. To issue, draw, endorse, accept, guarantee, discount, subscribe, acquire,
convey, alienate and in general negotiate all kinds of credit instruments and
negotiable securities, including but not limited to, stocks, obligations, social
parts or participations in other enterprises or businesses;
6. To obtain, acquire, register, negotiate and grant the use and enjoyment of
all kinds of patents, business trade marks and names, franchises, inventions,
processes, options and rights of authorship; to produce and use work susceptible
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of protection through royalties and related rights, as well as to acquire the
ownership of rights over the same and to perform all juridical acts in connetion
therewityh, in the country as well as abroad.
7. To provide all kind of services or assistance of a technical, administrative,
supervisory, organizational, marketing, investigation, development, engineering,
human resources, legal, public relations character and, in general, any kind of
services related to industrial or business activities or to enterprises,
societies and associations, either from the Mexican Republic or abroad and to
receive such services.
8. To acquire, possess, import, export, alienate, build, lease, buy, sell, tax,
mortgage, negotiate, take and grant the use and enjoyment by means of any title
permitted by the Law, of personal properties and real estate, as well as duties
on transfer of property on them and personal rights, which are necessary or
proper for its social objective or for the operations of mercantile or civil
societies in which the company has an interest or participation, as well as
those controlling societies of this company and those affiliates this company,
that is to say societies which are controlled by the same person who controls
this company.
9. To perform all kinds of acts and carry out all kinds of contracts, agreements
and operations, whether civil or mercantile, and the performance of all
necessary acts for the development of its social objective.
10. To perform and practice all the other business acts that a Mexican
commercial company can legitimately devote itself to under the terms of the Law.
ARTICLE THIRD. The company's duration is indefinite.
ARTICLE FOURTH. The company's domicile is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. It is expressly agreed before the Secretaria de
Relaciones Exteriores (Foreign Relations Ministry) that all foreigners that
acquire a social interest or particiaption in the company whall be considered,
by such act, as Mexican, and it shall be understood that they will agree not to
invoke the protection of their governments under penalty, in the case of breach
of agreement, of losing such interest or participatino for the benefit of the
Nation.
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CHAPTER II
SOCIAL CAPITAL AND SHARES
ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
The minimum fixed social stock without right to withdraw is $5,035,000.00 (Five
million, thirty five thousand pesos Domestic Currency) and is divided in
5,035,000 shares completely subscribed and paid.
Social stock shares are divided in the following Seriess:
1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to a vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by fraction VIII of Article 125 of the Ley General de Sociedades
Mercantiles (General Corporations Law). Such certificates or titles shall
satisfy all the requirements established by the above mentioned precept. In the
event of definitive titles, these shall adherent carry the enumerated nominative
coupons that the Administration Council agrees, in order to support the payment
of dividends; likewise, they will have the condition that Article Fifth of this
statutes refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
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ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to the established within article 136 of the General Corporations Law,
in terms and conditions that the Assembly which solves in the matter disposes.
Titles of amortized stocks will remain cancelled. Once that the total number of
called in stocks is known, the Council will be able to state in text of Article
Sixth of social statutes, the new number of stocks in which the minimal part
will be divided without the right to withdraw capital stock, by means of an act
which will be filed and registered within Registro Publico del Comercio
(Business Public Register), along with the act of the Assembly that has agreed
the amortisation, without the necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
Capital increases will be carried out by means of a capitalization of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
In the capital increases by capitalization of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
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In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the celebration date of the respective Assembly, in the event
that the totality of stocks that the capital stocks is divided, had been
represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and conditions which are not more favourable to those to which they had
been offered to the company's stockholders. When the increase is in the variable
part of the capital stock and whenever the Assembly had determined so, the
stocks which do not remain subscribed could be kept in the company's treasury
for their subsequent investment in the way and terms that the same Assembly or,
by a power conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
Capital stock decreases will be carried out in order to face losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decreases will be registered in the Capital Variations' Book
which the company will carry for that purpose.
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CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public Register), as well as to perform the other necessary or proper acts for
the legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
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1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special ones that require a special clause according to the
law, in terms of articles 2554, first, second and third paragraphs, and
2587 of the Civil Code for the Federal District and of the correlative
arrangements of the Mexican Republic states' Civil Codes, as well as for
the purposes of articles 11, 46, 47, 134 fraction III, 523, 692 fractions
I, II and III, 687, 876, 878, 883 and 884 of Ley Federal del Trabajo
(Work's Federal Law). Therefore, it will represent the company before all
kind of administrative, judicial, federal, of the state, and municipal
authorities, before all kind of agreement and agreement and arbitration
meetings, as well as other work authorities, and before arbitrators and
arbitrators. The former powers include declarative and not limitatively
faculties to present all class of judgements and resources, even that of
protection, and to desist from them; in order to make concessions,
compromise in arbiters, join together and absolve positions, carry out the
cession of goods, reject and receive payments; to argue about, carry out
and verify collective contracts of work; represent the company before work
authorities in labour matters where the enterprise takes part or third
interested, in the initial audience as well as any of the stages of work
right's process; present complaints and charges of penal character, to
forgive and establish itself in co-operation with the Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (General Law
of Credit Titles and Credit Operations.
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts
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and operations for the company's objective, except for those expressly
kept by the Law or by these Statutes to the Assembly.
ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
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CHAPTER IV
VIGILANCE
ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their position until the designated people for substitute them, take
possession of their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organization and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
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Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
performed them, it will be enough with the signature of the Chairman, Secretary
or Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the indicated hour for the Assembly's celebration. Furthermore, in the same
advance the stockholders shall place the titles or certificates representing
their stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
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In accordance with article 178 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: ) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be valid at the moment that the Secretary can guarantee the
records in writing of the agreement taken according to a text that had
circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favourable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
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CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSSES
ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
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1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
If there were losses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the events
indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will be made in accordance with the disposals of the respective chapter of
General Corporations Law.
CHAPTER VIII
SOCIAL EXERCISES
ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
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EXHIBIT 3.8 - BYLAWS (ESTATUTOS) OF INMOBILIARIA MONTES URALES
460, S.A. de C.V.
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INMOBILIARIA MONTES URALES 460, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "INMOBILIARIA MONTES URALES 460". This
denomination must be followed by the words "Sociedad Anonima de Capital
Variable", or its initials "S.A. de C.V.".
ARTICLE SECOND. The company has as its purpose:
1. Purchaser or in whatever other form acquire, sell, or in whatever other form
alienate landed property, land and real estate in general.
2. Construct, reconstruct, modify, adapat homes and buildings whether it be for
habitation, commercial , industrial or agricultural use.
3. Improve and divide land for its own and others' account.
4. Realize all kinds of public and private works.
5. Give or take in lease real estate assets and administer them.
6. Give or receive in lease machinery, equipment and transporation for
construction.
7. Purchase and sale of all kinds of primary materials, materials, articles,
equipment and machinery for construction and decoration.
8. To project, organize, administer or take part in the capital, financing and
administration of commercial or civil societies or associations of any class,
either national or foreign.
9. To obtain, under any legal title, all kinds of loans, credits, financings and
all the other necessary resources for the accomplishment of social purposes,
including but not limtied to, the issue of debentures, mortgaging bills,
mortgaging or contractual documents obligations and commercial paper with the
intervention of institutions or authorities that the applicable laws indicate;
as well as to grant, under any legal title, all kinds of loans, credits,
financings, guarantees and all the other necessary resources, with or without a
specific guaranty, in relation to the societies or associations from which it is
owner of stocks or where it has participation, as well as those controlling
societies of this company or those affiliated with this company; that is to say
societies which are controlled by the same person who controls this company.
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10. To issue, draw, endorse, accept, guarantee, discount, subscribe, acquire,
convey, alienate and in general negotiate all kinds of credit instruments and
negotiable securities, including but not limited to, stocks, obligations, social
parts or participations in other enterprises or businesses;
11. To obtain, acquire, register, negotiate and grant the use and enjoyment of
all kinds of patents, business trade marks and names, franchises, inventions,
processes, options and rights of authorship; to produce and use work susceptible
of protection through royalties and related rights, as well as to acquire the
ownership of rights over the same and to perform all juridical acts in connetion
therewityh, in the country as well as abroad.
12. To provide all kind of services or assistance of a technical,
administrative, supervisory, organizational, marketing, investigation,
development, engineering, human resources, legal, public relations character
and, in general, any kind of services related to industrial or business
activities or to enterprises, societies and associations, either from the
Mexican Republic or abroad and to receive such services.
13. To acquire, possess, import, export, alienate, build, lease, buy, sell, tax,
mortgage, negotiate, take and grant the use and enjoyment by means of any title
permitted by the Law, of personal properties and real estate, as well as duties
on transfer of property on them and personal rights, which are necessary or
proper for its social objective or for the operations of mercantile or civil
societies in which the company has an interest or participation, as well as
those controlling societies of this company and those affiliates this company,
that is to say societies which are controlled by the same person who controls
this company.
14. To perform all kinds of acts and carry out all kinds of contracts,
agreements and operations, whether civil or mercantile, and the performance of
all necessary acts for the development of its social objective.
15. To perform and practice all the other business acts that a Mexican
commercial company can legitimately devote itself to under the terms of the Law.
ARTICLE THIRD. The company's duration is indefinite.
ARTICLE FOURTH. The company's address is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. It is expressly agreed before the Secretaria de
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Relaciones Exteriores (Foreign Relations Ministry) that all foreigners that
acquire a social interest or particiaption in the company whall be considered,
by such act, as Mexican, and it shall be understood that they will agree not to
invoke the protection of their governments under penalty, in the case of breach
of agreement, of losing such interest or participatino for the benefit of the
Mexican Nation.
CHAPTER II
SOCIAL CAPITAL AND SHARES
ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
The minimum fixed social stock without right to withdraw is $50,000.00 (Fifty
thousand pesos 00/100 Domestic Currency) which is divided in 100 shares
completely subscribed and paid.
Social stock shares are divided in the following Seriess:
1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to one vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by fraction VIII of Article 125 of the Ley General de Sociedades
Mercantiles (General Corporations Law). Such certificates or titles shall
satisfy all the requirements established by the above mentioned precept. In the
event of definitive titles, these shall adherent carry the enumerated nominative
coupons that the Administration
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Council agrees, in order to support the payment of dividends; likewise, they
will have the condition that Article Fifth of this statutes refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to the established within article 136 of the General Corporations Law,
in terms and conditions that the Assembly which solves in the matter disposes.
Titles of amortized stocks, will remain cancelled. Once that the total number of
called in stocks is known, the Council will be able to state in text of Article
Sixth of social statutes, the new number of stocks in which the minimal part
will be divided without the right to withdraw capital stock, by means of an act
which will be filed and registered within Registro Publico del Comercio
(Business Public Register), along with the act of the Assembly that has agreed
the amortisation, without the necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
Capital increases will be carried out by means of a capitalisation of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
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In the capital increases by capitalization of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the celebration date of the respective Assembly, in the event
that the totality of stocks that the capital stocks is divided, had been
represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and conditions which are not more favourable to those to which they had
been offered to the company's stockholders. When the increase is in the variable
part of the capital stock and whenever the Assembly had determined so, the
stocks which do not remain subscribed could be kept in the company's treasury
for their subsequent investment in the way and terms that the same Assembly or,
by a power conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
Capital stock decreases will be carried out in order to face losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
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The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decrease will be registered in the Capital Variations' Book
which the company will carry for that purpose.
CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public Register), as well as to perform the other necessary or proper acts for
the
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legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special ones that require a special clause according to the
law, in terms of articles 2554, first, second and third paragraphs, and
2587 of the Civil Code for the Federal District and of the correlative
arrangements of the Mexican Republic states' Civil Codes, as well as for
the purposes of articles 11, 46, 47, 134 fraction III, 523, 692 fractions
I, II and III, 687, 876, 878, 883 and 884 of Ley Federal del Trabajo
(Work's Federal Law). Therefore, it will represent the company before all
kind of administrative, judicial, federal, of the state, and municipal
authorities, before all kind of agreement and agreement and arbitration
meetings, as well as other work authorities, and before arbitrators and
arbitrators. The former powers include declarative and not limitatively
faculties to present all class of judgements and resources, even that of
protection, and to desist from them; in order to make concessions,
compromise in arbiters, join together and absolve positions, carry out the
cession of goods, reject and receive payments; to argue about, carry out
and verify collective contracts of work; represent the company before work
authorities in labour matters where the enterprise takes part or third
interested, in the initial audience as well as any of the stages of work
right's process; present complaints and charges of penal character, to
forgive and establish itself in co-operation with the Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (Credit
Title's and Operations' General Law).
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
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6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts and operations for the company's
objective, except for those expressly kept by the Law or by these Statutes
to the Assembly.
ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
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In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
CHAPTER IV
VIGILANCE
ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their position until the designated people for substitute them, take
possession of their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organisation and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
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ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
performed them, it will be enough the signature of the Chairman, Secretary or
Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the indicated hour for the Assembly's celebration. Furthermore, in the same
advance the stockholders shall place the titles or certificates representing
their stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
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The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
In accordance with article 143 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: i) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be valid at the moment that the Secretary can guarantee the
records in writing of the agreement taken according to a text that had
circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
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In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favorable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSS
ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
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The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
If there were losses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the events
indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will be made in accordance with the disposals of the respective chapter of
General Corporations Law.
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CHAPTER VIII
SOCIAL EXERCISES
ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
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EXHIBIT 3.9 - BYLAWS (ESTATUTOS) OF IUSANET, S.A. de C.V.
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IUSANET, S.A. DE C.V.
CHAPTER I
DENOMINATION, PURPOSE, DURATION,
DOMICILE AND NATIONALITY
ARTICLE FIRST. The company is denominated "IUSANET". This denomination must be
followed by the words "Sociedad Anonima de Capital Variable", or its initials
"S.A. de C.V.".
ARTICLE SECOND. The company has as object matter:
1. Purchase and Sale, import, export, distribution, installation, leasing and in
general to enter into every kind of negotiations and contracting with
radioteephony devices in mobile, fixed or portable units, telex, telefax,
antennas, parabolic antenas and radiotelephony accessories and whatever other
device or service related with the transport of communication signals.
2. The provision to the public of telecommunications services, whithin which are
understood to be included, in special manner the provision of national and
international mobile radiotelephony services. For the development of this
activity, the company may celebrate all acts or contracts that may be necessary
to exploit this purpose.
3. The purchase, sale, importation, distribution, installation and whatever type
of negotiation related with parts, pieces and components of radiocommunication
equipment, telephones, telex, telefax, antennas, parabolic antennas, cellular
radiotelephones and other dedicated to the transmission of signals.
4. To obtain, under any legal title, all kinds of loans, credits, financings and
all the other necessary resources for the accomplishment of social purposes,
including but not limtied to, the issue of debentures, mortgaging bills,
mortgaging or contractual documents obligations and commercial paper with the
intervention of institutions or authorities that the applicable laws indicate;
as well as to grant, under any legal title, all kinds of loans, credits,
financings, guarantees and all the other necessary resources, with or without a
specific guaranty, in relation to the societies or associations from which it is
owner of stocks or where it has participation, as well as those controlling
societies of this company or those affiliated with this company; that is to say
societies which are controlled by the same person who controls this company.
5. To issue, draw, endorse, accept, guarantee, discount, subscribe, acquire,
convey, alienate and in general negotiate all kinds of credit instruments and
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negotiable securities, including but not limited to, stocks, obligations, social
parts or participations in other enterprises or businesses;
6. To obtain, acquire, register, negotiate and grant the use and enjoyment of
all kinds of patents, business trade marks and names, franchises, inventions,
processes, options and rights of authorship; to produce and use work susceptible
of protection through royalties and related rights, as well as to acquire the
ownership of rights over the same and to perform all juridical acts in connetion
therewityh, in the country as well as abroad.
7. To provide all kind of services or assistance of a technical, administrative,
supervisory, organizational, marketing, investigation, development, engineering,
human resources, legal, public relations character and, in general, any kind of
services related to industrial or business activities or to enterprises,
societies and associations, either from the Mexican Republic or abroad and to
receive such services.
8. To acquire, possess, import, export, alienate, build, lease, buy, sell, tax,
mortgage, negotiate, take and grant the use and enjoyment by means of any title
permitted by the Law, of personal properties and real estate, as well as duties
on transfer of property on them and personal rights, which are necessary or
proper for its social objective or for the operations of mercantile or civil
societies in which the company has an interest or participation, as well as
those controlling societies of this company and those affiliates this company,
that is to say societies which are controlled by the same person who controls
this company.
9. To perform all kinds of acts and carry out all kinds of contracts, agreements
and operations, whether civil or mercantile, and the performance of all
necessary acts for the development of its social objective.
10. To project, organize, administer or take part in the capital, financing and
administration of commercial or civil societies or associations of any class,
either national or foreign; and
11. To perform and practice all the other business acts that a Mexican
commercial company can legitimately devote itself to under the terms of the Law.
ARTICLE THIRD. The company's duration is undefined.
ARTICLE FOURTH. The company's address is at Mexico City, Federal District, but
the company can establish branches, agencies or offices and to appoint
conventional addresses in any other place of the Mexican Republic or abroad,
without such social address is understood as changed.
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ARTICLE FIFTH. The company is Mexican and will be governed by the Mexican United
States applicable laws. The company's actual or future foreign shareholders are
committed legally before Secretaria de Relaciones Exteriores (Foreign Relations
Ministry) to be considered as nationals in respect of the company's shares they
acquire or that belong to them, as well as the assets, concession rights,
participations or interests that belong to the company, or as well as rights and
obligations derived from the contracts in which the company has an agreement
with Mexican authorities, and not to invoke, by the same reason, the protection
of their governments under the penalty, in the contrary case, of losing for the
benefit of the Nation the social shares that they have acquired.
CHAPTER II
SOCIAL CAPITAL AND SHARES
ARTICLE SIXTH. The social capital is variable and is represented by ordinary and
nominal shares, without nominal value expression.
The minimum fixed social stock without right to withdraw is $100,000.00 (One
thousand pesos 00/100) Domestic Currency and 100,000 shares completely
subscribed and paid.
Social stock shares are divided in the following Seriess:
1. Series "A", integrated by shares that represent a 51% of the social stock,
that will only be able to be acquired by Mexican investors, with the
exceptions foreseen in the applicable rule laws and guidelines.
2. Series "B", integrated by shares that represent a 49% of the social stock,
that will be able to be acquired by Mexican and foreign investors.
The stockholders Assembly that agree to increase the social stock, will fix the
shares characteristics issued for such effect, establishing sub-seriess if they
wish for each series.
ARTICLE SEVENTH. The stocks are indivisible and, within their respective Series,
will confer to their holders the same rights and obligations. Each stock will
give the right to a vote in the Stockholders Assemblies.
The stocks in circulation have the right to participate equally in the payment
of dividends or other distribution including that which takes place as a
consequence of the company's liquidation.
The provisional certificates and stocks' definitive titles, will be able to
support one or more stocks and will be signed by 2 owner members of the
Administration Council, whose signature could be printed in facsimile in terms
of the disposed by
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fraction VIII of Article 125 of the Ley General de Sociedades Mercantiles
(General Corporations Law). Such certificates or titles shall satisfy all the
requirements established by the above mentioned precept. In the event of
definitive titles, these shall adherent carry the enumerated nominative coupons
that the Administration Council agrees, in order to support the payment of
dividends; likewise, they will have the condition that Article Fifth of this
statutes refers.
In case of a loss, destruction or robbery of the stocks' titles, the owner will
be able to demand the replacement in accordance with those disposed by Ley
General de Titulos y Operaciones de Credito (Credit Operations and Titles'
General Law). Expenses originated due to this reason, will be at the expense of
the applicant.
ARTICLE EIGHTH. For the purposes of Article 128 of Ley General de Sociedades
Mercantiles (General Corporations Law), the company will keep a Stocks Register
where all subscription, acquisition or transmission operations that the capital
stock's representative stocks are object shall be registered, with the
expression of the former subscriber, acquirer or owner and the new stockholder.
By the decision of the Stockholders Extraordinary General Assembly, the company
will be able to acquire the representative stocks of its capital stock, for its
amortisation against sharing profits. The acquisition will be carried out
according to the established within article 136 of the General Corporations Law,
in terms and conditions that the Assembly which solves in the matter disposes.
Titles and amortised stocks, will remain cancelled. Once that the total number
of called in stocks is known, the Council will be able to state in text of
Article Sixth of social statutes, the new number of stocks in which the minimal
part will be divided without the right to withdraw capital stock, by means of an
act which will be filed and registered within Registro Publico del Comercio
(Business Public Register), along with the act of the Assembly that has agreed
the amortisation, without the necessity of a new Assembly's resolution.
ARTICLE NINTH. The company's fixed minimal capital, could be only increased by
the determination of the Stockholders Extraordinary General Assembly.
Increases in the capital stock's variable part, will be carried out by the
determination of the Stockholders Ordinary General Assembly.
No increase will be able to be decreed before the stocks previously issued are
paid integrally.
When taking an agreement about capital increase, the respective Stockholders
Assembly or any subsequent Stockholders Assembly will fix terms and basis in
which such increase shall be carried out.
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Capital increases will be carried out by means of a capitalisation of countable
capital accounts, according to article 116 of General Corporations Law. or by a
contribution in cash or in kind.
In the capital increases by capitalisation of countable capital accounts, all
stocks will have the right to the proportional part that belongs to such
accounts according to their sharing holding.
In capital increases, stocks Series "A"" and "B" shall be issued in the foreseen
proportions for each within article Sixth of these statutes.
In payable capital increases by means of a contribution in cash or in kind, the
holders of stocks of a Series will have the preferential right to subscribe the
new stocks which are issued from the same Series, in proportion to the number of
stocks they are holders at the moment of the increase.
The stockholders shall exercise their preference right within the term and on
the conditions that the Assembly which determines the capital increase
establishes for that purpose, on the understanding that the term will not be of
less than 15 days nor more than 30 days and that the same will be calculated as
of the publication date of the corresponding advice within Diario Oficial de la
Federacion as of the celebration date of the respective Assembly, in the event
that the totality of stocks that the capital stocks is divided, had been
represented in the same.
If after the end of the term during which the stockholders shall exercise the
preference right, some stocks had still remained without being subscribed, these
could be offered by the Administration Council for their subscription and
payment, to the physical or moral persons that the own Council determines,
according to lineaments that the Stockholder Assembly had agreed but always in
terms and conditions which are not more favourable to those to which they had
been offered to the company's stockholders. When the increase is in the variable
part of the capital stock and whenever the Assembly had determined so, the
stocks which do not remain subscribed could be kept in the company's treasury
for their subsequent investment in the way and terms that the same Assembly or,
by a power conferred of this, the Administration Council determines.
All increase of capital stock shall be registered in the Capital Variations'
Book which the company will carry for that purpose.
ARTICLE TENTH. The company's fixed minimal capital, could be only decreased by
the determination of the Stockholders Extraordinary General Assembly.
Decreases of the capital variable part, will be carried out by the Stockholders
Ordinary Assembly's decision.
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Capital stock decreases will be carried out in order to face losses, to carry
out reimbursements to the stockholders or exempt them from non-accomplished
exhibitions.
The capital stock's reduction motivated by losses or reimbursements, in this
last event unless it is a reimbursement by withdrawal, will be proportionally
carried out with regard to all stocks in circulation.
All capital stock decrease will be registered in the Capital Variations' Book
which the company will carry for that purpose.
CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The company's administration will be under the charge of an
Administration Council composed by the odd number of owner members and their
respective substitutes, that the Stockholders Assembly determines.
From the owner Advisers, half and one of them will be designated by stockholders
of Series "A" and recognised as Advisers of Series "A"; and the rest of them
will be designated by stockholders of Series "B" and recognised as Advisers of
Series "B".
All stockholder or group of stockholders that represent a 25% of the capital
stock, will have the right to designate an owner Adviser and, in its case, his
respective substitute.
The substitute Advisers will only operate in absence of his respective owner
Adviser.
Advisers will not require to guarantee the performance of their duty.
ARTICLE TWELFTH. Whoever the Stockholders Assembly designates will operate as
Chairman of the Administration Council. In case of the temporal absence of the
Chairman, the Adviser denominated by the other Advisers will act as such.
The Administration Council or, in lack of it, the Stockholders Assembly, will
also be able to designate its Secretary and Substitute, who will not need to be
Advisers. It will also be able to designate the people who will occupy the other
positions which are established for the better performance of their functions.
Copies or records of session acts of the Council and Stockholders Assemblies, as
well as sites included in non-accounted social registers and books, will be
authorised by the Secretary.
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The Chairman and Secretary are empowered, jointly or separately, to arrange the
protocol of session acts of the Council or Assemblies, to grant and ratify
powers that in their respective concern confer the Assembly or Council and, in
its case, to arrange the registration in the Registro Publico de Comercio (Trade
Public Register), as well as to perform the other necessary or proper acts for
the legislation of such acts and in order that the taken determinations that are
recorded on them, have completely the desired effects.
ARTICLE THIRTEENTH. The Administrative Council will have the company's legal
representation and, except for the matters that the law or these statutes keep
in an exclusive way to the Stockholders Assembly, it will be invested with the
following powers:
1. General power for lawsuits and collections, for administration acts,
including labour administration, and for rule acts, with all the general
faculties and special ones that require a special clause according to the
law, in terms of articles 2554, first, second and third paragraphs, and
2587 of the Civil Code for the Federal District and of the correlative
arrangements of the Mexican Republic states' Civil Codes, as well as for
the purposes of articles 11, 46, 47, 134 fraction III, 523, 692 fractions
I, II and III, 687, 876, 878, 883 and 884 of Ley Federal del Trabajo
(Work's Federal Law). Therefore, it will represent the company before all
kind of administrative, judicial, federal, of the state, and municipal
authorities, before all kind of agreement and agreement and arbitration
meetings, as well as other work authorities, and before arbitrators and
arbitrators. The former powers include declarative and not limitatively
faculties to present all class of judgements and resources, even that of
protection, and to desist from them; in order to make concessions,
compromise in arbiters, join together and absolve positions, carry out the
cession of goods, reject and receive payments; to argue about, carry out
and verify collective contracts of work; represent the company before work
authorities in labour matters where the enterprise takes part or third
interested, in the initial audience as well as any of the stages of work
right's process; present complaints and charges of penal character, to
forgive and establish itself in co-operation with the Public Ministry.
2. To subscribe and at any way negotiate credit titles, in terms of article
Ninth of the Ley General de Titulos y Operaciones de Credito (Credit
Title's and Operations' General Law).
3. To open and cancel bank accounts at the company's name, as well as to
deposit and draw on them and designate people who draw on the same.
4. To name and dismiss the legal representatives, civil servants, agents and
employees of the company and to determine their responsibilities,
guaranties and remuneration.
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5. To summon to Stockholders' General, Ordinary and Extraordinary Assemblies,
and to carry out their resolutions.
6. To confer general or special powers, always keeping the exercise of the
same, as well as to revoke the powers it granted.
7. To carry out the Assembly agreements, delegate its faculties on any or
some of the counsellors, on the Director or Manager or on the legal
representatives or agents that it designates for the purpose, in order
that they practice them in the business or business transactions and in
terms and conditions that the same Council indicates, and in general to
accomplish the necessary or proper acts and operations for the company's
objective, except for those expressly kept by the Law or by these Statutes
to the Assembly.
ARTICLE FOURTEENTH. The Administration's Council Chairman will preside over
sessions of the own Council; he will fulfil the agreements of Assemblies and the
Council without the necessity of any special resolution, and will have the other
faculties and obligations that the General Corporations Law establishes and
which the Administration Council confers expressly to it.
ARTICLE FIFTEENTH. The Council will gather in the periodicity that the same
determines or when it is summoned by its Chairman or either one or the other
Adviser.
The summons for the Council's sessions shall be sent to the Advisers by mail,
telegram or a messenger, at least 5 days before the session's date. It is
necessary that the summon is sent to the Advisers who live out of the social
residence by telegram or telecopy, with the same anticipation.
Sessions could be carried out without the necessity of that advice if all the
Advisers or their respective substitutes are present.
ARTICLE SIXTEENTH. In order that the Administration's Council sessions are
considered legally installed, it is necessary the attendance of most of its
members including one of the Advisers of Series "A" and one of Series "B". The
resolutions will be valid when the present members are approved by the majority
of votes, with the condition that they have the favourable vote of one of the
Advisers of Series "A" and one of Series "B". In case of draw, the
Administration Council's Chairman will not have vote of quality.
Each Council's session acts will be registered in the book held for the purpose
and will be signed by the Chairman, Secretary and Commissioner(s) who attended.
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The Administration's Council sessions shall be carried out in the company's
address, except when the own Council believe appropriate to carried them out at
other place within the domestic territory or abroad.
In accordance with article 143 of General Corporations Law, the Administration's
Council resolutions will be validly taken without the necessity of carrying out
a session of the Administration Council only if: i) the affirmative vote of all
Advisers or acting Substitute Advisers is obtained, and ii) the resolutions are
confirmed in writing. The resolution will be valid at the moment that the
Secretary can authorise the records in writing of the agreement adopted
according to a text that has circulated for that purpose.
CHAPTER IV
VIGILANCE
ARTICLE SEVENTEENTH. The company's vigilance will be entrusted to one or more
Commissioners as the Stockholders Assembly who will have their respective
substitutes determines,
The Commissioner(s) will not need to be stockholders of the company; they will
be on their position one year and could be re-elected; but at all events will
hold their position until the designated people for substitute them, take
possession of their duties.
The Commissioner or Commissioners will have the power and obligations enumerated
in article 166 of General Corporations Law, as well as all those delegated by
the Stockholders General Assembly.
The Commissioners will not required to guarantee the performance of their
duties.
CHAPTER V
STOCKHOLDERS' ASSEMBLIES
ARTICLE EIGHTEENTH. The Stockholders' Assembly is the company's supreme
organisation and its meetings will take place in the social residence.
The Stockholders Assemblies will be Extraordinary General and Ordinary General.
Except for the foreseen in these Statutes for increases and decreases of capital
stock, the General Assemblies that are summoned to talk about any of the
subjects included within article 182 of General Corporations Law, will be
Extraordinary. All the remaining ones will be Ordinary General Assemblies.
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Ordinary General Assemblies will be carried out at least once a year, within the
4 following months to the closing of each social exercise. Furthermore Order of
the day matters, that article 181 of General Corporations Law refers, including
the presentation to stockholders of the report that the general headline of
article 172 of the above mentioned Law refers.
ARTICLE NINTEENTH. Summons for Stockholder Assemblies shall be made by the
Administration Council or by the Chairman, Secretary, any of the Advisers or
Commissioners. Likewise, the stockholders that represent at least 33% of the
capital stock, will be able to ask in writing, at any time, that the
Administration Council of the Commissioner or Commissioners summon a
Stockholders Assembly to discuss about the matters they specify in the
application.
Any stockholder owner of a stock will have the same right at any event that
article 185 of General Corporations Law refers and according to the proceeding
that the same establishes.
ARTICLE TWENTIETH. The summons for Assemblies shall be published within Diario
Oficial de la Federacion and in one of the most important newspapers in the
social residence, at least 15 days before the date indicated for the Assembly.
The summons will have the Order of the day and shall be signed by the person or
persons who perform them, in the opinion that if the Administration Council
performed them, it will be enough the signature of the Chairman, Secretary or
Substitute Secretary.
The Assemblies will be carried out without a previous summon, if the capital
stock was completely represented in the voting moment.
ARTICLE TWENTY-FIRST. In order to attend to the Assemblies, the stockholders
shall show the corresponding admission card, which will be issued only at the
request of the people who are registered as titular of stocks in the company's
Stocks Register, application that shall be presented at least 48 hours before
the indicated hour for the Assembly's celebration. Furthermore, in the same
advance the stockholders shall place the titles or certificates representing
their stocks with the company or show a record of the deposit of the same in an
authorised institution for it.
For the purposes of attendance to the Assemblies, the Stocks Register will be
closed 48 hours before the fixed date for the celebration of the Assemblies it
is about.
The stocks placed in order to have the right to attend the Assembly, will be
given back only after the celebration of it, by delivering the receipt that due
to them had been given to the stockholder.
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ARTICLE TWENTY-SECOND. The stockholders can be represented in Assemblies by the
person or persons that they designate by a certificate document signed after two
witnesses.
The Administration Council's members and the Commissioner(s) will not be able to
represent the stockholders at any assembly.
In the events that according to these statutes the stockholders who have stocks
of only one Series shall vote separately, or that their votes shall be
calculated separately, the respective voting or calculation will be carried out
within the own General Assembly that corresponds.
In accordance with article 143 of the General Corporations Law, the resolutions
of the Stockholders' Assemblies will be validly taken without the necessity of
carrying out a physical assembly only if: i) the affirmative vote of all the
stockholders is obtained, and ii) the resolutions are confirmed in writing. The
resolution will be valid at the moment that the Secretary can guarantee the
records in writing of the agreement taken according to a text that had
circulated for that purpose.
ARTICLE TWENTY-THIRD. The Assemblies will be presided by the Administration
Council's Chairman or, in his absence, by the person designated by the majority
of votes of the present stockholders. As Secretary will operate the one of the
Administration Council or, in his absence, the Substitute Secretary; and in the
absence of both, the post will be held by the person designated by the majority
of votes of the present stockholders.
The Assembly acts will be registered in the respective book and will be signed
by the Chairman and Secretary of the Assembly, as well as by the Commissioner(s)
that attend to it.
ARTICLE TWENTY-FOURTH. In order that a Stockholders' Ordinary General Assembly
is considered legally joined by virtue of the first summon, shall be represented
on it at lest 51% of the stocks in circulation.
In the event of the second summon and except for that indicated in the following
paragraph, the Stockholders' Ordinary Assemblies could be validly carried out
whichever is the number of stocks in circulation that are represented in the
Assembly.
In order that the resolutions of the Ordinary Assembly are validly taken, as a
result of the first or subsequent summon, the attendance will be necessary and
the fact that they are favourably voted by the majority of votes of stocks of
Series "A" and by the majority of votes of stocks of Series "B".
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ARTICLE TWENTY-FIFTH. In order that a Stockholders' Extraordinary General
Assembly is considered legally joined by virtue of the first summon, shall be
represented on it by at least 75% of the stocks in circulation.
In the event of a second or subsequent summon, the Stockholders' Extraordinary
Assemblies will be validly carried out if in them is represented at least the
51% of the stocks in circulation.
So that the resolutions of the Extraordinary Assembly are validly taken, as a
result of a first or subsequent summon, it will be necessary that they are
favorable voted by the majority of votes of the stocks in Series "A" and by the
majority of votes of the stocks in Series "B".
CHAPTER VI
FINANCIAL INFORMATION
PROFITS AND LOSS
ARTICLE TWENTY-SIXTH. Within the following 3 months to the closing of each
social exercise, the Administration Council prepares, at least, the following
financial information:
1. A report of the Administration Council about the progress of the company
in the exercise, as well as the policies followed by the Council and, in
its case, about the main existent projects.
2. A report where main policies, countable and of information criteria
followed in the preparation of financial information are stated and
explained.
3. A statement that shows the company's financial condition at the date of
the exercise closing.
4. A statement that shows, duly explained and classified, the results of the
company during the exercise.
5. A statement that shows changes in the company's financial condition during
the exercise.
6. A statement that shows changes in the entries which integrate the social
patrimony, occurred during the exercise; and
7. The necessary notes to complete or explain the information that the former
statements supply.
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ARTICLE TWENTY-SEVENTH. The report that the former article refers, jointly with
the Commissioner or Commissioners' reports, shall be finished and at the
disposal of the stockholders, along with the proving documentation, at least 15
days before the Assembly that had to discuss about them.
The stockholders will have the right of receiving a copy of the corresponding
reports.
ARTICLE TWENTY-EIGHTH. Once fulfilled the deductions of Law, including, in a
declarative way, the relative to the payment of the Tax over Revenue, annual net
profits that show the financial statements approved by the Assembly, they will
be applied as follows:
1. The 5% to the legal reserve fund, until the same is equivalent, at least,
to the 20% of the capital stock;
2. The percentage that Assembly determines to constitute, increase and
rebuild capital reserves and foresight, reinvestment and special of
reserve's funds, that it consider convenient; and
3. The remnant, if it existed, for the purpose that the Stockholders'
Ordinary Assembly determines.
If there were loses, they will be reported by stockholders in proportion to the
number of their stocks and up to the value paid for them.
ARTICLE TWENTY-NINTH. The dividends that are not collected within 5 years
reckoned as of the date in which the payment began, are understood as waived and
prescribe in favour of the company, according to the laws in force, having to
endorse them to the ordinary reserve's fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTIETH. The company will go into liquidation in any of the
events indicated within article 229 of General Corporations Law.
ARTICLE THIRTY-FIRST. Once the company is dissolved, this will go into
liquidation, the same that will be under the charge of the person or persons
that the Stockholders Extraordinary General Assembly determines.
ARTICLE THIRTY-SECOND. The liquidation will be performed in attachment to the
resolutions that the stockholders take when agreeing or stating the company's
dissolution. Not having special resolutions from the Assembly, the liquidation
will
Page 13
<PAGE>
be made in accordance with the disposals of the respective chapter of General
Corporations Law.
CHAPTER VIII
SOCIAL EXERCISES
ARTICLE THIRTY-THIRD. Social exercises will last one year, reckoned as of
January 1st, to December 31st of each year.
Page 14
EXHIBIT 3.10 - BYLAWS (ESTATUTOS) OF MEXICAN CELLULAR
INVESTMENTS, INC.
11
<PAGE>
BYLAWS
OF
MEXICAN CELLULAR INVESTMENTS, INC.
(FORMERLY KNOWN AS BELLSOUTH MEXICO, INC.)
AS OF SEPTEMBER 24, 1993
ARTICLE I
Section 1. Annual Meeting. The annual meeting of the shareholders for the
election of Directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place, within or without
the State of Georgia, on such date and at such time as the Board of Directors
may by resolution provide, or if the Board of Directors fails to provide, then
such meeting shall be held at the principal office of the Company at 10:00 A.M.
on the fourth Monday in March of each year, or, if such date is a legal holiday,
on the next succeeding business day. The Board of Directors may specify by
resolution prior to any special meeting of shareholders held within the year
that such meeting shall be in lieu of the annual meeting.
Section 2. Special Meeting. A special meeting of the shareholders may be
called at any time by the Board of Directors, the Chairman of the Board or the
President, and shall be called upon written request to the Chairman of the Board
or the President signed by the holders of at least one-fourth (1/4) of the
outstanding shares entitled to vote at such meeting. Such written request shall
specify the time and purpose of the proposed meeting. Such meetings shall be
held at such place, within or without the State of Georgia, as is stated in the
notice thereof.
Section 3. Notice of Meetings of Shareholders. Written notice of each
meeting of shareholders, stating the place and time of the meeting, shall be
mailed to each shareholder entitled to vote at or to notice of such meeting at
such shareholder's address shown on the books of the Company not less than ten
nor more than sixty (60) days prior to such meeting unless such shareholder
waives notice of the meeting. If such notice is for a special meeting, the
notice shall also include the purpose or purposes for which the special meeting
is being called and shall indicate that the notice is being issued by or at the
direction of the person or persons calling the meeting. Any shareholder may
execute a waiver of notice, in person or by proxy,either before or after any
meeting, and shall be deemed to have waived notice if such shareholder is
present at such meeting in person or by proxy. Neither the business transacted
at, nor the purpose of, any meeting need be stated in the waiver of notice of
such meeting, except that, with respect to a waiver of notice of a meeting at
which a plan of merger or consolidation is considered, information as required
by the Georgia Business Corporation Code must be delivered to the shareholder
prior to such shareholder's execution of the
<PAGE>
waiver of notice or the waiver itself must conspicuously and specifically waive
the right to such information. Failure to receive notice of any meeting of
shareholders shall not invalidate the meeting. Notice of any meeting may be
given by the Chairman of the Board, the President, the Secretary or by the
person or persons calling such meeting. No notice need be given of the time and
place of reconvening of any adjourned meeting, if the time and place to which
the meeting is adjourned are announced at the adjourned meeting.
Section 4. Quorum; Required Shareholder Vote. A quorum for the transaction
of business at any annual or special meeting of shareholders shall exist when
the holders of a majority of the outstanding shares entitled to vote are
represented either in person or by proxy at such meeting. If a quorum is
present, the affirmative vote of a plurality of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless a greater vote is required by law, by the Articles of
Incorporation or by these Bylaws. When a quorum is once present to organize a
meeting, the shareholders present may continue to do business at the meeting or
at any adjournment thereof notwithstanding the withdrawal of enough shareholders
to leave less than a quorum. The holders of a majority of the voting shares
represented at a meeting, whether such meeting from time to time.
Section 5. Proxies. A shareholder may vote either in person or by a proxy
which such shareholder has duly executed in writing. An appointment of a proxy
is effective when received by the secretary or other officer or agent authorized
to tabulate votes. No proxy shall be valid after eleven (11) months from the
date of its execution unless a longer period is expressly provided in the proxy.
Section 6. Action of Shareholders Without Meeting. Any action required to
be, or which may be, taken at a meeting of the shareholders, may be taken
without a meeting if written consent, setting forth the actions so taken, shall
be signed by all of the shareholders entities to vote with respect to the
subject matter thereof, except that, with respect to approval of a plan of
merger or consolidation by written consent, information as required by the
Georgia Business Corporation Code must be delivered to the shareholders prior to
their execution of the consent or the consent must conspicuously and
specifically waive the right to such information. Such consent shall have the
same force and effect as a unanimous affirmative vote of the shareholders and
shall be filed with the minutes of the proceedings of the shareholders.
2
<PAGE>
ARTICLE II
DIRECTORS
Section 1. Power of Directors. The Board of Directors shall manage the
business and affairs of the Company and may exercise all the powers of the
Company, subject to any restrictions imposed by law, by the Articles of
Incorporation or by these Bylaws.
Section 2. Composition of the Board. The Board of Directors of the Company
shall consist of not less than one nor more than nine natural persons of the age
of eighteen years or over. Directors need not be residents of the State of
Georgia or shareholders of the Company. At each annual meeting the shareholders
shall fix the number of Directors and elect the Directors, who shall serve until
their successors are elected and qualified; provided that the shareholders may
increase the number of Directors and elect additional Directors at any time and
may, by the affirmative vote of the holders of a majority of the shares entitled
to vote at an election of Directors, reduce the number of Directors and remove
Directors with or without cause at any time. The Board of Directors may at its
discretion, designate a Chairman from among its members at any time.
Section 3. Meetings of the Board; Notice of Meetings; Waiver of Notice.
The annual meeting of the Board of Directors for the purpose of electing
officers and transacting such other business as may be brought before the
meeting shall be held each year immediately following the annual meeting of
shareholders. The Board of Directors may by resolution provide for the time and
place of other regular meetings and no notice of such regular meetings need be
given. Special meetings of the Board of Directors may be called by the Chairman
of the Board or the President, and shall be called by the Chairman of the Board
or the President upon request in writing signed by two or more Directors and
specifying the purpose or purposes of the meeting. Notice of the time and place
of such special meetings shall be given to each Director, at the Director's
residence or usual place of business, in person or by first class mail,
telegraph, cablegram or telephone, or by any other means customary for expedited
business communications, at least two (2) days before the meeting. Any Director
may execute a waiver of notice, either before or after any meeting, and shall be
deemed to have waived notice if present at such meeting. Neither the business to
be transacted at, nor the purpose of, any meeting of the Board of Directors need
be stated in the notice or waiver of notice of such meeting. Any meeting may be
held at any place within or without the State of Georgia.
Section 4. Quorum; Vote Requirement. A majority of the Directors in office
at any time shall constitute a quorum for the transaction of business at any
meeting. When a quorum is present, the vote of a majority of the Directors
present shall be the act of the Board of Directors, unless a greater vote is
required by law,
3
<PAGE>
by the Articles of Incorporation or by the Bylaws. A majority of the Directors
present, whether or not a quorum is present, may adjourn a meeting to any
specified time and place.
Section 5. Action of Board Without Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting if written consent, setting forth the
action so taken, is signed by all the Directors or committee members and filed
with the minutes of the proceedings of the Board of Directors or committee. Such
consent shall have the same force and effect as a unanimous affirmative vote of
the Board of Directors or committee, as the case may be.
Section 6. Committees. The Board of Directors, by resolution adopted by a
majority of all of the Directors, may designate from among its members an
Executive Committee and such other committees as it deems necessary or
desirable, each composed of one (1) or more Directors, and may fix the quorum
thereof. Any committee so designated shall serve at the pleasure of the Board
and may exercise such authority as is provided by these Bylaws or delegated by
the Board of Directors, provided that no committee shall have the authority of
the Board of Directors to (1) approve or propose to shareholders action that the
Georgia Business Corporation Code requires to be approved by shareholders, (2)
fill vacancies on the board of directors or on any of its committees, (3) amend
the Articles of Incorporation of the Company, (4) adopt, amend, or repeal these
Bylaws, or (5) approve a plan of merger not requiring shareholder approval.
Section 7. Executive Committee. The Chairman of the Board, if there is
one, or the President shall be a member of the Executive Committee. The
Executive Committee shall, except as otherwise provided herein, by law or by
resolution of the Board of Directors, have all the authority of the Board of
Directors during the intervals between the meetings of the Board of Directors.
Minutes of all meetings of the Executive Committee shall be kept and recorded by
the Secretary, and shall be from time to time reported to the Board of
Directors. The Board of Directors may designate from time to time one or more
Directors as an alternate members of the Executive Committee or of any other
committee, who may replace any absent member or members at any meeting of the
committee.
Section 8. Vacancies. A vacancy occurring in the Board of Directors by
reason of the removal of a Director by the shareholders shall be filled by the
shareholders, or, if authorized by the shareholders, by the remaining Directors.
Any other vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board of Directors, or by the sole remaining Director, as the case
may be, or, if the vacancy is not so filled, or if no Director remains, by the
shareholders. A Director elected to a vacancy shall serve for the unexpired term
of
4
<PAGE>
such Director's predecessor in office until the next election of Directors by
the shareholders and the election and qualification of the successor.
Section 9. Telephone Conference Meetings. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board or committee by means of telephone
conference or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
Section 1. Executive Structure of the Company. The officers of the Company
shall he elected by the Board of Directors, or appointed by the Board of
Directors, the Chairman of the Board or the President pursuant to Section 10 of
this Article III, and shall consist of a President, such number of Executive
Vice Presidents and Vice Presidents as the Board of Directors shall from time to
time determine, a Secretary, a Treasurer and such assistants or other officers
as may be so elected or appointed. Each officer shall hold office for the term
for which such officer has been elected or appointed and until such officer's
successor has been elected or appointed and has been qualified, or until such
officer's earlier resignation, removal from office or death. Any two or more
offices may be held by the same person, except that the President shall not
serve as Secretary or Assistant Secretary.
Section 2. Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the Company and shall give overall supervision to the
strategic and financial affairs of the Company, subject to the discretion of the
Board of Directors. The Chairman of the Board shall preside at all meetings of
the shareholders, the Board of Directors or the Executive Committee at which he
is present.
Section 3. President. The President shall be the chief operating officer
of the Company and shall give general supervision and direction to the affairs
of the Company, subject to the direction of the Board of Directors. If there be
no Chairman of the Board, or in the absence of the Chairman of the Board, the
President shall preside at all meetings of the shareholders, the Board of
Directors and Executive Committee at which he is present. Subject to the overall
discretion of the Chairman of the Board, the President shall have the power to
make and execute contracts, deeds and other instruments on behalf of the Company
and to delegate such powers to others. The President shall be empowered at any
time and from time to time to issue and promulgate rules, regulations and
directives relating to the conduct of the business and affairs of
5
<PAGE>
the Company, and the Secretary of the Company shall maintain a record of such
rules, regulations and directives. Rules, regulations and directives so issued
shall be available at any time to the Board of Directors and, subject to the
authority of the Board of Directors at any time to amend, suspend or repeal any
or all of such rules, regulations or directives, shall evidence the authority of
the officers and employees named therein to act on behalf of the Company with
respect to the matters set forth therein.
Section 4. Vice Presidents. The Vice Presidents shall have such authority
and perform such duties as may be conferred upon or assigned to them by the
Board of Directors, the Chairman of the Board or the President. In the case of
absence or disability of the President, the duties of the office shall be
performed by such Vice President or other officer of the Company as the Board of
Directors, the Chairman of the Board or the President may have designated.
Section 5. Secretary. The Secretary shall send all requisite notices of
meetings of the shareholders and the Board of Directors. The Secretary shall
attend all meetings of the shareholders and the Board of Directors, and shall
keep a true and faithful record of the proceedings. The Secretary shall have
custody of the seal of the Company, and of all records, books, documents, and
papers of the Company, except those required to be in the custody of the
Treasurer, and except such subsidiary records as may be kept in departmental
offices. The Secretary shall sign and execute all documents which require the
Secretary's signature and execution, and shall affix the seal of the Company
thereto and attest the same when necessary. Assistant Secretaries shall have
such of the authority and perform such of the duties of the Secretary as may be
provided in these Bylaws or assigned to them by the Board of Directors or by the
Secretary. During the Secretary's absence or inability, the Secretary's
authority and duties shall be possessed by such Assistant Secretary or Assistant
Secretaries as the Board of Directors or the Secretary may designate.
Section 6. Treasurer. The Treasurer shall receive and have charge of all
funds and securities of the Company. The Treasurer shall deposit the funds to
the Credit of the Company in such depositories as shall be approved from time to
time by the Board of Directors, the Chairman of the Board, the President or the
Treasurer, and the Treasurer shall disburse the same under such rules and
regulations as the Board of Directors may adopt. The Treasurer shall have the
power to make and execute evidences of indebtedness on behalf of the Company.
The Treasurer shall keep full and regular books showing all of the Treasurer's
receipts and disbursements, which books shall be open at all times to the
inspection of the President or of any member of the Board of Directors; and the
Treasurer shall take such reports as the Board of Directors, the Chairman of the
Board or the President may require. Assistant Treasurers shall have such of the
authority and perform such of the duties of the Treasurer as may be provided in
6
<PAGE>
these Bylaws or as may be assigned to them by the Board of Directors or by the
Treasurer. During the Treasurer's absence or inability, the Treasurer's
authority and duties shall be possessed by such Assistant Treasurer or Assistant
Treasurers as the Board of Directors or the Treasurer may designate. The
Treasurer and each Assistant Treasurer shall give such security for the faithful
performance of such officer's duties as the Board of Directors may require.
Section 7. Comptroller. The Comptroller shall be the principal accounting
officer of the Company and shall have custody and charge of all books of
account, except those required by the Treasurer in keeping record of the work of
the Treasurer's office, and shall have supervision over such subsidiary
accounting records as may be kept in departmental offices. The Comptroller shall
leave access to all books of account, including the records of the Secretary and
the Treasurer, for purposes of audit and for obtaining information necessary to
verify or complete the records of the Comptroller's office. The Comptroller or
the Comptroller's duly authorized representative shall certify to the
authorizations and approvals pertaining to all vouchers; and no payments from
the general cash shall be made by the Treasurer except on vouchers bearing the
written approval of the Comptroller or the Comptroller's authorized
representative. Assistant Comptrollers shall have such of the authority and
perform, such of the duties of the Comptroller as may be provided in these
Bylaws or assigned to them by the Board of Directors or by the Comptroller.
During the Comptroller's absence or inability, the Comptroller's authority and
duties shall be possessed by such Assistant Comptroller or Assistant
Comptrollers as the Board of Directors or the Comptroller may designate.
Section 8. Other Duties and Authority. Each officer, employee and agent of
the Company shall have such other duties and authority as may be conferred upon
such officer, employee or agent by the Board of Directors or delegated to such
officer, employee or agent by the President.
Section 9. Removal of Officers. Any officer may be removed at any time by
the Board of Directors with or without cause, and such vacancy may be filled by
the Board of Directors. This provision shall not prevent the making of a
contract of employment for a definite term with any officer and shall have no
effect upon any cause of action which any officer may have as a result of
removal in breach of a contract of employment.
Section 10. Appointed Officers. The Board of Directors, the Chairman of
the Board or the President may, from time to time, appoint individuals who serve
in such designated capacities for the Company as the Board of Directors, the
Chairman of the Board or the President may deem appropriate. Each appointed
officer shall perform such duties and shall have the authority as shall be
delegated to such officer, from time to time by the officer of the Company then
responsible for the particular area in which such
7
<PAGE>
appointed officer is working. Any duty or authority delegated to any appointed
officer pursuant to this Section may be withdrawn, with or without cause, at any
time by the Board of Directors, the Chairman of the Board, the President or the
officer delegating such duty or authority to the appointed officer.
ARTICLE IV
STOCK
Section 1. Stock Certificate. The shares of stock of the Company shall be
represented by certificates in such form as may be approved by the Board of
Directors, which certificates shall bear the name of the shareholder, the number
of shares represented, and the date of issue; and which shall be signed by the
Chairman of the Board or the President and the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer of the Company; and which shall be
sealed with the seal of the Company. No share certificate shall be issued until
the consideration for the shares represented thereby has been fully paid. A
facsimile of the seal of the Company may be used in connection with the share
certificates of the Company. Facsimile signatures of the officers named in this
Section may be used in connection with said certificates if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Company itself or an employee of the Company. In the event any officer whose
facsimile signature has been placed upon a certificate shall cease to be such
officer before the certificate is issued, the certificate may be issued with the
same effect as if such person was an officer at the date of issue.
Section 2. Transfer of Stock. Shares of stock of the Company shall be
transferred only on the books of the Company upon surrender to the Company of
the certificate or certificates representing the shares to be transferred
accompanied by an assignment in writing of such shares properly executed by the
shareholder of record or his duly authorized attorney-in-fact and with all taxes
on the transfer having been paid. The Company may refuse any requested transfer
until furnished evidence satisfactory to it that such transfer is proper. Upon
the surrender of a certificate for transfer of stock, such certificate shall at
once be conspicuously marked on its face "Canceled" and filed with the permanent
stock records of the Company. The Board of Directors may make such additional
rules concerning the issuance, transfer and registration of stock and
requirements regarding the establishment of lost, destroyed or wrongfully taken
stock certificates (including any requirement of an indemnity bond prior to
issuance of any replacement certificate) as it deems appropriate.
Section 3. Registered Shareholders. The Company may deem and treat the
holder of record of any stock as the absolute owner for all purposes and shall
not be required to take any notice of any right or claim of right of any other
person.
Section 4. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other purpose, the Board of
Directors of the Company may fix in advance a date as the record date for any
such determination of shareholders, such date in any case to be not more than
seventy (70) days and, in the case of a meeting of shareholders, not less than
ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
ARTICLE V
SEAL
The common seal of the Company shall bear within concentric circles the
words "Mexican Cellular Investments, Inc." with the word "Seal" in the center.
The seal and its attestation may be lithographed or otherwise printed on any
document and shall have,
- 8 -
<PAGE>
to the extent permitted by law, the same force and effect as if it had been
affixed and attested manually.
ARTICLE VI
INDEMNITY
Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Company), by reason of the fact that such person is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Company against
expenses (including reasonable attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such action, suit 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 Company (and with respect to any criminal action or proceeding,
if such person had no reasonable cause to believe his conduct was unlawful), to
the maximum extent permitted by, and in the manner provided by, the Georgia
Business Corporation Code.
ARTICLE VII
AMENDMENT OF BYLAWS
The Board of Directors shall have the power to alter, amend or repeal the
Bylaws or adopt new bylaws, but any bylaws adopted by the Board of Directors may
be altered, amended or repealed and new bylaws adopted by the shareholders. The
Shareholders may prescribe that any bylaw or bylaws adopted by them, including,
without limitation, a bylaw establishing the number of Directors, shall not be
altered, amended or repealed by the Board of Directors. Action by the Directors
with respect to the Bylaws shall be taken by an affirmative vote of a majority
of all of the Directors then in office. If the Bylaws are to amended at a
special meeting of the Board of Directors, notice of such intention shall be
included in the notice of the meeting. Action by the Shareholders with respect
to the Bylaws shall be taken by an affirmative vote of a majority of the shares
entitled to vote at an election of Directors.
-9-
EXHIBIT 5.2 - OPINION OF
ROGERS & WELLS
4
<PAGE>
[LETTERHEAD OF ROGERS & WELLS]
October 29, 1997
Grupo Iusacell, S.A. de C.V.
Montes Urales 460
3rd Floor
Col. Lomas de Chapultepac
Deleg. Miguel Hidalgo, C.P.
1100 Mexico, D.F.
Re: Grupo Iusacell, S.A. de C.V.
Registration Statement No. 333-[ ]
Ladies and Gentlemen:
We have acted as special United States counsel for Grupo Iusacell,
S.A. de C.V. ("Iusacell") in connection with the preparation of the
above-captioned Registration Statement, as amended (the "Registration
Statement") , and the forms of agreements filed as Exhibits thereto (the
"Agreements"), pursuant to which Iusacell proposes to exchange up to
U.S.$150,000,000 aggregate principal amount of its 10% Series B Senior Notes due
2004 (the "New Notes") for a like principal amount of its 10% Senior Notes due
2004 (the "Old Notes").
It is our opinion that the New Notes, when duly authorized, executed
and delivered by Iusacell and countersigned by First Union National Bank, as
Trustee, pursuant to the Indenture dated as of July 25, 1997, and delivered to
and exchanged for the Old Notes by the holders as contemplated by the Agreements
and the Registration Statement, will constitute valid and legally binding
direct, general and unconditional obligations of Iusacell under the laws of the
State of New York, enforceable in accordance with their terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights generally
and by
<PAGE>
Grupo Iusacell, S.A. de C.V. 2 October 29, 1997
general equitable principles, regardless of whether the issue of enforceability
is 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/ Rogers & Wells
2
EXHIBIT 10.1 - U.S.$225.0 MILLION LOAN
AGREEMENT
8
<PAGE>
EXHIBIT 10.1 - U.S.$225 MILLION
LOAN AGREEMENT
<PAGE>
- --------------------------------------------------------------------------------
EXECUTION COPY
GRUPO IUSACELL, S.A. de C.V.
$225,000,000
Loan Agreement
dated as of
July 25, 1997
Chase Securities Inc.
as Arranger
The Chase Manhattan Bank
as Administrative Agent
and Collateral Agent
- --------------------------------------------------------------------------------
CHASE
- --------------------------------------------------------------------------------
[CS&M 6700-561]
2
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Defined Terms............................................ 1
SECTION 1.02. Classification of Loans and
Borrowings............................................. 24
SECTION 1.03. Terms Generally ......................................... 25
SECTION 1.04. Accounting Terms; Mexican GAAP........................... 25
ARTICLE II
The Credits
SECTION 2.01. Commitments ............................................. 26
SECTION 2.02. Loans and Borrowings..................................... 26
SECTION 2.03. Requests for Borrowings ................................. 27
SECTION 2.04. Funding of Borrowings ................................... 28
SECTION 2.05. Interest Elections....................................... 28
SECTION 2.06. Termination, Reduction and Increase
of Commitments ........................................ 30
SECTION 2.07. Repayment of Loans; Evidence of Debt..................... 32
SECTION 2.08. Amortization of Loans ................................... 33
SECTION 2.09. Prepayment of Loans ..................................... 34
SECTION 2.10. Fees..................................................... 36
SECTION 2.11. Interest................................................. 36
SECTION 2.12. Alternate Rate of Interest............................... 37
SECTION 2.13. Increased Costs ......................................... 38
SECTION 2.14. Break Funding Payments................................... 39
SECTION 2.15. Taxes ................................................... 40
SECTION 2.16. Payments Generally; Pro Rata Treatment;
Sharing of Setoffs..................................... 41
SECTION 2.17. Mitigation Obligations; Replacement
of Lenders............................................. 43
3
<PAGE>
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers..................................... 44
SECTION 3.02. Authorization; Enforceability ........................... 44
SECTION 3.03. Governmental Approvals; No Conflicts..................... 45
SECTION 3.04. Financial Condition; No Material Adverse
Change................................................. 45
SECTION 3.05. Properties............................................... 46
SECTION 3.06. Litigation and Environmental Matters..................... 47
SECTION 3.07. Compliance with Laws and Agreements;
Stock Purchase Plan.................................... 47
SECTION 3.08. Investment and Holding Company Status.................... 48
SECTION 3.09. Taxes.................................................... 48
SECTION 3.10. IMSS, INFONAVIT, SAR..................................... 48
SECTION 3.11. Disclosure............................................... 48
SECTION 3.12. Subsidiaries............................................. 48
SECTION 3.13. Insurance................................................ 48
SECTION 3.14. Labor Matters............................................ 48
SECTION 3.15. Solvency................................................. 49
SECTION 3.16. Senior Indebtedness...................................... 50
SECTION 3.17. Use of Proceeds.......................................... 50
SECTION 3.18. Effectiveness and Validity of
Concessions and Material Permits....................... 50
SECTION 3.19. Security Documents....................................... 50
SECTION 3.20. Delivery of Agreements................................... 51
SECTION 3.21. Legal Form............................................... 51
SECTION 3.22. Commercial Activity; Absence of
Immunity............................................... 51
ARTICLE IV
Conditions
SECTION 4.01. Effective Date........................................... 52
SECTION 4.02. Each Credit Event........................................ 54
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other
Information............................................ 55
SECTION 5.02. Notices of Material Events............................... 57
SECTION 5.03. Governmental Approvals; Concessions...................... 57
SECTION 5.04. Existence; Conduct of Business........................... 57
SECTION 5.05. Payment of Obligations................................... 57
SECTION 5.06. Maintenance of Properties................................ 58
SECTION 5.07. Insurance................................................ 58
SECTION 5.08. Books and Records, Inspection and
Audit Rights........................................... 58
4
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SECTION 5.09. Compliance with Laws and
Material Contractual Obligations....................... 58
SECTION 5.10. Use of Proceeds.......................................... 59
SECTION 5.11. Additional Subsidiaries.................................. 59
SECTION 5.12. Further Assurances....................................... 59
SECTION 5.13. Interest Rate Protection................................. 60
SECTION 5.14. Perfection of Liens Created Under
Security Agreements.................................... 60
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity
Securities............................................. 61
SECTION 6.02. Liens.................................................... 62
SECTION 6.03. Sale-Leaseback Transactions.............................. 63
SECTION 6.04. Fundamental Changes...................................... 63
SECTION 6.05. Investments, Loans, Advances,
Guarantees and Acquisitions............................ 64
SECTION 6.06. Asset Sales.............................................. 66
SECTION 6.07. Hedging Agreements....................................... 66
SECTION 6.08. Restricted Payments; Certain Payments
of Indebtedness........................................ 67
SECTION 6.09. Transactions with Affiliates............................. 68
SECTION 6.10. Restrictive Agreements................................... 68
SECTION 6.11. Amendment or Termination of Material
Documents.............................................. 68
SECTION 6.12. Financial Covenants...................................... 69
ARTICLE VII
Events of Default........................................................ 70
ARTICLE VIII
The Administrative Agent................................................. 74
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices.................................................. 77
SECTION 9.02. Waivers; Amendments...................................... 77
SECTION 9.03. Expenses; Indemnity; Damage Waiver....................... 79
SECTION 9.04. Successors and Assigns................................... 80
SECTION 9.05. Survival................................................. 83
SECTION 9.06. Counterparts; Integration;
Effectiveness.......................................... 84
5
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SECTION 9.07. Severability............................................. 84
SECTION 9.08. Right of Setoff.......................................... 84
SECTION 9.09. Governing Law; Jurisdiction;
Appointment of Agent for and
Consent to Service of Process.......................... 85
SECTION 9.10. WAIVER OF JURY TRIAL..................................... 86
SECTION 9.11. Headings................................................. 86
SECTION 9.12. Confidentiality.......................................... 86
SECTION 9.13. Judgment Currency........................................ 87
SECTION 9.14. Waiver of Sovereign Immunity............................. 87
SECTION 9.15. Use of English Language.................................. 88
SCHEDULES:
Schedule 1.01(a) -- Trademarks
Schedule 1.01(b) -- Non-Designated Subsidiaries
Schedule 2.01 -- Commitments
Schedule 3.05 -- Real Property
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.05 -- Existing Investments
Schedule 6.10 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B-1 -- Form of Opinion of Rogers & Wells
Exhibit B-2 -- Form of Opinion of De Ovando y Martinez del Campo, S.C.
Exhibit B-3 -- Form of Opinion of Carlos Gutierrez Cardona
Exhibit B-4 -- Form of Opinion of Susan B. Asch, Esq.
Exhibit C -- Guarantee Agreement
Exhibit D -- Pledge Agreement
Exhibit E-1 -- Mortgage
Exhibit E-2 -- Trademark Pledge Agreement
Exhibit F -- Senior Note Indenture
Exhibit G -- Debenture Purchase Agreement
Exhibit H -- Subordination Agreement
Exhibit I-1 -- Form of Note evidencing Eurodollar Loans
Exhibit I-2 -- Form of Note evidencing ABR Loans
6
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CREDIT AGREEMENT dated as of July 25, 1997, among
GRUPO IUSACELL, S.A. de C.V., the LENDERS party hereto,
and THE CHASE MANHATTAN BANK, as Administrative Agent
and Collateral Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Additional Assets" means (a) any property (other than cash, cash
equivalents or securities) to be owned by the Borrower or a Subsidiary and used
in a Related Business, (b) the costs of improving or developing any property
owned by the Borrower or a Subsidiary that is used in a Related Business and (c)
investments in any other entity engaged primarily in a Related Business
(including the acquisition from third parties of capital stock of such entity)
as a result of which such other entity becomes a Subsidiary.
"Adjusted EBITDA" means, at any date, EBITDA at such date plus, to
the extent subtracted in determining such EBITDA, handset expense for contract
customers of the Borrower and the Subsidiaries.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder and acting on behalf
of such Lenders and not in its individual capacity.
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2
"Administrative Questionnaire" means an administrative questionnaire
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Revolving Lender,
the percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Assessment Rate" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in U.S. Dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined in good faith by the Administrative Agent to reflect
its cost of such insurance.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD
Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
<PAGE>
3
"Bell Atlantic" means Bell Atlantic Corporation, a Delaware
corporation.
"Board" means the Board of Governors of the Federal Reserve System
of the United States of America.
"Borrower" means Grupo Iusacell, S.A. de C.V., a variable capital
corporation (sociedad anonima de capital variable) organized under the laws of
Mexico.
"Borrowing" means Loans of the same Class and Type, made, converted
or continued on the same date and, in the case of Eurodollar Loans, as to which
a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a Borrowing
in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City and Mexico City are authorized or
required by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in U.S. Dollar deposits in the London interbank
market.
"Capital Expenditures" means, for any period, the additions to
property, plant and equipment and other capital expenditures of the Borrower and
its consolidated Subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Borrower for such period prepared in accordance
with Mexican GAAP.
"Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under Mexican
GAAP, and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with Mexican GAAP.
"Cash Interest Expense" means, at any date, (a) the amount for the
period of two fiscal quarters most recently ended at such date of the gross
interest expense of the Borrower and the Subsidiaries for such period in respect
of Indebtedness to the extent payable during such period in cash, minus interest
accrued on Temporary Cash Investments denominated in U.S. Dollars, in each case
computed on a consolidated basis in accordance with Mexican GAAP, multiplied by
(b) 2.0.
<PAGE>
4
"Change in Control" means (a) Bell Atlantic ceasing to own, directly
or indirectly, shares representing at least 30% of the equity interest, and at
least 30% of the aggregate ordinary voting power, represented by the issued and
outstanding capital stock of the Borrower; (b) Bell Atlantic ceasing to possess
the power to elect a majority of the board of directors of the Borrower and
direct the management and policies of the Borrower; (c) individuals elected by
Bell Atlantic ceasing to constitute a majority of the board of directors of the
Borrower; or (d) the occurrence of any "Change in Control" or similar event,
however designated, under the Senior Notes or any other Indebtedness of the
Borrower or any Subsidiary; or (e)(i) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof) other than
Bell Atlantic or any Person Controlled by Bell Atlantic, of shares representing
more than 30% of the aggregate ordinary voting power represented by the issued
and outstanding capital stock of the Borrower and (ii) Bell Atlantic or any
Person Controlled by Bell Atlantic "beneficially owns" (as defined above in this
clause (e)), directly or indirectly, in the aggregate a lesser percentage of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Borrower than such other Person or group (for the purposes
of this clause (e), 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 above in this clause (e)), directly or
indirectly, more than 30% of the voting power of the voting stock of such parent
entity and Bell Atlantic or any Person Controlled by Bell Atlantic "beneficially
owns" (as defined above in this clause (e)), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the voting stock of such
parent entity).
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender (or,
for purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Term Loans
<PAGE>
5
and, when used in reference to any Commitment, refers to whether such Commitment
is a Revolving Commitment or a Term Commitment.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" means any and all "Collateral", as defined in any
applicable Security Document.
"Collateral Agent" means The Chase Manhattan Bank, in its capacity
as collateral agent for the Secured Parties and acting on behalf of such Secured
Parties and not in its individual capacity.
"Commitment" means a Revolving Commitment or a Term Commitment, or
any combination thereof (as the context requires).
"Concession" means the right of the Borrower and certain of its
Subsidiaries to provide cellular telephone service pursuant to concessions and
authorizations granted by SCT (a) in any of the following Mexican cellular
regions: (i) in Region 5 through Comunicaciones Celulares de Occidente, S.A. de
C.V., (ii) in Region 6 through Sistemas Telefonicos Portatiles Celulares, S.A.
de C.V., (iii) in Region 7 through Telecomunicaciones del Golfo, S.A. de C.V.
and (iv) in Region 9 through S.O.S Telecomunicaciones, S.A. de C.V. (the "Region
9 Concession"), or (b) in any other cellular region in which the Borrower or any
Subsidiary shall obtain the right to provide cellular service.
"Consolidated Net Income" means, for any period, the net income or
loss of the Borrower and the Subsidiaries for such period determined on a
consolidated basis in accordance with Mexican GAAP, provided that there shall be
excluded (a) the income (or loss) of any Person in which any other Person (other
than the Borrower or any of the Subsidiaries or any director holding qualifying
shares in compliance with applicable law) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Borrower or any of the Subsidiaries by such Person, (b) the income (or loss) of
any Person accrued prior to the date it becomes a Subsidiary or is merged into
or consolidated with the Borrower or any of the Subsidiaries or the date that
Person's assets are acquired by the Borrower or any of the Subsidiaries and (c)
the income (or loss) of any Person accrued after the date such Person is no
longer a Subsidiary as the result of a sale of such Person's stock or assets to,
or merger or consolidation with, a Person other than the Borrower or any of the
Subsidiaries.
<PAGE>
6
"Consolidated Total Debt" means, at any date, all Indebtedness of
the Borrower and the Subsidiaries at such date (other than the Subordinated
Indebtedness), net of cash on hand (but only if there are no outstanding
Revolving Loans), determined on a consolidated basis in accordance with Mexican
GAAP.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Debenture Purchase Agreement" means the Debenture Purchase
Agreement between Bell Atlantic International, Inc. and the Borrower, in the
form of Exhibit G hereto, with such changes as shall have been approved in
writing by the Administrative Agent and the Required Lenders, providing for the
issuance of the Subordinated Debt.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Designated Assets" means all Concessions held by the Borrower and
the Subsidiaries and, to the extent related to such Concessions pursuant to
Articles 92, 93 and 94 of the Original Telecommunications Laws and the 1995
Telecommunications Laws, all assets (movable and non-movable) used in the
construction, exploitation, repair and maintenance of the relevant means of
communications, all capital contributions, cash on hand, receivables and rights
arising for the benefit of the relevant Concessions, the trademarks specified in
Schedule 1.01(a) and, if not sold by December 31, 1998, the Borrower's
headquarters building located at Montes Urales 460 in Lomas de Chapultepec,
Mexico City.
"Designated Equity Interest" means any capital stock issued by or
other equity interest in any Subsidiary, Iusacell and any other capital stock or
equity interest in any other Person, that is owned on the date hereof or
hereafter acquired by the Borrower or any Designated Subsidiary, except for any
capital stock or equity interest in GMD Comunicaciones, S.A. de C.V., Hermes
Telecomunicaciones, S.A. de C.V., Portaserv, S.A. de C.V., Grupo Iusacell
Nicaragua, S.A. or Inflight Phone de Mexico, S.A. de C.V.
"Designated Subsidiary" means any Subsidiary other than those
Subsidiaries listed in Schedule 1.01(b) hereto; provided, that any Subsidiary
that (i) guarantees the Senior
<PAGE>
7
Notes or any other Indebtedness of the Borrower or (ii) owns any capital stock
of or other equity interest in any Designated Subsidiary shall in any event be a
Designated Subsidiary.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"EBITDA" means, at any date, with respect to the Borrower and the
Subsidiaries on a consolidated basis, and determined in accordance with Mexican
GAAP, (a)(i) to the extent deducted in computing such Consolidated Net Income
for such period, the sum (without duplication) for the two fiscal quarters most
recently ended at such date of (A) Consolidated Net Income, (B) income tax and
asset tax expense and employee profit sharing expense, (C) Cash Interest
Expense, (D) depreciation and amortization expense, (E) non-cash extraordinary
losses and non-cash expenses (other than items that will require cash payments
and for which an accrual or reserve is, or is required by Mexican GAAP to be,
made) and (F) foreign exchange losses and monetary correction losses, minus (ii)
to the extent added in computing such Consolidated Net Income for such period,
the sum of (A) consolidated interest income, (B) non-cash extraordinary gains
and non-cash income and (C) foreign exchange gains and monetary correction
gains, multiplied by (b) 2.0.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Laws" means all laws, rules, regulations, codes,
normas tecnicas, ordinances, orders, decrees, judgments, injunctions, notices or
binding agreements issued, promulgated or entered into by any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any
Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement
<PAGE>
8
or other consensual arrangement pursuant to which liability is assumed or
imposed with respect to any of the foregoing.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
VII.
"Excess Cash Flow" means, for any period, the sum (without
duplication) of:
(a) Consolidated Net Income for such period, adjusted to exclude any
gains or losses attributable to Prepayment Events; plus
(b) depreciation, amortization and other non-cash charges or losses
deducted in determining such Consolidated Net Income for such period; plus
(c) the sum of (i) the amount, if any, by which Net Working Capital
decreased during such period plus (ii) the amount, if any, by which the
consolidated deferred revenues of the Borrower and its consolidated
Subsidiaries increased during such period; minus
(d) the sum of (i) any non-cash gains included in determining such
consolidated net income (or loss) for such period plus (ii) the amount, if
any, by which Net Working Capital increased during such period plus (iii)
the amount, if any, by which the consolidated deferred revenues of the
Borrower and its consolidated Subsidiaries decreased during such period;
minus
(e) Capital Expenditures not financed by Purchase Money
Indebtedness, Refinancing Indebtedness or Capital Lease Obligations for
such period; minus
(f) all scheduled principal payments and voluntary prepayments of
Term Loans and of any Indebtedness under clauses (iv), (vi) (with respect
to performance bonds only) and (vii) of Section 6.01(a); minus
(g) all investments, loans, advances, Guarantees and acquisitions
permitted under clauses (h), (i) and (k) of Section 6.05.
"Exchange Rate" means, on any day, (a) with respect to Mexican
Pesos, the exchange rate reported by the Federal Reserve Bank of New York as its
noon buying rate for Mexican
<PAGE>
9
Pesos on such day (or if such day is not a Business Day, on the immediately
preceding Business Day) and (b) with respect to U.S. Dollars, the exchange rate
reported by the Federal Reserve Bank of New York as its noon buying rate for
U.S. Dollars on such day (or if such day is not a Business Day, on the
immediately preceding Business Day); provided that if at the time of any such
determination, for any reason, any exchange rate is not being quoted, the
Administrative Agent may use any reasonable method it deems applicable to
determine such rate, and such determination shall be conclusive absent manifest
error.
"Excluded Taxes" means, with respect to the Administrative Agent,
any Lender or any other recipient of any payment to be made by or on account of
any obligation of the Borrower hereunder, (a) income or franchise taxes imposed
on (or measured by) its net income by the United States of America or by the
jurisdiction under the laws of which such recipient is organized or in which its
principal office is located or, in the case of any Lender, in which its
applicable lending office is located and (b) any withholding tax that is imposed
on amounts payable to a Foreign Lender that is attributable to such Foreign
Lender's failure to comply with Section 2.15(e).
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the laws
of a jurisdiction other than that in which the Borrower is located.
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Authority" means any sovereign government or any
political subdivision thereof, whether state or local, any legislative or
judicial body, and any agency,
<PAGE>
10
authority, instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness (but only to the extent the maintenance of such
financial statement condition or liquidity represents a legally enforceable, as
opposed to merely a moral, obligation of such Person) or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement among the
Borrower, the Subsidiary Loan Parties and the Administrative Agent,
substantially in the form of Exhibit C.
"Hazardous Materials" means all explosive or radioactive substances
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement or other interest or currency exchange rate
hedging arrangement.
"IMSS" means Instituto Mexicano del Seguro Social.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
<PAGE>
11
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"INFONAVIT" means Instituto del Fondo Nacional de la Vivienda para
los Trabajadores.
"Information Memorandum" means the Confidential Information
Memorandum dated July 1997 relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to
convert or continue a Revolving Borrowing or Term Borrowing in accordance with
Section 2.05.
"Interest Payment Date" means (a) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months' duration, each of the days occurring at
three-month intervals after the first day of such Interest Period, and (b) with
respect to any ABR Loan, the last day of each January, April, July and October.
"Interest Period" means with respect to the first Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on
January 31, 1998 and with respect
<PAGE>
12
to any other Eurodollar Borrowing, the period commencing on the date of such
Borrowing and ending on the numerically corresponding day in the calendar month
that is one, two, three or six months (or, if at the time of such Eurodollar
Borrowing, it is the general practice of each Lender to make Interest Periods of
such length available, nine or 12 months) thereafter, as the Borrower may elect;
provided, that (i) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (ii) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period and
(iii) any Interest Period that would otherwise extend beyond the Revolving
Maturity Date or the Term Maturity Date shall end on such Maturity Date. For
purposes hereof, the date of a Borrowing initially shall be the date on which
such Borrowing is made and thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
"Iusatelecomunicaciones" means Iusatelecomunicaciones, S.A. de C.V.,
the Borrower's 450 MHz local wireless subsidiary.
"Joint Venture Investment" means any sale, lease, transfer, issuance
or other disposition of shares of capital stock of a Subsidiary, property or
other assets by the Borrower or any of its 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 Borrower or a Subsidiary receives capital stock of another Person (other
than the Borrower or a 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.
"Later Maturing Indebtedness" means unsecured Indebtedness of the
Borrower incurred after the date hereof that has a final maturity date at least
six months after the Term Loan Maturity Date and no portion of which is subject
to mandatory repayment or repurchase at the option of the holders thereof or
otherwise prior to such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such
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13
Person that ceases to be a party hereto pursuant to an Assignment and
Acceptance.
"LIBOR Rate" means with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of Dow Jones Markets (or on any
successor or substitute page of such service, or any successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of such service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of interest rates
applicable to U.S. Dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for U.S. Dollar deposits with
a maturity comparable to such Interest Period. In the event that such rate is
not available at such time for any reason, then the "LIBOR Rate" with respect to
such Eurodollar Borrowing for such Interest Period shall be the rate at which
U.S. Dollar deposits for a maturity comparable to such Interest Period are
offered to the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Guarantee Agreement, the
Security Documents and the Notes.
"Loan Parties" means, the Borrower and the Subsidiary Loan Parties.
"Loans" means the loans made by the Lenders to the Borrower pursuant
to this Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations or condition, financial or otherwise, of the
Borrower and the Subsidiaries taken as a whole, (b) the ability of any Loan
Party to perform any of its obligations under any Loan Document or (c) the
rights of or benefits available to the Lenders under any Loan Document.
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14
"Material Indebtedness" means Indebtedness (other than the Loans),
or obligations in respect of one or more Hedging Agreements, of any one or more
of the Borrower and its Subsidiaries in an aggregate principal amount exceeding
US$5,000,000. For purposes of determining Material Indebtedness, the "principal
amount" of the obligations of the Borrower or any Subsidiary in respect of any
Hedging Agreement at any time shall be the maximum aggregate amount (giving
effect to any netting agreements) that the Borrower or such Subsidiary would be
required to pay if such Hedging Agreement were terminated at such time.
"Material Terms and Conditions" means, with respect to any
Concession, the terms and conditions of such Concession the violation of which,
or non-compliance with which, could cause the Borrower or any of its
Subsidiaries to (a) lose such Concession, (b) lose any material rights relating
to such Concession, (c) incur materially increased costs to provide the service
under such Concession or (d) suffer a material restriction of any right to
provide service under such Concession.
"Mexican Federal Telecommunications Commission" means Comision
Federal de Telecomunicaciones, an independent regulatory body of the SCT.
"Mexican GAAP" means generally accepted accounting principles in
Mexico.
"Mexican Lender" means a banking institution chartered in Mexico and
authorized to engage in the business of banking by the Ministry of Finance and
Public Credit.
"Mexican Institute of Industrial Property" means Instituto Mexicano
de la Propiedad Industrial.
"Mexican Pesos" or "Pesos" or "Ps" refers to the lawful currency of
Mexico.
"Mexican Taxes" means all present and future income, stamp,
registration and other taxes and levies, imposts, deductions, charges,
compulsory loans and withholdings whatsoever, and all interest, surcharges,
fines, penalties or similar amounts with respect thereto, now or hereafter
imposed, assessed, levied or collected by Mexico or any political subdivision or
taxing authority thereof or therein, or by any federal or other association of
or with which Mexico may be a member associated, on or in respect of this
Agreement, any Loan, any Note, the recording, registration, notarization or
other formalization of any thereof, the enforcement thereof or the introduction
thereof in any judicial proceedings, on or in respect of any payments of
<PAGE>
15
principal, interest, premiums, charges, fees or other amounts made on, under or
in respect of any thereof.
"Mexico" means the United Mexican States.
"Ministry of Finance and Public Credit" means the Mexican Secretaria
de Hacienda y Credito Publico.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means the security agreement among the Borrower, the
Subsidiaries party thereto and the Collateral Agent for the benefit of the
Secured Parties, substantially in the form of Exhibit E-1 hereto, relating to
the Concessions and related assets.
"Net Proceeds" means, with respect to any event (a) the cash
proceeds received in respect of such event including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds, and (iii) in the case of a condemnation
or similar event, condemnation awards and similar payments, net of (b) the sum
of (i) all reasonable fees and out-of-pocket expenses paid by the Borrower and
the Subsidiaries to third parties (other than Affiliates) in connection with
such event, (ii) in the case of a sale or other disposition of an asset
(including pursuant to a casualty or condemnation), the amount of all payments
required to be made by the Borrower and the Subsidiaries as a result of such
event to repay Indebtedness (other than Loans) secured by such asset or
otherwise subject to mandatory prepayment as a result of such event, and (iii)
the amount of all taxes paid (or reasonably estimated by the Borrower to be
payable) by the Borrower and the Subsidiaries, and the amount of any reserves
established by the Borrower and the Subsidiaries to fund contingent liabilities
reasonably estimated by the Borrower to be payable, to the extent such taxes and
liabilities are directly attributable to such event (as determined reasonably
and in good faith by the chief financial officer of the Borrower).
"Net Working Capital" means, at any date, (a) the consolidated
current assets of the Borrower and its consolidated Subsidiaries as of such date
(excluding cash and Temporary Cash Investments) minus (b) the consolidated
current liabilities of the Borrower and its consolidated Subsidiaries as of such
date (excluding current liabilities in respect of Indebtedness). Net Working
Capital at any date may be a positive or negative number. Net Working Capital
increases when it becomes more positive or less negative and decreases when it
becomes less positive or more negative.
<PAGE>
16
"1995 Telecommunications Law" means the Mexican Ley Federal de
Telecomunicaciones.
"Note" shall mean a promissory note provided for by Section 2.07(e)
hereof with English and Spanish versions side-by-side and substantially in the
form of Exhibit I-1 or I-2, as applicable, and all promissory notes delivered in
substitution or exchange therefor, in each case as the same shall be modified
and supplemented and in effect from time to time.
"Obligations" has the meaning assigned to such term in the Guarantee
Agreement and the Security Documents.
"Original Telecommunications Laws" means the Mexican Ley de Vias
Generales de Comunicacion, the Reglamento de Telecomunicaciones and the rules
promulgated thereunder.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.05;
(b) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(c) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary
course of business;
(d) judgment liens in respect of judgments that do not constitute an
Event of Default under Article VII; and
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Subsidiary;
<PAGE>
17
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Pledge Agreement" means the Pledge Agreement among the Borrower,
the Subsidiaries party thereto and the Collateral Agent for the benefit of the
Secured Parties, substantially in the form of Exhibit D.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including pursuant to a
sale and leaseback transaction) of any property or asset of the Borrower
or any Subsidiary, other than dispositions described in clauses (a), (b),
(d) and (e) of Section 6.06; or
(b) any casualty or other insured damage to, or any taking under
power of eminent domain or by condemnation or similar proceeding of, any
property or asset of the Borrower or any Subsidiary.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Purchase Money Indebtedness" means Indebtedness (a) consisting of
the deferred purchase price of property, 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 (b) incurred
in the ordinary course of business solely to finance the acquisition,
construction or lease by the Borrower or a 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 hereof
or incurred in compliance with this Agreement (including Indebtedness of the
Borrower that refinances Indebtedness of any Subsidiary (to the extent permitted
by this Agreement) and Indebtedness of any Subsidiary that
<PAGE>
18
refinances Indebtedness of another Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (a) the Refinancing
Indebtedness has a stated maturity no earlier than the stated maturity of the
Indebtedness being refinanced, (b) 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, (c) the
Refinancing Indebtedness shall not be senior in right of payment to the
Indebtedness being refinanced and (d) 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 (i) the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced,
and (ii) the amount of prepayment premiums, if any, owed, 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 (A) Indebtedness of a Subsidiary that refinances
Indebtedness of the Borrower and (B) Indebtedness guaranteed by a Subsidiary
that does not guarantee the Indebtedness being refinanced.
"Register" has the meaning set forth in Section 9.04.
"Related Business" means any business related, ancillary or
complementary to the business of the Borrower and the Subsidiaries on the
Effective Date.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving
Exposures, Term Loans and unused Commitments representing greater than 50% of
the sum of the total Revolving Exposures, outstanding Term Loans and unused
Commitments at such time.
"Restricted Payment" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Borrower or any Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such shares of capital stock of
the Borrower or any Subsidiary or on account of any option,
<PAGE>
19
warrant or other right to acquire any such shares of capital stock of the
Borrower or any Subsidiary.
"Revolving Availability Period" means the period from and including
the Effective Date to but excluding the earlier of the Revolving Commitment
Termination Date and any other date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make Revolving Loans expressed as an
amount representing the maximum permitted amount of such Lender's Revolving
Exposure hereunder, as such commitment may be (a) reduced or increased from time
to time pursuant to Section 2.06 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 9.04. The
initial amount of each Lender's Revolving Commitment is set forth on Schedule
2.01, or in the Assignment and Acceptance pursuant to which such Lender shall
have assumed its Revolving Commitment, as applicable. The initial aggregate
amount of the Lenders' Revolving Commitments is US$100,000,000.
"Revolving Commitment Termination Date" means July 24, 1998.
"Revolving Exposure" means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender's Revolving Loans.
"Revolving Lender" means a Lender with a Revolving Commitment or, if
the Revolving Commitments have terminated or expired, a Lender with Revolving
Exposure.
"Revolving Loan" means a Loan made pursuant to clause (b) of Section
2.01 or, if applicable, clause (e) of Section 2.06.
"Revolving Maturity Date" means July 25, 2002.
"SAR" means Sistema de Ahorro para el Retiro or any successor.
"S&P" means Standard & Poor's Ratings Group.
"SCT" means the Mexican Ministry of Communications and
Transportation (Secretaria de Comunicaciones y Transportes).
"Secured Parties" has the meaning assigned to such term in the
Security Documents.
<PAGE>
20
"Security Agreements" means the Mortgage and the Trademark Pledge
Agreement.
"Security Documents" means the Security Agreements, the Pledge
Agreement and each other security agreement or other instrument or document
executed and delivered pursuant to Section 5.11 or 5.12 to secure any of the
Obligations.
"Senior Notes" means US$150,000,000 aggregate principal amount of
the Borrower's 10% Senior Notes due 2004 issued under and on the terms set forth
in the Senior Note Indenture.
"Senior Note Indenture" means the Indenture between the Borrower,
certain subsidiary guarantors and First Union National Bank, as trustee, in the
form of Exhibit F hereto, with such changes as shall have been approved in
writing by the Administrative Agent and the Required Lenders, providing for the
issuance of the Senior Notes.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
U.S. Dollars of over US$100,000 with maturities approximately equal to three
months and (b) with respect to the LIBO Rate, for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant to such
Regulation D on the Administrative Agent (and, to the extent Regulation D shall
impose any such reserve percentage on the Administrative Agent, the percentage
employed for purposes of this definition shall be that imposed on the
Administrative Agent). Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements (which
reserve requirements, if applicable, will be at the rate applicable to the
Administrative Agent at any such time) without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to any
Lender under such Regulation D or any comparable regulation. The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
"Stock Purchase Plan" means the Executive Employee Stock Purchase
Plan implemented by the Borrower in March 1997.
<PAGE>
21
"Subordinated Debt" means Convertible Subordinated Debentures issued
by the Borrower to Bell Atlantic International, Inc., a subsidiary of Bell
Atlantic, pursuant to the Subordinated Debt Documents in an aggregate principal
amount not greater than US$150,000,000.
"Subordinated Debt Documents" means the Debenture Purchase
Agreement, the Subordination Agreement and any other instrument or document
executed and delivered pursuant thereto in connection with the Subordinated
Debt.
"Subordination Agreement" means the Subordination Agreement among
Bell Atlantic International, Inc., the Borrower, the Administrative Agent and
First Union National Bank, in the form of Exhibit H hereto, for the benefit of
the Lenders and the holders of the Senior Notes.
"subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP (or, for purposes of
identifying subsidiaries of the Borrower, Mexican GAAP) as of such date, as well
as any other corporation, limited liability company, partnership, association or
other entity (a) of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or, in
the case of a partnership, more than 50% of the general partnership interests
are, as of such date, owned, Controlled or held, or (b) that is, as of such
date, otherwise Controlled, by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower; provided that
Iusatelecomunicaciones shall not be deemed to be a Subsidiary until (a) after
the end of the first two fiscal quarter period at which its capital
expenditures, related finance costs and pre-operating costs are no longer
required to be capitalized under Mexican GAAP and (b) the Borrower requests such
designation.
"Subsidiary Loan Party" means any Subsidiary that is a party to the
Guarantee Agreement or to one or more of the Security Documents.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
<PAGE>
22
"Temporary Cash Investments" means any of the following:
(a) 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);
(b) 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 US$500,000,000
(or any foreign currency equivalent thereof) and has outstanding
indebtedness rated at least "A" by S&P and at least A2 by Moody's;
(c) 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
Borrower or an Affiliate of the Borrower, 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 S&P and at least P-1 or A3, as applicable, by Moody's;
(d) 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 Governmental
Authority 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;
(e) 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 S&P or A2 by Moody's;
<PAGE>
23
(f) instruments backed by letters of credit of institutions
satisfying the requirements of clause (b) above;
(g) Certificados de la Tesoreria de la Federacion (Cetes) or Bonos
de Desarrollo del Gobierno Federal (Bondes), in each case issued by the
government of Mexico and having a maturity of 365 days or less from the
date of acquisition;
(h) any other instruments issued or guaranteed by the government of
Mexico and denominated and payable in Mexican Pesos and having a maturity
of 365 days or less from the date of acquisition;
(i) demand deposits, certificates of deposit and bankers'
acceptances denominated in Mexican 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
(j) investment funds that invest solely in any of the instruments
described in clauses (a) through (i) above.
"Term Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Term Loan hereunder on the
Effective Date, expressed as an amount representing the maximum principal amount
of the Term Loan to be made by such Lender hereunder, as such commitment may be
(a) reduced or increased from time to time pursuant to Section 2.06 and (b)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's Term
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Term Commitment, as
applicable. The initial aggregate amount of the Lenders' Term Commitments is
US$125,000,000.
"Term Lender" means a Lender with a Term Commitment or an
outstanding Term Loan.
"Term Loan" means a Loan made pursuant to clause (a) of Section 2.01
or, if applicable, clause (e) of Section 2.06.
"Term Maturity Date" means July 25, 2002.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such
<PAGE>
24
day is not a Business Day, the next preceding Business Day) by the Board through
the public information telephone line of the Federal Reserve Bank of New York
(which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day) or, if such rate is not so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York City received at
approximately 10:00 a.m., New York City time, on such day (or, if such day is
not a Business Day, on the next preceding Business Day) by the Administrative
Agent from three negotiable certificate of deposit dealers of recognized
standing selected by it.
"Trademark Pledge Agreement" means the pledge agreement among the
Borrower, the Subsidiaries party thereto and the Collateral Agent for the
benefit of the Secured Parties, substantially in the form of Exhibit E-2 hereto,
relating to the trademarks specified in Schedule 1.01(a).
"Transactions" means the execution, delivery and performance by each
Loan Party of the Loan Documents to which it is to be a party, the borrowing of
the Loans and the use of the proceeds thereof.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the LIBO Rate or the Alternate Base
Rate.
"U.S. Dollars" or "US$" refers to the lawful currency of the United
States of America.
"Wholly Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which securities (except for directors' qualifying shares) or
other ownership interests representing 100% of the equity or 100% of the
ordinary voting power or 100% of the general partnership interest are, at the
time any determination is being made, owned, controlled or held by such Person
or one or more Wholly Owned Subsidiaries.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
of this Agreement, Loans may be classified and referred to by Class (e.g., a
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
Borrowing").
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25
SECTION 1.03. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights. For the purposes of
determining compliance under Article VI and Article VII, any amount denominated
in Mexican Pesos shall be translated into U.S. Dollars at the applicable
Exchange Rate as of the last Business Day of the week most recently ended.
SECTION 1.04. Accounting Terms; Mexican GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with Mexican GAAP, as in effect from time to time;
provided that, if the Borrower notifies the Administrative Agent that the
Borrower requests an amendment to any provision hereof to eliminate the effect
of any change occurring after the date hereof in Mexican GAAP or in the
application thereof on the operation of such provision (or if the Administrative
Agent notifies the Borrower that the Required Lenders request an amendment to
any provision hereof for such purpose), regardless of whether any such notice is
given before or after such change in GAAP or in the application thereof, then
such provision shall be interpreted on the basis of Mexican GAAP as in effect
and applied immediately before such change shall have become effective until
such notice shall have been withdrawn or such provision amended in accordance
herewith. All references to the Borrower and the Subsidiaries on a
"consolidated" basis shall be deemed to exclude Iusatelecomunicaciones, unless
and until Iusatelecomunicaciones satisfies the conditions specified in
<PAGE>
26
the definition of "Iusatelecomunicaciones" as required for inclusion in the
definition of "Subsidiary".
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees (a) to make a Term Loan to the Borrower on the
Effective Date in a principal amount not exceeding its Term Commitment and (b)
to make Revolving Loans to the Borrower from time to time during the Revolving
Availability Period in an aggregate principal amount that will not result in
such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrower may borrow, prepay and reborrow Revolving Loans at any time
prior to the Revolving Commitment Termination Date. Amounts repaid in respect of
Term Loans, and amounts repaid in respect of Revolving Loans after the Revolving
Commitment Termination Date, may not be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as
part of a Borrowing consisting of Loans of the same Class made by the Lenders
ratably in accordance with their respective Commitments of the applicable Class.
The failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided that the
Commitments of the Lenders are several and no Lender shall be responsible for
any other Lender's failure to make Loans as required.
(b) Subject only to Section 2.12, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of Eurodollar Loans, except that for
purposes of the first Borrowing, such Borrowing shall be comprised entirely of
ABR Loans. Each Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement;
provided further that each Lender shall not, in electing to cause a branch or
Affiliate to make any Loan, act in a manner inconsistent with its obligations
under Section 2.17.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of US$1,000,000 and not less than US$5,000,000 or, in the case of a
Revolving
<PAGE>
27
Borrowing, an aggregate amount that is equal to the entire unused balance of the
total Revolving Commitments. Borrowings of more than one Interest Period may be
outstanding at the same time; provided that there shall not at any time be more
than a total of 15 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Revolving Maturity Date or Term Maturity Date, as applicable.
SECTION 2.03. Requests for Borrowings. To request a Revolving
Borrowing or Term Borrowing (or any borrowing of Term Loans as contemplated by
Section 2.06(e)), the Borrower shall notify the Administrative Agent of such
request in writing not later than 11:00 a.m., New York City time, three Business
Days before the date of the proposed borrowing. Each such Borrowing Request
shall be irrevocable and shall be delivered by telecopy to the Administrative
Agent in a form approved by the Administrative Agent and signed by the Borrower.
Each such Borrowing Request shall specify the following information in
compliance with Section 2.02:
(i) whether the requested Borrowing is to be a Revolving Borrowing
or Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) the initial Interest Period to be applicable to such Borrowing,
which shall be a period contemplated by the definition of the term
"Interest Period"; and
(vi) the location and number of the Borrower's account with a bank
in New York City to which funds are to be disbursed, which shall comply
with the requirements of Section 2.04.
If no Interest Period is specified with respect to any requested Eurodollar
Revolving Borrowing, then the Borrower shall be deemed to have selected an
Interest Period of three months' duration. Promptly following receipt of a
Borrowing Request in accordance with this Section, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such
Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make each
Loan to be made by it hereunder on the
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28
proposed date thereof by wire transfer of immediately available funds by 12:00
noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the Borrower, on behalf
of the relevant Lender, by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with a bank in New York City and
designated by the Borrower in the applicable Borrowing Request.
(b) Unless the Administrative Agent shall have received notice from
a Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower through the second Business Day thereafter, at the greater of the
Federal Funds Effective Rate and (i) in the case of such Lender, a rate
determined by the Administrative Agent in accordance with banking industry rules
on interbank compensation or (ii) in the case of the Borrower, the rate
applicable to the interest rate applicable to Eurodollar Loans, and after such
second Business Day and until such amount shall be paid to the Administrative
Agent, at the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
SECTION 2.05. Interest Elections. (a) Each Revolving Borrowing and
Term Borrowing shall have an initial Interest Period as specified in the
applicable Borrowing Request. Thereafter, the Borrower may elect to continue
such Borrowing and may elect Interest Periods therefor, all as provided in this
Section. The Borrower may elect different Interest Periods with respect to
different portions of the affected Borrowing, in which case each such portion
shall be allocated ratably among the Lenders holding the Loans comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such
<PAGE>
29
election in writing by the time that a Borrowing Request would be required under
Section 2.03 if the Borrower were requesting a Borrowing to be made on the
effective date of such election. Each such Interest Election Request shall be
irrevocable and shall be delivered by telecopy to the Administrative Agent in a
form approved by the Administrative Agent and signed by the Borrower.
(c) Each Interest Election Request shall specify the following
information in compliance with Section 2.02 and paragraph (f) of this Section:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clause (iii) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day; and
(iii) the Interest Period to be applicable to such Borrowing after
giving effect to such election, which shall be a period contemplated by
the definition of the term "Interest Period".
If any such Interest Election Request does not specify an Interest Period, then
the Borrower shall be deemed to have selected an Interest Period of three
months' duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to 11:00 a.m., New York
City time, three Business Days prior to the end of the Interest Period
applicable thereto, then, the Borrower shall conclusively be deemed to have
requested that such Borrowing be continued at the end of such Interest Period as
a Eurodollar Borrowing with an Interest Period of three months' duration.
SECTION 2.06. Termination, Reduction and Increase of Commitments.
(a) Unless previously terminated, (i) the Term Commitments shall terminate at
5:00 p.m., New York City time on the Effective Date and (ii) the Revolving
Commitments
<PAGE>
30
shall terminate on the Revolving Commitment Termination Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments of any Class; provided that (i) each reduction of the
Commitments of any Class shall be in an amount that is an integral multiple of
US$1,000,000 and not less than US$5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.09,
the sum of the Revolving Exposures would exceed the total Revolving Commitments.
(c) The Revolving Commitments shall be automatically reduced on the
date of any prepayment of Revolving Loans pursuant to Section 2.09(b) or (c) by
the amount of such prepayment.
(d) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Commitments of any Class
shall be made ratably among the Lenders in accordance with their respective
Commitments of such Class.
(e) The Borrower may from time to time prior to December 31, 1999,
by notice to the Administrative Agent (which shall promptly deliver a copy to
each of the Lenders), request that the Revolving Loans (and, prior to the
Revolving Commitment Termination Date, the Revolving Commitments) or the Term
Loans be increased; provided that any such increase shall be in an amount of at
least US$25,000,000 and the aggregate amount of all increases shall not exceed
US$100,000,000. Each such notice shall set forth the requested amount of the
increase in such Commitments or such Loans and the date on which such increase
is to become effective (which shall be not fewer than 45 days after the date of
such notice), and shall offer each Lender the opportunity to increase its
Commitment or its applicable Loan by its ratable share, based on the
<PAGE>
31
amounts of the Lenders' Commitments or Loans, as the case may be, of the
requested increase. Each Lender shall, by notice to the Borrower and the
Administrative Agent given not more than 10 Business Days after the date of the
Borrower's notice (which notice shall be forwarded to each Lender immediately
upon receipt of such notice by the Administrative Agent), either agree to
increase its Commitment or Loans, as the case may be, by all or a portion of the
offered amount or decline to increase its Commitment or Loans (and any Lender
that does not deliver such a notice within such period of 10 Business Days shall
be deemed to have declined to increase its Commitment or Loans). In the event
that, on the 10th Business Day after the Borrower shall have delivered a notice
pursuant to the first sentence of this paragraph, the Lenders shall have agreed
pursuant to the preceding sentence to increase their Commitments or Loans by an
aggregate amount less than the increase requested by the Borrower, the Borrower
shall have the right to arrange for one or more banks or other financial
institutions (any such bank or other financial institution being called an
"Additional Lender"), which may include any Lender, to extend Commitments or
make Loans or increase their existing Commitments or Loans in an aggregate
amount equal to the unsubscribed amount, provided that each Additional Lender,
if not already a Lender hereunder, shall be subject to the approval of the
Borrower and the Administrative Agent (which approval shall not be unreasonably
withheld) and shall execute all such documentation as the Administrative Agent
shall specify to evidence its status as a Lender hereunder. If (and only if)
Lenders (including Additional Lenders) shall have agreed to increase their
Commitments or Loans or to extend new Commitments or make Loans in an aggregate
amount not less than US$25,000,000, such increases shall become effective on the
date specified in the notice delivered by the Borrower pursuant to the first
sentence of this paragraph, and if additional Loans are to be made, such Loans
shall be made on such date (it being agreed that the Borrower will give the
notice required by Section 2.03 in connection with such Loans). If the Loans
made on any date pursuant to this paragraph (e) shall not be made by all the
Lenders ratably in accordance with the amounts of their Revolving Commitments
(or Revolving Loans) or existing Term Loans, as the case may be, such Loans
shall be made in such manner as the Administrative Agent may specify in order
that each Revolving Borrowing or Term Borrowing shall, at the earliest
practicable date, consist of Revolving Loans or Term Loans made by the Lenders
ratably in accordance with the respective aggregate amounts of their Revolving
Commitments (or Revolving Loans) or their outstanding Term Loans, as the case
may be. Notwithstanding the foregoing, no increase shall become effective under
this paragraph unless, on the date of such increase, the conditions set forth in
paragraphs (a) and (b) of Section 4.02 shall be satisfied (with all references
in
<PAGE>
32
such paragraphs to a Borrowing being deemed to be references to such increase)
and the Administrative Agent shall have received a certificate to that effect
dated such date and executed by a Financial Officer.
SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Term Loan of
such Lender as provided in Section 2.08. The Borrower hereby unconditionally
promises to pay to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Revolving Loan of such Lender on the
Revolving Commitment Termination Date; provided that if on the Revolving
Commitment Termination Date no Default shall have occurred and be continuing,
then, at the option of the Borrower, the Revolving Loans will continue
outstanding, and will be payable as to principal as provided in Section 2.08.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Each Loan of any Class made by each Lender shall be evidenced by
a Note substantially in the form of Exhibit I-1 or I-2, as applicable. The
Borrower shall prepare, execute and deliver to each Lender a Note or Notes
evidencing Eurodollar Loans (and, under the circumstances referred to in Section
2.12, ABR Loans), payable to the order of such Lender (or, if requested by such
Lender, to such Lender and its registered assigns); provided that for purposes
<PAGE>
33
of the first Borrowing, any such Notes shall be delivered to Cravath, Swaine &
Moore, with copies of such Notes delivered to each Lender. Thereafter, the Loans
evidenced by such Note or Notes and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more Notes in such form payable to the order of the payee named therein (or, if
such Note is a registered note, to such payee and its registered assigns).
SECTION 2.08. Amortization of Loans. (a) Subject to adjustment
pursuant to paragraph (c) of this Section, the Borrower shall repay on each date
set forth below (each an "Installment Date") (i) an amount of the Term
Borrowings equal to the percentage set forth opposite such date of the aggregate
Term Borrowings made on the Effective Date and (ii) an amount of the Revolving
Borrowings equal to the percentage set forth opposite such date of the aggregate
Revolving Borrowings outstanding on the Revolving Commitment Termination Date
that shall not have become due and payable on such date as provided in Section
2.07(a):
Quarterly
Amortization
Date Percentage
---- ----------
10/31/97 0%
1/31/98 0%
4/30/98 0%
7/31/98 0%
10/31/98 0%
1/31/99 0%
4/30/99 0%
7/31/99 0%
10/31/99 0%
1/31/00 0%
4/30/00 5%
7/31/00 5%
10/31/00 5%
1/31/01 5%
4/30/01 12%
7/31/01 12%
10/31/01 12%
1/31/02 12%
4/30/02 16%
7/25/02 16%
(b) To the extent not previously paid, (i) all Term Loans shall be
due and payable on the Term Maturity Date and all Revolving Loans shall be due
and payable on the Revolving Maturity Date.
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34
(c) Any prepayment of a Term Borrowing, and any prepayment of a
Revolving Borrowing after the Revolving Commitment Termination Date, shall be
applied to reduce the subsequent scheduled repayments of the Term Borrowings or
Revolving Borrowings, as the case may be, to be made pursuant to this Section
2.08 ratably in accordance with the amounts thereof. In the event of any
increase in the Revolving Loans or the Term Loans as provided in Section 2.06(e)
(other than any increase in the Revolving Commitments or Revolving Loans prior
to the Revolving Commitment Termination Date), the amount of the Revolving Loans
or Term Loans payable on the subsequent Installment Date shall be increased,
ratably in accordance with the amounts due on such dates before giving effect to
such increase, by an aggregate amount equal to the amount of such increase.
(d) Prior to any repayment of any Borrowing hereunder, the Borrower
shall select the Borrowing to be repaid and shall notify the Administrative
Agent in writing of such selection not later than 11:00 a.m., New York City
time, three Business Days before the scheduled date of such repayment. Each
repayment of a Borrowing shall be applied ratably to the Loans included in the
repaid Borrowing. Repayments of Term Borrowings shall be accompanied by accrued
interest on the amount repaid.
SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event, the Borrower shall, within 15 Business Days after such Net
Proceeds are received, prepay Term Borrowings and, after the Term Borrowings
shall have been prepaid in full, Revolving Borrowings, in an aggregate amount
equal to 100% of such Net Proceeds; provided that the Borrower shall not be
subject to such prepayment obligation with respect to 50% of such Net Proceeds
(the "Specified Net Proceeds") to the extent that within such period of 15
Business Days the Borrower notifies the Administrative Agent that it intends to
reinvest such Specified Net Proceeds in Additional Assets within 12 months after
the receipt thereof, and within such 12-month period the Borrower delivers to
the Administrative Agent a notice certifying that such Specified Net Proceeds
have in fact been so reinvested; provided further that to the extent such
Specified Net Proceeds are not fully used in accordance with the foregoing
proviso, the Borrower shall prepay Term Borrowings and, after the Term
Borrowings shall have been prepaid in full, Revolving Borrowings, in an
aggregate amount
<PAGE>
35
equal to 100% of such excess Specified Net Proceeds within 10 Business Days of
such non-use.
(c) Following the end of each fiscal year of the Borrower,
commencing with the fiscal year ending December 31, 1998, the Borrower shall
prepay Term Borrowings (and after the Term Borrowings shall have been prepaid in
full, prepay Revolving Borrowings) in an aggregate amount equal to 50% of Excess
Cash Flow for such fiscal year. Each prepayment pursuant to this paragraph shall
be made on or before the date on which financial statements are delivered
pursuant to Section 5.01 with respect to the fiscal year for which Excess Cash
Flow is being calculated (and in any event within 120 days after the end of such
fiscal year).
(d) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (e) of this Section.
(e) The Borrower shall notify the Administrative Agent in writing of
any prepayment hereunder not later than 11:00 a.m., New York City time, three
Business Days before the date of the proposed prepayment. Each such notice shall
be irrevocable and shall specify the prepayment date, the principal amount of
each Borrowing or portion thereof to be prepaid and, in the case of a mandatory
prepayment, a reasonably detailed calculation of the amount of such prepayment;
provided that, if a notice of optional prepayment is given in connection with a
conditional notice of termination of the Revolving Commitments as contemplated
by Section 2.06, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.06. Promptly following
receipt of any such notice, the Administrative Agent shall advise the Lenders of
the contents thereof. Each partial prepayment of any Borrowing shall be in an
amount that would be permitted in the case of an advance of a Borrowing as
provided in Section 2.02, except as necessary to apply fully the required amount
of a mandatory prepayment. Each prepayment of a Borrowing shall be applied
ratably to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.11.
SECTION 2.10. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at a rate of 0.50% per annum on the average daily unused amount of
the Revolving Commitment of such Lender during the period from and including the
date hereof to but excluding the Revolving Commitment Termination Date. Accrued
commitment fees shall be payable in
<PAGE>
36
arrears on the last day of January, April, July and October of each year and on
the Revolving Commitment Termination Date, commencing on October 31, 1997. All
commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Borrower agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of commitment fees, to the Lenders entitled thereto. Fees paid shall
not be refundable.
SECTION 2.11. Interest. (a) The Loans comprising each Eurodollar
Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period
in effect for such Borrowing plus 1.75% per annum.
(b) The Loans comprising each ABR Borrowing shall bear interest at
the Alternate Base Rate plus 0.75% per annum.
(c) Notwithstanding the foregoing, if any principal of or interest
on any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Borrowings as provided in paragraph (b) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Revolving Commitments; provided that (i) interest
accrued pursuant to paragraph (c) of this Section shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan, accrued interest
on the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.
<PAGE>
37
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable LIBO Rate or Alternate
Base Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall
be conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised in good faith by the
Required Lenders that the LIBO Rate for such Interest Period will not adequately
and fairly reflect the cost to such Lenders of making or maintaining their Loans
included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof (sent by telecopy and
confirmed promptly by hand delivery or overnight courier service) to the
Borrower and the Lenders by telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the continuation of any Borrowing as a Eurodollar
Borrowing shall be deemed to request the continuation of such Borrowing at the
end of the Interest Period applicable thereto as an ABR Borrowing and (ii) if
any Borrowing Request requests a Eurodollar Borrowing, the requested Borrowing
shall be made as an ABR Borrowing. At or prior to the making or continuation of
any Borrowing as an ABR Borrowing as contemplated by the preceding sentence, the
Borrower shall deliver to each Lender a duly completed Note or Notes evidencing
the Loan or Loans of such Lender constituting a part of such Borrowing, and upon
the delivery of such Note or Notes, such Lender shall surrender to the Borrower
for cancellation the Note or Notes that shall previously have represented such
Loan or Loans.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of,
<PAGE>
38
deposits with or for the account of, or credit extended by, any Lender
(except any such reserve requirement reflected in the LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans made by such
Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan), then the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender for such
additional costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's capital or on the capital of such Lender's holding company, if
any, as a consequence of this Agreement or the Loans made by such Lender to a
level below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
such additional amount or amounts as will compensate such Lender or such
Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 30 days after
receipt thereof.
(d) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that the Borrower shall not
be required to compensate a Lender pursuant to this Section for any increased
costs or reductions incurred more than 180 days prior to the date that such
Lender notifies the Borrower of the Change in Law giving rise to such increased
costs or reductions and of such Lender's intention to claim compensation
therefor; provided further that, if the Change in Law giving rise to such
increased costs or reductions is retroactive, then the 180-day period referred
to above shall be extended to include the period of retroactive effect thereof.
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39
SECTION 2.14. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan or Term Loan on the date specified in any
notice delivered or deemed to have been delivered pursuant hereto (regardless of
whether such notice may be revoked under Section 2.09(e) and is revoked in
accordance therewith), or (d) the assignment of any Eurodollar Loan other than
on the last day of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section 2.17, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss, cost or
expense to any Lender shall be deemed to include an amount determined by such
Lender to be the excess, if any, of (i) the amount of interest which would have
accrued on the principal amount of such Loan had such event not occurred, at the
Adjusted LIBO Rate that would have been applicable to such Loan, for the period
from the date of such event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert or continue, for the
period that would have been the Interest Period for such Loan), over (ii) the
amount of interest which would accrue on such principal amount for such period
at the interest rate which such Lender would bid were it to bid, at the
commencement of such period, for U.S. Dollar deposits of a comparable amount and
period from other banks in the eurodollar market. A certificate of any Lender
setting forth any amount or amounts that such Lender is entitled to receive
pursuant to this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof.
SECTION 2.15. Taxes. (a) Any and all payments by or on account of
any obligation of the Borrower hereunder or under any other Loan Document shall
be made free and clear of and without deduction for any Indemnified Taxes or
Other Taxes; provided that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Administrative Agent or Lender (as the case may be) receives an amount equal
to the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay
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40
the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each
Lender, within 30 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any payment by or on account
of any obligation of the Borrower hereunder or under any other Loan Document
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a Lender or by the
Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority but no later than 30
days after the date on which such Taxes are paid by the Borrower, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender and the Administrative Agent will promptly
provide to the Borrower such form, certification or similar documentation, if
any (each duly completed, accurate and signed), as is currently required under
the laws of Mexico or any double taxation treaty that is in effect and to which
Mexico is a party, or comply with such other requirement, if any, as is
currently applicable under the laws of Mexico, in order to obtain an exemption
from, or reduced rate of, deduction, payment or withholding of Indemnified Taxes
or Other Taxes to which such Foreign Lender or the Administrative Agent is
entitled pursuant to an applicable double taxation treaty that is in effect and
to which Mexico is a party or the law of Mexico. The Borrower shall not be
required to indemnify any Lender, or the Administrative Agent under clauses (a)
or (c) of this Section (which indemnity exception shall not apply to a Lender
that is a Mexican Lender) for any Indemnified Taxes or Other Taxes to the extent
<PAGE>
41
that such Indemnified Taxes and Other Taxes would not be imposed but for the
failure by such Lender or the Administrative Agent, as the case may be, to
comply with the provisions of the preceding sentence. Upon the written request
of the Borrower given at least 30 days in advance, each Lender and the
Administrative Agent will promptly provide to the Borrower such form,
certification or similar documentation (each duly completed, accurate and
signed) as may in the future be required by Mexico or any other jurisdiction, or
comply with such other requirement as may in the future be applicable in Mexico
or any other jurisdiction, in order to obtain an exemption from, or reduced rate
of, deduction, payment or withholding of Indemnified Taxes or Other Taxes to
which such Foreign Lender or the Administrative Agent is entitled pursuant to an
applicable tax treaty or the law of the relevant jurisdiction; provided that
neither such Lender nor the Administrative Agent shall have any obligation to
provide such form, certification or similar document if, in the sole judgment of
such Lender or the Administrative Agent, as the case may be, the provision of
such form, certification or similar document will be unduly burdensome, will
require such Lender or the Administrative Agent to disclose any confidential or
proprietary information or will otherwise be disadvantageous to such Lender or
the Administrative Agent.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of
Setoffs. (a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest or
fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise)
prior to 1:00 p.m., New York City time, on the date when due, in immediately
available funds, without set-off or counterclaim. Any amounts received after
such time on any date may, in the discretion of the Administrative Agent, be
deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the
Administrative Agent at its offices at 270 Park Avenue, New York, New York,
except that payments pursuant to Sections 2.13, 2.14, 2.15 and 9.03 shall be
made directly to the Persons entitled thereto and payments pursuant to other
Loan Documents shall be made to the Persons specified therein. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment under any Loan Document shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
under each Loan Document shall be made in U.S. Dollars.
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42
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied (i) first, towards payment
of interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans or Term Loans resulting in such Lender
receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans and Term Loans and accrued interest thereon than the proportion
received by any other Lender, then the Lender receiving such greater proportion
shall purchase (for cash at face value) participations in the Revolving Loans
and Term Loans of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective
Revolving Loans and Term Loans. The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the Borrower will not make
such payment, the Administrative Agent may assume that the Borrower has made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(b), 2.16(d)
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43
or 9.03(c), then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to satisfy
such Lender's obligations under such Sections until all such unsatisfied
obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.13 or 2.15 (other than
additional amounts for withholding taxes applicable on the date hereof), then
such Lender shall use reasonable efforts to designate a different lending office
for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.13 or 2.15 in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.
(b) If any Lender requests compensation under Section 2.13 or 2.15
(other than additional amounts for withholding taxes applicable on the date
hereof), or if any Lender defaults in its obligation to fund Loans hereunder,
then the Borrower may, at its sole expense and effort (or, if any assignment is
due to a default by a Lender in its obligation to fund Loans hereunder, at such
defaulting Lender's expense), upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in Section 9.04), all
its interests, rights and obligations under this Agreement to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (i) the Borrower shall have received the
prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.13, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if the request for such assignment has been made because such Lender
has requested compensation under Section 2.13 or 2.15 and, prior
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44
to such assignment, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and its
Subsidiaries is duly organized and validly existing under the laws of the
jurisdiction of its organization, has all requisite power and authority, and has
all material governmental licenses, authorizations, consents and approvals
necessary to own its assets and to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
entered into by each Loan Party are within such Loan Party's corporate powers
and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by the
Borrower and constitutes, and each other Loan Document to which any Loan Party
is to be a party, when executed and delivered by such Loan Party, will
constitute, a valid and binding obligation of the Borrower or such Loan Party,
as the case may be, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. (a) The
Transactions (i) do not require any consent or approval of, registration or
filing (other than filings that the Borrower is required to make, for tax
purposes, with the Ministry of Finance and Public Credit and that do not have an
effect on the obligations of the Borrower under Section 2.15) with, or any other
action by, any Governmental Authority (including, regulations of the Central
Bank of Mexico), except such as have been obtained or made and are in full force
and effect and except filings necessary to perfect Liens created under the Loan
Documents, including (A) the filings and recording of the Mortgage with (x) the
Telecommunications
<PAGE>
45
Registry maintained by SCT, (y) each Public Registry of Property where real
estate subject to the Mortgage may be located and (z) the Public Registry of
Commerce of the Federal District of Mexico) and (B) the filing and recording of
the Trademark Pledge Agreement with the Mexican Institute of Industrial
Property, (ii) will not violate any applicable law or regulation or the charter,
by-laws or other organizational documents of the Borrower or any of its
Subsidiaries or any order of any Governmental Authority, (iii) will not violate
or result in a default under any material indenture, agreement, concession,
permit or other instrument binding upon the Borrower or any of its Subsidiaries
or its assets, or give rise to a right thereunder to require any payment to be
made by the Borrower or any of its Subsidiaries and (iv) will not result in the
creation or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries, except Liens created under the Loan Documents.
(b) Each of the Borrower and its Subsidiaries has obtained the
Concessions, or has applied for and is diligently pursuing, all other
concessions, licenses, permits, authorizations or other forms of permission
which under Mexican law are necessary for operating and maintaining a wireless
communications business and none of the Borrower or any of its Subsidiaries is
in violation of any valid material rights of others with respect to any of the
foregoing.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
The Borrower has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended December 31, 1996, reported on by Coopers & Lybrand,
Despacho Roberto Casas Alatriste, independent public accountants, and (ii) as of
and for the fiscal quarter and the portion of the fiscal year ended March 31,
1997, certified by its chief financial officer. Such financial statements
present fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP as required to be
applied in filings under the Federal securities laws and Mexican GAAP applied
consistently (with a reconciliation between the two in the case of annual
financial information), subject to year-end audit adjustments.
(b) The Borrower has heretofore furnished to the Lenders its pro
forma consolidated balance sheet as of March 31, 1997, prepared giving effect to
the Transactions (except any borrowing of Revolving Loans not made in connection
with transactions occurring on the Effective Date) as if the Transactions had
occurred on such date. Such pro forma consolidated balance sheet (i) has been
prepared in
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46
good faith based on the same assumptions used to prepare the pro forma financial
statements included in the Information Memorandum (which assumptions are
believed by the Borrower to be reasonable), (ii) is based on the best
information available to the Borrower after due inquiry, (iii) accurately
reflects all adjustments necessary to give effect to such Transactions and (iv)
presents fairly, in all material respects, the pro forma financial position of
the Borrower and its consolidated Subsidiaries as of March 31, 1997 as if the
Transactions had occurred on such date.
(c) Except as disclosed in the financial statements referred to
above or the notes thereto or in the Information Memorandum, and except for the
Disclosed Matters, after giving effect to the Transactions, none of the Borrower
or any of its Subsidiaries has, as of the Effective Date, any material
contingent liabilities, material liabilities for taxes, material unusual forward
or material long-term commitments or material unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in its balance sheets as of the dates specified in clause (a) of this
Section.
(d) Since December 31, 1996, there has been no material adverse
change in the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business, except for minor defects in
title that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed
to use, all trademarks, trade names, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) Schedule 3.05 sets forth the address of each real property that
is owned by the Borrower or any of its Subsidiaries as of the Effective Date
after giving effect to the Transactions.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before
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47
any arbitrator or Governmental Authority pending against or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect (other
than the Disclosed Matters) or (ii) that involve any of the Loan Documents or
the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither the Borrower nor any of
its Subsidiaries (i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the date of this Agreement, there has been no change in
the status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements; Stock Purchase
Plan. Each of the Borrower and its Subsidiaries is in substantial compliance
with all laws, regulations and orders of any Governmental Authority applicable
to it or its property and all indentures, agreements and other instruments
binding upon it or its property, except where the failure to do so, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the
Borrower nor any of its Subsidiaries is (a) an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (i) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such
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48
Subsidiary, as applicable, has set aside on its books adequate reserves or (ii)
to the extent that the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10. IMSS, INFONAVIT, SAR. Each of the Borrower and its
Subsidiaries is in compliance with any and all laws relating to IMSS, INFONAVIT
and SAR, has paid all amounts necessary to be paid thereunder and there is no
proceeding pending or, to its knowledge, threatened against any of them as a
result of failure to comply with or violations of such laws.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders
all agreements, instruments and corporate or other restrictions to which the
Borrower or any of its Subsidiaries is subject, and all other matters known to
any of them, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. Neither the Information
Memorandum nor any of the other reports, financial statements, certificates or
other information furnished by or on behalf of any Loan Party to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or any other Loan Document or delivered hereunder or thereunder (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. Subsidiaries. Schedule 3.12 sets forth the name of,
and the ownership interest of the Borrower in, each Subsidiary of the Borrower
and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as
of the Effective Date. As of the Effective Date, the signatories to the
Guarantee Agreement are the only Designated Subsidiaries.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of
all insurance maintained by or on behalf of the Borrower and its Subsidiaries as
of the Effective Date. As of the Effective Date, all premiums in respect of such
insurance have been paid.
SECTION 3.14. Labor Matters. As of the Effective Date, there are no
strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending
or, to the knowledge of the Borrower, threatened. The hours worked by, payments
made to
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49
and working conditions applicable to employees of the Borrower and the
Subsidiaries have not been and are not in violation of the Federal Labor Law
(Ley Federal del Trabajo), the IMSS Law and any rules and regulations
thereunder. The consummation of the Transactions will not give rise to any right
of termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Borrower or any Subsidiary is
bound.
SECTION 3.15. Solvency. Immediately after the consummation of the
Transactions to occur on the Effective Date and immediately following the making
of each Loan made on the Effective Date and after giving effect to the
application of the proceeds of such Loans, (a) the fair value of the assets of
the Borrower, on an individual basis, or the Loan Parties, taken as a whole, at
a fair valuation, will exceed its or their debts and liabilities, subordinated,
contingent or otherwise; (b) the present fair saleable value of the property of
the Borrower, on an individual basis, or the Loan Parties, taken as a whole,
will be greater than the amount that will be required to pay the probable
liability of its or their debts and other liabilities, subordinated, contingent
or otherwise, as such debts and other liabilities become absolute and matured;
(c) the Borrower, on an individual basis, or the Loan Parties, taken as a whole,
will be able to pay its or their debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured; and (d)
the Borrower, on an individual basis, or the Loan Parties, taken as a whole,
will not have unreasonably small capital with which to conduct the businesses in
which it or they are engaged as such businesses are now conducted and are
proposed to be conducted following the Effective Date.
SECTION 3.16. Senior Indebtedness. The Obligations constitute
"Senior Indebtedness" under and as defined in the Senior Note Indenture and
"Senior Obligations" under and as defined in the Subordinated Debt Documents.
SECTION 3.17. Use of Proceeds. The proceeds of the Loans will be
used only to refinance existing Indebtedness of the Borrower and its
Subsidiaries, to fund Capital Expenditures and for general corporate purposes.
SECTION 3.18. Effectiveness and Validity of Concessions and Material
Permits. As of the Effective Date, all Concessions and material permits in
respect thereto granted to the Borrower or any Subsidiary under the Original
Telecommunications Law and the 1995 Telecommunications Law are valid and in full
force and effect, all payments to be made thereunder to SCT have been duly and
timely made, all conditions to their effectiveness have been satisfied and, to
the knowledge of the Borrower, there is no action pending or
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threatened that may challenge the validity of any such concession.
SECTION 3.19. Security Documents. (a) The Pledge Agreement is
effective to create in favor of the Collateral Agent, for the ratable benefit of
the Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and, when the Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the pledgor thereunder in such Collateral, in each case prior and
superior in right to any other person.
(b) All approvals (other than SCT approval with respect to the
Region 9 Concession, which will be obtained in accordance with Section 5.14)
necessary to create the security interest intended to be perfected under the
Security Agreements have been obtained and are in full force and effect; the
Security Agreements will be effective in accordance with Section 5.14 to create
in favor of the Collateral Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable security interest (subject only to the
registrations mentioned in Section 5.14) in (i) the Collateral (as defined in
the Mortgage) consisting of all Concessions and, to the extent related to such
Concessions pursuant to Articles 92, 93 and 94 of the Original
Telecommunications Laws, all assets (movable and non-movable) used in the
construction, exploitation, repair and maintenance of the relevant means of
communications, and all capital contributions, cash in hand, and receivables and
rights arising for the benefit of the relevant Concessions and (ii) the
trademarks specified in Schedule 1.01(a) and subject to the Trademark Pledge
Agreement.
SECTION 3.20. Delivery of Agreements. The Borrower has heretofore
furnished to the Lenders a true copy of each of the (a) organizational documents
of the Borrower, (b) Subordinated Debt Documents, (c) Senior Note Indenture and
(d) the Amended and Restated Shareholders Agreement dated as of February 18,
1997.
SECTION 3.21. Legal Form. Each Loan Document is in proper legal form
under the law of Mexico for the enforcement thereof against each Loan Party a
party thereto under such law, and if such Loan Document were stated to be
governed by such law, it would constitute the legal, valid and binding
obligation of each Loan Party a party thereto under such law, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity, regardless of whether
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51
considered in a proceeding in equity or at law. All formalities required in
Mexico for the validity and enforceability of each Loan Document (including, any
necessary registration, recording or filing with any court or Governmental
Authority in Mexico) against each Loan Party have been accomplished or will be
obtained on or prior to the Effective Date (unless otherwise specified in
Sections 3.03, 5.14 or elsewhere in the Loan Documents) and no Mexican Taxes are
required to be paid and no notarization is required for the validity and
enforceability thereof, except that in the event that any legal proceedings are
brought in the courts of Mexico, a Spanish translation of the documents required
in such proceedings prepared by a court approved translator would have to be
approved by the court after the defendant had been given an opportunity to be
heard with respect to the accuracy of the translation, and proceedings would
thereafter be based upon the translated documents.
SECTION 3.22. Commercial Activity; Absence of Immunity. Each Loan
Party is subject to civil and commercial law with respect to its obligations
under the Loan Documents to which it is a party. The execution, delivery and
performance by each Loan Party of the Loan Documents to which it is a party
constitute private and commercial acts rather than public or governmental acts.
None of the Loan Parties nor any of their respective assets or revenues is
entitled to any right of immunity in any jurisdiction from suit, court
jurisdiction, judgment, attachment (whether before or after judgment), set-off
or execution of a judgment or from any other legal process or remedy relating to
the obligations of such Loan Party under the Loan Documents to which it is a
party.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders to make
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the Administrative
Agent (which may include telecopy transmission of a signed signature page of
this Agreement) that such party has signed a counterpart of this Agreement.
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52
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated the
Effective Date) of each of (i) Rogers & Wells, counsel for the Borrower,
substantially in the form of Exhibit B-1, (ii) De Ovando y Martinez del Campo,
S.C., special Mexican counsel for the Borrower, substantially in the form of
Exhibit B-2, (iii) Carlos Gutierrez Cardona, Deputy General Counsel for the
Borrower, substantially in the form of Exhibit B-3 and (iv) Susan B. Asch, Esq.,
Assistant General Counsel of Bell Atlantic International, Inc., and, in the case
of each such opinion required by this paragraph, covering such other matters
relating to the Loan Parties, the Loan Documents or the Transactions as the
Required Lenders shall reasonably request. The Borrower hereby requests such
counsel to deliver such opinions.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably request
relating to the organization and existence of each Loan Party, the authorization
of the Transactions and any other legal matters relating to the Loan Parties,
the Loan Documents or the Transactions (including copies, certified by a notary
public, of the estatutos sociales of each Loan Party and powers-of-attorney,
with authority for actos de dominio and actos de administracion as well as for
execution of negotiable instruments, for each person executing each Loan
Document on behalf of each Loan Party each notarized by a Mexican notary
public), all in form and substance satisfactory to the Administrative Agent and
its counsel and a letter from the agent for service of process appointed by the
Borrower pursuant to Section 9.09, agreeing to act as process agent (together
with a notarized power-of-attorney granted to such process agent, which
notarized power-of- attorney will be delivered by the Borrower to the
Administrative Agent on or prior to 45 days after the Effective Date).
(d) The Administrative Agent shall have received a certificate,
dated the Effective Date and signed by the President, a Vice President or a
Financial Officer of the Borrower, confirming compliance with the conditions set
forth in paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to the
extent invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by any Loan Party hereunder or under any other Loan
Document.
(f) The Administrative Agent shall have received the Guarantee
Agreement signed by each Designated Subsidiary.
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53
(g) The Administrative Agent shall have received the Pledge
Agreement signed on behalf of the Borrower and each Subsidiary that owns any
Designated Equity Interest, together with certificates representing all the
Designated Equity Interests as of the Effective Date endorsed "en garantia" to
the Collateral Agent, together with a copy, certified by the Secretary of each
Designated Subsidiary, of the notation made in the Stock Registry of each
Designated Subsidiary relating to the security interest created by such Pledge
Agreement.
(h) All consents and approvals required to be obtained from any
Governmental Authority or other Person in connection with the Transactions shall
have been obtained and all registrations required to have been made with any
Governmental Authority in connection with the Transactions shall have been
effected (other than filings that the Borrower is required to make, for tax
purposes and from time to time, with the Ministry of Finance and Public Credit
and that do not have an effect on the Obligations of the Borrower under Section
2.15), in each case without the imposition of any burdensome conditions (other
than those required in respect of the Security Agreements, which are subject to
Section 5.14).
(i) The Borrower and its Subsidiaries shall have repaid or shall
substantially simultaneously repay in full all amounts due and payable under all
other Indebtedness of the Borrower and its Subsidiaries other than the Senior
Notes, the Subordinated Debt and the trade finance credit with Mitsui USA, Inc.
and Mitsui de Mexico, S.A. de C.V., and the Administrative Agent shall have
received duly executed documentation either evidencing or necessary for the
termination of all such Indebtedness and the release of all related Liens
thereto.
(j) The Subordinated Debt Documents shall have been executed by the
parties thereto and shall be in full force and effect, with a copy of each
Subordinated Debt Document delivered to the Administrative Agent.
(k) The Senior Note Indenture shall have been executed by the
parties thereto and shall be in full force and effect, with a copy delivered to
the Administrative Agent.
(l) With respect to Revolving Loans only, (i) all approvals and
registrations referred to in Section 5.14 shall have been effected and (ii) the
Administrative Agent shall have received (A) evidence of such approvals and
registrations and (B) the Mortgage and the Trademark Pledge Agreement, each
signed on behalf of the Borrower and each Subsidiary party thereto.
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54
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New
York City time, on August 31, 1997 (and, in the event such conditions are not so
satisfied or waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct in all material respects on and
as of the date of such Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
(c) If Indebtedness under this Agreement is not permitted by a
separate basket under the Senior Note Indenture, receipt by the Administrative
Agent of an officer's certificate setting forth calculations demonstrating that
the subject borrowing complies with the Indebtedness covenant of the Indenture.
(d) The Note or Notes for each Lender evidencing the Loan or Loans
made by such Lender shall have been duly completed and executed by the Borrower.
(e) With respect to Revolving Loans only, (i) all approvals and
registrations referred to in Section 5.14 shall have been effected and (ii) the
Administrative Agent shall have received (A) evidence of such approvals and
registrations and (B) the Mortgage and the Trademark Pledge Agreement, each
signed on behalf of the Borrower and each Subsidiary party thereto.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
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55
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) within 120 days after the end of each fiscal year of the
Borrower, its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for such
year, setting forth in each case in comparative form the figures for the
previous fiscal year, all reported on by Coopers & Lybrand, Despacho Roberto
Casas Alatriste or other independent public accountants of recognized standing
(without a "going concern" or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect that
such consolidated financial statements present fairly in all material respects
the financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP as
required to be applied in filings under the U.S. Federal securities laws and
Mexican GAAP applied consistently (with a reconciliation between the two);
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, its consolidated balance sheet and
related statements of operations, stockholders' equity and cash flows as of the
end of and for such fiscal quarter and the then elapsed portion of the fiscal
year, setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of) the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP as required to be applied in filings
under the U.S. Federal securities laws and Mexican GAAP, subject to normal
year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the Borrower
(i) certifying as to whether a Default has occurred and, if a Default has
occurred,
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56
specifying the details thereof and any action taken or proposed to be taken with
respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 6.12 and (iii) stating whether any change
in GAAP or Mexican GAAP or in the application thereof has occurred since the
date of the Borrower's audited financial statements referred to in Section 3.04
and, if any such change has occurred, specifying the effect of such change on
the financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on such
financial statements stating whether they obtained knowledge during the course
of their examination of such financial statements of any Default (which
certificate may be limited to the extent required by accounting rules or
guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by the
Borrower or any Subsidiary with the Securities and Exchange Commission or
Mexico's Comision Nacional Bancaria y de Valores, or any Governmental Authority
succeeding to any or all of the functions of either such commission, or with any
securities exchange, or distributed by the Borrower to its shareholders
generally, as the case may be; and
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of any Loan Document,
as the Administrative Agent or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower will furnish
to the Administrative Agent and each Lender prompt (but in no event later than
10 Business Days after the occurrence of any of the following) written notice of
the following:
(a) actual knowledge of an officer of the Borrower of the occurrence
of any Default;
(b) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
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57
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Governmental Approvals; Concessions. (a) The Borrower
agrees that it will promptly obtain from time to time at its own expense all
such governmental licenses, authorizations, consents, permits and approvals as
may be required for the Borrower to comply with its obligations under the Loan
Documents.
(b) The Borrower will, and will cause each of its Subsidiaries to,
preserve and keep in full force and effect all Concessions and shall comply with
the Material Terms and Conditions of all Concessions.
SECTION 5.04. Existence; Conduct of Business. The Borrower will, and
will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, franchises,
concessions, permits, patents, copyrights, trademarks and trade names material
to the conduct of its business, including all material permits relating to the
Concessions; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 6.04.
SECTION 5.05. Payment of Obligations. The Borrower will, and will
cause each of its Subsidiaries to, pay its Indebtedness and other obligations,
including Tax liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and Mexican GAAP, (c) such contest effectively suspends collection of the
contested obligation and the enforcement of any Lien securing such obligation
and (d) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. The Borrower will, and will
cause each of its Subsidiaries to, keep and maintain all property material to
the conduct of its business in good working order and condition, ordinary wear
and tear excepted, and to maintain, develop and operate such property in
accordance with prudent industry standards.
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58
SECTION 5.07. Insurance. The Borrower will, and will cause each of
its Subsidiaries to, maintain with financially sound and reputable insurance
companies, insurance in such amounts and against such risks as are customarily
maintained by companies engaged in the same or similar businesses operating in
the same or similar locations.
SECTION 5.08. Books and Records; Inspection and Audit Rights. The
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which true and correct entries are made of the
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the Administrative Agent or any Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants; provided that, unless an Event of Default has
occurred and is continuing, such visits shall be made no more frequently than
once per each fiscal quarter during regular business hours and shall be
coordinated through the Administrative Agent.
SECTION 5.09. Compliance with Laws and Material Contractual
Obligations. The Borrower will, and will cause each of its Subsidiaries to,
comply with all laws, rules, regulations and orders of any Governmental
Authority applicable to it or its property and with all material contractual
obligations and obligations arising from the Concessions under which the
Borrower and its Subsidiaries provide their services), except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 5.10. Use of Proceeds. The proceeds of the Loans will be
used only to repay existing Indebtedness of the Borrower and its Subsidiaries,
to fund Capital Expenditures and for general corporate purposes. No part of the
proceeds of any Loan will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Board,
including Regulations G, U and X.
SECTION 5.11. Additional Subsidiaries. If any additional Subsidiary
is formed or acquired after the Effective Date, the Borrower will notify the
Administrative Agent thereof and, within three Business Days after such
Subsidiary is formed or acquired, (a) if such Subsidiary is a Designated
Subsidiary, the Borrower will cause such Subsidiary to become a party to the
Guarantee Agreement, (b) if such Subsidiary owns any Designated Assets, the
Borrower will cause such Subsidiary to become a party to the Security Agreements
and promptly to take such actions to create and perfect Liens
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59
on such Subsidiary's Designated Assets to secure the Obligations as the
Administrative Agent or the Required Lenders shall reasonably request, (c) the
Borrower will cause all shares of capital stock or other equity interests of or
in such Subsidiary owned by the Borrower or any other Subsidiary to be pledged
pursuant to the Pledge Agreement and will create in favor of the Collateral
Agent for the benefit of the Lenders, as security for the Obligations, first
priority perfected pledges of and security interests in all such shares of
capital stock or equity interests and (d) if such Subsidiary shall own any
Designated Equity Interests, the Borrower will cause such Subsidiary to become a
party to the Pledge Agreement and to create in favor of the Collateral Agent for
the benefit of the Lenders, as security for the Obligations, first priority
perfected pledges of and security interests in all such Designated Equity
Interests.
SECTION 5.12. Further Assurances. (a) The Borrower will, and will
cause each Subsidiary to, execute any and all further documents, financing
statements, agreements and instruments, and take all such further actions
(including the filing and recording of financing statements, mortgages, deeds of
trust and other documents with any party deemed appropriate, including SCT and
any public registry), which may be required under any applicable law, or which
the Administrative Agent or the Required Lenders may reasonably request, to
effectuate the transactions contemplated by the Loan Documents or to grant,
preserve, protect or perfect the Liens created or intended to be created by the
Security Documents or the validity or priority of any such Lien, all at the
expense of the Loan Parties. The Borrower also agrees to provide to the
Administrative Agent, from time to time upon request, evidence reasonably
satisfactory to the Administrative Agent as to the perfection and priority of
the Liens created or intended to be created by the Security Documents.
(b) If any Designated Assets (including any real property or
improvements thereto or any interest therein) are acquired by the Borrower or
any Subsidiary Loan Party after the Effective Date (other than assets
constituting Collateral under the Security Agreement that become subject to the
Lien of the Security Agreement upon acquisition thereof), the Borrower will
notify the Administrative Agent and the Lenders thereof, and, if requested by
the Administrative Agent or the Required Lenders, will cause such assets to be
subjected to a Lien securing the Obligations and will take, and cause the
Subsidiaries to take, such actions as shall be necessary or reasonably requested
by the Administrative Agent to grant and perfect such Liens, including actions
described in paragraph (a) of this Section, all at the expense of the Loan
Parties.
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SECTION 5.13. Interest Rate Protection. In the event that at any
fiscal quarter end less than 45% of the outstanding Indebtedness for borrowed
money of the Borrower and the Subsidiaries (except Subordinated Debt that has
been converted prior to December 31, 1999,) either bears interest at fixed rates
or is subject to one or more interest rate protection agreements heretofore
entered into pursuant to this Section (such condition being called the "Fixed
Rate Shortfall"), the Borrower will, within 60 days after such fiscal quarter
end, enter into, and thereafter maintain in effect, one or more interest rate
protection agreements fixing or limiting interest rates on indebtedness for
borrowed money for a period ending not sooner than the third anniversary of the
Effective Date, on terms and with parties reasonably satisfactory to the
Administrative Agent, to the extent necessary to eliminate the Fixed Rate
Shortfall.
SECTION 5.14. Perfection of Liens Created Under Security Agreements.
As promptly as practicable, and in any event no later than 90 days after the
Effective Date, the Borrower shall obtain and deliver to the Administrative
Agent evidence, satisfactory to the Administrative Agent, of (i) SCT approval
for the creation of a security interest in the Region 9 Concession, (ii) the
registration (and perfection) of the security interest created by the Mortgage
in the Telecommunications Registry maintained by SCT, (iii) the registration
(and perfection) of the security interest created with respect to real property
specified in the Mortgage in each of the relevant Public Registries of Property,
(iv) the registration of the Mortgage in the Public Registry of Commerce of the
Federal District of Mexico and (v) the registration (and perfection) of the
security interest created by the Trademark Pledge Agreement in the Mexican
Institute of Industrial Property.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees payable hereunder have been paid in
full, the Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
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(ii) the Senior Notes, including any guarantees with respect
thereto;
(iii) the Subordinated Debt, including any increase of such
Subordinated Debt;
(iv) Indebtedness existing on the date hereof and set forth in
Schedule 6.01 and Refinancing Indebtedness with respect thereto;
(v) Indebtedness of the Borrower to any Subsidiary and of any
Designated Subsidiary to the Borrower or any other Subsidiary, other than
any such Indebtedness to Iusatelecomunicaciones, unless permitted under
clause (g) of Section 6.05;
(vi) Indebtedness not in excess of an amount equal to the sum of (A)
US$5,000,000 in respect of performance bonds, bankers' acceptances,
letters of credit and surety bonds provided by the Borrower and the
Subsidiaries in the ordinary course of their business and which do not
secure other Indebtedness and (B) US$10,000,000 with respect to any such
performance bonds provided to secure telecommunications concessions,
permits and similar governmental instruments of the Borrower and the
Subsidiaries;
(vii) Indebtedness in respect of Capital Lease Obligations, Purchase
Money Indebtedness and Refinancing Indebtedness with respect thereto;
provided that (x) the principal amount of such Indebtedness does not
exceed 100% of the fair market value of the property or assets subject
thereto and (y) the aggregate principal amount of all such Indebtedness
does not exceed US$100,000,000; and
(viii) other Later Maturing Indebtedness in an aggregate principal
amount not exceeding US$100,000,000; provided that the terms and
conditions of such Indebtedness are at least as favorable to the Borrower
and the Lenders as are the terms and conditions of the Senior Notes or are
otherwise reasonably satisfactory to the Required Lenders;
(ix) other unsecured short-term Indebtedness in an aggregate
principal amount not exceeding US$10,000,000 at any time outstanding (of
which not more than US$5,000,000 at any time outstanding may be
Indebtedness of Subsidiaries); provided that the terms and conditions of
such Indebtedness are reasonably satisfactory to the Lenders.
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62
(b) The Borrower will not, nor will it permit any Subsidiary to,
issue any preferred stock or be or become liable in respect of any obligation
(contingent or otherwise) to purchase, redeem, retire, acquire or make any other
payment in respect of any shares of capital stock of the Borrower or any
Subsidiary (other than, in each case, in shares of capital stock) or any option,
warrant or other right to acquire any such shares of capital stock.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned or hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided
that (i) such Lien shall not apply to any other property or asset of the
Borrower or any Subsidiary and (ii) such Lien shall secure only those
obligations which it secures on the date hereof and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date hereof
prior to the time such Person becomes a Subsidiary; provided that (i) such Lien
is not created in contemplation of or in connection with such acquisition or
such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not
apply to any other property or assets of the Borrower or any Subsidiary and
(iii) such Lien shall secure only those obligations which it secures on the date
of such acquisition or the date such Person becomes a Subsidiary, as the case
may be and extensions, renewals and replacements thereof that do not increase
the outstanding principal amount thereof;
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; provided that (i) such security
interests secure only Indebtedness permitted by clause (vii) of Section 6.01(a),
(ii) such security interests and the Indebtedness secured thereby are incurred
prior to or within 90 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does not
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63
exceed the cost of acquiring, constructing or improving such fixed or capital
assets and (iv) such security interests shall not apply to any other property or
assets of the Borrower or any Subsidiary;
(f) Liens securing Indebtedness or other obligations of a Subsidiary
owing to the Borrower or a Designated Subsidiary; and
(g) any Liens not otherwise permitted by any other clause of this
Section in an aggregate principal amount not exceeding US$5,000,000 at any time
outstanding.
SECTION 6.03. Sale-Leaseback Transactions. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into any arrangement,
directly or indirectly, with any Person whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property
which it intends to use for substantially the same purpose or purposes as the
property being sold or transferred; provided that the Borrower and its
Subsidiaries may enter into any such transaction to the extent the Capital Lease
Obligations and Liens associated therewith would be permitted by clause (vii) of
Section 6.01(a) and Section 6.02(e), respectively.
SECTION 6.04. Fundamental Changes. (a) The Borrower will not, nor
will it permit any Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
liquidate or dissolve, except that if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing or would
occur as a result of such transaction (i) any Subsidiary may merge into the
Borrower in a transaction in which the Borrower is the surviving corporation,
(ii) any Person may merge into any Subsidiary in a transaction in which the
surviving entity is a Wholly Owned Subsidiary and (iii) any Subsidiary may
liquidate or dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the Borrower and is not
materially disadvantageous to the Lenders; provided that any such merger
involving a Person that is not a Wholly Owned Subsidiary immediately prior to
such merger shall not be permitted unless also permitted by Section 6.05.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and its Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.
<PAGE>
64
SECTION 6.05. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries
to, purchase, hold or acquire (including pursuant to any merger with any Person
that was not a Wholly Owned Subsidiary prior to such merger) any capital stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
(a) Temporary Cash Investments;
(b) investments existing on the date hereof and set forth on
Schedule 6.05, to the extent such investments would not be permitted under any
other clause of this Section;
(c) investments by the Borrower existing on the date hereof in the
capital stock of its Subsidiaries; provided that any such shares of capital
stock that constitute Designated Equity Interests shall be pledged pursuant to
the Pledge Agreement;
(d) loans or advances made by the Borrower to any Designated
Subsidiary and made by any Subsidiary to the Borrower or any other Designated
Subsidiary, other than any such loans or advances to Iusatelecomunicaciones,
unless permitted under clause (g) of Section 6.05;
(e) Guarantees constituting Indebtedness permitted by Section 6.01;
(f) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(g) investments by the Borrower or any Subsidiary in
Iusatelecomunicaciones in an aggregate principal amount not exceeding
US$12,000,000 at any time outstanding; provided that such investment is made
with proceeds of Subordinated Debt that are promptly converted into capital
stock of the Borrower pursuant to the terms of the Subordinated Debt;
(h) acquisitions by the Borrower or any Subsidiary related to a
Related Business and constituting a Capital Expenditure; provided that the
aggregate amount during any fiscal year of (x) all such acquisitions, (y) all
investments permitted under clause (i) of this Section and (z) all other
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65
Capital Expenditures does not exceed the amount permitted during such year under
clause (d) of Section 6.12;
(i) investments by the Borrower or any Subsidiary in (A) licenses,
concessions or permits required to provide, or related to, the cellular
telephone service and data transmission service and (B) any Related Business in
Mexico; provided that the aggregate principal amount of the sum of (x) such
investments, (y) the acquisitions permitted under clause (h) of this Section and
(z) all amounts expended on Capital Expenditures does not exceed the amounts
specified in clause (d) of Section 6.12 at any time outstanding; and
(j) investments by the Borrower or any Subsidiary in (A) property
(other than cash, cash equivalents or securities) to be owned by the Borrower or
any Subsidiary and used in a Related Business, including any improvements
thereto or developments thereof and (B) any entity engaged primarily in a
Related Business (including the acquisition from third parties of capital stock)
as a result of which such other entity becomes a Subsidiary, but only to the
extent that any such investment constitutes a reinvestment of Net Proceeds in
Additional Assets in accordance with clause (b) of Section 2.09; and
(k) Joint Venture Investments in an aggregate amount not exceeding
$50,000,000 at any time outstanding; provided that such permitted amount may not
exceed $25,000,000 in the aggregate during the period beginning on the Effective
Date and ending on the second anniversary of the Effective Date.
SECTION 6.06. Asset Sales. The Borrower will not, and will not
permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of
any asset, including any capital stock, nor will the Borrower permit any of its
Subsidiaries to issue any additional shares of its capital stock or other
ownership interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Temporary Cash
Investments in the ordinary course of business;
(b) sales, transfers and dispositions to the Borrower or a
Designated Subsidiary, other than such sales, transfers and dispositions to
Iusatelecomunicaciones, unless permitted under clause (g) of Section 6.05;
provided that any such sales, transfers or dispositions involving a Subsidiary
(other than Iusatelecomunicaciones, except as permitted under clause (g) of
Section 6.05) that is not a Designated Subsidiary shall be made in compliance
with Section 6.09;
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66
(c) sales, transfers and dispositions of assets (other than capital
stock of a Subsidiary and other than the Concessions) that are not permitted by
any other clause of this Section; provided that the aggregate fair market value
of all assets sold, transferred or otherwise disposed of in reliance upon this
clause (c) shall not exceed US$40,000,000 at any time outstanding;
(d) the Conecel, Corptilor and Iusatel Chile investments;
(e) the Borrower's headquarters building located at Montes Urales
460 in Lomas de Chapultepec, Mexico City; and
(f) any issuance of capital stock of any Subsidiary to the Borrower
or another Subsidiary to obtain funds required in response to a capital call
related to Joint Venture Investment of such Subsidiary; provided that (i) any
such issuance is subject to clause (k) of Section 6.05 and (ii) the percentage
of the capital stock of such Subsidiary held directly or indirectly by the
Borrower is not reduced as a result of such issuance and all capital stock
issued to the Borrower or another Subsidiary is promptly subjected to the Lien
of the Pledge Agreement.
SECTION 6.07. Hedging Agreements. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into any Hedging Agreement, other
than (a) Hedging Agreements required by Section 5.13 and (b) Hedging Agreements
entered into in the ordinary course of business to hedge or mitigate risks to
which the Borrower or any Subsidiary is exposed in the conduct of its business
or the management of its liabilities, and not for speculative purposes.
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness.
(a) The Borrower will not, nor will it permit any Subsidiary to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment,
except:
(i) the Borrower may declare and pay dividends with respect to its
capital stock payable solely in additional shares of its common stock; and
(ii) Subsidiaries may declare and pay dividends ratably with respect
to their capital stock; and
(iii) the Borrower may make Restricted Payments, not exceeding
US$2,500,000 during any fiscal year, pursuant to and in accordance with
stock option plans or other benefit plans for management or employees of
the Borrower and its Subsidiaries.
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67
(b) The Borrower will not, nor will it permit any Subsidiary to,
make or agree to pay or make, directly or indirectly, any payment or other
distribution (whether in cash, securities or other property) in respect of
principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, defeasance, acquisition, cancellation or termination of any
Indebtedness, except:
(i) payment in respect of Indebtedness created under the Loan
Documents;
(ii) payment of scheduled interest and principal payments as and
when due in respect of any Indebtedness of the Borrower or a Subsidiary
permitted under clauses (ii), (iv), (v), (vi), (vii), (viii) and (ix) of
Section 6.01(a); and
(iii) in respect of Subordinated Debt, payment of (A) principal from
50% of Excess Cash Flow for the current fiscal year (or through the
conversion of the Subordinated Debt to Series A Shares), (B) interest paid
in the form of additional Subordinated Debt (and not in cash) and (C) cash
interest (including withholding taxes with respect thereto); provided
that, at the time of any such payment of cash interest (exclusive of any
amounts pursuant to withholding taxes with respect thereto), (x) the ratio
of EBITDA (minus handset expense for contract customers, to the extent not
already subtracted in determining EBITDA) to Cash Interest Expense as
calculated pursuant to clause (c) of Section 6.12 is greater than 2.00x
and (y) such payment of interest is not prohibited by applicable
subordination provisions.
SECTION 6.09. Transactions with Affiliates. The Borrower will not,
nor will it permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions in the ordinary course of business that are
at prices and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties, (b) transactions between or among the Borrower and the Subsidiaries not
involving any other Affiliate and (c) any Restricted Payment permitted by
Section 6.08.
SECTION 6.10. Restrictive Agreements. The Borrower will not, nor
will it permit any Subsidiary to, directly or indirectly, enter into, incur or
permit to exist any agreement
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68
or other arrangement that prohibits, restricts or imposes any condition upon the
ability of any Subsidiary to pay dividends or other distributions with respect
to any shares of its capital stock or to make or repay loans or advances to the
Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or
any other Subsidiary; provided that the foregoing shall not apply to (i)
restrictions and conditions imposed by law or by any Loan Document or the Senior
Note Indenture, (ii) restrictions and conditions existing on the date hereof
identified on Schedule 6.10 (but shall apply to any extension or renewal of, or
any amendment or modification expanding the scope of, any such restriction or
condition) and (iii) customary restrictions and conditions contained in
agreements relating to the sale of a Subsidiary pending such sale, provided such
restrictions and conditions apply only to the Subsidiary that is to be sold and
such sale is permitted hereunder.
SECTION 6.11. Amendment or Termination of Material Documents. The
Borrower will not, nor will it permit any Subsidiary to, amend, modify or waive
any of its rights under (a) the Senior Note Indenture, (b) any Subordinated Debt
Document or (c) its certificate of incorporation, by-laws or other
organizational documents or to terminate the Senior Note Indenture or any
Subordinated Debt Document.
SECTION 6.12. Financial Covenants. The Borrower will not:
(a) permit the ratio of Consolidated Total Debt to Adjusted EBITDA
as of the last day of any fiscal quarter included in any of the periods set
forth below to be in excess of the ratio set forth below opposite such period
(calculated on a consolidated basis and in accordance with Mexican GAAP):
Period Ratio
------ -----
As of 12/31/97 6.50x
1/01/98 through 6/30/98 6.25x
7/01/98 through 12/31/98 5.75x
1/01/99 through 6/30/99 5.00x
7/01/99 through 12/31/99 4.50x
1/01/00 through 12/31/00 4.00x
1/01/01 and thereafter 3.00x
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69
(b) permit the ratio of Adjusted EBITDA as of the last day of any
fiscal quarter included in any of the periods set forth below to Cash Interest
Expense to be less than the ratio set forth below opposite such period
(calculated on a consolidated basis and in accordance with Mexican GAAP):
Period Ratio
------ -----
12/31/97 through 6/30/98 1.50x
7/01/98 through 12/31/98 1.75x
1/01/99 through 6/30/99 2.25x
7/01/99 and thereafter 2.50x
(c) permit the ratio of (i) EBITDA minus handset expense for
contract customers, to the extent not already subtracted in determining EBITDA,
to (ii) Cash Interest Expense as of the last day of any fiscal quarter included
in any of the periods set forth below to be less than the ratio set forth below
opposite such period (calculated on a consolidated basis and in accordance with
Mexican GAAP):
Period Ratio
------ -----
12/31/97 through 6/30/98 1.20x
7/01/98 through 9/30/98 1.30x
10/01/98 through 12/31/98 1.40x
1/01/99 through 6/30/99 1.75x
7/01/99 and thereafter 2.00x
(d) permit Capital Expenditures of the Borrower and the
Subsidiaries for any fiscal year of the Borrower to exceed the sum of (i) the
amount set forth below opposite such fiscal year and (ii) any amount by which
the amount set forth below for the immediately preceding fiscal year exceeds the
Capital Expenditures and the investments permitted under clauses (h) and (i) of
Section 6.05 made by the Borrower and the Subsidiaries during such immediately
preceding fiscal year (calculated on a consolidated basis and in accordance with
Mexican GAAP):
Fiscal Year Amount
----------- ------
1997 US$125,000,000
1998 US$200,000,000
1999 US$100,000,000
2000 US$100,000,000
2001 US$125,000,000
2002 US$125,000,000
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70
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when
and as the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment thereof (if prepayment on such date is mandatory
under the terms of the applicable instrument or agreement) or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any
fee or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement or any other Loan Document, when and as
the same shall become due and payable, and such failure shall continue
unremedied for a period of five days;
(c) any representation or warranty made or deemed made by or on
behalf of the Borrower or any Subsidiary in or in connection with any Loan
Document or any amendment or modification thereof or waiver thereunder, or in
any report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, shall prove to have been incorrect in
any material respect when made or deemed made;
(d) the Borrower or any Subsidiary shall fail to observe or perform
any covenant, condition or agreement contained in Section 5.02, 5.03, 5.04 (with
respect to the existence of the Borrower), 5.10 or 5.14 or in Article VI;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure shall
continue unremedied for a period of 30 days after receipt by the Borrower of
notice thereof from the Administrative Agent (which notice will be given at the
request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any payment of
principal in respect of any Material Indebtedness, when and as the same shall
become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or any event or
condition (including any failure to
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71
pay interest) occurs that enables or permits (with or without the giving of
notice, the lapse of time or both) the holder or holders of any Material
Indebtedness or any trustee or agent on its or their behalf to cause any
Material Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity; provided that
this clause (g) shall not apply to secured Indebtedness that becomes due solely
as a result of the voluntary sale or transfer of the property or assets securing
such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization, suspension of
payments or other relief in respect of the Borrower or any Subsidiary or its
debts, or of a substantial part of its assets, under any bankruptcy, insolvency,
receivership or similar law now or hereafter in effect (including the Mexican
Ley de Quiebras y Suspension de Pagos), or (ii) the appointment of a receiver,
trustee, sindico, custodian, sequestrator, conservator or similar official for
the Borrower or any Subsidiary or for a substantial part of its assets, and, in
any such case, such proceeding or petition shall continue undismissed or
unstayed for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization,
suspension of payments or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of this
Article, (iii) apply for or consent to the appointment of a receiver, trustee,
sindico, custodian, sequestrator, conservator or similar official for the
Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of effecting any of the foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of US$10,000,000 shall be rendered against the Borrower, any
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 30 consecutive days during which execution shall
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72
not be effectively stayed, or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of the Borrower or any Subsidiary to
enforce any such judgment;
(l) any Guarantee purported to be created under the Guarantee
Agreement shall cease to be, or shall be asserted by any Loan Party not to be, a
valid Guarantee other than by reason of the liquidation of a Guarantor that is
permitted hereunder;
(m) any Lien purported to be created under any Security Document
shall cease to be, or shall be asserted by any Loan Party not to be, a valid and
perfected Lien on any Collateral, with the priority required by the applicable
Security Document, except (i) as a result of the sale or other disposition of
the applicable Collateral in a transaction permitted under the Loan Documents or
(ii) as a result of the Administrative Agent's failure to maintain possession of
any stock certificates or other instruments delivered to it under any Security
Document;
(n) the initiation of proceedings for any revocation, appropriation,
termination or cancellation of any Concession or material permit of the Borrower
or any of its Subsidiaries or any adverse modification of the terms thereof;
(o) any Governmental Authority shall take any action to condemn,
seize, nationalize or appropriate any substantial portion of the assets of the
Borrower or any of its Subsidiaries (either with or without payment of
reasonable compensation) or shall take any action that, in the reasonable
opinion of the Required Lenders, adversely affects the ability of the Borrower
to perform its obligations under this Agreement or any Note; or the Borrower or
any of its Subsidiaries shall be prevented from exercising normal control over
all or a substantial part of its assets (and the same shall continue for 30 or
more days);
(p) either (i) the government of Mexico shall take any action,
including a moratorium, having an effect on the schedule of payments of the
Borrower under this Agreement, the Notes or otherwise, the currency in which the
Borrower may pay its obligations under the Loan Documents or the availability of
foreign currencies in exchange for Mexican Pesos or otherwise or the rights of
the Collateral Agent and the Lenders under the Security Agreements or the Pledge
Agreement or with respect to the Collateral or (ii) the Borrower shall,
voluntarily or involuntarily, participate or take any action to participate in
any facility or exercise involving the rescheduling of the Borrower's debts or
the restructuring of
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73
the currency in which the Borrower may pay its obligations under the Loan
Documents;
(q) the Borrower or any of its Subsidiaries shall fail to pay when
due any and all amounts properly payable as SAR, IMSS, INFONAVIT quotas (except
to the extent such payment is being contested in good faith by appropriate
proceedings or negotiations, appropriate reasons for such nonpayment have been
stated in a notice from the Borrower to Agent and adequate reserves have been
established); or
(r) a Change of Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower (sent by
telecopy and promptly confirmed by hand delivery or overnight courier service),
take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower; and in case of any event with respect to the Borrower described in
clause (h) or (i) of this Article, the Commitments shall automatically terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and all fees and other obligations of the Borrower accrued hereunder,
shall automatically become due and payable, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Borrower.
The rights of the Lenders under this Article VII with respect to the
occurrence of a particular Event of Default shall expire if the Event of Default
giving rise to such rights has been cured before any such right has been
exercised.
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74
ARTICLE VIII
The Administrative Agent
Each of the Lenders hereby irrevocably appoints the Administrative
Agent as its agent and authorizes the Administrative Agent to take such actions
on its behalf and to exercise such powers as are delegated to the Administrative
Agent by the terms of the Loan Documents, together with such actions and powers
as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not the Administrative Agent, and such
bank and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as
expressly set forth in the Loan Documents, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to the Borrower or any of its Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity. The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 9.02) or in the
absence of its own gross negligence or wilful misconduct. The Administrative
Agent shall not be deemed to have knowledge of any Default unless and until
written notice thereof is given to the Administrative Agent by the Borrower or a
Lender, and the Administrative Agent shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with any Loan Document, (ii) the contents of any
certificate, report or
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75
other document delivered thereunder or in connection therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent, including
any opinions of counsel that confirm the conditions set forth in Article IV.
The Administrative Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. The Administrative
Agent may consult with legal counsel (who may be counsel for the Borrower),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of each Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank, and which, unless an Event of
Default has occurred and is continuing, shall be reasonably acceptable to the
Borrower. Upon the acceptance of its appointment as Administrative Agent
hereunder by a
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76
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. All notices and other communications provided
for herein shall be in writing and, unless otherwise specified in Section 2.12
or Article VII, shall be delivered by hand, overnight courier service or sent by
telecopy as follows:
(a) if to the Borrower, to it at Grupo Iusacell, S.A. de C.V.,
Montes Urales 460, Lomas de Chapultepec, Deleg. Miguel Hidalgo C.P., 11000
Mexico, D.F., Attention of Howard F. Zuckerman (Telecopy No. 011-525-104-4157),
with a copy to Ruben Perlmutter, Esq. (Telecopy No. 011-525-104- 4727);
(b) if to the Administrative Agent, to The Chase Manhattan Bank,
Loan and Agency Services Group, One Chase Manhattan, 8th Floor, New York, New
York 10081, Attention of Sunita Vora (Telecopy No. (212) 552-4950), with a copy
to The Chase Manhattan Bank, 270 Park Avenue, New York 10017,
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77
Attention of George Wozencraft (Telecopy No. (212) 270-0853; and
(c) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
Administrative Agent or any Lender in exercising any right or power hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent and the Lenders hereunder and under the
other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any Loan
Document or consent to any departure by any Loan Party therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent or any Lender may have
had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or, in the case of any
other Loan Document, pursuant to an agreement or agreements in writing entered
into by the Administrative Agent and the Loan Party or Loan Parties that are
parties thereto, in each case with the consent of the Required Lenders; provided
that no such agreement shall (i) increase the Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan
or reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan, or any interest
thereon, or any
<PAGE>
78
fees payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment, without
the written consent of each Lender affected thereby, (iv) change Section 2.16(b)
or (c) in a manner that would alter the pro rata sharing of payments required
thereby, without the written consent of each Lender, (v) change any of the
provisions of this Section or the definition of "Required Lenders" or any other
provision of any Loan Document specifying the number or percentage of Lenders
(or Lenders of any Class) required to waive, amend or modify any rights
thereunder or make any determination or grant any consent thereunder, without
the written consent of each Lender (or each Lender of such Class, as the case
may be), (vi) release any Subsidiary Loan Party from its Guarantee under the
Guarantee Agreement (except as expressly provided in the Guarantee Agreement),
or limit its liability in respect of such Guarantee, without the written consent
of each Lender or (vii) release all or any substantial part of the Collateral
from the Liens of the Security Documents, without the written consent of each
Lender or (viii) change any provisions of any Loan Document in a manner that by
its terms adversely affects the rights in respect of payments due to Lenders
holding Loans of any Class differently than those holding Loans of any other
Class, without the written consent of Lenders holding a majority in interest of
the outstanding Loans and unused Commitments of each affected Class; provided
further that (A) no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent without the prior written consent
of the Administrative Agent and (B) any waiver, amendment or modification of
this Agreement that by its terms affects the rights or duties under this
Agreement of the Revolving Lenders (but not the Term Lenders) or the Term
Lenders (but not the Revolving Lenders) may be effected by an agreement or
agreements in writing entered into by the Borrower and requisite percentage in
interest of the affected Class of Lenders.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
shall pay (i) all reasonable and documented out-of-pocket expenses incurred by
the Administrative Agent and its Affiliates in connection with the arrangement
and syndication of the credit facilities provided for herein as separately
agreed by the Borrower and the Administrative Agent, (ii) all reasonable and
documented out-of-pocket expenses incurred by the Administrative Agent,
including the reasonable fees, charges and disbursements of counsel for the
Administrative Agent, in connection with any amendments, modifications or
waivers of the provisions of the Loan Documents and (iii) all reasonable and
documented out-of-pocket expenses incurred by the Administrative Agent or any
Lender, including the fees, charges and disbursements of counsel for the
Administrative Agent or any Lender, in
<PAGE>
79
connection with the enforcement or protection of its rights in connection with
the Loan Documents or the Loans made hereunder, including all such out-of-pocket
expenses incurred during any workout, restructuring or similar negotiations.
(b) The Borrower shall indemnify the Administrative Agent and each
Lender, and each Related Party of any of the foregoing Persons (each such Person
being called an "Indemnitee"), against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related expenses, and will
reimburse such Persons for all reasonable and documented out-of-pocket legal or
other expenses (other than legal and other expenses incurred by the Lenders
prior to the Effective Date in determining to participate in the credit
facilities established hereby, negotiating, preparing and reviewing the
documentation therefor and closing such credit facilities), incurred by or
asserted against any Indemnitee arising out of or relating to the transactions
contemplated hereby (including any actual or alleged presence or release of
Hazardous Materials on or from any real property subject to the Mortgage or any
other property owned or operated by the Borrower or any of its Subsidiaries, or
any Environmental Liability related in any way to the Borrower or any of its
Subsidiaries); provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses resulted from the gross negligence or wilful misconduct of such
Indemnitee (and nothing herein shall limit the liability of any Indemnitee to
the Borrower for any damages resulting from such gross negligence or wilful
misconduct).
(c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent under paragraph (a) or (b) of this
Section, each Lender severally agrees to pay to the Administrative Agent such
Lender's pro rata share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent in its capacity as such. For purposes hereof, a
Lender's "pro rata share" shall be determined based upon its share of the sum of
the total Revolving Exposures, outstanding Term Loans and unused Commitments at
the time.
(d) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure
<PAGE>
80
to the benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that the Borrower may not assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by the Borrower without
such consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby and, to the
extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
except in the case of an assignment to a Lender or an Affiliate of a Lender, in
each case (other than in the case of a Mexican Lender) registered with the
Ministry of Finance and Public Credit for tax purposes pursuant to Article 154
of Mexican Income Tax Law, each of the Borrower and the Administrative Agent
must give their prior written consent to such assignment (which consent shall
not be unreasonably withheld), (ii) except in the case of an assignment to a
Lender or an Affiliate of a Lender or an assignment of the entire remaining
amount of the assigning Lender's Commitment or Loans, the amount of the
Commitment or Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
US$5,000,000 unless each of the Borrower and the Administrative Agent otherwise
consent, (iii) after giving effect to any assignment of less than the entire
remaining amount of an assigning Lender's Commitment or Loans, such assigning
Lender will hold Commitments and Loans of at least US$5,000,000, (iv) the
parties to each assignment shall execute and deliver to the Administrative Agent
an Assignment and Acceptance, together with a processing and recordation fee of
US$3,500 and (v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and provided further that
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of Article VII has
occurred and is continuing. Subject to acceptance and recording thereof pursuant
to paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
<PAGE>
81
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.13, 2.14, 2.15 and 9.03, to the extent accruing prior to
the effective date of such assignment). Upon the consummation of any assignment
pursuant to this subsection (b), the assigning Lender, the Administrative Agent
and the Borrower shall make appropriate arrangements so that, if required, a new
Note or Notes are issued to the assignee and, if the assigning Lender shall
retain any Loans, the assigning Lender. Upon the issuance of any such new Notes,
the assigning Lender shall mark its old Notes "CANCELED" and deliver such old
Notes to the Borrower. Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
<PAGE>
82
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(each a "Participant") in all or a portion of such Lender's rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) the Borrower, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce the Loan Documents and
to approve any amendment, modification or waiver of any provision of the Loan
Documents; provided that such agreement or instrument may provide that such
Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant; provided further that with respect to any action taken
pursuant to clause (vii) of Section 9.02(b), a Participant's right to vote is
conditioned upon such Participant responding within five days of any request for
its consent. Subject to paragraph (f) of this Section, the Borrower agrees that
each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and
2.15 to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 9.08 as
though it were a Lender, provided such Participant agrees to be subject to
Section 2.16(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13 or 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.15 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.15(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such
<PAGE>
83
pledge or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent or any Lender may have had notice or knowledge of
any Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid and so long as the
Commitments have not expired or terminated. The provisions of Sections 2.13,
2.14, 2.15 and 9.03 and Article VIII shall survive and remain in full force and
effect regardless of the consummation of the transactions contemplated hereby,
the repayment of the Loans, the expiration or termination of the Commitments or
the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Documents and any separate letter agreements with respect to fees
payable to the Administrative Agent and its Affiliates constitute the entire
contract among the parties relating to the subject matter hereof and supersede
any and all previous agreements and understandings, oral or written, relating to
the subject matter hereof. Except as provided in Section 4.01, this Agreement
shall become effective when it shall have been executed by the Administrative
Agent and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties
hereto, and thereafter shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Delivery of an
executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
<PAGE>
84
SECTION 9.07. Severability. Any provision of this Agreement held to
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Appointment of Agent for
and Consent to Service of Process.
(a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each of the parties hereto hereby irrevocably and
unconditionally submits to the jurisdiction of the Supreme Court of the State of
New York sitting in New York County and of the United States District Court of
the Southern District of New York, and any appellate court from any thereof, and
to the courts of its own corporate domicile in respect of actions brought
against it as a defendant in any action or proceeding arising out of or relating
to any Loan Document, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(c) The Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any
<PAGE>
85
other Loan Document in any court referred to in paragraph (b) of this Section.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(d) The Borrower hereby irrevocably designates, appoints and
empowers CT Corporation having its address at the date hereof at 1633 Broadway,
New York, New York 10019, U.S.A. as its process agent to receive for and on its
behalf service of process in New York in any legal action or proceeding with
respect to any Loan Document. It is understood that a copy of any such process
served on such process agent shall be promptly forwarded by air mail by the
person commencing such proceeding to the Borrower at its address specified in
Section 9.01, but the failure of the Borrower to receive such copy shall not
affect in any way the service of such process as aforesaid.
(e) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent and
the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents,
<PAGE>
86
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement, (g) with the consent of
the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section or (ii) becomes
available to the Administrative Agent or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section,
"Information" means all information received from the Borrower relating to the
Borrower or its business. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
SECTION 9.13. Judgment Currency. (a) If, for the purpose of
obtaining judgment in any court, it is necessary to convert a sum owing
hereunder in one currency into another currency, each party hereto agrees, to
the fullest extent that it may effectively do so, that the rate of exchange used
shall be that at which in accordance with normal banking procedures in the
relevant jurisdiction the first currency could be purchased with such other
currency on the Business Day immediately preceding the day on which final
judgment is given.
(b) The obligations of the Borrower in respect of any sum due to any
party hereto or any holder of any obligation owing hereunder (the "Applicable
Creditor") shall, notwithstanding any judgment in a currency (the "Judgment
Currency") other than U.S. Dollars be discharged only to the extent that, on the
Business Day following receipt by the Applicable Creditor of any sum adjudged to
be so due in the Judgment Currency, the Applicable Creditor may in accordance
with normal banking procedures in the official currency market in the relevant
jurisdiction purchase U.S. Dollars with the Judgment Currency; if the amount of
U.S. Dollars so purchased is less than the sum originally due to the Applicable
Creditor
<PAGE>
87
in U.S. Dollars, the Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Applicable Creditor against
such loss. The obligations of the Borrower contained in this Section 9.13 shall
survive the termination of this Agreement and the payment of all other amounts
owing hereunder.
SECTION 9.14. Waiver of Sovereign Immunity. The Borrower
acknowledges and agrees that the activities contemplated by the provisions of
this Agreement and any Note are commercial in nature rather than governmental or
public, and therefore acknowledges and agrees that it is not entitled to any
right of immunity on the grounds of sovereignty or otherwise with respect to
such activities or in any legal action or proceeding arising out of or relating
to this Agreement or any Note in respect of itself and its properties and
revenues, expressly and irrevocably waives any such right of immunity which may
now or hereafter exist (including any immunity from any legal process, from the
jurisdiction of any court or from any attachment prior to judgment, attachment
in aid of execution, execution or otherwise) or claim thereto which may now or
hereafter exist, and agrees not to assert any such right or claim in any such
action or proceeding, whether in the United States of America, or otherwise.
SECTION 9.15. Use of English Language. This Agreement has been
negotiated and executed in the English language. All certificates, reports,
notices and other documents and communications given or delivered pursuant to
this Agreement (including, any modifications or supplements hereto) shall be in
the English language, or accompanied by a certified English translation thereof.
Except in the case of laws or official communications of Mexico, in the case of
any document originally issued in a language other than English, the English
language version of any such document shall for purposes of this Agreement, and
absent manifest error, control the meaning of the matters set forth therein.
<PAGE>
88
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
GRUPO IUSACELL, S.A. de C.V.,
by
/s/ Howard F. Zuckerman
-----------------------------------------
Title: Vice President and
Chief Financial Officer
by
/s/ Ruben G. Perlmutter
-----------------------------------------
Title: Vice President, Mergers
& Acquisitions and General
Counsel
<PAGE>
89
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent and as
Collateral Agent,
by
/s/ Marian N. Schulman
-----------------------------------------
Title: Vice President
<PAGE>
90
BANCO NACIONAL DE MEXICO, S.A.,
by
/s/ Charles E. Giuliani
-----------------------------------------
Title: Attorney In Fact
by
/s/ James Ownes
-----------------------------------------
Title: Attorney In Fact
<PAGE>
91
BANCOMER GRAND CAYMAN BRANCH,
by
/s/ Jose Luis Iturbide
-----------------------------------------
Title: Director, Banco
Corporativa Division
Communicaciones y
Servicios
<PAGE>
92
BANQUE NATIONALE DE PARIS,
by
/s/ Nuala Marley
-----------------------------------------
Title: Vice President
by
/s/ Brian M. Foster
-----------------------------------------
Title: Vice President
<PAGE>
93
CITIBANK N.A.,
by
/s/ R. Daniel Massey
-----------------------------------------
Title: Vice President
<PAGE>
94
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES,
by
/s/ Ulrich Kahlow
-----------------------------------------
Title: Vice President
by
/s/ Michael E. Terry
-----------------------------------------
Title: Assistant Vice
President
<PAGE>
95
DRESDNER BANK MEXICO, S.A.,
by
/s/ Martin Bentsen
-----------------------------------------
Title: Deputy General
Manager
by
/s/ Sven List
-----------------------------------------
Title: Deputy Manager
<PAGE>
96
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by
/s/ George J. Stapleton
-----------------------------------------
Title: Vice President
<PAGE>
SCHEDULES
<PAGE>
SCHEDULE 1.01(a)
ANNEX A
LIST OF PLEDGED TRADEMARKS
================================================================================
NAME: IUSACELL AND DESIGN
- --------------------------------------------------------------------------------
Number Type Class
- --------------------------------------------------------------------------------
551810 M 35
- --------------------------------------------------------------------------------
551811 M 38
- --------------------------------------------------------------------------------
551812 M 42
- --------------------------------------------------------------------------------
551813 M 9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME: IUSACELL ROAMING AUTOMATIC
- --------------------------------------------------------------------------------
Number Type Class
- --------------------------------------------------------------------------------
468683 M 38
- --------------------------------------------------------------------------------
468720 M 35
- --------------------------------------------------------------------------------
477989 M 9
- --------------------------------------------------------------------------------
477990 M 42
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME: IUSACELL ROAMING AUTOMATIC INTERNATIONAL
- --------------------------------------------------------------------------------
Number Type Class
- --------------------------------------------------------------------------------
477985 M 9
- --------------------------------------------------------------------------------
477986 M 35
- --------------------------------------------------------------------------------
477987 M 42
- --------------------------------------------------------------------------------
477988 M 38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME: IUSACELL ROAMING AUTOMATIC NATIONAL
- --------------------------------------------------------------------------------
Number Type Class
- --------------------------------------------------------------------------------
477981 M 9
- --------------------------------------------------------------------------------
477982 M 35
- --------------------------------------------------------------------------------
477983 M 38
- --------------------------------------------------------------------------------
477984 M 42
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
NAME: ROAMING IUSACELL AUTOMATIC
- --------------------------------------------------------------------------------
Number Type Class
- --------------------------------------------------------------------------------
473365 M 9
- --------------------------------------------------------------------------------
473366 M 35
- --------------------------------------------------------------------------------
473367 M 38
- --------------------------------------------------------------------------------
473368 M 42
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME: ROAMING IUSACELL AUTOMATIC INTERNATIONAL
- --------------------------------------------------------------------------------
Number Type Class
- --------------------------------------------------------------------------------
473258 M 35
- --------------------------------------------------------------------------------
473259 M 9
- --------------------------------------------------------------------------------
473369 M 42
- --------------------------------------------------------------------------------
473370 M 38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME: ROAMING IUSACELL AUTOMATIC NATIONAL
- --------------------------------------------------------------------------------
Number Type Class
- --------------------------------------------------------------------------------
473261 M 42
- --------------------------------------------------------------------------------
473262 M 38
- --------------------------------------------------------------------------------
473263 M 35
- --------------------------------------------------------------------------------
473264 M 9
- --------------------------------------------------------------------------------
================================================================================
2
<PAGE>
Schedule 1.01 b) Non - Designated Subsidiaries:
1. Cellular Solutions de Mexico, S.A. de C.V.
2. Editorial Celular, S.A. de C.V.
3. In Flight Phone de Mexico, S.A. de C.V.
4. Infotelecom, S.A. de C.V.
5. Iusatel, S.A. de C.V.
6. Iusatelecomunicaciones, S.A. de C.V.
7. Portaserv, S.A. de C.V.
8. Promotora Celular, S.A. de C.V.
9. Renta Cell, S.A. de C.V.
10. Satelitron, S.A. de C.V.
11. Telecel, S.A.
12. Grupo Iusacell Nicaragua, S.A.
3
<PAGE>
SCHEDULE 2.01
COMMITMENTS OF THE BANKS
- --------------------------------------------------------------------------------
Bank Total Amount Revolving Term Loan
Commitment
================================================================================
THE CHASE MANHATTAN 55,000,000.00 24,444,444.44 30,555,555.56
BANK
George Wozencraft
270 Park Avenue
New York, NY 10017
Phone: (212) 270-1881
Fax: (212) 270-4163
================================================================================
BANQUE NATIONALE DE PARIS 15,000,000.00 6,666,666.67 8,333,333.33
Brian Foster
499 Park Avenue, 2nd Fl.
New York, NY 10022
Phone: (212) 415-9679
Fax: (212) 415-9695
================================================================================
BANCO NACIONAL DE MEXICO, 40,000,000.00 17,777,777.78 22,222,222.22
S.A.
Marisela Pena
767 Fifth Avenue, 8th Fl.
New York, New York 10153
Phone: (212) 303-1422
Fax: (212) 303-1420
================================================================================
DRESDNER BANK MEXICO, S.A. 5,000,000.00 2,222,222.22 2,777,777.78
Alejandro Morales Arizmendi
Bosque de Alisos #47B 4th Floor,
Bosques de las Lomas 05120,
Mexico D.F.
Phone: (525) 258-3053
Fax: (525) 258-3100
================================================================================
DRESDNER BANK AG NEW 10,000,000.00 4,444,444.44 5,555,555.56
YORK AND GRAND CAYMAN
BRANCHES
Mr. Ulrique Kahlow
75 Wall Street
New York, NY 10005-2889
Phone: (212) 429-2228
Fax: (2112) 429-2780
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
MORGAN GUARANTY TRUST 25,000,000.00 11,111,111.11 13,888,888.89
COMPANY OF NEW YORK
Mark Petrinovic
60 Wall Street, 24th Floor
New York, NY 10260-0060
Phone: (212) 648-5487
Fax: (212) 648-7434
================================================================================
BANCOMER GRAND CAYMAN 50,000,000.00 22,222,222.22 27,777,777.78
BRANCH
Jose Luis Iturbide
Montes Urales 470, 2nd Floor,
Lomas
Mexico, 11000, D.F.
Phone: (525) 226-9070
Fax: (525) 226-9206
================================================================================
CITIBANK N.A. 25,000,000.00 11,111,111.11 13,888,888.89
Victor M. Balcazar
Reforma 390 - 7th Floor, Colonia
Juarez
Mexico City, Mexico C.P. 06695
Phone: (525) 229-7338
Fax: (525) 229-7894
- --------------------------------------------------------------------------------
5
<PAGE>
SCHEDULE 3.05
REAL PROPERTY
================================================================================
BOOK VALUE
VNR VNR AT
COMUNICACIONES CELULARES LAND PROPERTY DEC. 31, 1996
- ------------------------ ---- -------- -------------
- --------------------------------------------------------------------------------
SITIO CANADA, GUADALAJARA, 2,091,569.00 5,884,920.00 7,976,489.00
JALISCO
- --------------------------------------------------------------------------------
SITIO HUENTITLAN, 198,000.00 531,624.00 729,624.00
GUADALAJARA, JAL.
- --------------------------------------------------------------------------------
SITIO CHAPALITA 162,000.00 575,611.00 737,611.00
- --------------------------------------------------------------------------------
SITIO LA TIJERA 269,000.00 541,229.00 810,229.00
- --------------------------------------------------------------------------------
SITIO LA LOMA 51,383.00 471,939.00 523,322.00
- --------------------------------------------------------------------------------
SITIO ALTAMIRA 249,000.00 547,924.00 796,924.00
- --------------------------------------------------------------------------------
SITIO TONALA 84,348.00 654,593.00 738,941.00
- --------------------------------------------------------------------------------
SITIO INGLATERRA 364,351.00 561,029.00 925,380.00
- --------------------------------------------------------------------------------
SITIO CRUZ DEL SUR 282,974.00 744,149.00 1,027,123.00
- --------------------------------------------------------------------------------
SITIO MEZQUITAN 320,943.00 841,956.00 1,162,899.00
- --------------------------------------------------------------------------------
SITIO FRESNO 859,950.00 736,070.00 1,596,020.00
- --------------------------------------------------------------------------------
SITIO CENTRO 247,000.00 658,901.00 905,901.00
- --------------------------------------------------------------------------------
SITIO TEPATITLAN 106,500.00 856,812.00 963,312.00
- --------------------------------------------------------------------------------
SITIO MTSO COLIMA SAN 271,600.00 1,426,361.00 1,697,961.00
CAYETANO
- --------------------------------------------------------------------------------
SITIO TECOMAN 70,569.00 677,068.00 747,637.00
- --------------------------------------------------------------------------------
SITIO CUYUTLAN 35,670.00 898,835.00 934,505.00
- --------------------------------------------------------------------------------
SITIO P. SANTIAGO 399,372.00 1,761,270.00 2,160,642.00
- --------------------------------------------------------------------------------
SITIO MTSO PUERTO VALLARTA 622,699.00 1,473,367.00 2,096,066.00
- --------------------------------------------------------------------------------
SITIO URUAPAN 412,500.00 1,616,099.00 2,028,599.00
- --------------------------------------------------------------------------------
SITIO MTSO MORELIA EL TOREO 28,000.00 1,572,282.00 1,600,282.00
- --------------------------------------------------------------------------------
SITIO LA SALUD 30,534.00 834,228.00 864,762.00
- --------------------------------------------------------------------------------
SITIO OCOTLAN 57,500.00 234,671.00 292,171.00
6
<PAGE>
- --------------------------------------------------------------------------------
SITIO SAN JUAN DE LOS LAGOS 112,875.00 394,681.00 507,556.00
------------ ------------- -------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL 7,328,337.00 24,495,619.00 31,823,956.00
============ ============= =============
================================================================================
7
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================
BOOK VALUE
VNR VNR AT
GRUPO IUSACELL LAND PROPERTY DEC. 31, 1996
- --------------- ---- -------- -------------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PELICANO #128 COL. GRANJAS MEXICO
D.F. 955,782.00 9,036,363.00 9,992,145.00
- -----------------------------------------------------------------------------------------
SAHUAYO, MICHOACAN 28,000.00 28,000.00
- -----------------------------------------------------------------------------------------
FRONTERA, GUERRERO 22,000.00 22,000.00
- -----------------------------------------------------------------------------------------
TUXPAN, VERACRUZ 14,000.00 14,000.00
- -----------------------------------------------------------------------------------------
TEZOYUCA, VERACRUZ 20,000.00 20,000.00
- -----------------------------------------------------------------------------------------
SAN FELIPE, GUANAJUATO 172,500.00 172,500.00
- -----------------------------------------------------------------------------------------
CERRO LA VIRGEN, GUANAJUATO 56,000.00 56,000.00
- -----------------------------------------------------------------------------------------
AV. LAS TORRES METEPEC TOLUCA, EDO
DE MEXICO 630,000.00 630,000.00
- -----------------------------------------------------------------------------------------
LOTES 14, 16 Y 18 MZ 13 PREDIO RUSTICO
LA CODORNIZ EN VINAGRETA 20,160.00 20,160.00
- -----------------------------------------------------------------------------------------
AV REVOLUCION, COL BUENOS AIRES
MONTERREY, NUEVO LEON 1,999,840.00 1,999,840.00
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
TOTAL 3,918,282.00 9,036,363.00 12,954,645.00
============ ============ =============
=========================================================================================
<CAPTION>
=========================================================================================
BOOK
VALUE
VNR VNR AT
INMOBILIARIA MONTES URALES LAND PROPERTY DEC. 31, 1996
- -------------------------- ---- -------- -------------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONTES URALES No. 460 IOMAS DE
CHAPULTEPEC, MEXICO, D.F. 10,418,160.00 46,485,170.00 56,903,330.00
-------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
TOTAL 10,418,160.00 46,485,170.00 56,903,330.00
============= ============= =============
=========================================================================================
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================
BOOK VALUE
VNR VNR AT
IUSACELL, S.A. DE C.V. LAND PROPERTY DEC. 31, 1996
- ---------------------- ---- -------- -------------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PISO 6 PRESIDENTE MAZARIK COL.
POLANCO MEXICO D.F. 3,041,472.00 3,041,472.00
- -------------------------------------------------------------------------------------------
PISO 7 PRESIDENTE MAZARIK COL.
POLANCO MEXICO D.F. 3,083,136.00 3,083,136.00
- -------------------------------------------------------------------------------------------
PISO 8 PRESIDENTE MAZARIK COL.
POLANCO MEXICO D.F. 3,137,300.00 3,137,300.00
- -------------------------------------------------------------------------------------------
PISO 10 PRESIDENTE MAZARIK COL.
POLANCO MEXICO D.F. 3,382,075.00 3,382,075.00
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL .00 12,643,983.00 12,643,983.00
============ ============= =============
===========================================================================================
</TABLE>
THE REINSTALLMENT NET VALUE INCLUDES THE LAND'S ALIQUOT
<TABLE>
<CAPTION>
======================================================================================================
BOOK
VALUE
VNR VNR AT
IUSATELECOMUNICACIONES LAND PROPERTY DEC. 31, 1996
- ---------------------- ---- -------- -------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRACCIONAMIENTO INDUSTRIAL SHALA CUAUTITLAN IZCALLI,
EDO MEXICO 558,432.00 558,432.00
- ------------------------------------------------------------------------------------------------------
FRACCIONAMIENTO INDUSTRIAL SHALA CURTIDORES
CUAUTITLAN IZCALLI, EDO MEXICO 743,778.00 743,778.00
- ------------------------------------------------------------------------------------------------------
COACALCO, EDO DE MEXICO 966,000.00 966,000.00
- ------------------------------------------------------------------------------------------------------
TLALNEPANTLA, EDO. DE MEXICO 3,697,020.00 3,697,020.00
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
TOTAL 5,965,230.00 0.00 5,965,230.00
============ ==== ============
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
BOOK VALUE
VNR VNR AT
SISTEMAS TELEFONICOS PORTATILES LAND PROPERTY DEC. 31, 1996
- ------------------------------- ---- -------- -------------
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CERRO GORDO LEON, GUANAJUATO 304,500.00 183,375.00 487,875.00
- ------------------------------------------------------------------------------------------
BLV. CAMPESTRE LEON, GUANAJUATO 2,436,000.00 8,862,397.00 11,298,397.00
- ------------------------------------------------------------------------------------------
FRAY PEDRO DE GANTE IRAPUATO, GTO 199,618.00 655,998.00 855,616.00
- ------------------------------------------------------------------------------------------
SAN PABLO CALLETANO, QRO 45,000.00 201,327.00 246,327.00
- ------------------------------------------------------------------------------------------
GRANJAS LA CAL SALAMANCA, GTO 28,560.00 226,061.00 254,621.00
- ------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PASEO DE LA CANTARA LAGOS DE MORENO,
JAL 46,605.00 415,533.00 462,138.00
- ------------------------------------------------------------------------------------------
SAN JUAN DEL RIO, QUERETARO, QRO 7,200.00 362,153.00 369,353.00
- ------------------------------------------------------------------------------------------
SAN FRANCISCO DEL RINCON, GTO 31,920.00 165,540.00 197,460.00
- ------------------------------------------------------------------------------------------
SAN FRANCISCO DEL RINCON, GTO 15,960.00 .00 15,960.00
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
TOTAL 3,115,363.00 11,072,384.00 14,187,747.00
============ ============= =============
==========================================================================================
<CAPTION>
==========================================================================================
BOOK VALUE
VNR VNR AT
TELECOMUNICACIONES DELGOLFO LAND PROPERTY DEC. 31, 1996
- --------------------------- ---- -------- -------------
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
SANTIAGO TULA TEHUACAN, PUEBLA 22,500.00 214,911.00 237,411.00
- ------------------------------------------------------------------------------------------
SANTA URSULA ZIMATEPEC, TLAXCALA 48,000.00 182,392.00 230,392.00
- ------------------------------------------------------------------------------------------
TERRAZAS CHILPANCINGO, GUERRERO 38,213.00 155,178.00 193,391.00
- ------------------------------------------------------------------------------------------
EL ABUELO POZA RICA, VERACRUZ 51,620.00 140,881.00 192,501.00
- ------------------------------------------------------------------------------------------
TLACOLULA, OAXACA 35,750.00 71,955.00 107,705.00
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
TOTAL 196,083.00 765,317.00 961,400.00
========== ========== ==========
==========================================================================================
<CAPTION>
==========================================================================================
BOOK VALUE
VNR VNR AT
IUSACEL REGION (TELCOM) LAND PROPERTY DEC. 31, 1996
- ----------------------- ---- -------- -------------
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LA CALERA, PUEBLA 570,000.00 0.00 570,000.00
- ------------------------------------------------------------------------------------------
OCOTLAN TLAXCALA 166,400.00 0.00 166,400.00
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
TOTAL 736,400.00 0.00 736,400.00
========== ==== ==========
==========================================================================================
</TABLE>
10
<PAGE>
GROUP'S PURCHASE AND SALE
<TABLE>
<CAPTION>
===============================================================================================================================
NO. BUYING PARTY SELLING PARTY LOCATION OF REAL ESTATE RECORD NUMBER
===============================================================================================================================
<S> <C> <C> <C> <C>
1626 Grupo Iusacell, S.A. de C.V. Arturo Daniel Robles Oyarzun Queretaro, Qro. C-CV001-004
- -------------------------------------------------------------------------------------------------------------------------------
32326 Grupo Iusacell, S.A. de C.V. Ricardo Delgado Hernandez, Alvarado, Veracruz. C-CV001-032
Guadalupe Victoria Lara Ponte
- -------------------------------------------------------------------------------------------------------------------------------
32346 Grupo Iusacell, S.A. de C.V. Elvia Ladron de Guevara de Martinez de la Torre, C-CV001-034
Sayas y Aquilino Sayas Becerra Ver.
- -------------------------------------------------------------------------------------------------------------------------------
32285 Grupo Iusacell, S.A. de C.V. Julieta Damian de Flores y Maximo Taxco, Gro. C-CV001-029
Flores Vieyra
- -------------------------------------------------------------------------------------------------------------------------------
32325 Grupo Iusacell, S.A. de C.V. Gabriel Gutierrez Limon y Ranco Sta. Clara Acayucan, C-CV001-031
Augustina Alcantara de G. Ver.
- -------------------------------------------------------------------------------------------------------------------------------
32329 Grupo Iusacell, S.A. de C.V. Blanca Linares Acosta Las Choapas, Ver. C-CV001-033
- -------------------------------------------------------------------------------------------------------------------------------
32179 Grupo Iusacell, S.A. de C.V. Marco Antonio Leyva Mena Palo Redondo, Chilpancingo, C-CV001-027
Gro.
- -------------------------------------------------------------------------------------------------------------------------------
32243 Grupo Iusacell, S.A. de C.V. Blanca Estela Meneses Montes Texmelucan, Puebla. C-CV001-028
- -------------------------------------------------------------------------------------------------------------------------------
23103 Grupo Iusacell, S.A. de C.V. Marco Aurelio Delgadillo Escobar Cerro de la Virgen, C-CV001-002
Zacatecas.
- -------------------------------------------------------------------------------------------------------------------------------
32289 Grupo Iusacell, S.A. de C.V. Juan Botello Uribe y Mercedes La cumbre, Hidalgo, Gro. C-CV001-030
Aranda de Botello
- -------------------------------------------------------------------------------------------------------------------------------
32363 Iusatelecomunicaciones, S.A. de C.V. Productos para la Hidraulica, Cuautitlan, Edo. de Mex. C-CV008-005
S.A. de C.V.
- -------------------------------------------------------------------------------------------------------------------------------
31990 Grupo Iusacell, S.A. de C.V. Javier Rojo Lugo La Asuncion, Metepec, Edo. C-CV001-025
de Mex.
- -------------------------------------------------------------------------------------------------------------------------------
32476 Grupo Iusacell, S.A. de C.V. Ana Maria Ibarra Vda. de Gracian, Saguayo, Mich. C-CV001-035
Jose Gracian Magallion
- -------------------------------------------------------------------------------------------------------------------------------
7037 Comunicaciones Celulares de Occidente, Fernando Americo Gallo Ortega La Tijera, Zuniga Jalisco. C-CV003-002
S.A. de C.V.
- -------------------------------------------------------------------------------------------------------------------------------
24840 Comunicaciones Celulares de Occidente, Baudelio Diaz Franco y Maria El Carmen, Tepatitlan, Jal. C-CV003-004
S.A. de C.V. Perez de Diaz
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
NO. BUYING PARTY SELLING PARTY LOCATION OF REAL ESTATE RECORD NUMBER
===============================================================================================================================
<S> <C> <C> <C> <C>
28754 Comunicaciones Celulares de Occidente, Ma. de los Angeles Garcia Rosales Centro, Guadalajara, Jal. C-CV003-005
S.A. de C.V. de Rios y Pedro Rios y Rios
- -------------------------------------------------------------------------------------------------------------------------------
28517 Comunicaciones Celulares de Occidente, Ma. del Socorro Torres Espinoza Fresno, Guadalajara, Jal. C-CV003-006
S.A. de C.V. Vda. de Castro
- -------------------------------------------------------------------------------------------------------------------------------
28122 Comunicaciones Celulares de Occidente, Ma. Angelina Banuelos Vargas y Mezquitan, Guadalajara, C-CV003-007
S.A. de C.V. otros Jal.
- -------------------------------------------------------------------------------------------------------------------------------
28077 Comunicaciones Celulares de Occidente, Mario Martinez Mares Cruz del Sur, Guadalajara, C-CV003-008
S.A. de C.V. Jal.
- -------------------------------------------------------------------------------------------------------------------------------
26202 Comunicaciones Celulares de Occidente, ertha S. Veytia Vazquez Aldana y Inglaterra, Guadalajara, C-CV003-009
S.A. de C.V. Monica Vetya Vazquez Aldan Jal.
- -------------------------------------------------------------------------------------------------------------------------------
28327 Comunicaciones Celulares de Occidente, Jose de Jesus Cortes Ramirez Tonala, Guadalajara, Jal. C-CV003-010
S.A. de C.V.
- -------------------------------------------------------------------------------------------------------------------------------
30304 Comunicaciones Celulares de Occidente, Maria Refugio Canedo de Villegard Altamira, Zapopan, Jal. C-CV003-011
S.A. de C.V.
- -------------------------------------------------------------------------------------------------------------------------------
18573 Comunicaciones Celulares de Occidente, Felipe Zetter Moya La Loma III, Guadalajara, C-CV003-012
S.A. de C.V. Jal.
- -------------------------------------------------------------------------------------------------------------------------------
7603 Comunicaciones Celulares de Occidente, Enrique Rodriguez Rodriguez y Huentitan, Guadalajara, C-CV003-013
S.A. de C.V. Santa Martinez de Rodriguez Jal.
- -------------------------------------------------------------------------------------------------------------------------------
17864 Comunicaciones Celulares de Occidente, Canada Inmobiliaria, S.A. de C.V. Canada, Guadalajara, Jal. C-CV003-014
S.A. de C.V.
- -------------------------------------------------------------------------------------------------------------------------------
3728 Comunicaciones Celulares de Occidente, Xavier Lares Moreno Calletano, Colima, Col. C-CV003-015
S.A. de C.V.
- -------------------------------------------------------------------------------------------------------------------------------
9320 Comunicaciones Celulares de Occidente, Graciela Isabel Borbolla La Salud, Morelia, Mich. C-CV003-016
S.A. de C.V. Altamirano y Otros
- -------------------------------------------------------------------------------------------------------------------------------
492 Comunicaciones Celulares de Occidente, Jorge Hernandez Perez Uruapan, del Progreso, C-CV003-017
S.A. de C.V. Mich.
- -------------------------------------------------------------------------------------------------------------------------------
9768 Comunicaciones Celulares de Occidente, Mercedes Ochoa Ponce de Leon Vda. Toreo, Morelia, Mich. C-CV003-018
S.A. de C.V. de Fernandez
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
NO. BUYING PARTY SELLING PARTY LOCATION OF REAL ESTATE RECORD NUMBER
==============================================================================================================================
<S> <C> <C> <C> <C>
3685 Comunicaciones Celulares de Occidente, Constructura e Inmobiliaria Chapalita, Tlajomulco, Jal. C-CV003-020
S.A. de C.V. las Margaritas, S.A. de C.V.
- ------------------------------------------------------------------------------------------------------------------------------
60411 Iusacell, S.A. de C.V. (Inmuebles Polanco, CBI Bienes Raices, Mazaryk 6(degrees)piso, C-CV007-013
Mazarik) S.A. de C.V. Mex. D.F.
- ------------------------------------------------------------------------------------------------------------------------------
79329 Iusacell, S.A. de C.V. Interlomas, S.A. de C.V. CSI Interlomas, Edo. de C-CV007-015
Mex.
- ------------------------------------------------------------------------------------------------------------------------------
32376 Iusatelecomunicaciones, S.A. de C.V. Joaquin Rosales de la Pena Central 450, ofs. Iusatel, C-CV008-007
Edo. de Mex.
- ------------------------------------------------------------------------------------------------------------------------------
32404 Iusatelecomunicaciones, S.A. de C.V. Horacio Jorge Perez Valle El Salado, Tlalnepantla, C-CV008-008
Edo. de Mex.
- ------------------------------------------------------------------------------------------------------------------------------
47578 Inmobiliaria Montes Urales 460, S.A. Inmobiliaria Petroequipos, Edif. Montes, Mex. D.F. C-CV010-001
de C.V. S.A. de C.V.
- ------------------------------------------------------------------------------------------------------------------------------
9240 Sistemas Telefonicos Portatiles Mendez Puebla Rafael Cerro Arandas, Irapuato, C-CV020-005
Celulares, S.A. de C.V. Gto.
- ------------------------------------------------------------------------------------------------------------------------------
4484 Sistemas Telefonicos Portatiles Inmobiliaria Alarcon de las Oficinas Sistepor, Leon, C-CV020-006
Celulares, S.A. de C.V. Lomas, S.A. de C.V. Gto.
- ------------------------------------------------------------------------------------------------------------------------------
tario No. Sistemas Telefonicos Portatiles Union de Colonos de Bello San Francisco del Rincon, C-CV020-007
3 de G Celulares, S.A. de C.V. Horizonte, A.C. Gto.
- ------------------------------------------------------------------------------------------------------------------------------
4482 Sistemas Telefonicos Portatiles Inmobiliaria Alarcon de las Cerro Gordo, Leon, Gto. C-CV020-008
Celulares, S.A. de C.V. Lomas, S.A. de C.V.
- ------------------------------------------------------------------------------------------------------------------------------
19795 Sistemas Telefonicos Portatiles Martina Nieto Juares San Pablo, Queretaro, Qro. NHEXP
Celulares, S.A. de C.V.
- ------------------------------------------------------------------------------------------------------------------------------
5802 Sistemas Telefonicos Portatiles Victor Vazquez Villalobos Lagos de Moreno, Jal. NHEXP
Celulares, S.A. de C.V.
- ------------------------------------------------------------------------------------------------------------------------------
2126 Telcom Celular, S.A. de C.V. Ma. Guadalupe Soberon Moreno Switch, Puebla, Pue. C-CV022-001
de Mendoza
==============================================================================================================================
</TABLE>
13
<PAGE>
Schedule 3.06 Disclosed Matters.
The Borrower is currently involved in a dispute with Telmex over the terms of
Telmex's interconnection agreements with some of the subsidiaries of the
Borrower and other cellular carriers. Telmex is the exclusive provider of
interconnection services in Mexico and has unilaterally increased
interconnection rates for two consecutive years. The Borrower has disputed the
increases and continues to pay Telmex the interconnection rate in effect prior
to the increases. In addition the Borrower's cellular subsidiaries have been
offsetting their charges for the termination of Telmex's customers' local calls
in their cellular networks against Telmex's charges for interconnection. The
billed, disputed interconnection charges totalled approximately Ps. 79 million
(U.S.$9.9 million) as of March 31, 1997, and are continuing to accrue. The
Borrower claims to be entitled to a fee for billing and collection services
rendered to Telmex on long distance charges incurred on the Borrower network by
the Borrower's cellular customers. This fee has been deducted from amount paid
by the Borrower to Telmex for interconnection services provided to the
Borrower's cellular customers. The disputed amounts equaled approximately Ps. 35
million (U.S.$4.4 million) as of March 31, 1997, and are continuing to accrue.
In addition, Telmex has asserted that the Borrower owes interest on such
disputed charges in the amount of approximately Ps. 43.5 million (U.S.$5.5
million) as of March 31, 1997.
While the Borrower believes that Telmex's actions are in violation of its
agreement with cellular carriers, that the Borrower is not obligations to pay
Telmex at the increased rates and that Telmex is obligated to pay reciprocal
termination charges and for billing and collection services rendered to Telmex
in the long distance services provided to Borrower's cellular customers, there
can be no assurance that the Borrower will not be required to pay Telmex all or
a portion of the amounts in the dispute either on a going-forward basis or
retroactively, or that Borrower will not have to return to Telmex the amounts
Iusacell has retained for such reciprocal termination charges or such billing
and collection services.
A ruling by the Federal Competition Commission is still pending on the suit
filed by the Borrower 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. Telmex and Telcel filed eight motions
against the suit, all of which motions were rejected by the Federal Competition
Commission. In February 1997, the Federal Competition Commission imposed a fine
of Ps. 847,500 (U.S.$107,537) on Telmex and Telcel for their refusal to provide
the expert appointed by the Borrower with the necessary information to prepare
his opinion on the cross-subsidies claim. 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. Although Mexican courts
have stayed the payment of the fines levied against Telmex and Telcel, the fines
continue to accrue interest.
Mitsubishi Electronics America, Inc. ("Mitsubishi") filed a complaint int he
United States on July 18, 1996 against the Borrower, Bell Atlantic and Bell
Atlantic Latin America Holdings, Inc. alleging, among other things, that the
Borrower breached a purported contract for the purchase of 60,000 local wireless
telephone terminals at a cost of U.S.$5120 each. The Borrower's motions to
dismiss the complaint for lack of personal jurisdiction and on substantive
grounds were rejected, although the court reserved judgment on the Borrower's
motion to dismiss for forum non conveniens. The Borrower is unable at this time
to estimate its potential liability, if any, and accordingly, has not created
any contingency reserve with respect to the litigation.
On August 2, 1996, the SCT ordered Comunicaciones Celulares de Occidente, S.A.
de C.V. ("Comcel"), the Borrower's Region 5 concession holder, to pay a Ps. 50.3
million penalty for alleged late payment of fees in connection with the original
granting of the cellular concession for Region 5. Comcel filed a request for
review of the order with the SCT on August 22, 1996, which is still pending. On
February 25, 1997, the Ministry of Finance and Public Credit also notified
Comcel of the alleged obligation. The Borrower believes that the penalty is
unwarranted since the SCT had granted Comcel extension of the fee payment in
1991 and 1992. As a result, the Borrower has not created any contingency
reserves for the penalty, although there can be no assurance that the Borrower
will not be required to pay the penalty.
The Borrower's minority partners in Rentacell, S.A. de C.V. (Rentacell) have, by
notarized letter, recently charged the Company with (i) filing to provide it
with certain developmental and operational support services purportedly mandated
by contract and (ii) using software purportedly owned by Rentacell to operate
Iusacell's prepay business. Although the Borrower is in the process of
investigating and analyzing such claims, Iusacell management's preliminary
belief is that these charges are without merit.
14
<PAGE>
Schedule 3.12 Subsidiaries.
1. SOS Telecomunicaciones, S.A. de C.V.
2. Iusacell, S.A. de C.V.
3. Sistecel, S.A. de C.V.
4. Satelitron, S.A. de C.V.
5. Comunicaciones Celulares de Occidente, S.A. de C.V.
6. Sistemas Telefonicos Portatiles Celulares, S.A. de C.V.
7. Telecomunicaciones del Golfo, S.A. de C.V.
8. In Flight Phone de Mexico, S.A. de C.V.
9. GMD Comunicaciones, S.A. de C.V.
10. Hermes Telecomunicaciones, S.A. de C.V.
11. Inmobiliaria Montes Urales 460, S.A. de C.V.
12. Portaserv, S.A. de C.V.
13. Mexican Cellular Investments, Inc.
14. Iusanet, S.A. de C.V.
15. Telecel, S.A.
16. Promtora Celular, S.A. de C.V.
17. Cellular Solutions de Mexico, S.A. de C.V.
18. Iusatelecomunicaciones, S.A. de C.V.
19. Iusatel, S.A. de C.V.
20. Grupo Iusacell Nicaragua, S.A. de C.V.
21. Infotelecom, S.A. de C.V.
22. Renta Cell, S.A. de C.V.
15
<PAGE>
Schedule 3.13: Insurance
GRUPO IUSACELL, S.A. DE C.V.
CURRENT POLICY LIST
<TABLE>
<CAPTION>
=================================================================================================================
COMPANY BUSINESS POLICY INSURER PERIOD AMOUNT INSURED
=================================================================================================================
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GRUPO IUSACELL MACRO POLICY QJ100884 COMERCIAL AMERICA 31/03/97 31/03/98 592,550,395 Us. Cy.
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL ELECTRONIC EQUIPMENT QJ100886 COMERCIAL AMERICA 31/03/97 31/03/98 413'547,091 Us. Cy.
- -----------------------------------------------------------------------------------------------------------------
S.O.S. TELECOMS ELECTRONIC EQUIPMENT 269954 ASEMEX 31/08/97 31/08/98 3,093,715 Us. Cy.
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL MACRO POLICY 269956 ASEMEX/TEL. RURAL 26/06/97 26/06/98 1'643,790 Us. Cy.
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL GENERAL 690487 PROVINCIAL 29/03/96 29/03/98 50'000,000 M.N.
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL TRANSPORTATION MB105905 COMERCIAL AMERICA 30/11/97 31/12/98 10'000,000 Us. Cy.
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL PERSONAL 690470 PROVINCIAL 01/02/97 01/02/98 100,000 M.N.
- -----------------------------------------------------------------------------------------------------------------
INFOTELECOM BEEPERS MA001305 ASEMEX 15/08/96 15/08/97 To Be Declared
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL D & O 4501 INTERAMERICANA 19/05/97 19/05/98 35'000,000 Us. Cy.
- -----------------------------------------------------------------------------------------------------------------
COMCEL (REGION 5) *911 12814 PROBURSA 01/07/97 01/07/99 To Be Declared
- -----------------------------------------------------------------------------------------------------------------
IUSACELL (REG. 6, *911 12814 PROBURSA 01/07/97 01/07/99 To Be Declared
7, 9)
- -----------------------------------------------------------------------------------------------------------------
COMCEL CELLULAR PHONE 29145 PROBURSA 01/07/97 01/07/99 To Be Declared
- -----------------------------------------------------------------------------------------------------------------
IUSACELL CELLULAR PHONE 29145 PROBURSA 01/07/97 01/07/99 To Be Declared
- -----------------------------------------------------------------------------------------------------------------
IUSACELL HOMES CONTRACT MEXICO ASISTENCIA 01/07/97 01/07/99 To Be Declared
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL FOREIGN AUTOMOBILES RAMO EXP. ALLIANZ 31/12/96 31/12/97 Imported Automobiles
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL AUTOMOBILES RAMO 201 PROBURSA 31/12/96 31/12/97 Fleet
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL TRUCKS RAMO 202 PROBURSA 31/12/96 31/12/97 Fleet
- -----------------------------------------------------------------------------------------------------------------
GRUPO IUSACELL MOTORCYCLES RAMO 205 PROBURSA 31/12/96 31/12/97 Fleet
=================================================================================================================
</TABLE>
T.C. 7.89 X 1DLL.
Risk Management
16
<PAGE>
SCHEDULE 6.01: EXISTING INDEBTEDNESS
<TABLE>
<CAPTION>
==================================================================================================
INSTITUTION AND CREDIT PRINCIPAL INTEREST FEE FEE PREPAYMENT TOTAL
- --------------------------------------------------------------------------------------------------
BANKS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Banco Mexicano
- --------------------------------------------------------------------------------------------------
Iusacell 89,434.00 3,339.65 -- -- 92,773.65 *
- --------------------------------------------------------------------------------------------------
Grupo Iusacell 29,535,005.76 368,035.71 49,430.11 -- 29,952,471.58 *
- --------------------------------------------------------------------------------------------------
Grupo Iusacell 2,002,317.19 95,934.35 2,475.09 -- 2,100,726.63 *
- --------------------------------------------------------------------------------------------------
Grupo Iusacell 12,333,566.31 240,504.54 22,702.90 -- 12,596,773.75 *
------------- ---------- ---------- ---------- -------------
- --------------------------------------------------------------------------------------------------
Total Banco Mexicano 43,960,323.26 707,814.25 74,608.10 -- 44,742,745.61
- --------------------------------------------------------------------------------------------------
Chase Manhattan
- --------------------------------------------------------------------------------------------------
Grupo Iusacell 65,000,000.00 437,282.99 -- 2,708.39 65,439,991.38 *
------------- ---------- ---------- ---------- -------------
- --------------------------------------------------------------------------------------------------
Total Chase Manhattan 65,000,000.00 437,282.99 65,439,991.38
- --------------------------------------------------------------------------------------------------
Banamex
- --------------------------------------------------------------------------------------------------
Portacel 1,572,000.00 61,181.06 -- 2,627.11 1,635,818.17 *
- --------------------------------------------------------------------------------------------------
Portacel 6,612,639.34 23,052.40 218,630.39 87,204.18 6,941,526.31 *
- --------------------------------------------------------------------------------------------------
Portacel 3,029,991.03 72,256.87 -- 3,577.07 3,105,824.97 *
- --------------------------------------------------------------------------------------------------
Comcel 8,156,250.00 78,418.95 5,465.19 10,053.71 P 8,250,187.85 *
- --------------------------------------------------------------------------------------------------
Comcel 8,044,244.65 250,265.39 7,354.03 9,775.99 P 8,311,640.06 *
------------- ---------- ---------- ---------- -------------
- --------------------------------------------------------------------------------------------------
Total Banamex 27,416,126.02 486,174.66 231,449.61 113,248.07 28,244,997.37
------------- ---------- ---------- ---------- -------------
- --------------------------------------------------------------------------------------------------
Banco del Atlantico
- --------------------------------------------------------------------------------------------------
Grupo Iusacell 25,175,000.00 414,338.54 -- -- 25,589,338.54 *
- --------------------------------------------------------------------------------------------------
Grupo Iusacell 10,000,000.00 164,583.33 -- -- 10,164,583.33 *
- --------------------------------------------------------------------------------------------------
Grupo Iusacell 10,050,000.00 165,406.25 -- -- 10,215,406.25 *
------------- ---------- ---------- ---------- -------------
- --------------------------------------------------------------------------------------------------
Total Banamex 45,225,000.00 744,328.13 -- -- 45,969,328.13
- --------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================
INSTITUTION AND CREDIT PRINCIPAL INTEREST FEE FEE PREPAYMENT TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bell Atlantic
- -----------------------------------------------------------------------------------------------------
Grupo Iusacell 3,500,000.00 163,132.81 -- -- 3,663,132.81 *
- -----------------------------------------------------------------------------------------------------
Grupo Iusacell 3,000,000.00 118,453.13 -- -- 3,118,453.13 *
- -----------------------------------------------------------------------------------------------------
Grupo Iusacell 2,000,000.00 36,059.03 -- -- 2,036,059.03 *
- -----------------------------------------------------------------------------------------------------
Grupo Iusacell 6,000,000.00 72,656.25 -- -- 6,072,656.25 *
- -----------------------------------------------------------------------------------------------------
Grupo Iusacell 10,500,000.00 107,369.79 -- -- 10,607,369.79 *
------------- ---------- -------- -------- -------------
- -----------------------------------------------------------------------------------------------------
Total Bell Atlantic 25,000,000.00 497,671.01 -- -- 25,497,6712.01
- -----------------------------------------------------------------------------------------------------
TOTAL BANKS 206,600,448.28 2,872,271.02 306,057.71 113,248.07 209,894,733.49
- -----------------------------------------------------------------------------------------------------
VENDORS
- -----------------------------------------------------------------------------------------------------
I.B.M. 289,266.41 55,741.56 -- -- 345,007.97
- -----------------------------------------------------------------------------------------------------
I.B.M. 1,055,308.21 178,191.11 -- -- 1,233,499.32
- -----------------------------------------------------------------------------------------------------
MITSUI DE MEXICO, S.A. 529,638.30 -- -- -- 529,638.30
DE C.V.
- -----------------------------------------------------------------------------------------------------
ALCATEL INDETEL MEXICO 848,428.75 25,436.32 -- -- 873,865.07
---------- --------- -------- -------- ----------
- -----------------------------------------------------------------------------------------------------
TOTAL VENDORS 2,722,641.667 259,368.99 -- -- 2,982,010.66
- -----------------------------------------------------------------------------------------------------
LEASING
- -----------------------------------------------------------------------------------------------------
FINA RENT 400,066.84 37,793.05 -- -- 437,859.89
- -----------------------------------------------------------------------------------------------------
VOLKSWAGEN FINANCIAL 54,714.39 8,657.22 -- -- 63,371.61
SERV. --------- -------- -------- -------- ---------
- -----------------------------------------------------------------------------------------------------
TOTAL LEASING 454,781.23 46,450.27 -- -- 501,231.50
- -----------------------------------------------------------------------------------------------------
GRAND TOTAL 209,777,871.18 3,178,090.28 306,057.71 113,248.07 213,377,975.65
=====================================================================================================
</TABLE>
18
<PAGE>
Schedule 6.02 Existing Liens
Loan Agreement between Grupo Iusacell, S.A. de C.V. and Chase Securities Inc.
as Arranger and The Chase Manhattan Bank as Administrative Agent
and Collateral Agent.
July 25, 1997
I. Loan Agreements
a) Loan Agreement between Grupo Iusacell, S.A. de C.V. and Banco Mexicano S.A.
(today Santander Mexicano, S.A.)
Dated February 24, 1995
Amount: U.S.$16,444,755.11
Lien: Pledge on cellular infrastructure equipment
b) Loan Agreement between Grupo Iusacell, S.A. de C.V. and Banco Mexicano (today
Santander Mexicano, S.A.)
Dated February 24, 1995
Amount: U.S.$48,298,923.39
Lien: Pledge on cellular infrastructure equipment
c) Loan Agreement between Iusacell, S.A. de C.V. and Banco Mexicano S.A. (today
Santander Mexicano, S.A.)
Dated February 18, 1993
Amount: U.S.$447,270.00
Lien: Pledge on phone cabins
d) Loan Agreement between Banco Nacional de Mexico, S.N.C. (today S.A.) and
Sistemas Telefonicas Portatiles Celulares, S.A. de C.V.
Dated September 5, 1991
Amount: U.S.$8,200,000.00
Lien: Industrial mortgage on all assets used and rights useful in operation of
business
e) Loan Agreement between Banco Nacional de Mexico, S.N.C. (today S.A.) and
Sistemas Telefonicas Portatiles Celulares, S.A. de C.V.
Dated July 18, 1997
Amount: U.S.$11,813,300.00
Lien: Industrial mortgage on all assets used and rights useful in operation of
business
f) Loan Agreement between Banco Nacional de Mexico, S.N.C. (today S.A.) and
Sistemas Telefonicas Portatiles Celulares, S.A. de C.V. Dated September 5, 1991
Amount: U.S.$15,000,000.00
Lien: Industrial mortgage on all assets used and rights useful in operation of
business
19
<PAGE>
g) Loan Agreement between Banco Nacional de Mexico, S.A., Sucursal Nassau and
Comunicaciones de Occidente, S.A. de C.V.
Dated September 19, 1991
Amount: U.S.$10,000,000.00
Lien: Industrial mortgage
h) Loan Agreement between Banco Nacional de Mexico, S.A., Sucursal Nassau and
Comunicaciones Celulares de Occidente, S.A. de C.V.
Dated September 19, 1991
Amount: U.S.$14,500,000.00
Lien: Industrial mortgage on all assets used and rights useful in operation of
business
i) Loan Agreement between The Chase Manhattan Bank, (National Association) and
Grupo Iusacell, S.A. de C.V. Dated February 16, 1996
Amount: U.S.$65,000,000.00
Lien: Pledge on shares of Telecomunicaciones del Golfo, S.A. de C.V. (Region 7)
and SOS Telecomunicaciones de
C.V. (Region 9)
II. Real Property
The real property owned by Grupo Iusacell and its subsidiaries is subject
to easements, zoning restrictions, rights of way and similar encumbrances
imposed by law or arising in the ordinary course of business that do not
materially detract from the value of the affected property or interfere with the
ordinary course of business of Grupo Iusacell or any of its subsidiaries.
III. Others
Leasing Agreement between Fina Rent, S.A. de C.V. and Grupo Iusacell, S.A.
de C.V.
Dated January 15,1993
Amount: $278,863.63 Mexican Pesos (the outstanding balance as of today is
approximately $4,000.00 Mexican Pesos)
Capital Lease for employee cars.
20
<PAGE>
Schedule 6.05 Existing Investments
GRUPO IUSACELL, S.A. DE C.V.
INVESTMENT REPORT
July 21, 1997
<TABLE>
<CAPTION>
==================================================================================================================================
FINANCIAL RATE PERIOD DEPOSIT
COMPANY INSTITUTION ACCOUNT AMOUNT GROSS NET BEGIN END INTEREST AT MATURITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT
-------
NATIONAL CURRENCY
- -----------------
GRUPO IUSACELL BANCOMER 1187847-7 15,500,000.00 18.75% 17.05% 21-Jul-97 22-Jul-97 7,340.97 15,507,340.97
GRUPO IUSACELL INVERMEXICO 106032798-6 24,900,000.00 19.00% 17.30% 21-Jul-97 22-Jul-97 11,965.83 24,911,965.83
GRUPO IUSACELL CHASE 200422 10,000,000.00 19.00% 17.30% 21-Jul-97 22-Jul-97 4,805.56 10,004,805.56
TOTAL N$ 50,400,000.00 N$ 24,112.36 50,424,112.36
- ----------------------------------------------------------------------------------------------------------------------------------
U.S.$DOLLARS
- ------------
GRUPO IUSACELL BANCOMER 3000-251710- 2,422,335.74 4.80% 21-Jul-97 22-Jul-97 322.98 2,422,658.72
TOTAL 600 USD 2,422,335.74 USD 322.98 2,422,658.72
==================================================================================================================================
==================================================================================================================================
FINANCIAL RATE PERIOD DEPOSIT
COMPANY INSTITUTION ACCOUNT AMOUNT GROSS NET BEGIN END INTEREST AT MATURITY
- ----------------------------------------------------------------------------------------------------------------------------------
NATIONAL CURRENCY
- -----------------
GRUPO IUSACELL BANCOMER 1187847-7 10,200,000.00 19.25% 17.55% 18-Jul-97 21-Jul-97 14,917.50 10,214,937.32
GRUPO IUSACELL INVERMEXICO 106032798-6 24,050,000.00 19.50% 17.80% 18-Jul-97 21-Jul-97 35,674.17 24,085,720.84
GRUPO IUSACELL CHASE 200422 10,000,000.00 19.25% 17.55% 18-Jul-97 21-Jul-97 14,625.00 10,014,625.00
TOTAL N$ 44,250,000.00 N$ 65,216.67 44,315,283.16
- ----------------------------------------------------------------------------------------------------------------------------------
U.S.$DOLLARS
- ------------
GRUPO IUSACELL BANCOMER 3000-251710- 2,421,367.19 4.80% 18-Jul-97 21-Jul-97 968.55 2,422,335.74
TOTAL 600 2,421,367.19 USD 968.55 2,422,335.74
USD
==================================================================================================================================
</TABLE>
21
<PAGE>
SCHEDULE 6.10 - Existing Restrictions
Certain credit agreements entered into by Protacel and Comcel, which agreements
will be terminated on the date hereof using the proceeds of the Term Facility
under this Credit Agreement and the Senior Notes, contain provisions restricting
dividend payments.
22
<PAGE>
1
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of July 25, 1997 (as in
effect on the date hereof, the "Credit Agreement"), among Grupo Iusacell, S.A.
de C.V., a variable capital corporation (sociedad anonima de capital variable)
organized under the laws of Mexico (the "Borrower"), the lenders parties thereto
(the "Lenders") and The Chase Manhattan Bank, as Administrative Agent and
Collateral Agent. Terms defined in the Credit Agreement are used herein with the
same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth in numbered Paragraph
3 hereof, the interests set forth on the second page hereof (the "Assigned
Interest") in the Assignor's rights and obligations under the Credit Agreement,
including, without limitation, the interests set forth on the second page hereof
in the Commitment of the Assignor on the Effective Date and the Loans owing to
the Assignor which are outstanding on the Effective Date, together with unpaid
interest accrued on the assigned Loans to the Effective Date and the amount, if
any, set forth on the second page hereof of the Fees accrued to the Effective
Date for the account of the Assignor. Each of the Assignor and the Assignee
hereby makes and agrees to be bound by all the representations, warranties and
agreements set forth in Section 9.04(c) of the Credit Agreement, a copy of which
has been received by each such party. From and after the Effective Date (i) the
Assignee shall be a party to and be bound by the provisions of the Credit
Agreement and, to the extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and (ii) the Assignor shall, to the extent of the interests
assigned by this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
2. This Assignment and Acceptance is being delivered to the Administrative
Agent together with (i) if the Assignee is not already a Lender under the Credit
Agreement, an Administrative Questionnaire provided by the Administrative Agent
and (ii) a processing and recordation fee of $3,500.
3. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
Date of Assignment:
----------------------
Legal Name of Assignor:
------------------
Legal Name of Assignee:
------------------
<PAGE>
2
Assignee's Address for Notices:
----------------------------------------
Assignee's Address of Eurodollar lending office:
-----------------------
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment):
---------------------------------------------------
Percentage
Assigned of
Facility/Commitment (set
forth, to at least 8 decimals,
Principal Amount as a percentage of the Total
Facility Assigned Commitment
Commitment
Assigned: $ %
Loans:
Fees Assigned (if
any):
The terms set forth above are hereby Accepted */
agreed to:
_______________, as Assignor
<PAGE>
3
THE CHASE MANHATTAN BANK, as
Administrative Agent,
by by
--------------------------------- ---------------------------------
Name: Name:
Title: Title:
_______________, as Assignee
GRUPO IUSACELL, S.A. de C.V., as
Borrower,
by by
--------------------------------- ---------------------------------
Name: Name:
Title: Title:
- ----------
*/ To be completed unless Assignee is already a Lender party to the Credit
Agreement.
<PAGE>
4
Exhibit B-1
July 25, 1997
The Chase Manhattan Bank,
as Administrative Agent and Collateral Agent
270 Park Avenue
New York, New York 10017
The Financial Institutions Listed
on Annex I hereto
Ladies and Gentlemen:
We have acted as United States counsel to Grupo Iusacell, S.A. de
C,V., a Mexican sociedad anonima de capital variable (the "Borrower"), and
certain subsidiaries of the Borrower in their capacity as Subsidiary Pledgors
(in such capacity, the "Subsidiary Pledgors") under the Pledge Agreement
referenced below and certain subsidiaries of the Borrower in their capacity as
Guarantors under the Guarantee Agreement referenced below (the "Subsidiary
Guarantors"), in connection with the Credit Agreement dated as of July 25, 1997
among the Company, the lenders party thereto and The Chase Manhattan Bank, as
Administrative Agent and as Collateral Agent (the "Credit Agreement"). This
opinion is furnished to you at the request of the Borrower pursuant to Section
4.01(b)(i) of the Credit Agreement. Capitalized terms used and not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
In rendering the opinions expressed below, we have examined the
Credit Agreement, the Pledge Agreement dated as of July 25, 1997 among the
Borrower, the Subsidiary Pledgors and The Chase Manhattan Bank, as collateral
agent (the "Pledge Agreement"), and the Guarantee Agreement dated as of July 25,
1997 among the Subsidiary Guarantors and The Chase Manhattan Bank, as Collateral
Agent (the "Guarantee Agreement" and together with the Credit Agreement and
Pledge Agreement, the "Transaction Documents"). We also have examined originals,
or copies certified or otherwise identified to our satisfaction, of such
corporate records of the Borrower, the Subsidiary Pledgors and the Subsidiary
Guarantors, agreements and other instruments, certificates of public officials,
certificates of officers and representatives of the Borrower, the Subsidiary
Pledgors and the Subsidiary Guarantors and other documents as we have deemed
necessary as a basis for the opinions hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity of the copies
submitted to us to their originals and the authenticity of the originals of such
latter documents. As to various questions of fact material to such opinions, we
have, when relevant facts were not independently established, relied upon
certifications by officers of the Borrower, the Subsidiary Pledgors and the
Subsidiary Guarantors and public officials.
Based upon the foregoing, and having regard to legal considerations
which we deem relevant, we are of the opinion that:
<PAGE>
5
1. The execution, delivery and performance by each Loan Party of the
Transaction Documents to which it is a party do not require any consent or
approval of, registration or filing with, or any other action by, any
Governmental Authority of the United States of America or of the State of New
York.
2. The Credit Agreement, Guarantee and Pledge Agreement constitute legal,
valid and binding obligations of each Loan Party thereto on the date hereof,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
3. The provisions of the Pledge Agreement are effective to create valid
security interests in favor of the Collateral Agent, for the benefit of the
Lenders, in all of the collateral described therein that is of the type in which
a security interest can be created under Article 8 or Article 9 of the Uniform
Commercial Code in effect in the State of New York on the date hereof ("UCC"),
to the extent the UCC is applicable to the creation of such security interests.
4. Neither the Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
We express no opinion as to (i) the perfection or priority of any
security interest purported to be created by any Transaction Document, (ii) the
validity of any security interest, or the validity, binding effect or
enforceability of any Transaction Document to the extent that such Transaction
Document grants or purports to grant a security interest that is not governed by
the UCC or (iii) the title or any other interest of any Loan Party in or to any
of the Collateral.
Furthermore, we express no opinion as to (i) Section 9.13(b) of the
Credit Agreement, Section 5.17(b) of the Pledge Agreement or Section 23(b) of
the Guarantee Agreement, (ii) whether the federal courts of the United States or
the courts of the State of New York would have subject matter jurisdiction over
any action brought against the Borrower, any Subsidiary Pledgor or any
Subsidiary Guarantor or (iii) the effect of any Federal or state securities
laws, rules or regulations on the validity, binding effect or enforceability of
the Pledge Agreement or the provisions of Section 9.03(b) of the Credit
Agreement.
In rendering the foregoing opinion, we have, without independent
investigation, relied subject to the assumptions, qualifications and limitations
stated therein, as to all matters of Mexican law, upon the opinions of De Ovando
y Martinez del Campo, S.C. and Carlos Gutierrez Cardona, Deputy General Counsel
of the Borrower and the Subsidiaries in each case delivered pursuant to Section
4.01(b)(ii) of the Credit Agreement.
We are members of the bar of the State of New York and express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the laws of the United States and we have assumed that any
documents referred to herein and executed by the Borrower, the Subsidiary
Pledgors and the
<PAGE>
6
Subsidiary Guarantors have been duly authorized, executed and delivered pursuant
to Mexican law.
This opinion letter is furnished to you by us and may not be relied
upon by any other person or for any other purpose other than in connection with
the Transactions without our prior written consent in each instance. A copy of
this opinion is being furnished to De Ovando y Martinez del Campo, S.C. which
may rely on this opinion to the same extent as if it were addressed to them,
subject to the immediately preceding sentence hereof.
Very truly yours,
/s/ Rogers & Wells
-------------------------
<PAGE>
7
Annex I
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Banque Nationale de Paris
499 Park Avenue, 2nd Floor
New York, New York 10022
Banco Nacional de Mexico, S.A.
767 Fifth Avenue, 8th Floor
New York, New York 10153
Dresdner Bank Mexico, S.A.
Bosque de Alisos #47B, 4th Floor
Bosques de las Lomas
05120, Mexico D.F.
Dresdner Bank AG New York and
Grand Cayman Branches
75 Wall Street
New York, New York 10005-2889
Morgan Guaranty Trust Company of New York
60 Wall Street, 24th Floor
New York, New York 10260-0060
Bancomer Grand Cayman Branch
Montes Urales 470, 2nd Floor
Lomas, Mexico 11000,
D.F.
Citibank N.A.
Reforma 390, 7th Floor
Colonia Juarez
Mexico City, Mexico C.P. 06695
July 25, 1997
Chase Securities Inc.
Salomon Brothers Inc
c/o Chase Securities Inc.
270 Park Avenue
New York, NY 10017
<PAGE>
8
Exhibit B-2
October 7, 1997
The Chase Manhattan Bank and
the Lenders party to the Credit
Agreement referred to below
c/o The Chase Manhattan Bank
One Chase Manhattan
8th Floor
New York, New York 10081
United States of America
Ladies and Gentlemen:
We have acted as special Mexican counsel to Grupo Iusacell, S.A. de C.V.
(the "Borrower") in connection with the preparation, execution and delivery of
that certain Loan Agreement dated as of July 25, 1997 (the "Loan Agreement"),
among the Chase Manhattan Bank as Administrative Agent and as Collateral Agent
(in both capacities, the "Agent"), each of the Lenders party thereto and the
Borrower. All capitalized terms used but not defined herein have the respective
meanings given to such terms in the Loan Agreement. This opinion is delivered to
you pursuant to Section 4.01(b)(ii) of the Loan Agreement.
For purposes of the opinion expressed below, we have examined the
following:
(a) a copy of the Loan Agreement,
(b) a copy of the Guarantee Agreement,
(c) the Notes for the Term Loan executed by the Borrower and executed por
oval by each Subsidiary Loan Party signatory thereof (the "Notes") and the form
of other notes that may be issued and delivered under and pursuant to the terms
of the Loan Agreement,
(d) the Mortgage and the Trademark Pledge Agreement (the "Security
Agreement"),
(e) the Pledge Agreement (the Pledge Agreement, together with the Security
Agreements, the "Security Documents"), the Loan Agreement, the Guarantee
Agreement, the Notes and the Security Documents, together, are hereinafter
referred to as the "Loan Documents"),
(f) the estatutos sociales of the Borrower and each Subsidiary Loan Party,
other than Mexican Cellular Investments, Inc. (together, but excluding Mexican
Cellular Investments, Inc., the "Loan Parties"), and
(g) the resolutions of the Executive Committee or shareholders, as
appropriate of each Loan Party.
<PAGE>
9
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates or comparable documents of the Loan Parties or of officers and
representatives of the Loan Parties or public officials, and have made such
inquiries of such officers and representatives and have conducted such other
investigations of fact and law as we have deemed relevant and necessary as a
basis for the opinions hereinafter set forth.
In such examination, we have assumed (i) the genuineness of all
signatures, (ii) 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, (iii) the due authority of, and the due execution by each party
(other than the authority of the Loan Parties) of the Loan Documents and (iv)
the validity, binding effect and enforceability of each of the Loan Documents
(other than the Security Agreements) under the laws of the State of New York,
United States of America.
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 Loan Parties or public
officials 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) Each Loan Party has been duly incorporated and is validly
existing as a sociedad anonima de capital variable under the laws of Mexico.
(2) The execution, delivery and performance by each Loan Party of
each Loan Document to which it is a party are within such Loan Party's power and
authority, have been duly authorized by all necessary corporate action and do
not contravene any provision of applicable law, rule or regulation or of the
estatutos sociales of each such Loan Party.
(3) No authorization or approval, and no notice to or registration
or filing with any Mexican governmental authority or regulatory body is required
for the due execution, delivery and performance by each Loan Party of each Loan
Document to which it is a party, other than (i) the approval to be requested of
SCT for S.O.S. Telecommunications, S.A. de C.V. to create a mortgage in respect
of the cellular concession which it holds, (ii) the filing for perfection of the
Mortgage, to be made with the Telecommunications Registry and each relevant
Public Registry of Commerce, (iii) the filing, for perfection of the Trademark
Security Agreement to be made with the Mexican Institute of Industrial Property,
and (iv) notices to the SCT with respect to the Mortgage.
(4) Each of the Loan Documents has been duly executed and delivered
by each Loan Party that is a party thereto and constitutes a valid and binding
agreement of each such Loan Party, enforceable against each such Loan Party in
accordance with its terms subject to the proviso to opinion (3) above.
<PAGE>
10
(5) There is no tax, deduction or withholding imposed by Mexico or
any political subdivision or taxing authority thereof or therein on or by virtue
of the execution or delivery of each Loan Document. There is no deduction or
withholding on account of taxes, imposed by Mexico or any political subdivision
or taxing authority thereof or therein, on any payment to be made by any Loan
Party pursuant to any Loan Document, except for (x) withholding taxes imposed on
payments of interest and fees made by any Loan Party to any Lender or the Agent
that is a non-resident of Mexico for tax purposes, imposed under the Mexican
Income Tax Law (Ley del Impuesto Sobre la Renta) and (y) fees payable in
connection with (A) the registration of the Mortgage with the Telecommunications
Registry and each relevant Public Registry of Commerce and (B) the registration
of the Trademark Security Agreement with the Mexican Institute of Industrial
Property.
(6) The Borrower's payment obligations under the Loan Agreement and
the Notes and each Loan Party's payment obligations under the Guarantee and the
Notes bank and will rank at least pari passu in priority of payment with all
other unsecured an unsubordinated indebtedness of the Borrower or each such Loan
Party, as the case may be, and will have priority with respect to such
indebtedness to the extent of the collateral granted under the Security
Documents (subject to the proviso to opinion (3) above).
(7) Each Loan Document is in proper legal form under the laws of
Mexico for the enforcement thereof against each Loan Party that is party thereto
in accordance with its respective terms, except that the Mortgage will require
notarization before a Mexican notary public (and, for perfection, other
requirements specified in the proviso to opinion (3) above will need be
satisfied.
(8) To ensure the validity, enforceability or admissibility in
evidence of each Loan Document in Mexico, it is not necessary that each such
Loan Document be filed with any court or other authority in Mexico or that any
stamp or similar tax be paid on or in respect of any such document, subject to
the proviso to opinion (3) above.
(9) The choice of New York law as the governing law of the Loan
Documents (other than the Security Agreements) is a valid choice of law and a
Mexican court will recognize and give effect to such choice of law in an action
or proceeding arising out of such Loan Documents.
(10) The submission by each Loan Party to the jurisdiction of any
New York State or United States Federal Court sitting in The City of New York,
New York, United States of America, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to any Loan Document (other
than the Security Agreements), is a valid submission to jurisdiction.
(11) The Notes (and other notes that may be issued in the future
pursuant to the terms of Loan Agreement and in conformity with the form attached
thereto will, when executed and delivered pursuant to the terms of the Loan
Agreement) qualify as negotiable instruments (titulos de credito) and may be
enforced through executory proceedings (accion ejecutiva mercantil) with respect
to principal payable thereunder only.
<PAGE>
11
(12) Any judgment obtained in a State of Federal court sitting in
The City of New York, State of New York, arising out of or in relation to the
obligations of any Loan Party under any Loan Document (other than the Security
Agreements), would be enforceable in Mexico against any such Loan Party pursuant
to Article 1347A of the Commerce Code, which provides, inter alia, that any
judgment rendered outside Mexico may be enforced by Mexican courts, provided
that
i) Such judgment is obtained in compliance with all legal
requirements of the jurisdiction of the court rendering such judgment, and all
requirements of such Loan Document and the judgment fulfills the necessary
requirements to Be considered authentic;
ii) such judgment is strictly for the payment of a certain sum of
money based on an in personam (as opposed to an in rem) action;
iii) service of process was made personally on the relevant Loan
Party or on the process agent for such Loan Party, it should be noted that
service of process on the relevant Loan Party or such process agent by mail does
not constitute personal service for purposes of enforcing a foreign judgment in
Mexico;
iv) such judgment does not contravene Mexican law, public policy of
Mexico international treaties or agreements binding upon Mexico or generally
accepted principles of international law;
v) the applicable procedure under the laws of Mexico with respect to
the enforcement of foreign judgments (including issuance of a letter rogatory by
the competent authority of such jurisdiction requesting enforcement of such
judgment and the certification of such judgment as authentic by the
corresponding authorities or such jurisdiction in accordance with the laws
thereof) is complied with;
vi) such judgment is final in the jurisdiction where obtained;
vii) the court issuing the judgment is considered competent under
rules which are internationally accepted and which are compatible with Mexican
procedural laws;
viii) the action upon which the final judgment is rendered is not
the subject matter of a lawsuit among the same parties pending before a Mexican
court; and
ix) the courts of such jurisdiction recognize the principles of
reciprocity in connection with the enforcement of Mexican judgments in such
jurisdiction.
The documents relating to the legal action instituted before any of the
courts mentioned above, and the judgment rendered thereunder, would need to be
translated into the Spanish language by an expert duly authorized by the Mexican
courts for its admissibility before the Mexican court before which enforcement
is requested.
<PAGE>
12
(13) It is not necessary under the laws of Mexico (i) in order to
enable the Agent or any Lender to enforce its rights under any Loan Document or
(ii) by reason of the execution, delivery or performance of any Loan Document,
that the Agent or any Lender should be licensed, qualified or entitled to carry
on business in Mexico.
(14) None of the Agent nor any Lender will be subject to taxation in
Mexico solely by reason of the execution, delivery or performance of any Loan
Document.
(15) The Pledge Agreement constitutes and, when the Mortgage and the
Trademark Security Agreement are filed with the Telecommunications Registry,
each relevant Public Registry of Commerce or the Mexican Institute of Industrial
Property, as the case may be, the Mortgage and the Trademark Security Agreement
will constitute a valid and perfected security interest.
In rendering this opinion, we have relied as to matters of United States
Federal and New York law, upon the opinion of Rogers & Wells delivered pursuant
to Section 4.01(b)(1) of the Loan Agreement.
The above opinions are subject to the following qualifications.
(a) enforcement of the Loan Documents may be limited by bankruptcy,
suspension of payments, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting the enforcement of creditors' rights
generally;
(b) although the Loan Parties' obligation to pay in Dollars outside
of Mexico is valid, it should be noted that pursuant to Article 8 of the
Monetary La (Ley Monetaria) of Mexico, if collection of amounts payable by a
Loan Party in foreign currency outside Mexico is sought in Mexico, Mexican
courts might render a judgment in Mexican currency or, if such judgment is
rendered in foreign currency but payable in Mexico, such judgment may be
discharged in Mexican currency, at the rate of exchange in effect at the date
and place where payment is made, as determined by the Central Bank of Mexico
(Banco de Mexico) and consequently, Section 9.13 of the Loan Agreement, Section
23 of the Guarantee Agreement and Section 5.17 of the Pledge Agreement (Judgment
Currency) may not be enforceable in Mexico;
(c) in the event that any legal proceedings are brought to the
courts of Mexico, a Mexican court will apply Mexican procedural law and a
Spanish translation of the documents required in such proceedings prepared by a
court-approved translator would have to be approved by the court after the
defendant had been given an opportunity to be heard with respect to the accuracy
of the translation, and proceedings would thereafter be based upon the
translated document;
(d) in a bankruptcy proceedings initiated in Mexico pursuant to the
laws of Mexico labor claims of tax authorities for unpaid taxes, Social Security
quotas, Workers Housing Fund quotas, Retirement fund quota may have priority
over claims of the Agent and the Lenders (or any permitted assignees thereof);
<PAGE>
13
(e) Mexican law does not permit the collection of
interest-on-interest and, consequently, Section 2.11(c) of the Loan Agreement or
any similar provision in any Loan Document relating to the payment of
interest-on-interest may not be enforceable in Mexico;
(f) covenants of the Borrower of any of the Loan Parties which
purport to bind any of them on matters reserved by law to shareholders, or which
purport to bind shareholders to vote or refrain from voting their shares issued
by the Borrower or any of the Loan Parties, as the case may be, or their
respective subsidiaries, may not be enforceable through specific performance,
but may result in an acceleration of amounts payable under the Loan Agreement;
(g) provisions of any Loan Document granting discretionary authority
to the Agent of the Lenders cannot be exercised in a manner inconsistent with
relevant facts nor defeat any requirements from a competent authority to produce
satisfactory evidence as to the basis of any determination, in addition, under
Mexican law, the Borrower or any of the Loan Parties, as the case may be , will
have the right to contest in court any notice or certificate of the Agent or the
Lenders purporting to be conclusive and binding;
(h) under Mexican law, the obligations of a guarantor (fiador) may
not exceed the obligations of the main obligor. Failure to comply with this
provision would result in the reduction of the guarantor's obligation to the
extent necessary so as to request such obligations with those of the main
obligor; and
(i) we express no opinion with respect to Sections 4.01 and 4.03 of
the Pledge Agreement.
We express no opinion as to any laws other than the laws of Mexico in
effect as of the date hereof.
This opinion is being furnished solely for your benefit. This opinion may
not be used or relied upon by or published or communicated by any Person, other
than the addressees hereof and Rogers & Wells,f or any purpose whatsoever,
without our prior written consent in each instance.
Very truly yours,
/s/ Javier Martinez del Campo
- ----------------------------------------
De Ovando y Martinez del Campo, S.C.
<PAGE>
14
Exhibit B-3
Grupo Iusacell, S.A., de C.V. Carlos Gutierrez Cardona
Montes Urales 460-2(degrees) piso Director Juridico
Lomas de Chalpultepec
11000 Mexico, D.F.
Tel.: 525-1044114
Fax: 525-1044172
July 25, 1997
Chase Securities Inc.
Salomon Brothers Inc
c/o Chase Securities Inc.
270 Park Avenue, 4th Floor
New York, New York 10017
Ladies and Gentlemen:
I am the General Counsel of Grupo Iusacell, S.A. de C.V., a limited
liability variable capital stock corporation organized under the laws of the
United Mexican States (the "Company"), and have acted as counsel to the Company
in connection with the issuance and sale by the Company to you of
U.S.$150,000,000 aggregate principal amount of the 10% Senior Notes due 2004 of
the Company pursuant to the Purchase Agreement dated July 15, 1997 among you,
the Company and the subsidiaries of the Company party thereto (the "Purchase
Agreement"). All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement.
I have examined the originals, photocopies or conformed copies of
such records of the Company and its subsidiaries, such agreements, certificates
of public officials, certificates of officers and representatives of the Company
and its subsidiaries, and such other documents and instruments as I have deemed
relevant and necessary as a basis for the opinion hereinafter expressed. In such
examinations, I have assumed the genuineness of all signatures on original
documents and the conformity to the originals of all copies submitted to me as
conformed copies or photocopies. As to various questions of fact material to
this opinion, I have relied upon representations, statements or certificates of
officers and representatives of the Company and its subsidiaries.
Based on the foregoing, and subject to the penultimate paragraph of
this letter, it is my opinion that:
1. Neither the Company nor any of its subsidiaries is (a) in violation of its
estatutos sociales or charter or by-laws, as the case may be, (b) to my best
knowledge, in default in any material respect, and no event has occurred which,
with notice or lapse of time or both, would constitute such a default, in the
due performance or observance of any term, covenant or condition contained in
any material indenture, mortgage, deed of trust, loan agreement, concession,
license,
<PAGE>
15
permit, shareholders agreement or other material agreement or instrument to
which it is party or by which it is bound (including the New Shareholders
Agreement and the 1996 Share Conversion Agreement) or to which any of its
property or assets is subject (excluding such loan agreements, instruments of
indebtedness and similar agreements which will be terminated on the date hereof
upon the application of certain of the proceeds of the Financing) or (c) in
violation in any material respect of any Mexican law, ordinance, governmental
rule, regulation or court decree to which it or its property or assets may be
subject.
2. The execution, delivery and performance by each of the Company and the
Subsidiary Guarantors of each Transaction Document to which it is a party, the
issuance, authentication, sale and delivery of the Securities and compliance by
the Company with the terms thereof and the consummation of the transactions
contemplated by the Transaction Documents will not (a) to my best knowledge,
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, any indenture, mortgage, deed of
trust, loan agreement, concession, license, permit, shareholders agreement or
other material agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound (including the New Shareholders Agreement and the 1996 Share Conversion
Agreement) or to which any of the property or assets of the Company or any of
its subsidiaries is subject (excluding such loan agreements, instruments of
indebtedness and similar agreements which will be terminated on the date hereof
upon the application of certain of the proceeds of the Financing) or (b) result
in any violation of the provisions of the estatutos sociales or charter or
by-laws, as the case may be, of the Company or any of its subsidiaries or any
statute of Mexico or any judgment, concession, permit, order, decree, rule or
regulation or any court or arbitrator or governmental agency or body of Mexico
having jurisdiction over the Company or any of its subsidiaries or any of their
properties or assets.
3. To my best knowledge, there are no pending actions or suits or judicial,
arbitral, rule-making, administrative or other proceedings to which the Company
or any of its subsidiaries is a party or of which any property or assets of the
Company or any of its subsidiaries is the subject which (a) singly or in the
aggregate, if determined adversely to the Company or any of its subsidiaries,
could reasonably be expected to have a Material Adverse Effect (unless otherwise
expressly disclosed in the Offering Memorandum) or (b) questions the validity or
enforceability of any of the Transaction Documents or any action taken or to be
taken pursuant thereto; and to my best knowledge, no such actions, suits or
proceedings are threatened or contemplated by governmental authorities or
threatened by others.
4. The descriptions in the Offering Memorandum of Mexican statutes, legal and
governmental proceedings and contracts and other documents are accurate in all
material respects. The statements in the Offering Memorandum under the heading
"Business -- Government Regulation," to the extent that they constitute
summaries of matters of Mexican law or regulation or legal conclusions, have
been reviewed by me and fairly summarize the matters described therein in all
material respects.
<PAGE>
16
5. To my best knowledge, except as otherwise disclosed in the Offering
Memorandum, each of the Company and its subsidiaries (a) has obtained all
necessary concessions, licenses, certificates, authorizations and permits from,
and has made all declarations and filings with, all federal, state, local and
other governmental authorities, self-regulatory organizations and courts and
other tribunals in Mexico, and (b) is in compliance with any and all applicable
laws of Mexico, in each case, to own, lease, license and use its properties and
assets and to conduct its business in the manner in which it is so engaged.
6. Each of the Company and its subsidiaries is duly registered or qualified to
do business as a foreign corporation in each jurisdiction, domestic or foreign,
in which its ownership or lease of property or the conduct of its business
requires such qualification, and each of the Company's Colombian and Nicaraguan
subsidiaries has been duly incorporated and is validly existing as a corporation
under the laws of the jurisdiction of its organization and has all power and
authority necessary to own or hold its properties and to conduct the business in
which it is engaged.
7. The Company has an authorized capitalization as set forth in the Offering
Memorandum, and all the outstanding shares of capital stock of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable; and the capital stock of the Company conforms in all material
respects to the description thereof contained in the Offering Memorandum.
8. All outstanding shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable and are owned directly or indirectly (other than as described in
the Offering Memorandum) by the Company, free and clear of all Liens (other than
Liens under the Credit Agreement).
I have acted as counsel to the Company in connection with the
preparation of the Preliminary Offering Memorandum and Offering Memorandum and,
in the course of such representation, I have reviewed and discussed the
information in the Preliminary Offering Memorandum and Offering Memorandum and
have participated in conferences with representatives of the Company and special
United States and Mexican counsel and representatives of the Initial Purchasers
and their counsel at which the contents of the Preliminary Offering Memorandum
and the Offering Memorandum and related matters were discussed, and although I
assume no responsibility for the accuracy, completeness or fairness of the
information set forth in the Offering Memorandum, except as expressly provided
above, based upon my review, discussions and participation, nothing has come to
my attention to cause me to believe that the Offering Memorandum (other than the
financial statements and other financial and statistical information contained
therein, as to which I express no belief) contained as of its date or contains
as of the Closing Date any untrue statement of a material fact or omitted or
omits, as the case may be, to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
I am a member of the Bar of the United Mexican States and am not a
member of the bar of any other jurisdiction, including, without limitation, of
any State or Commonwealth of the United States of America. I am not expressing
any opinion as to any matter relating to the laws of any jurisdiction other than
the
<PAGE>
17
United Mexican States (and, with respect to paragraph 6 above only, Colombian
and Nicaraguan corporate law), and I assume no responsibility as to the
applicability of the laws of any other jurisdiction to the subject transaction
or the effect of such laws thereon.
This opinion is being delivered to you pursuant to Section 5(e)(ii)
of the Purchase Agreement for your benefit and may not be delivered to, used or
relied upon by any other person or for any other purpose without my prior
written consent.
Very truly yours,
/s/ Carlos Gutierrez Cardona
- -----------------------------------
General Counsel,
Grupo Iusacell, S.A. de C.V.
<PAGE>
18
Exhibit B-4
Bell Atlantic International, Inc. Susan B. Asch
1310 North Court House Road Assistant General Counsel
Arlington, Virginia 22201 Assistant Secretary
July 25, 1997
The Chase Manhattan Bank,
as Administrative Agent under
the Credit Agreement (the
"Administrative Agent"), and the
Lenders party thereto
270 Park Avenue
New York, NY 10017
First Union National Bank, as
Trustee under the Indenture
(the "Trustee"),
230 S. Tyron Street
Corporate Trust Department, 9th Floor
Charlotte, NC 28288
Chase Securities Inc. and
Salomon Brothers Inc,
as initial purchasers of
the Senior Notes issued
under the Indenture
(the "Initial Purchasers"),
c/o Chase Securities Inc.
270 Park Avenue
New York, NY 10017
Ladies and Gentlemen:
Reference is made to (i) the Debenture Purchase Agreement dated as of the
date hereof (the "Debenture Purchase Agreement") between 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"), and Bell Atlantic
International, Inc., a Delaware corporation ("BAII"), and (ii) the Subordination
Agreement dated as of the date hereof (the "Subordination Agreement") among the
Company, BAII, the Administrative Agent and the Trustee. Capitalized terms used
but not defined herein shall have the meanings given thereto in the
Subordination Agreement, or if not defined in the Subordination Agreement, in
the Credit Agreement dated as of July 25, 1997 (the "Credit Agreement"), among
the Company,
<PAGE>
19
its subsidiaries which are signatories thereto, the Administrative Agent and the
lenders which are signatories thereto.
I am the Assistant General Counsel and an Assistant Secretary of Bell
Atlantic International, Inc., a Delaware corporation ("BAII"), and I am
furnishing this opinion to you pursuant to Section 4.01(b)(iv) of the Credit
Agreement and Section 5(f) of the Purchase Agreement dated July 15, 1997 among
the Company, its subsidiaries which are signatories thereto, and the Initial
Purchasers.
In connection with this opinion, I have examined originals or copies of
the Debenture Purchase Agreement, the Subordination Agreement and such corporate
records, agreements, documents and other instruments of BAII, and such
certificates or comparable documents of public officials and of officers and
representatives of BAII, and have made such inquiries of such officers and
representatives of BAII as I have deemed necessary or appropriate for purposes
of this opinion.
In all such examinations, I have assumed the genuineness of all signatures
on original or certified, conformed, facsimile or reproduction copies of
documents of all parties other than BAII, and the conformity to original or
certified copies of all copies submitted to me as conformed, facsimile or
reproduction copies. As to various questions of fact relevant to the opinions
expressed herein, I have relied upon, and assume the accuracy of, statements,
written information and certificates of public officials and of other officers
of BAII. In addition, I have assumed the accuracy and completeness of all
corporate records of BAII. In giving the opinions expressed in paragraph (2)
hereof, I have assumed that the Debenture Purchase Agreement and the
Subordination Agreement have each been duly authorized, executed and delivered
by all parties thereto other than BAII.
Based on the foregoing and subject to the other assumptions,
qualifications and limitations set forth herein, it is my opinion that:
(1) BAII has the corporate power and corporate authority to execute and
deliver each of the Debenture Purchase Agreement and the Subordination Agreement
and to perform its obligations thereunder; and all corporate action required to
be taken for the due and proper authorization, execution and delivery of each of
the Debenture Purchase Agreement and the Subordination Agreement and the
consummation of the transactions contemplated thereby has been duly and validly
taken;
(2) each of the Debenture Purchase Agreement and the Subordination
Agreement has been duly authorized, executed and delivered by BAII and
constitutes a valid and legally binding agreement of BAII enforceable against
BAII 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 subject to the effect of general equitable principles and of
standards of good faith and fair dealing which may be applied by a court to the
exercise of certain rights and remedies (whether considered in a proceeding in
equity or at law) and except that certain of the rights, remedies and waivers
set forth in the Debenture Purchase Agreement and the Subordination Agreement
may be rendered unavailable or unenforceable under applicable principles of law
which unavailability or
<PAGE>
20
unenforceability will not, in my opinion, cause the remedies set forth in the
Debenture Purchase Agreement (taken as a whole) or the Subordination Agreement
(taken as a whole) to be substantially inadequate for the practical realization
of the benefits intended to be provided thereby;
(3) the execution, delivery and performance by BAII of the Debenture
Purchase Agreement and the Subordination Agreement and compliance by BAII with
the terms thereof and the consummation of the transactions contemplated thereby
will not, with or without the giving of notice or the lapse of time or both: (a)
to my knowledge, conflict with, violate, breach, or constitute or result in a
default under any existing obligation of BAII under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
BAII or any of its material "subsidiaries" (as defined in the Credit Agreement,
but excluding the Company and its subsidiaries) pursuant to, any indenture,
mortgage, deed of trust, loan agreement, license, permit, shareholders agreement
or other material agreement or instrument governed by the law of the State of
New York or of the State of Delaware, (b) result in any violation of the charter
or by-laws of BAII or any such subsidiaries, (c) result in any violation of any
present statute, law or regulation of the State of New York, the General
Corporation Law of the State of Delaware, or the federal laws of the United
States of America applicable to BAII or any such subsidiaries and/or the
transactions contemplated by the Debenture Purchase Agreement and/or the
Subordination Agreement, or (d) result in any violation of any judgment, order,
decree or injunction of any court or arbitrator or governmental agency or body
of the State of New York, the State of Delaware or the federal government of
United States, having jurisdiction over BAII or any such subsidiaries or any of
their respective properties or assets; and no consent, approval, authorization
or order of, or filing or registration with, any licensing or governmental
agency or body or court or arbitrator of the federal government of the United
States or the State of New York or Delaware is required for the enforceability
of and performance by BAII of, and compliance by BAII with, the Debenture
Purchase Agreement and the Subordination Agreement, except for such consents,
approvals, authorizations, filings, registrations or qualifications which have
been obtained or made prior to the Closing Date; and
(4) under the laws of the State of New York relating to submission to
jurisdiction and pursuant to the Subordination Agreement, BAII has validly and
irrevocably submitted to the personal jurisdiction of any federal or state court
in the State of New York, County of New York, in any suit or proceeding based on
or arising under the Subordination Agreement as provided in the applicable
section thereof; and BAII has the power to designate, appoint and empower and,
pursuant to the Subordination Agreement, has validly and irrevocably designated,
appointed and empowered an agent for service of process in any suit or
proceeding based on or arising thereunder in any federal or state court in the
State of New York, County of New York, as provided in and subject to the
applicable section thereof.
On behalf of BAII, I hereby advise you that all the conditions to
borrowing set forth in Section 5(a) of the Debenture Purchase Agreement have
been fully satisfied or effectively waived.
I am a member of the bar of the State of New York and express no opinion
as to the laws of any jurisdiction other than the laws of the State of New York,
the General Corporation Law of the State of Delaware and the federal laws of the
<PAGE>
21
United States of America. In addition, the opinions expressed herein are subject
to the effect of generally applicable rules of law that (x) limit or affect the
enforcement of provisions of a contract that purport to require waiver of the
obligations of good faith and fair dealing or (y) limit the enforceability of
provisions releasing, exculpating or exempting a party from, or requiring
indemnification of a party for, liability for its own action or inaction, to the
extent the action or inaction involves gross negligence, recklessness, willful
misconduct or unlawful conduct.
I acknowledge and agree that you are relying on this letter in
consummating the transactions contemplated by the Senior Credit Facilities. This
opinion is rendered solely for your benefit in connection with the subject
transaction, and is not to be relied upon by any other person, of otherwise
furnished to third parties, used, circulated, quoted or relied upon, without my
prior written consent. This opinion is as of the date hereof, and I undertake
no, and hereby disclaim any, obligation to advise you of any change in any
matters set forth herein after the date hereof.
Very truly yours.
/s/ Susan B. Asch
-----------------------------------------------------
Assistant General Counsel and Assistant Secretary
<PAGE>
22
Exhibit C
EXECUTION COPY
GUARANTEE AGREEMENT dated as of July 25, 1997 among each
of the subsidiaries listed on Schedule I hereto (each such
subsidiary individually, a "Guarantor" and collectively, the
"Guarantors") of GRUPO IUSACELL, S.A. de C.V., a variable
capital corporation (sociedad anonima de capital variable)
organized under the laws of Mexico (the "Borrower"), and THE
CHASE MANHATTAN BANK, a New York banking corporation, as
collateral agent (the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred to
below).
Reference is made to the Credit Agreement dated as of July 25, 1997
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the lenders from time to time party thereto
(the "Lenders") and The Chase Manhattan Bank, as Administrative Agent and
Collateral Agent. Capitalized terms used herein and not defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower pursuant to,
and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of the Guarantors is a Wholly Owned Subsidiary of the Borrower
and acknowledges that it will derive substantial benefit from the making of the
Loans by the Lenders. The obligations of the Lenders to make Loans are
conditioned on, among other things, the execution and delivery by the Guarantors
of a Guarantee Agreement in the form hereof. As consideration therefor and in
order to induce the Lenders to make Loans, the Guarantors are willing to execute
this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally guarantees,
jointly with the other Guarantors and severally, as a primary obligor and not
merely as a surety, (a) the due and punctual payment of (i) the principal of and
interest (including interest accruing during the pendency of any bankruptcy,
suspension of payments, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise and (ii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receiver ship or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding), of the Loan Parties to the Secured Parties under the Credit
Agreement and the other Loan Documents, (b) the due and punctual performance of
all covenants, agreements, obligations and liabilities of the Loan Parties under
or pursuant to the Credit Agreement and the other Loan Documents and (c) unless
otherwise agreed upon in writing by the applicable Lender party thereto, all
obligations of the Borrower, monetary or otherwise, under
<PAGE>
23
each Hedging Agreement entered into with a counterparty that was a Lender at the
time such Hedging Agreement was entered into (all the monetary and other
obligations referred to in the preceding clauses (a) through (c) being
collectively called the "Obligations"). Each Guarantor further agrees that the
Obligations may be extended or renewed, in whole or in part, without notice to
or further assent from it, and that it will remain bound upon its guarantee
notwithstanding any extension or renewal of any Obligation.
SECTION 2. Obligations Not Waived. (a) To the fullest extent
permitted by applicable law, each Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of its guarantee and notice of protest for
nonpayment. To the fullest extent permitted by applicable law, the obligations
of each Guarantor hereunder shall not be affected by (i) the failure of the
Collateral Agent or any other Secured Party to assert any claim or demand or to
enforce or exercise any right or remedy against the Borrower or any other
Guarantor under the provisions of the Credit Agreement, any other Loan Document
or otherwise, (ii) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of this Agreement, any other Loan
Document or any other agreement, including with respect to any other Guarantor
under this Agreement or (iii) the failure to perfect any security interest in,
or the release of, any of the security held by or on behalf of the Collateral
Agent or any other Secured Party.
(b) Each Guarantor hereby waives any right to which it may be
entitled to have its obligations hereunder divided among the Guarantors, such
that such Guarantor's obligations would be less than the full amount claimed.
(c) Each Guarantor hereby waives any right to which it may be
entitled to have the assets of the Borrower first be used and depleted as
payment of the Borrower's or such Guarantor's obligations hereunder prior to any
amounts being claimed from or paid by such Guarantor hereunder.
(d) Each Guarantor hereby waives any right to which it may be
entitled so that the Borrower be sued prior to an action being initiated against
such Guarantor.
SECTION 3. Security. Each of the Guarantors authorizes the
Collateral Agent and each of the other Secured Parties, to (a) take and hold
security for the payment of this Guarantee and the Obligations and exchange,
enforce, waive and release any such security, (b) apply such security and direct
the order or manner of sale thereof as they in their sole discretion may
determine and (c) release or substitute any one or more endorsees, other
guarantors of other obligors.
SECTION 4. Guarantee of Payment. Each Guarantor further agrees that
its guarantee constitutes a guarantee of payment when due and not of collection,
and waives any right to require that any resort be had by the Collateral Agent
or any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other person.
<PAGE>
24
SECTION 5. No Discharge or Diminishment of Guarantee. The
obligations of each Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason (other than the
indefeasible payment or performance in full in accordance with the terms of the
Obligations or the release or affirmative discharge by the Lenders of such
Obligations), including any claim of waiver, release, surrender, alteration or
compromise of any of the Obligations, and shall not be subject to any defense or
setoff, counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality or unenforceability of the Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of each
Guarantor hereunder shall not be discharged or impaired or otherwise affected by
the failure of the Collateral Agent or any other Secured Party to assert any
claim or demand or to enforce any remedy under the Credit Agreement, any other
Loan Document (other than this Agreement) or any other agreement, by any waiver
or modification of any provision of any thereof, by any default, failure or
delay, wilful or otherwise, in the performance of the Obligations, or by any
other act or omission that may or might in any manner or to any extent vary the
risk of any Guarantor or that would otherwise operate as a discharge of each
Guarantor as a matter of law or equity (other than the indefeasible payment or
performance in full in accordance with the terms of all the Obligations or the
release or affirmative discharge by the Lenders of such Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent
permitted by applicable law, each of the Guarantors waives any defense based on
or arising out of any defense of the Borrower or the unenforceability of the
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower, other than the final and indefeasible payment
or performance in full in accordance with the terms of the Obligations or the
release or affirmative discharge by the Lenders of such Obligations, foreclose
on any security held by one or more of them by one or more judicial or
nonjudicial sales, accept an assignment of any such security in lieu of
foreclosure, compromise or adjust any part of the Obligations, make any other
accommodation with the Borrower or any other guarantor or exercise any other
right or remedy available to them against the Borrower or any other guarantor,
without affecting or impairing in any way the liability of any Guarantor
hereunder except to the extent the Obligations have been fully, finally and
indefeasibly paid or performed in accordance with terms of such Obligations or
released or affirmatively discharged by the Lenders. Pursuant to applicable law,
each of the Guarantors waives any defense arising out of any such election even
though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Guarantor against the Borrower or any other Guarantor or guarantor, as the
case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the
foregoing and not in limitation of any other right that the Collateral Agent or
any other Secured Party has at law or in equity against any Guarantor by virtue
hereof, upon the failure of the Borrower or any other Loan Party to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will forthwith pay, or cause to be paid, to the Collateral Agent
or such other Secured Party as designated thereby in cash the amount of
<PAGE>
24
such unpaid Obligations. Upon payment by any Guarantor of any sums to the
Collateral Agent or any Secured Party as provided above, all rights of such
Guarantor against the Borrower arising as a result thereof by way of right of
subrogation, contribution, reimbursement, indemnity or otherwise shall in all
respects be subordinate and junior in right of payment to the prior indefeasible
payment in full in cash of all the Obligations. In addition, any Indebtedness of
the Borrower now or hereafter held by any Guarantor is hereby subordinated in
right of payment to the prior payment in full of the Obligations. If any amount
shall erroneously be paid to any Guarantor on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of the Borrower, such amount shall be held in trust for the benefit
of the Secured Parties and shall forthwith be paid to the Collateral Agent to be
credited against the payment of the Obligations, whether matured or unmatured,
in accordance with the terms of the Loan Documents.
SECTION 8. Taxes. (a) Any and all payments by or on account of any
obligation of any Guarantor hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if any Guarantor shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Collateral Agent or any Secured Party (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) such Guarantor shall make such deductions and (iii) such Guarantor shall
pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.
(b) In addition, any Guarantor shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Any Guarantor shall indemnify the Collateral Agent and each
Secured Party, within 30 days after written demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes paid by the Collateral Agent or such
Secured Party, as the case may be, on or with respect to any payment by or on
account of any obligation of any Guarantor hereunder or under any other Loan
Document (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to any Guarantor by a Secured Party or by
the Collateral Agent on its own behalf or on behalf of a Secured Party, shall be
conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by any Guarantor to a Governmental Authority, such Guarantor shall
deliver to the Collateral Agent the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the
return reporting such payment or other evidence of such payment reasonably
satisfactory to the Collateral Agent.
<PAGE>
26
SECTION 9. Information. Each of the Guarantors assumes all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Obligations and the nature, scope and extent of the risks that
such Guarantor assumes and incurs hereunder, and agrees that none of the
Collateral Agent or the other Secured Parties will have any duty to advise any
of the Guarantors of information known to it or any of them regarding such
circumstances or risks.
SECTION 10. Representations and Warranties. Each of the Guarantors
represents and warrants as to itself that all representations and warranties
relating to it contained in the Credit Agreement are true and correct.
SECTION 11. Termination. The Guarantees made hereunder (a) shall
terminate when all the Obligations have been indefeasibly paid in full and the
Lenders have no further commitment to lend under the Credit Agreement and (b)
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy
or reorganization of the Borrower, any Guarantor or otherwise.
SECTION 12. Binding Effect; Several Agreement; Assignments. Whenever
in this Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the Guarantors that are
contained in this Agreement shall bind and inure to the benefit of each party
hereto and their respective successors and assigns. This Agreement shall become
effective as to any Guarantor when a counterpart hereof executed on behalf of
such Guarantor shall have been delivered to the Collateral Agent, and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Guarantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Guarantor shall have the right
to assign its rights or obligations hereunder or any interest herein (and any
such attempted assignment shall be void). If all of the capital stock of a
Guarantor is sold, transferred or otherwise disposed of pursuant to a
transaction permitted by Section 6.06 of the Credit Agreement, such Guarantor
shall be released from its obligations under this Agreement without further
action. This Agreement shall be construed as a separate agreement with respect
to each Guarantor and may be amended, modified, supplemented, waived or released
with respect to any Guarantor without the approval of any other Guarantor and
without affecting the obligations of any other Guarantor hereunder.
SECTION 13. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other Secured Parties under the other Loan Documents are
<PAGE>
27
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure by any Guarantor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on any Guarantor in any case shall entitle such
Guarantor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Guarantors with respect to which such waiver, amendment or modification
relates and the Collateral Agent, with the prior written consent of the Required
Lenders (except as otherwise provided in the Credit Agreement).
SECTION 14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 15. Notices. All communications and notices hereunder shall
be in writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to each Guarantor shall be given to it in
care of the Borrower.
SECTION 16. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans regardless of any
investigation made by the Secured Parties or on their behalf, and shall continue
in full force and effect as long as the principal of or any accrued interest on
any Loan or any other fee or amount payable under this Agreement or any other
Loan Document is outstanding and unpaid and as long as the Commitments have not
been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 17. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract, and shall become effective as
provided in Section 12. Delivery of an executed signature page to this
<PAGE>
28
Agreement by facsimile transmission shall be as effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 18. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 19. Jurisdiction; Appointment of Agent for and Consent to
Service of Process. (a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, any appellate
court from any thereof and to the courts of its own corporate domicile in
respect of actions brought against it as a defendant in any action or proceeding
arising out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (a) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each Guarantor hereby irrevocably designates, appoints and
empowers CT Corporation having its address at the date hereof at 1633 Broadway,
New York, New York 10019, U.S.A. as its process agent to receive for and on its
behalf service of process in New York in any legal action or proceeding with
respect to this Guarantee Agreement. It is understood that a copy of any such
process served on such process agent shall be promptly forwarded by air mail by
the person commencing such proceeding to any Guarantor in care of the Borrower,
but the failure of any such Guarantor to receive such copy shall not affect in
any way the service of such process as aforesaid.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 20. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
<PAGE>
29
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20.
SECTION 21. Additional Guarantors. Pursuant to Section 5.11 of the
Credit Agreement, each Subsidiary of the Borrower that was not in existence or
not a Designated Subsidiary on the date of the Credit Agreement is required to
enter into this Agreement as a Guarantor upon becoming a Designated Subsidiary.
Upon execution and delivery after the date hereof by the Collateral Agent and
such a Designated Subsidiary of an instrument in the form of Annex 1, such
Designated Subsidiary shall become a Guarantor hereunder with the same force and
effect as if originally named as a Guarantor herein. The execution and delivery
of any instrument adding an additional Guarantor as a party to this Agreement
shall not require the consent of any other Guarantor hereunder. The rights and
obligations of each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to this Agreement.
SECTION 22. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Secured Party is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other obligations at any time owing by such Secured
Party to or for the credit or the account of any Guarantor against any or all
the obligations of such Guarantor now or hereafter existing under this Agreement
and the other Loan Documents held by such Secured Party, irrespective of whether
or not such Secured Party shall have made any demand under this Agreement or any
other Loan Document and although such obligations may be unmatured. The rights
of each Secured Party under this Section 22 are in addition to other rights and
remedies (including other rights of setoff) which such Secured Party may have.
SECTION 23. Judgment Currency. (a) If, for the purpose of obtaining
judgment in any court, it is necessary to convert a sum owing hereunder in one
currency into another currency, each party hereto agrees, to the fullest extent
that it may effectively do so, that the rate of exchange used shall be that at
which in accordance with normal banking procedures in the relevant jurisdiction
the first currency could be purchased with such other currency on the Business
Day immediately preceding the day on which final judgment is given.
(b) The obligations of each party to this Agreement in respect of
any sum due to any party hereto or any holder of any obligation owing hereunder
(the "Applicable Creditor") shall, notwithstanding any judgment in a currency
(the "Judgment Currency") other than U.S. Dollars be discharged only to the
extent that, on the Business Day following receipt by the Applicable Creditor of
any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor
may in accordance with normal banking procedures in the official currency market
in the relevant jurisdiction purchase U.S. Dollars with the Judgment Currency;
if the amount of U.S. Dollars so purchased is less than the sum originally due
to the Applicable Creditor in U.S. Dollars, each party to
<PAGE>
30
this Agreement agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify the Applicable Creditor against such loss. The
obligations of each party to this Agreement contained in this Section 23 shall
survive the termination of this Agreement and the payment of all other amounts
owing hereunder.
SECTION 24. Waiver of Sovereign Immunity. Each party to this
Agreement acknowledges and agrees that the activities contemplated by the
provisions of this Agreement are commercial in nature rather than governmental
or public, and therefore acknowledges and agrees that it is not entitled to any
right of immunity on the grounds of sovereignty or otherwise with respect to
such activities or in any legal action or proceeding arising out of or relating
to this Agreement in respect of itself and its properties and revenues,
expressly and irrevocably waives any such right of immunity which may now or
hereafter exist (including any immunity from any legal process, from the
jurisdiction of any court or from any attachment prior to judgment, attachment
in aid of execution, execution or otherwise) or claim thereto which may now or
hereafter exist, and agrees not to assert any such right or claim in any such
action or proceeding, whether in the United States of America, or otherwise.
SECTION 25. Use of English Language. This Agreement has been
negotiated and executed in the English language. All certificates, reports,
notices and other documents and communications given or delivered pursuant to
this Agreement (including, any modifications or supplements hereto) shall be in
the English language, or accompanied by a certified English translation thereof.
Except in the case of laws or official communications of Mexico, in the case of
any document originally issued in a language other than English, the English
language version of any such document shall for purposes of this Agreement, and
absent manifest error, control the meaning of the matters set forth therein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
S.O.S. TELCOMUNICACIONES,
S.A. de C.V.,
by
------------------------------
Name:
Title:
IUSACELL, S.A. de C.V.,
by
------------------------------
Name:
Title:
<PAGE>
31
SISTECEL, S.A. de C.V.,
by
------------------------------
Name:
Title:
COMUNICACIONES CELULARES de
OCCIDENTE,S.A. de C.V.,
by
------------------------------
Name:
Title:
SISTEMAS TELEFONICOS
PORTATILES CELULARES,
S.A. de C.V.,
by
------------------------------
Name:
Title:
TELECOMUNICACIONES DEL GOLFO,
S.A. de C.V. ,
by
------------------------------
Name:
Title:
INMOBILIARIA MONTES URALES
460, S.A. de C.V.,
by
------------------------------
Name:
Title:
MEXICAN CELLULAR INVESTMENTS,
INC.,
by
------------------------------
Name:
Title:
<PAGE>
32
IUSANET, S.A. de C.V.,
by
------------------------------
Name:
Title:
GMD COMUNICACIONES, S.A. de
C.V.,
by
------------------------------
Name:
Title:
HERMES TELECOMUNICACIONES,
S.A. de C.V.,
by
------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
------------------------------
Name:
Title:
<PAGE>
33
SCHEDULE I TO THE
GUARANTEE AGREEMENT
Guarantor
S.O.S. Telecomunicaciones,
S.A. de C.V.
Iusacell, S.A. de C.V.
Sistecel, S.A. de C.V.
Comunicaciones Celulares
de Occidente, S.A. de C.V.
Sistemas Telefonicos
Portatiles Celulares, S.A.
de C.V.
Telecomunicaciones del
Golfo, S.A. de C.V.
Inmobiliaria Montes
Urales 460, S.A. de
C.V.
Mexican Cellular Investments,
Inc.
Iusanet, S.A. de C.V.
GMD Comunicaciones, S.A. de C.V.
Hermes Telecomunicaciones, S.A. de C.V.
<PAGE>
34
Annex 1 to the
Guarantee Agreement
SUPPLEMENT NO. dated as of , to the Guarantee Agreement
dated as of July [ ], 1997 among each of the subsidiaries listed on Schedule
I thereto (each such subsidiary individually, a "Guarantor" and collectively,
the "Guarantors") of GRUPO IUSACELL, S.A. de C.V., a variable capital
corporation (sociedad anonima de capital variable) organized under the laws of
Mexico (the "Borrower"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as collateral agent (the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred to below).
A. Reference is made to the Credit Agreement dated as of July [ ],
1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Borrower, the lenders from time to time party
thereto (the "Lenders"), The Chase Manhattan Bank, as Administrative Agent and
Collateral Agent. Capitalized terms used herein and not defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
B. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Guarantee Agreement and
the Credit Agreement.
C. The Guarantors have entered into the Guarantee Agreement in order
to induce the Lenders to make Loans. Pursuant to Section 5.11 of the Credit
Agreement, each Subsidiary of the Borrower that was not in existence or not a
Designated Subsidiary on the date of the Credit Agreement is required to enter
into the Guarantee Agreement as a Guarantor upon becoming a Designated
Subsidiary. Section 21 of the Guarantee Agreement provides that additional
Designated Subsidiaries of the Borrower may become Guarantors under the
Guarantee Agreement by execution and delivery of an instrument in the form of
this Supplement. The undersigned Designated Subsidiary of the Borrower (the "New
Guarantor") is executing this Supplement in accordance with the requirements of
the Credit Agreement to become a Guarantor under the Guarantee Agreement in
order to induce the Lenders to make additional Loans and as consideration for
Loans previously made.
Accordingly, the Collateral Agent and the New Guarantor agree as
follows:
SECTION 1. In accordance with Section 21 of the Guarantee Agreement,
the New Guarantor by its signature below becomes a Guarantor under the Guarantee
Agreement with the
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35
same force and effect as if originally named therein as a Guarantor and the New
Guarantor hereby (a) agrees to all the terms and provisions of the Guarantee
Agreement applicable to it as a Guarantor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Guarantor
thereunder are true and correct on and as of the date hereof. Each reference to
a "Guarantor" in the Guarantee Agreement shall be deemed to include the New
Guarantor. The Guarantee Agreement is hereby incorporated herein by reference.
SECTION 2. The New Guarantor represents and warrants to the
Collateral Agent and the other Secured Parties that this Supplement has been
duly authorized, executed and delivered by it and constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of
which shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Guarantor and the Collateral
Agent. Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Guarantee
Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In the event any one or more of the provisions contained
in this Supplement or in the Guarantee Agreement should be held invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein and in the Guarantee Agreement shall
not in any way be affected or impaired thereby (it being understood that the
invalidity of a particular provision hereof in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties hereto shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
<PAGE>
36
SECTION 7. All communications and notices hereunder shall be in
writing and given as provided in Section 15 of the Guarantee Agreement. All
communications and notices hereunder to the New Guarantor shall be given to it
in care of the Borrower.
SECTION 8. The New Guarantor agrees to reimburse the Collateral
Agent for its reasonable and documented out-of-pocket expenses in connection
with this Supplement, including the reasonable fees, disbursements and other
charges of counsel for the Collateral Agent.
IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have
duly executed this Supplement to the Guarantee Agreement as of the day and year
first above written.
[NAME OF NEW GUARANTOR],
by
-------------------------------
Name:
Title:
Address:
-----------------------
-----------------------
-----------------------
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by:
------------------------------
Name:
Title:
<PAGE>
37
Exhibit D
EXECUTION COPY
PLEDGE AGREEMENT dated as of July 25, 1997, among GRUPO
IUSACELL, S.A. de C.V., a variable capital corporation
(sociedad anonima de capital variable) organized under the
laws of Mexico (the "Borrower"); the subsidiaries of the
Borrower listed on Schedule I hereto (collectively, the
"Subsidiary Pledgors"; the Borrower and the Subsidiary
Pledgors being collectively called the "Pledgors"); and THE
CHASE MANHATTAN BANK, a New York banking corporation, as
collateral agent (in such capacity, the "Collateral Agent")
for the Secured Parties, as defined herein.
Reference is made to the Credit Agreement dated as of July 25, 1997
(as amended or modified from time to time, the "Credit Agreement"), among the
Borrower, the financial institutions party thereto as lenders (the "Lenders")
and The Chase Manhattan Bank, as Administrative Agent and as Collateral Agent.
The Lenders have agreed to extend credit to the Borrower pursuant to, and
subject to the terms and conditions specified in, the Credit Agreement. The
obligations of the Lenders to extend credit under the Credit Agreement are
conditioned upon, among other things, the execution and delivery by the Pledgors
of a pledge agreement in the form hereof to secure (a) the due and punctual
payment by the Borrower of (i) the principal of and interest on the Loans, when
and as due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other monetary obligations of the Borrower
to the Secured Parties under the Credit Agreement and the other Loan Documents
to which the Borrower is or is to be a party, (b) the due and punctual
performance of all other obligations of the Borrower under the Credit Agreement
and the other Loan Documents to which the Borrower is or is to be a party, (c)
unless otherwise agreed upon in writing by the applicable Lender party thereto,
the due and punctual performance of all obligations of the Borrower under each
Hedging Agreement entered into with any counterparty that was a Lender at the
time such Hedging Agreement was entered into, (d) the due and punctual payment
and performance of all obligations of each of the Subsidiary Pledgors under the
Loan Documents to which it is or is to be a party and (e) the punctual
performance by each of the Pledgors of its obligations hereunder (all the
foregoing obligations being collectively called the "Obligations").
<PAGE>
38
Accordingly, the Pledgors and the Collateral Agent hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Terms Defined in the Credit Agreement. Terms used herein and not
otherwise defined herein shall have the meanings set forth in the Credit
Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein, the
following terms shall have the following meanings:
"Collateral" shall have the meaning assigned to such term in Section
2.01.
"Credit Agreement" shall have the meaning assigned to such term in
the preliminary statement of this Agreement.
"Federal Securities Laws" shall have the meaning assigned to such
term in Section 4.03.
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Pledged Stock" shall have the meaning assigned to such term in
Section 2.01.
"Secured Parties" shall mean (a) the Lenders party to the Credit
Agreement, in their capacity as Lenders and as beneficiaries to the Guarantee
Agreement, (b) each counterparty to a Hedging Agreement entered into with the
Borrower, if such counterparty was a Lender at the time such Hedging Agreement
was entered into and if not otherwise agreed upon in writing by the applicable
Lender party thereto, (c) the Administrative Agent and the Collateral Agent, in
their capacities as such under each Loan Document, (d) the beneficiaries of each
indemnification obligation undertaken by any Pledgor under any Loan Document and
(e) the successors and assigns of the foregoing.
SECTION 1.03. Rules of Interpretation. The rules of interpretation specified in
Section 1.03 of the Credit Agreement shall be applicable to this Agreement.
ARTICLE II
PLEDGE
SECTION 2.01. Pledge. As security for the payment or performance, as the case
may be, of the Obligations, each
<PAGE>
39
Pledgor hereby pledges to the Collateral Agent for the benefit of the Secured
Parties, and hereby grants to the Collateral Agent, its successors and assigns,
for the benefit of the Secured Parties, a security interest in, all of such
Pledgor's right, title and interest in, to and under (a) the shares of capital
stock listed opposite the name of such Pledgor on Schedule II and all shares of
the capital stock of any Subsidiary hereafter acquired by such Pledgor, except
for any shares of capital stock in GMD Comunicaciones, S.A. de C.V., Hermes
Telecomunicaciones, S.A. de C.V., Portaserv, S.A. de C.V., Grupo Iusacell
Nicaragua, S.A. or Inflight Phone de Mexico, S.A. de C.V. (the "Pledged Stock")
and the certificates representing the Pledged Stock, (b) subject to Section
2.04, all dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed, in respect of or in exchange for
the Pledged Stock, (c) subject to Section 2.04, all rights and privileges of
such Pledgor with respect to the Pledged Stock and other property referred to in
clause (b) above and (d) all proceeds of any of the foregoing (the items
referred to in clauses (a) through (d) being collectively called the
"Collateral").
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and its assigns, for the benefit of
the Secured Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.
SECTION 2.02. Delivery of the Collateral; Further Assurances. (a) On the date
hereof, each of the Pledgors shall deliver to the Collateral Agent the
certificates evidencing the Pledged Stock duly endorsed "en garantia" for the
benefit of the Collateral Agent, together with a copy, certified by the
Secretary of each Pledgor, of the notation made on the relevant stock registry
reflecting the pledge of the Pledged Stock. Each subsequent delivery of Pledged
Stock shall follow the aforementioned mechanics.
(b) Each of the Pledgors will execute and deliver any and all
further documents, agreements and instruments, and take all such further actions
(including the actions described in clause (a) above), which may be required
under any applicable law, or which the Collateral Agent or the Required Lenders
may reasonably request, to effectuate the pledge of capital stock by any Pledgor
as contemplated by this Agreement or to grant, preserve, protect or perfect the
security interests created or intended to be created by this Agreement or the
validity or priority of any such security interest, all at the expense of the
Pledgors.
<PAGE>
40
SECTION 2.03. The Collateral Agent shall at all times have the right
to exchange the certificates representing Pledged Stock for certificates of
smaller or larger denominations for any purpose consistent with this Agreement.
SECTION 2.04. Voting Rights; Dividends and Interest; etc. (a) Unless and until
an Event of Default shall have occurred and be continuing and the Collateral
Agent shall have notified the Pledgors that their rights under this Section 2.04
are being suspended:
(i) Each Pledgor shall be entitled to exercise any and all voting and/or other
consensual rights and powers accruing to an owner of Pledged Stock or any part
thereof for any purpose consistent with the terms of this Agreement, the Credit
Agreement and the other Loan Documents; provided, however, that such action
would not materially and adversely affect the rights inuring to the Collateral
Agent or any of the Secured Parties under this Agreement or the Credit Agreement
or any other Loan Document or the ability of the Collateral Agent or any of the
Secured Parties to exercise the same.
(ii) The Collateral Agent shall promptly execute and deliver to each Pledgor, or
cause to be executed and delivered to such Pledgor, all such proxies, powers of
attorney and other instruments as such Pledgor may reasonably request for the
purpose of enabling such Pledgor to exercise the voting and/or consensual rights
and powers which it is entitled to exercise pursuant to subparagraph (i) above.
(iii) Each Pledgor shall be entitled to receive and retain any and all dividends
paid in cash on the Pledged Stock pledged by it to the extent and only to the
extent that such cash dividends are permitted by, and otherwise paid in
accordance with, the terms and conditions of the Credit Agreement, the other
Loan Documents and applicable laws. Other than (A) pursuant to the first
sentence of this paragraph (a)(iii) or (B) pursuant to a distribution or
transfer of any of the assets of a Subsidiary Pledgor to the Borrower or to a
Subsidiary Pledgor that is a Wholly-Owned Subsidiary of any such Person in a
transaction permitted under the Credit Agreement, all noncash dividends and all
dividends paid or payable in cash or otherwise in connection with a partial or
total liquidation or dissolution, return of capital, capital surplus or paid-in
surplus, and all other distributions of any nature made on or in respect of
Pledged Stock, whether paid or payable in cash or otherwise, whether resulting
from a subdivision, combination or reclassification of the outstanding capital
stock of the issuer of any Pledged Stock or received in exchange for Pledged
Stock or any part thereof, or in redemption thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets
<PAGE>
41
to which such issuer may be a party or otherwise, shall be and become part of
the Collateral, and, if received by a Pledgor, shall not be commingled by such
Pledgor with any of its other funds or property but shall be held separate and
apart therefrom, shall be held in trust for the benefit of the Collateral Agent
and shall be forthwith delivered to the Collateral Agent in the same form as so
received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of
Default, after the Collateral Agent shall have notified the Pledgors of the
suspension of their rights under paragraph (a)(iii) above, then all rights of
any Pledgor to dividend payments that such Pledgor is authorized to receive
pursuant to paragraph (a)(iii) above shall cease, and all such rights shall
thereupon become vested in the Collateral Agent, which shall have the sole and
exclusive right and authority to receive and retain any such dividend payments.
All dividends that are received by any Pledgor contrary to the provisions of
this Section 2.04 shall be received for the benefit of the Collateral Agent,
shall be segregated from other property or funds of such Pledgor and shall be
forthwith delivered to the Collateral Agent in the same form as so received
(with any necessary endorsement). Any and all money and other property paid over
to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and shall be applied in accordance with the provisions of Section 4.02.
(c) Upon the occurrence and during the continuance of an Event of
Default, after the Collateral Agent shall have notified the Pledgors of the
suspension of their rights under paragraph (a)(i) above, then all rights of the
Pledgors to exercise the voting and consensual rights and powers that they are
entitled to exercise pursuant to paragraph (a)(i) of this Section 2.04, and the
obligations of the Collateral Agent under paragraph (a)(ii) of this Section
2.04, shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority to
exercise such voting and consensual rights and powers.
(d) Any notice given by the Collateral Agent to the Pledgors
suspending their rights under paragraph (a) above (i) must be given in writing,
(ii) may be given to one or more of the Pledgors at the same or different times
and (iii) may suspend the rights of the Pledgors under paragraph (a)(i) or
paragraph (a)(iii) in part without suspending all such rights (as specified by
the Collateral Agent in its sole discretion) and without waiving or otherwise
affecting the Collateral
<PAGE>
42
Agent's rights to give additional notices from time to time suspending other
rights so long as an Event of Default has occurred and is continuing.
ARTICLE III
REPRESENTATIONS,
WARRANTIES AND COVENANTS
The Pledgors jointly and severally represent, warrant and covenant
to and with the Collateral Agent and the Lenders that:
(a) the Pledged Stock represents as of the date hereof all the outstanding
capital stock of any Subsidiary (except GMD Comunicaciones, S.A. de C.V., Hermes
Telecomunicaciones, S.A. de C.V., Portaserv, S.A. de C.V., Grupo Iusacell
Nicaragua, S.A. or Inflight Phone de Mexico, S.A. de C.V.) owned by the Borrower
or a Subsidiary Pledgor;
(b) the Pledged Stock has been duly and validly authorized and issued by the
issuers thereof and is fully paid and nonassessable; and
(c) except for the security interest granted hereunder, each of the Pledgors (i)
is and will at all times continue to be the direct owner, beneficially and of
record, of the Pledged Stock indicated on Schedule II to be owned by such
Pledgor, (ii) holds the same free and clear of all Liens, (iii) will make no
assignment, pledge, hypothecation or transfer of, or create any security
interest in, the Collateral, other than pursuant hereto, and (iv) subject to
Section 2.04, will cause any and all Collateral, whether for value paid by any
Pledgor or otherwise, to be forthwith deposited with the Collateral Agent and
pledged or assigned hereunder;
(d) except for restrictions and limitations imposed by securities laws
generally, the Collateral pledged hereunder is and will be freely transferable
and assignable, and no portion of such Collateral is or will be subject to any
option, right of first refusal, shareholders agreement, charter or by-law
provision or contractual restriction of any nature which might prohibit, impair,
delay or otherwise affect the pledge of such Collateral hereunder, the sale or
disposition of the Collateral pursuant hereto after the occurrence of an Event
of Default or the exercise by the Collateral Agent of its rights and remedies
hereunder;
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43
(e) each of the Pledgors (i) has the power and authority to pledge the
Collateral pledged by it hereunder in the manner hereby done or contemplated and
to enter into this Agreement and performs its obligations hereunder and (ii)
will defend its title or interest thereto or therein against any and all Liens
(other than the Lien of this Agreement), however arising, of all persons
whomsoever;
(f) no consent or approval of any Governmental Authority, any securities
exchange or any other party was or is necessary to the validity of the pledge
effected hereby;
(g) by virtue of the execution and delivery by the Pledgors of this Agreement,
when the Pledged Stock, certificates, instruments or other documents
representing or evidencing the Collateral endorsed "en garantia" are delivered
to the Collateral Agent, together with a copy, certified by the Secretary of
each Pledgor, of the notation made in the Stock Registry of each Pledgor, in
accordance with this Agreement, the Collateral Agent will obtain a legal, valid
and perfected first priority security interest in the Pledged Stock as security
for the payment and performance of the Obligations; and
(h) the pledge effected hereby is effective to vest in the Collateral Agent, on
behalf of the Secured Parties, the rights of the Collateral Agent in the
Collateral as set forth herein.
ARTICLE IV
REMEDIES
SECTION 4.01. Remedies upon Default. If an Event of Default shall have occurred
and be continuing, the Collateral Agent may exercise, to the extent permitted by
law, all the rights of a secured party under applicable law and, in addition,
the Collateral Agent may, upon at least three days' prior written notice, except
as herein provided or as may be required by mandatory provisions of law, sell
the Collateral, or any part thereof, at public or private sale or at any
broker's board or on any securities exchange, for cash, upon credit or for
future delivery as the Collateral Agent shall deem appropriate. The Collateral
Agent shall be authorized at any such sale (if it deems it advisable to do so)
to restrict the prospective bidders or purchasers to persons who will represent
and agree that they are purchasing the Collateral for their own account for
investment and not with a view to the distribution or sale thereof, and upon
consummation of any
<PAGE>
44
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Pledgor, and each Pledgor hereby waives (to
the extent permitted by law) all rights of redemption, stay, valuation and
appraisal which such Pledgor now has or may at any time in the future have under
any rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give each Pledgor at least 10 days' prior written
notice of the Collateral Agent's intention to make any sale of Collateral owned
by such Pledgor. Such notice, in the case of a public sale, shall state the time
and place for such sale and, in the case of a sale at a broker's board or on a
securities exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Collateral, or portion thereof, will first be
offered for sale at such board or exchange and, in the case of a private sale,
shall state the time after which any such sale is to be made. Any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as the Collateral Agent may fix and state in the notice of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole discretion) determine. The Collateral Agent shall not be
obligated to make any sale of any Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of such Collateral shall have been
given. The Collateral Agent may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid in full by the purchaser or
purchasers thereof, but the Collateral Agent shall not incur any liability in
case any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may be sold
again upon like notice. At any public sale made pursuant to this Section any
Secured Party may bid for or purchase, free (to the extent permitted by law)
from any right of redemption, stay, valuation or appraisal on the part of any
Pledgor (all said rights being also hereby waived and released to the extent
permitted by law), the Collateral or any part thereof offered for sale and may
make payment on account thereof by using any claim then due and payable to it
from any Pledgor as a credit against the purchase price, and the Collateral
Agent may, upon compliance with the terms of sale,
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45
hold, retain and dispose of such property without further account ability to any
Pledgor therefor. For purposes hereof, a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such
agreement, and none of the Pledgors shall be entitled to the return of the
Collateral or any portion thereof subject thereto, notwithstanding the fact that
after the Collateral Agent shall have entered into such an agreement all Events
of Default shall have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon it, the
Collateral Agent may proceed by a suit or suits at law or in equity to foreclose
this Agreement and to sell the Collateral or any portion thereof pursuant to a
judgment or decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court- appointed receiver.
SECTION 4.02. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 4.01, as well as any Collateral consisting of
cash, shall be applied by the Collateral Agent as follows:
FIRST, to the payment of all costs and expenses incurred by the Agent or the
Collateral Agent (in its capacity as such hereunder or under any other Loan
Document) in connection with such sale or otherwise in connection with this
Agreement or any of the Obligations, including all court costs and the fees and
expenses of its agents and legal counsel, the repayment of all advances made by
the Collateral Agent hereunder or under any other Loan Document on behalf of any
of the Pledgors and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so applied to be
distributed among the Secured Parties pro rata in accordance with the amounts of
the Obligations owed to them on the date of any such distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court of competent
jurisdiction may otherwise direct.
The Collateral Agent shall have discretion as to the time of application of any
such proceeds, moneys or balances in accordance with this Agreement. Upon any
sale of the Collateral by the Collateral Agent (including pursuant to a power of
sale granted by statute or under a judicial
<PAGE>
46
proceeding), the receipt of the Collateral Agent or of the officer making the
sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to the
Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 4.03. Securities Act, etc. In view of the position of the Pledgors in
relation to the Pledged Stock, or because of other present or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Stock permitted hereunder. The Pledgors understand
that compliance with the Federal Securities Laws might very strictly limit the
course of conduct of the Collateral Agent if the Collateral Agent were to
attempt to dispose of all or any part of the Pledged Stock, and might also limit
the extent to which or the manner in which any subsequent transferee of any
Pledged Stock could dispose of the same. Similarly, there may be other legal
restrictions or limitations affecting the Collateral Agent in any attempt to
dispose of all or part of the Pledged Stock under applicable Blue Sky or other
state securities laws or similar laws analogous in purpose or effect. The
Pledgors recognize that in light of the foregoing restrictions and limitations
the Collateral Agent may, with respect to any sale of Pledged Stock, limit the
purchasers to those who will agree, among other things, to acquire Pledged Stock
for their own account, for investment, and not with a view to the distribution
or resale thereof. The Pledgors acknowledge and agree that in light of the
foregoing restrictions and limitations, the Collateral Agent, in its sole
discretion, (a) may, in accordance with applicable laws, proceed to make such a
sale whether or not a registration statement for the purpose of registering the
Pledged Stock or part thereof shall have been filed under the Federal Securities
Laws, and (b) may approach and negotiate with a single possible purchaser to
effect such sale. The Pledgors acknowledge and agree that any such sale might
result in prices and other terms less favorable to the seller than if such sale
were a public sale without such restrictions. In the event of any such sale, the
Collateral Agent shall incur no responsibility or liability for selling all or
any part of the Pledged Stock at a price which the Collateral Agent, in its sole
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid or
if more than a single purchaser were approached. The provisions
<PAGE>
47
of this Section will apply notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which the Collateral Agent sells.
SECTION 4.04. Registration, etc. Each of the Pledgors agrees that, upon the
occurrence and during the continuance of an Event of Default, if for any reason
the Collateral Agent desires to sell any of the Pledged Stock at a public sale,
it will, at any time and from time to time, upon the written request of the
Collateral Agent, take or cause the issuer of such Pledged Stock to take such
action and prepare, distribute and/or file such documents, as are required or
advisable in the reasonable opinion of counsel for the Collateral Agent to
permit the public sale of such Pledged Stock. Each of the Pledgors jointly and
severally agrees to (a) indemnify, defend and hold harmless the Collateral
Agent, the other Secured Parties and their respective officers, directors,
affiliates and controlling persons from and against all losses, liabilities,
expenses, costs (including the reasonable fees and expenses of legal counsel to
the Collateral Agent and the Agent) and claims (including the costs of
investigation) which they may incur insofar as any such loss, liability,
expense, cost or claim arises out of or is based upon any alleged untrue
statement of a material fact contained in any prospectus, offering circular or
similar document (or any amendment or supplement thereto), or arises out of or
is based upon any alleged omission to state a material fact required to be
stated therein or necessary to make the statements in any thereof not
misleading, except insofar as the same may have been caused by any untrue
statement or omission based upon information furnished in writing to any Pledgor
or the issuer of such Pledged Stock by or on behalf of the Collateral Agent or
any other Secured Party expressly for use therein, and (b) enter into an
indemnification agreement with any underwriter of or placement agent for any
Pledged Stock, on its standard form, to substantially the same effect. Each of
the Pledgors further agrees to use all reasonable efforts to qualify, file or
register, or cause the issuer of such Pledged Stock to qualify, file or
register, any of the Pledged Stock under the Blue Sky or other securities laws
of such states as may be requested by the Collateral Agent and keep effective,
or cause to be kept effective, all such qualifications, filings or
registrations. The Pledgors will jointly and severally bear all costs and
expenses of carrying out their obligations under this Section. The Pledgors
acknowledge that there is no adequate remedy at law for failure by them to
comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agree that their agreements
contained in this Section may be specifically enforced.
<PAGE>
48
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Notices. All communications and notices hereunder shall (except as
otherwise expressly permitted herein) be in writing and given as provided in
Section 9.01 of the Credit Agreement. All communications and notices hereunder
to any Subsidiary Pledgor shall be given to it in care of the Borrower.
SECTION 5.02. Security Interest Absolute. All rights of the Collateral Agent
hereunder, the security interests granted hereunder and all obligations of the
Pledgors hereunder shall be absolute and unconditional irrespective of (a) any
lack of validity or enforceability of the Credit Agreement or any other Loan
Document (other than this Agreement), any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (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 Credit Agreement, any other Loan
Document (other than this Agreement) or any other agreement or instrument, (c)
any exchange, release or non-perfection of any Lien on other collateral, or any
release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, any Pledgor in respect of the Obligations or this Agreement.
SECTION 5.03. Survival of Agreement. All covenants, agreements, representations
and warranties made by any Pledgor herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement or any other Loan Document shall be considered to have been relied
upon by the Lenders and shall survive the making by the Lenders of the Loans,
and the execution and delivery to the Lenders of the Notes evidencing such
Loans, regardless of any investigation made by the Lenders or on their behalf,
and shall continue in full force and effect until this Agreement shall
terminate.
SECTION 5.04. Binding Effect; Several Agreement. This Agreement shall become
effective as to any Pledgor when a counterpart hereof executed on behalf of such
Pledgor shall have been delivered to the Collateral Agent and a counterpart
hereof shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Pledgor and the Collateral Agent and their
respective successors and assigns, and shall inure to the benefit of such
Pledgor, the Collateral Agent and the other Secured Parties and their
<PAGE>
49
respective successors and assigns, except that no Pledgor shall have the right
to assign its rights hereunder or any interest herein or in the Collateral
except as expressly contemplated by this Agreement or the Credit Agreement. This
Agreement shall be construed as a separate agreement with respect to each
Pledgor and may be amended, modified, supplemented, waived or released with
respect to any Pledgor without the approval of any other Pledgor and without
affecting the obligations of any other Pledgor hereunder.
SECTION 5.05. Successors and Assigns. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Pledgor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.
SECTION 5.06. Collateral Agent Appointed Attorney-in-Fact. Each of the Pledgors
hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for
the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument which the Collateral Agent may deem
necessary or advisable to accomplish the purposes hereof, which appointment is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, the Collateral Agent shall have the right, upon the occurrence and
during the continuance of an Event of Default, with full power of substitution
either in the Collateral Agent's name or in the name of any Pledgor, to ask for,
demand, sue for, collect, receive and give acquittance for any and all moneys
due or to become due under and by virtue of any Collateral, to endorse checks,
drafts, orders and other instruments for the payment of money payable to such
Pledgor representing any interest or dividend or other distribution payable in
respect of the Collateral or any part thereof or on account thereof and to give
full discharge for the same, to settle, compromise, prosecute or defend any
action, claim or proceeding with respect thereto, and to sell, assign, endorse,
pledge, transfer and make any agreement respecting, or otherwise deal with, the
same; provided, however, that nothing herein contained shall be construed as
requiring or obligating the Collateral Agent to make any commitment or to make
any inquiry as to the nature or sufficiency of any payment received by the
Collateral Agent, or to present or file any claim or notice, or to take any
action with respect to the Collateral or any part thereof or the moneys due or
to become due in respect thereof or any property covered thereby, and no action
taken by the Collateral Agent or omitted to be taken with respect to the
Collateral or any part thereof shall give rise to any defense, counterclaim or
offset in favor of any Pledgor or to
<PAGE>
50
any claim or action against the Collateral Agent or any other Secured Party.
SECTION 5.07. Collateral Agent's Fees and Expenses; Indemnification. (a) Each of
the Pledgors jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
and documented fees and expenses of its counsel and of any experts or agents,
which the Collateral Agent may incur in connection with (i) the administration
of this Agreement, (ii) the custody or preservation of, or the sale of,
collection from or other realization upon any of the Collateral, (iii) the
exercise, enforcement or protection of any of the rights of the Collateral Agent
hereunder or (iv) the failure of the Pledgors to perform or observe any of the
provisions hereof.
(b) Without limitation of their indemnification obligations under the other Loan
Documents, each of the Pledgors jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees and expenses, incurred by or
asserted against any of them arising out of, in any way connected with, or as a
result of, the execution, delivery or performance of this Agreement or any
claim, litigation, investigation or proceeding relating hereto or to the
Collateral, whether or not any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) Any such amounts payable as provided here under shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section shall remain operative and in full force and effect regardless
of the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Loans, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Collateral Agent or
any Lender. All amounts due under this Section shall be payable on written
demand therefor.
SECTION 5.08. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 5.09. Waivers; Amendment. (a) No failure or delay of the Collateral
Agent in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any
<PAGE>
51
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Collateral Agent hereunder and of the Collateral Agent, the
Agent and the Lenders under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provisions of this Agreement or any other Loan Document or consent to any
departure by any Pledgor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on any Pledgor in any case shall entitle such Pledgor
or any other Pledgor to any other or further notice or demand in similar or
other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Collateral Agent and the Pledgor or Pledgors with respect to which such
waiver, amendment or modification is to apply, subject to any consent required
in accordance with Section 9.02 of the Credit Agreement.
SECTION 5.10. Waiver of Jury Trial. Each party hereto hereby waives, to the
fullest extent permitted by applicable law, any right it may have to a trial by
jury in respect of any litigation directly or indirectly arising out of, under
or in connection with this Agreement or any of the other Loan Documents. Each
party hereto (a) certifies that no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it and the other parties hereto have been induced to enter
into this Agreement and the other Loan Documents, as applicable, by, among other
things, the mutual waivers and certifications in this Section.
SECTION 5.11. Severability. In the event any one or more of the provisions
contained in this Agreement or in any other Loan Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby (it being understood that the
invalidity of a particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other jurisdiction).
The parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as
<PAGE>
52
possible to that of the invalid, illegal or unenforceable provisions.
SECTION 5.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 5.04), and
shall become effective as provided in Section 5.04.
SECTION 5.13. Headings. Article and Section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 5.14. Jurisdiction; Appointment of Agent for and Consent to Service of
Process. (a) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, any appellate court from
any thereof and to the courts of its own corporate domicile in respect of
actions brought against it as a defendant in any action or proceeding arising
out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any other Loan Document in any court
referred to in paragraph (a) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(c) Each Pledgor hereby irrevocably designates, appoints and empowers CT
Corporation having its address at the date hereof at 1633 Broadway, New York,
New York 10019, U.S.A. as its process agent to receive for and on its behalf
service of process in New York in any legal action or proceeding with respect to
any Loan Document. It is understood that a copy of any such process served on
such process agent shall be
<PAGE>
53
promptly forwarded by air mail by the person commencing such proceeding to any
Pledgor in care of the Borrower, but the failure of any such Pledgor to receive
such copy shall not affect in any way the service of such process as aforesaid.
(d) Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 5.01. Nothing in this Agreement will
affected the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 5.15. Termination. This Agreement and the security interests granted
hereby shall terminate when all the Obligations have been indefeasibly paid in
full and the Lenders have no further commitment to lend under the Credit
Agreement, at which time the Collateral Agent shall forthwith reassign and
deliver to the Pledgors, at the Pledgors' expense and against receipt, such of
the Collateral as shall not have been sold or otherwise applied hereunder and
shall remain held by the Collateral Agent hereunder, together with such
documents as the Pledgors shall reasonably request to evidence such termination
and reassignment. Any such reassignment and any execution and delivery of
documents pursuant to this Section shall be without recourse to or warranty by
the Collateral Agent. Each Subsidiary Pledgor shall automatically be released
from its obligations hereunder and the security interest granted hereby in the
Collateral of such Subsidiary Pledgor shall be automatically released in the
event that all the capital stock of such Subsidiary Pledgor shall be sold,
transferred or otherwise disposed of to a person that is not an Affiliate of the
Borrower in accordance with the terms of the Credit Agreement.
SECTION 5.16. Additional Pledgors. Upon execution and delivery by the Collateral
Agent and a Designated Subsidiary of an instrument in the form of Annex 1
hereto, such Designated Subsidiary shall become a Subsidiary Pledgor and Pledgor
hereunder with the same force and effect as if originally named as a Subsidiary
Pledgor and Pledgor herein. The execution and delivery of any such instrument
shall not require the consent of any Pledgor hereunder. The rights and
obligations of each Pledgor hereunder shall remain in full force and effect
notwithstanding the addition of any new Pledgor as a party to this Agreement.
SECTION 5.17. Judgment Currency. (a) If, for the purpose of obtaining judgment
in any court, it is necessary to convert a sum owing hereunder in one currency
into another currency, each party hereto agrees, to the fullest extent that it
may effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures in the relevant jurisdiction the first
currency could be
<PAGE>
54
purchased with such other currency on the Business Day immediately preceding the
day on which final judgment is given.
(b) The obligations of each party to this Agreement in respect of any sum due to
any party hereto or any holder of any obligation owing hereunder (the
"Applicable Creditor") shall, notwithstanding any judgment in a currency (the
"Judgment Currency") other than U.S. Dollars be discharged only to the extent
that, on the Business Day following receipt by the Applicable Creditor of any
sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may
in accordance with normal banking procedures in the official currency market in
the relevant jurisdiction purchase U.S. Dollars with the Judgment Currency; if
the amount of U.S. Dollars so purchased is less than the sum originally due to
the Applicable Creditor in U.S. Dollars, each party to this Agreement agrees, as
a separate obligation and notwithstanding any such judgment, to indemnify the
Applicable Creditor against such loss. The obligations of each party to this
Agreement contained in this Section 5.17 shall survive the termination of this
Agreement and the payment of all other amounts owing hereunder.
SECTION 5.18. Waiver of Sovereign Immunity. Each party to this Agreement
acknowledges and agrees that the activities contemplated by the provisions of
this Agreement are commercial in nature rather than governmental or public, and
therefore acknowledges and agrees that it is not entitled to any right of
immunity on the grounds of sovereignty or otherwise with respect to such
activities or in any legal action or proceeding arising out of or relating to
this Agreement in respect of itself and its properties and revenues, expressly
and irrevocably waives any such right of immunity which may now or hereafter
exist (including any immunity from any legal process, from the jurisdiction of
any court or from any attachment prior to judgment, attachment in aid of
execution, execution or otherwise) or claim thereto which may now or hereafter
exist, and agrees not to assert any such right or claim in any such action or
proceeding, whether in the United States of America, or otherwise.
SECTION 5.19. Use of English Language. This Agreement has been negotiated and
executed in the English language. All certificates, reports, notices and other
documents and communications given or delivered pursuant to this Agreement
(including, any modifications or supplements hereto) shall be in the English
language, or accompanied by a certified English translation thereof. Except in
the case of laws or official communications of Mexico, in the case of any
document originally issued in a language other than English, the English
language version of any such document shall for
<PAGE>
55
purposes of this Agreement, and absent manifest error, control the meaning of
the matters set forth therein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
GRUPO IUSACELL, S.A. de C.V.,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
S.O.S. TELECOMUNICACIONES, S.A.
de C.V.,
by
------------------------------
Name:
Title:
IUSACELL, S.A. de C.V.,
by
------------------------------
Name:
Title:
SISTECEL, S.A. de C.V.,
by
------------------------------
Name:
Title:
<PAGE>
56
COMUNICACIONES CELULARES DE
OCCIDENTE, S.A. de C.V.,
by
------------------------------
Name:
Title:
SISTEMAS TELEFONICOS PORTATILES
CELULARES, S.A. de C.V.,
by
------------------------------
Name:
Title:
TELECOMUNICACIONES del GOLFO,
S.A. de C.V.,
by
------------------------------
Name:
Title:
INMOBILIARIA MONTES URALES 460,
S.A. de C.V.,
by
------------------------------
Name:
Title:
MEXICAN CELLULAR INVESTMENTS,
INC.,
by
------------------------------
Name:
Title:
IUSANET, S.A. de C.V.,
by
------------------------------
Name:
Title:
<PAGE>
57
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by
------------------------------
Name:
Title:
<PAGE>
58
Schedule I to the
Pledge Agreement
SUBSIDIARY PLEDGORS
Name
S.O.S. Telecomunicaciones, S.A. de C.V.
Iusacell, S.A. de C.V.
Sistecel, S.A. de C.V.
Comunicaciones Celulares
de Occidente, S.A. de C.V.
Sistemas Telefonicos
Portatiles Celulares, S.A. de C.V.
Telecomunicaciones del
Golfo, S.A. de C.V.
Inmobiliaria Montes
Urales 460, S.A. de C.V.
Mexican Cellular Investments, Inc.
Iusanet, S.A. de C.V.
<PAGE>
59
Schedule II to the
Pledge Agreement
CAPITAL STOCK
Number and
Number of Registered Class of Percentage
Issuer Certificate Owner Shares of Shares
- ------ ----------- ----- ------ ---------
S.O.S.
Telcomunicaciones,
S.A.
de C.V.
Iusacell, S.A.
de C.V.
Sistecel, S.A.
de C.V.
Comunicaciones
Celulares de
Occidente,
S.A. de C.V.
(Region 5)
Sistemas
Telefonicos
Portatiles
Celulares,
S.A. de C.V.
(Region 6)
Telecomunicaciones
del Golfo, S.A. de
C.V.
Inmobiliaria
Montes Urales
460, S.A. de
C.V.
<PAGE>
60
Mexican
Cellular
Investments,
Inc.
Iusanet, S.A.
de C.V.
<PAGE>
61
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of , to the PLEDGE
AGREEMENT dated as of [ ], among GRUPO IUSACELL, S.A. de C.V.,
a variable capital corporation (sociedad anonima de capital
variable) organized under the laws of Mexico (the "Borrower"),
and each subsidiary of the Borrower listed on Schedule I
hereto (each such subsidiary individually a "Subsidiary
Pledgor" and collectively, the "Subsidiary Pledgors"; the
Borrower and Subsidiary Pledgors are referred to collectively
herein as the "Pledgors") and THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase") as Collateral Agent for the
Secured Parties (as defined in the Security Agreement referred
to below), and the "New Pledgor" (as defined herein).
A. Reference is made to the Credit Agreement dated as of July [ ],
1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Borrower, the lenders from time to time party
thereto (the "Lenders"), and Chase as Administrative Agent and Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to
induce the Lenders to make Loans. Pursuant to Section 5.11 of the Credit
Agreement, each Subsidiary of the Borrower that was not in existence or not a
Designated Subsidiary on the date of the Credit Agreement is required to enter
into the Pledge Agreement as a Subsidiary Pledgor upon becoming a Designated
Subsidiary. Section 5.16 of the Pledge Agreement provides that such Designated
Subsidiaries may become Subsidiary Pledgors under the Pledge Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary (the "New Pledgor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to become a Subsidiary
Pledgor under the Pledge Agreement in order to induce the Lenders to make
additional Loans and as consideration for Loans previously made.
<PAGE>
62
Accordingly, the Collateral Agent and the New Pledgor agree as
follows:
SECTION 1. In accordance with Section 5.16 of the Pledge Agreement,
the New Pledgor by its signature below becomes a Pledgor under the Pledge
Agreement with the same force and effect as if originally named therein as a
Pledgor and the New Pledgor hereby (a) agrees to all the terms and provisions of
the Pledge Agreement applicable to it as a Pledgor thereunder and (b) represents
and warrants that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In furtherance of
the foregoing, the New Pledgor, as security for the payment and performance in
full of the Obligations (as defined in the Pledge Agreement), does hereby create
and grant to the Collateral Agent, its successors and assigns, for the benefit
of the Secured Parties, their successors and assigns, a security interest in and
lien on all of the New Pledgor's right, title and interest in and to the
Collateral (as defined in the Pledge Agreement) of the New Pledgor. Each
reference to a "Subsidiary Pledgor" or a "Pledgor" in the Pledge Agreement shall
be deemed to include the New Pledgor. The Pledge Agreement is hereby
incorporated herein by reference.
SECTION 2. On the date hereof, the New Pledgor shall deliver to the
Collateral Agent the certificates evidencing the Pledged Stock of the New
Pledgor duly endorsed "en garantia" for the benefit of the Collateral Agent,
together with a copy, certified by the Secretary of each Pledgor, of the
notation made on such stock registry reflecting the pledge of the Pledged Stock.
Each subsequent delivery of Pledged Stock shall follow the aforementioned
mechanics.
SECTION 3. The New Pledgor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 4. This Supplement may be executed in counterparts, each of
which shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
<PAGE>
63
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 5. The New Pledgor hereby represents and warrants that set
forth on Schedule I attached hereto is a true and correct schedule of all its
Pledged Stock.
SECTION 6. Except as expressly supplemented hereby, the Pledge
Agreement shall remain in full force and effect.
SECTION 7. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. In case any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
The parties hereto shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 9. All communications and notices hereunder shall be in
writing and given as provided in Section 5.01 of the Pledge Agreement. All
communications and notices hereunder to the New Pledgor shall be given to it in
care of the Borrower.
SECTION 10. The New Pledgor agrees to reimburse the Collateral Agent
for its reasonable and documented out- of- pocket expenses in connection with
this Supplement, including the reasonable fees, other charges and disbursements
of counsel for the Collateral Agent.
<PAGE>
64
IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have
duly executed this Supplement to the Pledge Agreement as of the day and year
first above written.
[NAME OF NEW PLEDGOR],
by
-------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
-------------------------
Name:
Title:
<PAGE>
65
Schedule I to
Supplement No. [ ]
to the Pledge Agreement
Pledged Stock of the New Pledgor
CAPITAL STOCK
Number and
Number of Registered Class of Percentage
Issuer Certificate Owner Shares of Shares
- ------ ----------- ----- ------ ---------
<PAGE>
66
Exhibit E-1
Mortgage Agreement
<PAGE>
I, Ruben G. Perlmutter, Vice President, Mergers and Acquisitions and General
Counsel of Grupo Iusacell certify that the following Mortgage Agreement
represents a fair and accurate English translation of the Spanish version of
this document.
/s/ Ruben G. Perlmutter
-----------------------
<PAGE>
Summary Translation of Contrato de Hipoteca (Mortgage) dated July 25, 1997
Date: July 25, 1997
Grantors: S.O.S. Telecomunicaciones, S.A. de C.V. (SOS)
Iusacell, S.A. de C.V. (Iusacell)
Comunicaciones Celulares de Occidente, S.A. de C.V. (Comcel)
Sistemas Telfonicos Portatiles Celulares, S.A. (Portacel)
Telecomunicaciones del Golfo, S.A. de C.V. (Telgolfo)
Grupo Iusacell, S.A. de C.V. (Grupo Iusacell
Grantees: The Chase Manhattan Bank, in its capacity as a debtor and as
..................Administrative Agent and Guarantee Agent of the secured bank
lenders under the Credit Agreement dated July 25, 1997 (the "Credit
Agreement").
Term:.............Until the payment in full of all Guaranteed Obligations (as
defined below) and all other amounts payable by the Grantors to the
Grantees under this Mortgage; provided that the guarantee with respect to
the telecommunications concessions of the Grantors shall be released upon
expiration of 90% of the term of the concession.
Guarantee: As a guarantee of the due and punctual payment of the
..................principal and interest of the loans under the Credit
Agreement, the due and punctual payment of the other monetary obligations
under the Credit Agreement and related documents, the performance of the
obligations of the Grantors under the Mortgage, and the payment of all
commissions, costs and expenses incurred by the Grantees (including any
ordinary and overdue interest over the unpaid balance of any of the loans
under the Credit Agreement accumulated for more than three (3) years)
(collectively, the "Guaranteed Obligations"), the Grantors grant a first
mortgage to the Grantees over all rights, privileges and interests in and
under the following:
..................(i) the telecommunications concessions of SOS, Comcel,
Portacel and Telgolfo;
(ii) the means of communication relating to each of such
concessions, including without limitation, the construction and civil
works made in relation to the installation and operation of the cellular
telephony system and, in general, all such accessories and other
properties pertaining to or constructed for the operation of such means of
communication:
..................(iii) all the assets, personal property and real property, and
equipment that are now or in the future property of the Grantors and that
are used now or in the future, for the construction, exploitation, repair,
renovation and maintenance of the public mobile cellular telephony built
and operated within the scope of such concessions, including all
machinery, equipment, furniture, accessories, vehicles, computers and
other electronic information processors and office equipment, and each and
every addition, substitution or replacement of any of the foregoing,
wherever located, together with all annexes, components, parts, equipment
and accessories installed or added to the same;
(iv) all present or future accounts receivable, tangible
assets and intangible assets received or acquired by or pertaining to the
Grantors, whether they originate from the alienation of assets or the
provision of services; all amounts due to the Grantors pursuant to current
or future contracts for the sale of assets or the provision of services by
the Grantors; and all rights of whatever class granted by any third party,
including all rights of way granted to the Grantors by any private or
public entity.
<PAGE>
..................(v) all cash and investments that are deposited at any
time in the Bancomer Concentration Account in which the gross cellular
revenues from the Grantors are deposited;
and (vi) to the extent not included in the previous
paragraphs, any and all products of any insurance, indemnity, or guarantee
payable at any time to the Grantors with respect to any of the assets that
comprise the Guarantee; any and all payments made of payable at any time
to the Grantors with respect to any expropriation, requisition, public
sale or forfeiture by any governmental authority, of all or any part of
the assets that comprise the Guarantee; and any and all other amounts paid
or payable at any time to the Grantors under or in relating to any of the
assets that comprise the Guarantee.
Other
Obligations:......Each Grantor will maintain insurance with responsible and
respectable insurance companies in such amounts and covering such
reasonable risks as do similarly situated companies and all insurance
required b the Credit Agreement.
..................No Grantor can dispose of any of the assets subject of the
Guarantee except to affiliates of Grupo Iusacell on market terms or as may
be permitted by the Credit Agreement.
..................The gross revenues from the provisions of cellular services in
Regions 5, 6, 7 and 0 shall continue to be deposited exclusively in the
Bancomer Concentration Account.
..................The Grantees possess certain inspection rights.
..................The Grantors shall deliver all amounts received from the
expropriation, public sale or requisition of assets that comprise the
Guarantee to the Grantees, for the prepayment of the Guaranteed
Obligations.
..................
<PAGE>
67
Exhibit E-2
Trademark Pledge Agreement
<PAGE>
I, Ruben G. Perlmutter, Vice President, Mergers and Acquisitions and General
Counsel of Grupo Iusacell certify that the following Mortgage Agreement
represents a fair and accurate English translation of the Spanish version of
this document.
/s/ Ruben G. Perlmutter
-----------------------
<PAGE>
Summary Translation of Contrato de Prenda (Pledge Agreement) dated July 25, 1997
Date: July 25, 1997
Grantor: Grupo Iusacell, S.A. de C.V. (Grupo Iusacell
Grantee: The Chase Manhattan Bank, in its capacity as Administrative
..................Agent and Guarantee Agent for the secured bank lenders under
the Credit Agreement dated July 25, 1997 (the "Credit Agreement").
Pledge:...........As a guarantee of the due and punctual payment of the
principal and interest of the loans under the Credit Agreement, the due
and punctual payment of the other monetary obligations under the Credit
Agreement and related documents, the performance of the obligations of the
Grantors under the Pledge Agreement, and the payment of all commissions,
costs and expenses incurred by the Grantees (including any ordinary and
overdue interest over the unpaid balance of any of the loans under the
Credit Agreement accumulated for more than three (3) years) (collectively,
the "Guaranteed Obligations"), the Grantor effects a pledge in favor of
the Grantee in 28 registered trademarks (the "Trademarks").
..................The Grantor agrees to timely effect all acts to preserve and
maintain the registration of the Trademarks and to defend the Trademarks
at its own cost before any governmental authority, tribunal or arbiter.
..................
Term:............. Until the Guaranteed Obligations are paid in full.
<PAGE>
68
Exhibit F
Senior Note Indenture Filed Separately
<PAGE>
69
Exhibit G
Debenture Purchase Agreement Filed Separately
<PAGE>
70
Exhibit H
EXECUTION COPY
SUBORDINATION AGREEMENT dated as of July 25, 1997 (this
"Agreement"), among BELL ATLANTIC INTERNATIONAL, INC., a Delaware corporation
(the "Subordinated Lender"), GRUPO IUSACELL, S.A. de C.V., a limited liability
stock corporation (sociedad anonima de capital variable) organized under the
laws of Mexico (the "Borrower"), THE CHASE MANHATTAN BANK, in its capacity as
administrative agent (the "Administrative Agent") under the Credit Agreement (as
defined below), for the benefit of the Lenders (as defined below), and FIRST
UNION NATIONAL BANK, in its capacity as trustee (the "Trustee") under the
Indenture (as defined below), for the benefit of the Holders (as defined below).
The Borrower has arranged for financing to be provided pursuant to:
(a) the Credit Agreement dated as of the date hereof (as amended,
supplemented, refinanced, replaced or otherwise modified from time to
time, the "Credit Agreement") among the Borrower, the lenders from time to
time parties thereto (the "Lenders") and the Administrative Agent;
(b) the Indenture dated as of the date hereof (as amended,
supplemented, refinanced, replaced or otherwise modified from time to
time, the "Indenture" and, together with the Credit Agreement, the "Senior
Credit Facilities") between the Borrower and the Trustee; and
(c) the Debenture Purchase Agreement dated as of the date hereof (as
amended, supplemented, refinanced, replaced or otherwise modified from
time to time, the "Subordinated Credit Facility") between the Borrower and
the Subordinated Lender.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (as in effect on the
date hereof).
The obligations of the Lenders to make Loans under the Credit
Agreement and of the initial purchasers of the Senior Notes to purchase the
Senior Notes issued under the
<PAGE>
71
Indenture are conditioned upon, among other things, the execution and delivery
by the Subordinated Lender of an agreement in the form hereof pursuant to which,
among other things, the Subordinated Lender agrees to subordinate its rights to
payment under or in connection with the Subordinated Credit Facility and the
Debentures purchased at any time and from time to time thereunder, whether
outstanding on the date hereof or hereafter arising, including its right to
receive principal, interest (whether such interest shall be payable in cash or
in kind) or any other amount (all such payment rights being collectively called
the "Subordinated Obligations"), to the rights of the Lenders under the Credit
Agreement and the Holders (as defined in the Indenture and, together with the
Lenders, the "Senior Creditors") under the Indenture, all on the terms set forth
herein.
Accordingly, the Subordinated Lender, the Administrative Agent, on
behalf of itself and each Lender, and the Trustee, on behalf of itself and each
Holder, hereby agrees (for themselves and each of their respective successors or
assigns) as follows:
1. Subordination. (a) The Subordinated Lender hereby agrees that, to
the extent and in the manner set forth herein, the Subordinated Obligations
shall be subordinate, and junior in right of payment, to the rights of the
Senior Creditors in respect of the obligations of the Borrower and its
Subsidiaries now existing or hereafter arising under the Senior Credit
Facilities, including for principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy,
reorganization or other similar proceedings relating to the Borrower or any such
Subsidiary, whether or not a claim for post-filing interest is allowed or
allowable in any such proceedings), fees, charges, expenses, indemnity and other
reimbursement obligations, Guarantees and all other amounts payable thereunder
or in respect thereof (collectively, the "Senior Obligations").
(b) The Borrower and the Subordinated Lender agree that, except as
set forth in paragraph (c) below, no payment (whether directly, by purchase,
redemption or exercise of any right of setoff or otherwise) in respect of the
Subordinated Obligations, whether in cash, securities or property, shall be made
by or on behalf of the Borrower or received, accepted or demanded, directly or
indirectly, by or on behalf of the Subordinated Lender, if (i) a Default or
Event of Default (as defined under either Senior Credit Facility) shall have
occurred and be continuing or would result therefrom under either Senior Credit
Facility or (ii) Section 6.08 of the
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72
Credit Agreement or Section 4.05 of the Indenture shall by its terms otherwise
prohibit such payment.
(c) Notwithstanding Section 1(a) or 1(b) above, the Borrower may
pay, and the Subordinated Lender may receive, accept and demand, (i) interest
due and owing on the Debentures if such interest is paid in kind in the form of
additional Debentures ("PIK Debentures") as provided in the Subordinated Credit
Facility (as in effect on the date hereof) and (ii) an amount in cash not to
exceed 15% of the aggregate principal amount of any PIK Debentures to the extent
Mexican withholding taxes are owed with respect to the interest payment
represented by such PIK Debentures; provided, however, that, in the case of
either clause (i) or (ii), no Default or Event of Default shall have occurred
and be continuing or would result therefrom under either Senior Credit Facility.
(d) In no event shall any prepayment (whether directly, by purchase,
redemption or exercise of any right of setoff or otherwise) in respect of the
Subordinated Obligations, whether in cash, securities or property, be made by or
on behalf of the Borrower or received, accepted or demanded, directly or
indirectly, by or on behalf of the Subordinated Lender.
(e) Upon any distribution of the assets of the Borrower or upon any
dissolution, winding up, liquidation or reorganization of the Borrower, whether
in bankruptcy, insolvency, suspension of payment, reorganization, arrangement or
receivership proceedings or otherwise, or upon any assignment for the benefit of
creditors or any other marshalling of the assets and liabilities of the
Borrower, or otherwise:
(i) the Senior Creditors shall first be entitled to receive
indefeasible payment in full in cash or cash equivalents of all amounts
owing to the Senior Creditors pursuant to the Senior Obligations before
the Subordinated Lender shall be entitled to receive any payment on
account of the Subordinated Obligations; and
(ii) any payment by, or on behalf of, or distribution of the assets
of, the Borrower of any kind or character, whether in cash, property or
securities, to which the Subordinated Lender would be entitled except for
the provisions of this Section 1 shall be paid or delivered by the Person
making such payment or distribution (whether a trustee in bankruptcy, a
receiver, custodian or liquidating trustee or otherwise)
<PAGE>
73
directly to the Administrative Agent, for the benefit of the Lenders, and
the Trustee, for the benefit of the Holders, pro rata between the
Administrative Agent and the Trustee according to the respective amounts
of the Senior Obligations then outstanding under the Credit Agreement and
the Indenture, respectively, until all amounts owing to the Senior
Creditors pursuant to the Senior Obligations have been indefeasibly paid
in full in cash or cash equivalents.
The Subordinated Lender agrees not to ask or sue for, or demand, take or receive
from the Borrower, in cash, securities or other property or by setoff, purchase
or redemption (including, without limitation, from or by way of collateral),
payment of all or any part of the Subordinated Obligations other than as
expressly permitted by this Agreement and agrees that, in connection with any
proceeding involving the Borrower under any bankruptcy, insolvency, suspension
of payment, reorganization, arrangement, receivership or similar law, (i) each
of the Administrative Agent and the Trustee is irrevocably authorized and
empowered (in its own name or in the name of the Subordinated Lender or
otherwise), but shall have no obligation, to ask and sue for, and demand, take
and receive, every payment or distribution referred to in the preceding sentence
and give acquittance therefor and to file claims and proofs of claim and take
such other action (including, without imitation, voting the Subordinated
Obligations and enforcing any security interest or other Lien securing payment
of the Subordinated Obligations) as the Administrative Agent or the Trustee, as
the case may be, may deem necessary or advisable for the exercise or enforcement
of any of the right, title or interest of the applicable Senior Creditors and
(ii) the Subordinated Lender shall duly and promptly take such action, at the
expense of the Administrative Agent or the Trustee, as the Administrative Agent
or the Trustee may request to (A) collect amounts in respect of the Subordinated
Obligations for the account of the applicable Senior Creditors and to file
appropriate claims or proofs of claim in respect of the Subordinated
Obligations, (B) execute and deliver to the Administrative Agent or the Trustee,
as the case may be, such irrevocable powers of attorney, assignments or other
instruments as the Administrative Agent or the Trustee may request in order to
enable the Administrative Agent or the Trustee to enforce any and all claims
with respect to, and any security interests and other Liens securing payment of,
the Subordinated Obligations and (C) collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to the
Subordinated Obligations. A copy of this
<PAGE>
74
Agreement may be filed with any court as evidence of the right, power and
authority of the Senior Creditors, the Administrative Agent and the Trustee
hereunder. Notwithstanding anything to the contrary in this Section 1(e), in no
event shall the Administrative Agent or the Trustee be permitted to, or shall
the Subordinated Lender be required to, file any claims or proofs of claim in
respect of the Subordinated Obligations prior to the 45th day preceding the
applicable claims bar date; provided that the Subordinated Lender may, at its
option, file such claims or proofs of claim prior to such 45th day and, to the
extent not otherwise filed by or at the request of the Administrative Agent or
the Trustee, after such 45th day.
(f) In the event that any payment by, or on behalf of, or
distribution of the assets of, the Borrower of any kind or character, whether in
cash, property or securities, and whether directly, by purchase, redemption,
exercise of any right of setoff or otherwise, shall be received by or on behalf
of the Subordinated Lender or any Affiliate thereof at a time when such payment
or distribution is prohibited by this Agreement, such payment or distribution
shall be held by the Subordinated Lender in trust (segregated from other
property of the Subordinated Lender) for the benefit of, and shall forthwith be
paid over to, (i) the Administrative Agent, for the benefit of the Lenders and
for the benefit of the Holders, or (ii) if no Senior Obligations are then
outstanding under the Credit Agreement, to the Trustee for the benefit of the
Holders, until, in either such case, all amounts owing to the Senior Creditors
pursuant to the Senior Obligations have been indefeasibly paid in full in cash
or cash equivalents. The Administrative Agent hereby agrees with the Trustee to
collect, pursuant to the foregoing clause (i), any such payment on behalf of the
Holders, as well as the Lenders, and to distribute to the Trustee the Holders'
pro rata share of such payment based on the respective amounts of Senior
Obligations then outstanding under the Credit Agreement and the Indenture. The
Trustee, on behalf of itself and the Holders, consents to the collection and
distribution of such payments by the Administrative Agent and agrees that the
Administrative Agent (x) shall have no duty and shall owe no obligation or
responsibility (fiduciary or otherwise) to the Trustee or the Holders, other
than as expressly set forth in this Section 1(f) and (y) may rely, in connection
with any such payment and distribution, on information furnished to the
Administrative Agent by the Trustee regarding the amount of Senior Obligations
then outstanding under the Indenture. The Administrative Agent shall have no
responsibility for
<PAGE>
75
independently verifying any such information and shall have no liability for
relying upon such information.
(g) Subject to the prior indefeasible payment in full in cash or
cash equivalents of all amounts owing to the Senior Creditors pursuant to the
Senior Obligations, the Subordinated Lender shall be subrogated to the rights of
the Senior Creditors to receive payments or distributions in cash, property or
securities of the Borrower applicable to the Senior Obligations until all
amounts owing to the Senior Creditors pursuant to the Senior Obligations have
been indefeasibly paid in full in cash or cash equivalents, and as between and
among the Borrower, its creditors (other than the Senior Creditors) and the
Subordinated Lender, no such payment or distribution made to the Senior
Creditors by virtue of this Agreement that otherwise would have been made to the
Subordinated Lender shall be deemed to be a payment by the Borrower on account
of the Senior Obligations, it being understood that the provisions of this
paragraph (g) are intended solely for the purpose of defining the relative
rights of the Subordinated Lender and the Senior Creditors.
(h) Without the prior written consent Of each of the Administrative
Agent and the Trustee, the Borrower will not give, or permit to be given, and
the Subordinated Lender will not receive, accept or demand, (i) any security of
any nature whatsoever for any Subordinated Obligations on any assets, whether
now existing or hereafter acquired, of the Borrower or any Subsidiary of the
Borrower or (ii) any Guarantee, of any nature whatsoever, by the Borrower or any
such Subsidiary, of any Subordinated Obligations.
(i) The Debentures and any and all instruments or records now or
hereafter creating or evidencing the same, whether upon refunding, extension,
renewal, refinancing, replacement or otherwise, shall contain the following
legend:
Notwithstanding anything contained herein to the contrary, neither
the principal of nor the interest on the indebtedness created or
evidenced by this instrument or record shall become due or be paid
or payable except to the extent permitted under the Subordination
Agreement dated as of July 25, 1997, among Bell Atlantic
International, Inc., Grupo Iusacell, S.A. de C.V., The Chase
Manhattan Bank and First Union National Bank, which Subordination
Agreement is incorporated
<PAGE>
76
herein with the same effect as if fully set forth herein.
(j) The Borrower and the Subordinated Lender agree that any
amendment, supplement, refinancing, replacement or other modification of the
Subordinated Credit Facility in violation of the Credit Agreement, the Indenture
or this Agreement will be null and void and of no force or effect.
(k) The Subordinated Lender agrees that, except (i) for claims
submitted in any proceeding pursuant to Section 1(e) hereof or (ii) if all the
outstanding Loans under the Credit Agreement and all the outstanding Notes under
the Indenture have been declared due and payable prior to their respective final
scheduled maturities, the Subordinated Lender will not take any action to cause
any Subordinated Obligations to become payable prior to their scheduled maturity
date or exercise any remedies or take any action or proceeding to enforce any
Subordinated Obligation, and the Subordinated Lender further agrees not to file,
or to join with any other creditors of the Borrower in filing, any petition
commencing any bankruptcy, insolvency, suspension of payment, reorganization,
arrangement or receivership proceeding or any assignment for the benefit of
creditors against or in respect of the Borrower or any other marshalling of the
assets and liabilities of the Borrower. The Subordinated Lender further agrees,
to the fullest extent permitted under applicable law, that it will not cause the
Borrower to file any such petition, commence any such proceeding or make any
such assignment referred to above until all amounts owing to the Senior
Creditors pursuant to the Senior Obligations have been indefeasibly paid in full
in cash or cash equivalents.
(l) Notwithstanding anything to the contrary in this Section 1, the
Subordinated Lender may at any time convert Debentures into Series A Shares of
the Borrower's capital stock (or into any other securities into which the
Debentures are then convertible) in accordance with the terms of the Debentures.
The Subordinated Lender and the Borrower agree that if, by operation of Section
6.4 of the Debentures or any other provision of the Debentures or the
Subordinated Credit Facility, the Subordinated Lender shall receive any
securities other than capital stock of the Borrower, the payment and performance
by the Borrower of all its obligations under, and the rights and benefits of the
Subordinated Lender with respect to, such securities shall be subordinated to
the prior indefeasible payment in full in cash or cash equivalents of all
amounts owing to the Senior Creditors pursuant to the
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77
Senior Obligations to the same extent and in the same manner as set forth in
this Agreement with respect to the Debentures.
(m) Nothing herein shall affect (i) the priorities that exist as
between the Senior Creditors as a result of any security interest held by or for
the benefit of any Senior Creditor or (ii) the obligations of the Borrower under
the Senior Credit Facilities.
2. Waivers and Consents. (a) The Subordinated Lender waives the
right to require that the Collateral or any other assets of the Borrower or the
assets of any guarantor of the Senior Obligations or any other Person be applied
in any particular order to discharge the Senior Obligations. The Subordinated
Lender also waives the right to require the Senior Creditors to proceed against
the Borrower, the Collateral, any other assets or any guarantor of the Senior
Obligations or any other Person, or to pursue any other remedy in any Senior
Creditor's power which the Subordinated Lender cannot pursue, notwithstanding
that the failure of any Lender to do so may thereby prejudice such Subordinated
Lender. The Subordinated Lender agrees that it shall not be discharged,
exonerated or have its obligations hereunder to the Lenders reduced by any
Senior Creditor's delay in proceeding against or enforcing any remedy against
the Borrower, the Collateral, any other assets or any guarantor of the Senior
Obligations or any other Person; by any Senior Creditor releasing the Borrower,
the Collateral, any other assets or any guarantor of the Senior Obligations or
any other Person from liability for, or any Lien securing, all or any part of
the Senior Obligations; or by the discharge of the Borrower, the Collateral, any
other assets or any guarantor of the Senior Obligations or any other Person by
operation of law or otherwise, with or without the intervention or omission of a
Senior Creditor. Any Senior Creditor's vote to accept or reject any plan of
reorganization relating to the Borrower, the Collateral, any other assets or any
guarantor of the Senior Obligations or any other Person, or any Senior
Creditor's receipt on account of all or part of the Senior Obligations of any
cash, property, or securities distributed in any bankruptcy, reorganization,
suspension of payment or insolvency case, shall not discharge, exonerate, or
reduce the obligations of the Subordinated Lender hereunder to the Senior
Creditors.
(b) The Subordinated Lender waives all rights and defenses arising
out of an election of remedies by the Senior Creditors, even though that
election of remedies, including, without limitation, any nonjudicial foreclosure
with respect
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78
to security for the Senior Obligations, has impaired the value of the
Subordinated Lender's rights of subrogation, reimbursement or contribution
against the Borrower or any guarantor of the Senior Obligations or any other
Person. The Subordinated Lender also waives any rights or defenses it may have
by reason of protection afforded to the Borrower or any guarantor of the Senior
Obligations or any other Person with respect to the Senior Obligations pursuant
to any anti-deficiency laws or other laws of similar import which limit or
discharge the principal debtor's indebtedness upon judicial or non-judicial
foreclosure of real property or personal property, including, without
limitation, the Collateral, for the Senior Obligations.
(c) The Subordinated Lender agrees that, without the necessity of
any reservation of rights against it, and without notice to or further assent by
it, any demand for payment of any Senior Obligations made by a Senior Creditor
may be rescinded in whole or in part by such Senior Creditor, and any Senior
Obligation may be continued, and the Senior Obligations, or the liability of the
Borrower or any of its Subsidiaries or any other guarantor or any other Person
upon or for any part thereof, or any Collateral, other assets or guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, modified, accelerated, compromised,
waived, surrendered, or released by the Senior Creditors, in each case without
notice to or further assent by the Subordinated Lender, which will remain bound
under this Agreement and without impairing, abridging, releasing or affecting
the subordination provided for herein.
(d) The Subordinated Lender waives any and all notice of the
creation, renewal, extension or accrual of any of the Senior Obligations and
notice or proof of reliance by the Senior Creditors upon this Agreement. The
Senior Obligations, and any of them, shall be deemed conclusively to have been
created, contracted or incurred and the consent given to create the obligations
of the Borrower in respect of the Subordinated Obligations in reliance upon this
Agreement, and all dealings between the Borrower and its Subsidiaries and the
Senior Creditors shall be deemed to have been consummated in reliance upon this
Agreement. The Subordinated Lender acknowledges and agrees that the Senior
Creditors have relied upon the subordination provided for herein in consenting
to the Subordinated Obligations. The Subordinated Lender waives notice and proof
of reliance on this Agreement and protest, demand for payment and notice of
default.
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79
(e) References in this Section 2 to the "Senior Creditors" or a
"Senior Creditor" shall be deemed to include the Administrative Agent and the
Trustee.
3. Transfers; Financing Commitment; No Amendment.
(a) The Subordinated Lender shall not sell, assign, pledge or
otherwise transfer or dispose of, in whole or in part, all or any part of the
Subordinated Obligations or any interest therein (other than, subject to the
change of control and other provisions of the Senior Credit Facilities, any
Series A Shares or other shares of the Borrower's capital stock received upon
the conversion of any Debentures) to any other Person (a "Transferee") or
create, incur or suffer to exist any Lien or other encumbrance whatsoever upon
all or any part of the Subordinated Obligations or any interest therein in favor
of any Transferee unless (i) such Transferee is a controlled Affiliate of the
Subordinated Lender, (ii) such action is made expressly subject to this
Agreement and (iii) such Transferee expressly acknowledges to the Administrative
Agent and the Trustee, by a writing in form and substance satisfactory to the
Administrative Agent and the Trustee, the subordination provided for herein and
in such writing agrees to be bound by all the terms of this Agreement,
including, without limitation, this Section 3, as if such Person were the
Subordinated Lender.
(b) The Subordinated Lender agrees (i) not to cause or permit the
termination of the Subordinated Credit Facility prior to the indefeasible
payment in full in cash or cash equivalents of all amounts owing to the Senior
Creditors pursuant to the Senior Obligations and (ii) to take all actions within
its control to keep the Subordinated Credit Facility, and all borrowing
commitments thereunder, in full force and effect.
(c) The Subordinated Lender and the Borrower agree not to amend,
waive or otherwise modify the Subordinated Credit Facility or the Debentures in
any way that would or could have a negative adverse effect on the Senior
Creditors without the prior written consent of the Administrative Agent or the
Required Lenders under the Credit Agreement and of the Trustee or the Holders of
a majority of the principal amount of the Senior Notes outstanding under the
Indenture.
(d) The Subordinated Lender acknowledges and agrees that the Senior
Creditors have relied upon the agreements in this Section 3 of the Subordinated
Lender in agreeing to enter into, and advance funds pursuant to, Senior Credit
Facilities.
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80
4. Senior Obligations Unconditional. All rights and interests of the
Senior Creditors hereunder, and all agreements and obligations of the
Subordinated Lender and the Borrower hereunder, shall remain in full force and
effect irrespective of:
(a) any lack of validity or enforceability of any Credit Agreement,
any other Loan Document or the Indenture;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Senior Obligations, or any amendment or
waiver or other modification, whether by course of conduct or otherwise,
of, or consent to departure from, the Credit Agreement, any other Loan
Document or the Indenture;
(c) any exchange, release or nonperfection of any Lien in any
Collateral or other assets, or any release, amendment, waiver or other
modification, whether in writing or by course of conduct or otherwise, of
or consent to departure from, any Guarantee of any of the Senior
Obligations; or
(d) any other circumstances that might otherwise constitute a
defense available to, or a discharge of, the Borrower or any of its
Subsidiaries in respect of the Senior Obligations, or of the Subordinated
Lender or the Borrower in respect of this Agreement.
5. Representations and Warranties. The Subordinated Lender
represents and warrants to the Administrative Agent, for the benefit of the
Lenders, and the Trustee, for the benefit of the Holders, that:
(a) The Subordinated Lender is duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The Subordinated Lender has the corporate power and authority
and the legal right to execute and deliver and to perform its obligations
under this Agreement and has taken all necessary action to authorize its
execution, delivery and performance of this Agreement.
(c) This Agreement has been duly executed and delivered by the
Subordinated Lender and constitutes a legal, valid and binding obligation
of the Subordinated Lender, enforceable against it in accordance with its
<PAGE>
81
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject
to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
(d) The execution, delivery and performance of this Agreement will
not violate any provision of any requirement of law or contractual
obligation of the Subordinated Lender and will not result in the creation
or imposition of any Lien or other encumbrance on any of the assets or
revenues of the Subordinated Lender pursuant to any requirement of law
affecting, or any contractual obligation of, the Subordinated Lender,
except the interest of the Subordinated Lender under this Agreement.
(e) No consent or authorization of, filing with, or other act by or
in respect of, any arbitrator, regulatory body, Governmental Authority or
other Person, is required in connection with the execution, delivery,
performance, validity or enforceability of this Agreement.
6. Waiver of Claims. (a) To the maximum extent permitted by law, the
Subordinated Lender waives any claim it might have against any Senior Creditor
with respect to, or arising out of, any action or failure to act or any error of
judgment, negligence, mistake or oversight whatsoever on the part of any Senior
Creditor, the Administrative Agent, the Trustee or any of their respective
directors, officers, employees or agents with respect to any exercise of rights
or remedies under the Credit Agreement, the other Loan Documents, the Indenture
or any transaction relating to the Collateral or any other assets, except to the
extent that any such action, failure to act or error is finally determined by a
court of competent jurisdiction to be the result of the gross negligence or
wilful misconduct on the part of any Senior Creditor, the Administrative Agent
or the Trustee in the performance of any obligations owed to the Subordinated
Lender that are expressly created by this Agreement. Neither the Senior
Creditors, the Administrative Agent or the Trustee nor any of their respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral, any other assets or any Guarantee
or for any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Collateral or any other assets upon the request of the
Borrower or any of its Subsidiaries or the Subordinated Lender or any other
Person or to take any other action whatsoever with regard to
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82
the Collateral, any part thereof, any other assets or any Guarantee.
(b) The Subordinated Lender, for itself and on behalf of its
successors and assigns, hereby waives any and all now existing or hereafter
arising rights it may have to require the Senior Creditors, the Administrative
Agent or the Trustee to marshall assets for the benefit of the Subordinated
Lender, or to otherwise direct the timing, order or manner of any sale,
collection or other enforcement of the Collateral, any other property or
enforcement of the Credit Agreement, the other Loan Documents or the Indenture.
The Senior Creditors, the Administrative Agent and the Trustee are under no duty
or obligation, and the Subordinated Lender hereby waives any right it may have
to compel the Senior Creditors, the Administrative Agent or the Trustee, to
pursue any guarantor or other Person who may be liable for the Senior
Obligations, or to enforce any Lien or security interest in any Collateral or
any other assets.
(c) The Subordinated Lender hereby waives and releases all rights
which a guarantor or surety with respect to the Senior Obligations could
exercise.
(d) The Subordinated Lender hereby waives any duty on the part of
the Senior Creditors, the Administrative Agent or the Trustee to disclose to the
Subordinated Lender any fact known or hereafter known by the Senior Creditors,
the Administrative Agent or the Trustee relating to the operation or financial
condition of the Borrower or any guarantor of the Senior Obligations or their
respective businesses. The Subordinated Lender enters into this Agreement based
solely upon its independent knowledge of the Borrower's financial condition and
business and the Subordinated Lender assumes full responsibility for obtaining
any further or future information with respect to the Borrower or its financial
condition or business. The Subordinated Lender knowingly accepts the full range
of risk encompassed in this Agreement.
7. Provisions Applicable after Bankruptcy; No Turnover. (a) The
provisions of this Agreement shall continue in full force and effect
notwithstanding the occurrence of any event referred to in Section 1(e) hereof.
(b) To the extent that the Subordinated Lender has or acquires any
rights under Section 363 or 364 of the United States Bankruptcy Code or any
similar provision under the bankruptcy, insolvency, suspension of payment,
reorganization, arrangement, receivership or similar laws of Mexico or any
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83
other jurisdiction with respect to the Collateral or any other assets, such
Subordinated Lender hereby agrees, subject to the last sentence of Section 1(e)
hereof, not to assert such rights without the prior written consent of each
Senior Creditor; provided, however, that, subject to the last sentence of
Section 1(e) hereof, if requested by or on behalf of the Senior Creditors, the
Subordinated Lender shall seek to exercise such rights in the manner requested
by or on behalf of the Senior Creditors, including the right to payment.
8. Further Assurances. The Subordinated Lender and the Borrower, at
their own expense and at any time from time to time, upon the written request of
or on behalf of the Senior Creditors will promptly and duly execute and deliver
such further instruments and documents and take such further actions as may
reasonably be requested by or on behalf of the Senior Creditors for the purposes
of obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted.
9. Expenses. (a) The Borrower will pay or reimburse the Senior
Creditors, the Administrative Agent and the Trustee, upon demand, for all their
respective reasonable costs and expenses in connection with the enforcement or
preservation of any rights under this Agreement, including, without limitation,
reasonable fees and disbursements of separate counsel to each of the Lenders and
the Holders.
(b) The Borrower will pay, indemnify, and hold the Senior Creditors,
the Administrative Agent and the Trustee, harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions (whether
sounding in contract, tort or on any other ground), judgments, suits or
reasonable costs, expenses or disbursements of any kind or nature whatsoever
with respect to the failure of the Borrower or the Subordinated Lender to
perform any of their respective obligations arising out of or relating to this
Agreement.
10. Provisions Define Relative Rights. This Agreement is intended
solely for the purpose of defining the relative rights of the Senior Creditors,
together with the Administrative Agent and the Trustee, on the one hand, and the
Subordinated Lender on the other, and no other Person shall have any right,
benefit or other interest under this Agreement.
11. Powers Coupled with an Interest. All powers, authorizations and
agencies contained in this Agreement are
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84
coupled with an interest and are irrevocable until all amounts owing to the
Senior Creditors pursuant to the Senior Obligations have been indefeasibly paid
in full in cash.
12. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy (with a hard copy by
mail to follow), as follows:
(a) if to the Borrower, to Grupo Iusacell, S.A. de C.V., Montes
Urales 460, 3rd Floor, Col. Lomas De Chapultepec, Deleg. Miguel Hidalgo,
C.P. 11000, Mexico, D.F., Attention of Howard F. Zuckerman (Telecopy No.
011- 525-104-4157), with copies to (i) the attention of Ruben G.
Perlmutter, at the same address (Telecopy No. 011-525- 104-4172) and (ii)
De Ovando y Martinez del Campo, S.C., Bosque de Alisus 47B, Suite 101,
Col. Bosque de las Lomos, C.P. 05120 Mexico, D.F., Attention of Lic.
Javier Martinez del Campo (Telecopy No. 011-525-259-5259);
(b) if to the Subordinated Lender, to Bell Atlantic International,
Inc., 1310 North Court House Road, 5th Floor, Arlington, Virginia, 22201,
Attention President and CEO (Telecopy No. 703-312-7784), with copies to
(i) Bell Atlantic Corporation, 1717 Arch Street - 47W, Philadelphia,
Pennsylvania 19103, Attention of Treasurer (Telecopy No. 215-563-4174) and
(ii) Bell Atlantic International, Inc., 1717 Arch Street - 48th Floor
East, Philadelphia, Pennsylvania 19103, Attention of Thomas R. McKeough
(Telecopy No. 215-963-9195);
(c) if to the Administrative Agent, to The Chase Manhattan Bank Loan
and Agency Services, One Chase Manhattan Plaza, 8th Floor, New York, New
York 10081, Attention of Sunita Vora (Telecopy No. (212) 552-4950), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of George Wozencraft (Telecopy No. (212) 270-0583);
(d) if to a Lender, to it at its address (or telecopy number) set
forth on Schedule 2.01 to the Credit Agreement or in the Assignment and
Acceptance pursuant to which such Lender shall have become a party to the
Credit Agreement;
(e) if to the Trustee, to First Union National Bank, 230 S. Tryon
Street, Corporate Trust Department-9th Floor, Charlotte, North Carolina
28288-1179, attention of
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85
Shawn Bednasek (Telecopy No. 704-383-7316), with a copy to Robinson,
Bradshaw & Hinson, 101 N. Tryon Street, Suite 1900, Charlotte, North
Carolina 28296, attention of Allin Andry (Telecopy No. 704-378-4000); and
(f) if to a Holder, to its address as it appears on the registration
books of the Registrar (as defined in the Indenture).
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered, sent or mailed (properly addressed) to such party
as provided in this Section 12 or in accordance with the latest unrevoked
direction from such party given in accordance with this Section 12.
13. Counterparts. This Agreement may be executed by one or more of
the parties on any number of separate counterparts, each of which shall
constitute an original but all of which taken together shall be deemed to
constitute but one instrument.
14. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Integration. This Agreement represents the agreement of the
Borrower, the Senior Creditors and the Subordinated Lender with respect to the
subject matter hereof and, without limiting the terms of the Senior Credit
Facilities, there are no promises or representations by or on behalf of the
Borrower, the Senior Creditors or the Subordinated Lender relative to the
subject matter hereof not reflected herein.
16. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Administrative Agent, the Trustee, the Borrower and the Subordinated Lender,
provided that any provision of this Agreement may be waived by the Senior
Creditors in a letter or agreement executed by each Senior Creditor or by
facsimile transmission from each Senior Creditor.
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86
(b) No failure to exercise, nor any delay in exercising, on the part
of the Senior Creditors, the Administrative Agent or the Trustee, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
17. Section Headings. The section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
18. Successors and Assigns. (a) This Agreement shall be binding upon
the successors, assigns and other Transferees of each of the Borrower and the
Subordinated Lender and shall inure to the benefit of the Senior Creditors, the
Administrative Agent, the Trustee and their respective successors, assigns and
other Transferees.
(b) Notwithstanding the provisions of Section 18(a) above, nothing
herein shall be construed to limit or relieve the obligations of the
Subordinated Lender pursuant to Section 3(a) of this Agreement.
19. Governing Law; Jurisdiction; Consent to Service of Process;
Judgment Currency. (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW.
(b) The Borrower and the Subordinated Lender, 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 1633
Broadway, 23rd Floor, New York, New York 10019 (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 Borrower or the Subordinated
Lender instituted by the Administrative Agent, the Trustee or any Senior
Creditor, based on or arising under this Agreement, the Credit Agreement, any
other Loan Document, the Indenture and the transactions contemplated hereby and
thereby in any Federal or state court in the State of New York, County of New
York, and each of the Borrower, the Subordinated Lender and
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87
the Administrative Agent and the Trustee, on their behalf and on behalf of the
applicable Senior Creditors, 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.
(c) Each of the Borrower and the Subordinated Lender further, by the
execution and delivery of this Agreement, irrevocably designates, appoints and
empowers CT Corporation, with offices at 1633 Broadway, 23rd Floor, New York,
New York 10019, 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 Borrower or the Subordinated Lender, as the case may be, with respect to its
obligations, liabilities or any other matter arising out of or in connection
with this Agreement, the Credit Agreement, any other Loan Document, the
Indenture and the transactions contemplated hereby and thereby 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
Borrower or the Subordinated Lender, as the case may be. Each of the Borrower
and the Subordinated Lender represents to the Administrative Agent and the
Trustee, on their behalf and on behalf of the applicable Senior Creditors, 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 eight years from the date of this Agreement. Each of the Borrower and
the Subordinated Lender 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 Borrower or the
Subordinated Lender, as the case may be, pursuant to Section 12 of this
Agreement, shall be deemed in every respect effective service of process upon
the Borrower or the Subordinated Lender 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 Borrower and the Subordinated Lender
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 Administrative Agent and the Trustee. Each of the Borrower
and the
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88
Subordinated Lender 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 Borrower or the Subordinated Lender, 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 Borrower or the Subordinated Lender
at its address specified in or designated pursuant to this Agreement. Each of
the Borrower and the Subordinated Lender 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 Administrative Agent, the Trustee or
any Senior Creditor to serve any such legal process, summons, notices and
documents in any other manner permitted by applicable law. Each of the Borrower
and the Subordinated Lender 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 Agreement, the Credit
Agreement, any other Loan Document or the 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.
(d) 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 the may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures the prevailing party 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
Borrower and the Subordinated Lender in respect of any sum due from the Borrower
or the Subordinated Lender to the prevailing party shall, notwithstanding any
judgment in a currency other than United States dollars, not be discharged until
the first business day, following receipt by such party of any sum adjudged to
be so due in the other currency, on which (and only to the extent that) such
party may in accordance with
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89
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 party hereunder, each of the Borrower and the
Subordinated Lender jointly and severally agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify such party against the loss. If
the United States dollars so purchased are greater than the sum originally due
to such party hereunder, such party agrees to pay to the Borrower or the
Subordinated Lender, as the case may be, an amount equal to the excess of the
dollars so purchased over the sum originally due to such party hereunder.
(e) The provisions of this Section shall survive any termination of
this Agreement, in whole or in part.
20. Waiver of Immunities. To the extent that the Borrower or the
Subordinated Lender 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, the Credit Agreement, any other Loan Document,
the Indenture and the transactions contemplated hereby and thereby, each of the
Borrower and the Subordinated Lender hereby irrevocably and unconditionally
waives, and agrees not to plead or claim, any such immunity and consent to such
relief and enforcement.
21. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, THE CREDIT AGREEMENT, ANY OTHER LOAN DOCUMENT, THE INDENTURE
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT.NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN
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90
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
BELL ATLANTIC INTERNATIONAL, INC.,
by:
-----------------------------
Name:
Title:
GRUPO IUSACELL, S.A. de C.V.,
by:
-----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent,
by: /s/ Miriam N. Schulman
-----------------------------
Title: Vice President
FIRST UNION NATIONAL BANK, as
Trustee
by: /s/ Shawn K. Bednasek
-----------------------------
Title:Assistant Vice President
<PAGE>
91
Exhibit I-1
PROMISSORY NOTE
U.S. $_______
For value received, the undersigned Grupo Iusacell, S.A. de C.V. (the
"Borrower"), by this Promissory Note, unconditionally promises to pay to the
order of ______________________ (the "Bank") the principal sum of U.S.
$________________.00 (_____________ DOLLARS OF THE UNITED STATES OF AMERICA
00/100) payable in installments as follows:
Date Amount
- ------------------------------
Oct. 31, 1997 --------------------------------
Jan. 31, 1998 --------------------------------
April 30, 1998 --------------------------------
July 31, 1998 --------------------------------
Oct. 31, 1998 --------------------------------
Jan. 31, 1999 --------------------------------
April 30, 1999 --------------------------------
July 31, 1999 --------------------------------
Oct. 31, 1999 --------------------------------
Jan. 31, 2000 --------------------------------
April 30, 2000 --------------------------------
July 31, 2000 --------------------------------
Oct. 31, 2000 --------------------------------
Jan. 31, 2001 --------------------------------
April 30, 2001 --------------------------------
July 31, 2001 --------------------------------
Oct. 31, 2002 --------------------------------
Jan. 31, 2002 --------------------------------
April 30, 2002 --------------------------------
July 31, 2002 -------------------------------- (the "Maturity
Date") -------------
- ----
The undersigned also promises to pay Interest on the outstanding and unpaid
principal amount of this Promissory Note, from the date hereof until the
Maturity Date, at the Alternative Base Rate plus 0.75% per annum (the "Interest
Rate"). Interest shall be payable in arrears on each Interest Payment Date.
Any principal amount and (to the extent permitted by applicable law) interest
not paid when due under this Promissory Note shall bear interest, payable on
demand, at a rate per annum equal to the sum of 2% plus the Interest Rate.
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92
Interest hereunder shall be calculated on the basis of the actual number of days
elapsed divided by 360 (including the first day but excluding the last day of
the corresponding period) except that interest computed based on the Prime Rate
shall be computed on the basis of a year of 365 days (or 366 days in the leap
year).
For purposes of this Promissory Note, the following terms shall have the
following meanings:
"Administrative Agent" means The Chase Manhattan Bank.
"Alternative Base Rate" means, for any day, a rate per annum equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%.
"Assessment Rate" means, for any day, the annual assessment rate in effect on
such day that is payable by a member of the Bank Insurance Fund classified as
"well capitalized" and within supervisory subgroup "B" (or a comparable
successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to the Federal Deposit Insurance Corporation for insurance
by such Corporation of time deposits made in dollars of the United States of
America at the offices of such member in the United States of America; provided
that if, as a result of any change in any law, rule or regulation, it is no
longer possible to determine the Assessment Rate as aforesaid, then the
Assessment Rate shall be such annual rate as shall be determined in good faith
by the Administrative Agent to reflect its cost of such insurance.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied
by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
remain closed.
"Interest Payment Date" means the last day of each January, April, July and
October.
"Prime Rate" means the rate of interest per annum publicly announced from time
to time by The Chase Manhattan Bank as its prime rate in effect at its principal
office in New York City.
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93
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one (1) and the denominator of which is the
number one (1) minus the aggregate of the maximum reserve percentages (including
any marginal, special, emergency or supplemental reserves) expressed as a
decimal established by the Board of Governors of the Federal Reserve System to
which the Administrative Agent is subject, with respect to the Base CD Rate, for
new negotiable nonpersonal time deposits in dollars of the United States of
America of over US$100,000 with maturities approximately equal to three (3)
months. Such reserve percentages shall include those imposed pursuant to such
Regulation D on the Administrative Agent (and, to the extent Regulation D shall
impose any such reserve percentage on the Administrative Agent, the percentage
employed for purposes of this definition shall be that imposed on the
Administrative Agent). The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Three Month Secondary CD Rate" means, for any day, the secondary market rate
for three-month certificates of deposit reported as being in effect on such day
(or, if such day is not a Business Day, the next preceding Business Day) by the
Board of Governors of the Federal Reserve Bank, through the public information
telephone line of the Federal Reserve Bank of New York (which rate will, under
the current practices of such Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day) or, if such rate is not so
reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day is not a Business Day, on the next
preceding Business Day) determined by the Administrative Agent from three
negotiable certificate of deposit dealers of recognized standing selected by it.
All payments required to be made pursuant to this Promissory Note shall be made
without setoff, deduction or counterclaim, not later than 1:00 p.m., New York
City time, on the date due, in immediately available funds, at the
Administrative Agents' principal office, currently located at
___________________________________. The undersigned agrees to reimburse upon
demand, in like manner and funds, all losses, costs and reasonable expenses of
the holder hereof, if any, incurred in connection with the enforcement of this
Promissory Note (including, without limitation, all reasonable legal costs and
expenses).
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94
All payments by the Borrower of principal and interest hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature, whatsoever imposed by any taxing authority. In the
event that the undersigned shall be compelled by law to make any such deduction
or withholding, then the undersigned shall pay such additional amounts as may be
necessary to ensure that the net amounts received by the holder hereof shall
equal the amount that such holder would have received if such deduction or
withholdings would not have been made.
This Promissory Note shall be governed by, and construed in accordance with, the
laws of the State of New York; provided, however, that if any action or
proceeding in connection with this Promissory Note were brought to any courts in
the United Mexican States, this Promissory Note shall be deemed as governed
under the laws of the United Mexican States.
Any legal action or proceeding arising out of or relating to this Promissory
Note may be brought in any New York State or Federal court sitting in the
Southern District of New York or any Federal court sitting in the City of
Mexico, Federal District, United Mexican States; the undersigned waives the
jurisdiction of any other courts.
The undersigned hereby waives diligence, demand, protest, presentment, notice of
dishonor or any other notice or demand whatsoever.
This Promissory Note is executed in both English and Spanish versions. In the
case of any conflict or doubt as to the proper construction of this Promissory
Note, the English version shall govern; provided, however, that in any action or
proceeding brought in any court in the United Mexican States, the Spanish
version shall be controlling.
IN WITNESS WHEREOF, the undersigned duly executed this Promissory Note as of the
date mentioned above.
Mexico, D.F. a __ de Julia de 1997
Mexico, Federal District, July __, 1997
GRUPO ISUACELL, S.A. DE C.V.
By/Por
----------------------------------------
Name/Nombre:
Title/Cargo:
<PAGE>
95
Por aval/Guarantor
SISTEMAS TELEFONICOS PORTATILES CELULARIES, SLA. DE C.V.
By/Por
---------------------------------------------------------------
Name/Nombre:
Title/Cargo:
TELECOMUNICACIONES DEL GOLFO, SLA. DE C.V.
By/Por
---------------------------------------------------------------
Name/Nombre:
Title/Cargo:
GMO COMUNICACIONES, S.A. DE C.V.
By/Por
---------------------------------------------------------------
Name/Nombre:
Title/Cargo:
HERMES TELECOMUNICACIONES, S.A. DE C.V.
By/Por
---------------------------------------------------------------
Name/Nombre:
Title/Cargo:
INMOBILIARIA MONTES URALES 460, S.A. DE C.V.
By/Por
---------------------------------------------------------------
Name/Nombre:
Title/Cargo:
IUSANET, S.A. DE C.V.
By/Por
---------------------------------------------------------------
Name/Nombre:
Title/Cargo:
<PAGE>
96
Exhibit I-2
PROMISSORY NOTE
U.S. $__________
For value received, the undersigned Grupo Iusacell, S.A. de C.V. (the
"Borrower"), by this Promissory Note, unconditionally promises to pay to the
order of ________________________ (the "Bank") the principal sum of U.S.
$________.00 (______________ DOLLARS OF THE UNITED STATES OF AMERICA 00/100)
payable in installments as follows:
================================================================================
Date Amount
- ---- ------
- --------------------------------------------------------------------------------
Oct. 31, 1997 _______________________
- --------------------------------------------------------------------------------
Jan. 31, 1998 _______________________
- --------------------------------------------------------------------------------
April 30, 1998 _______________________
- --------------------------------------------------------------------------------
July 31, 1998 _______________________
- --------------------------------------------------------------------------------
Oct. 31, 1998 _______________________
- --------------------------------------------------------------------------------
Jan. 31, 1999 _______________________
- --------------------------------------------------------------------------------
April 30, 1999 _______________________
- --------------------------------------------------------------------------------
July 31, 1999 _______________________
- --------------------------------------------------------------------------------
Oct. 31, 1999 _______________________
- --------------------------------------------------------------------------------
Jan. 31, 2000 _______________________
- --------------------------------------------------------------------------------
April 30, 2000 _______________________
- --------------------------------------------------------------------------------
July 31, 2000 _______________________
- --------------------------------------------------------------------------------
Oct. 31, 2000 _______________________
- --------------------------------------------------------------------------------
Jan. 31, 2002 _______________________
- --------------------------------------------------------------------------------
April 30, 2001 _______________________
- --------------------------------------------------------------------------------
July 31, 2001 _______________________
- --------------------------------------------------------------------------------
Oct. 31, 2001 _______________________
- --------------------------------------------------------------------------------
Jan. 31, 2002 _______________________
- --------------------------------------------------------------------------------
April 30, 2002 _______________________
- --------------------------------------------------------------------------------
July 31, 2002 _______________________ (the "Maturity
Date")
================================================================================
The undersigned also promises to pay interest on the outstanding and unpaid
principal amount of this Promissory Note, from the date thereof
<PAGE>
97
until the Maturity Date, calculated with respect to each Interest Period, from
and including the first day of the applicable Interest Period to (and excluding)
the last day of such Interest Period, at the Adjusted 1.180 Rate plus 1.75% per
annum (the "Eurodollar Rate"). Interest shall be payable in arrears on each
Interest Payment Date.
Any principal amount and (to the extent permitted by applicable law) interest
not paid when due under this Promissory Note shall bear interest, payable on
demand, at a rate per annum equal to the sum of 2% plus the Eurodollar Rate.
Interest hereunder shall be calculated on the basis of the actual number of days
elapsed divided by 360 (including the first day but excluding the last day of
the corresponding Interest Period).
For purposes of this Promissory Note, the following terms shall have the
following meanings:
"Adjusted LIBO Rate" means, for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO
Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means any day that is not a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
remain closed and on which banks are open for dealings in deposits in dollars of
the United States of America in the London interbank market.
"Interest Payment Date" means the last day of the applicable Interest Period
and, in the case of an Interest Period of more than three (3) months' duration,
each of the days occurring at three month intervals after the first day of such
Interest Period.
"Interest Period" means the period commencing on the date hereof and ending on
the numerically corresponding day in the calendar month that is one (1), two
(2), three (3), or six (6) months thereafter or, if available nine (9) or twelve
(12) months thereafter, as the Borrower may elect; provided, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day, (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period and (iii) any Interest Period
that would otherwise extend beyond the Maturity Date shall end on such Maturity
Date.
"LIBO Rate" means, for any Interest Period, the rate appearing on Page 3750 of
Dow Jones Markets (or on any successor or substitute page of such service or any
successor to or substitute for such service, providing rate quotations
comparable to those currently provided on such page of such service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to deposits in United States
dollars in the London interbank market) at approximately 11:00 a.m. London time,
two (2) Business Days prior to the commencement of such Interest Period, as the
rate for deposits in United States dollars
<PAGE>
98
with a maturity comparable to such Interest Period. In the event that such rate
is not available at such time for any reason, then the "LIBO Rate" for such
Interest Period shall be the rate at which deposits in United States dollars and
for a maturity comparable to such Interest Period are offered to the principal
London office of the Administrative Agent in immediately available funds in the
London interbank market at approximately 11:00 a.m. London time, two (2)
Business Days prior to commencement of such Interest Period.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one (1) and the denominator of which is the
number (1) minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board of Governors of the Federal Reserve System to which the
Administrative Agent is subject for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D on the
Administrative Agent (and, to the extent Regulation D shall impose any such
reserve percentage on the Administrative Agent, the percentage employed for
purposes of this definition shall be that imposed on the Administrative Agent).
The Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
All payments required to be made pursuant to this Promissory Note shall be made
without setoff, deduction or counterclaim, not later than 1:00 p.m., New York
City time, on the date due, in immediately available funds, at the
Administrative Agents'__________________________ . The undersigned agrees to
reimburse upon demand, inlike manner and funds, all losses, costs and reasonable
expenses of the holder hereof, if any, incurred in connection with the
enforcement of this Promissory Note (including, without limitation, all
reasonable legal costs and expenses.)
All payments by the Borrower of principal and interest hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by an taxing authority. In the
event that the undersigned shall be compelled by law to make any such deduction
or withholding, then the undersigned shall pay such additional amounts as may be
necessary to ensure that the net amounts received by the holder hereof shall
equal the amount that such holder would have received if such deductions or
withholdings would not have been made.
This Promissory Note shall be governed by, and construed in accordance with, the
laws of the State of New York; provided, however, that if any action or
proceeding in connection with this Promissory Note were brought to any courts in
the United Mexican States, this Promissory Note shall be deemed as governed
under the laws of the United Mexican States.
Any legal action or proceeding arising out of or relating to this Promissory
Note may be brought in any New York State or Federal court sitting in the
Southern District of New York or any Federal court sitting in the City of
Mexico, Federal District, United Mexican States; the undersigned waives the
jurisdiction of any other courts.
The undersigned hereby waives diligence, demand, protest, presentment, notice of
dishonor or any other notice or demand whatsoever.
<PAGE>
99
This Promissory Note is executed in both English and Spanish versions. In the
case of any conflict or doubt as to the proper construction of this Promissory
Note, the English version shall govern; provided, however, that in any action or
proceeding brought in any court in the United Mexican States, the Spanish
version shall be controlling.
IN WITNESS WHEREOF, the undersigned duly executed this Promissory Note as of the
date mentioned above.
Mexico, D.F. a __ de Julio de 1997
Mexico, Federal District, July __, 1997
GRUPO IUSACELL, S.A. DE C.V.
By/Por
------------------------------------------------------------
Name/Nombre:
Title/Cargo:
Por aval/Guarantor
SISTEMAS TELEFONICOS PORTATILES CELULARES, S.A. DE C.V.
By/Por
------------------------------------------------------------
Name/Nombre:
Title/Cargo:
TELECOMUNICACIONES DEL GOLFO, S.A. DE C.V.
By/Por
------------------------------------------------------------
Name/Nombre:
Title/Cargo:
GMO COMUNICACIONES, S.A. DE C.V.
By/Por
------------------------------------------------------------
Name/Nombre:
Title/Cargo:
HERMES TELECOMUNICACIONES, S.A. DE C.V.
By/Por
------------------------------------------------------------
Name/Nombre:
Title/Cargo:
<PAGE>
100
IMMOBILIARIA MONTES URALES 460, S.A. DE C.V.
By/Por
------------------------------------------------------------
Name/Nombre:
Title/Cargo:
IUSANET, S.A. DE C.V.
By/Por
------------------------------------------------------------
Name/Nombre:
Title/Cargo:
EXHIBIT 15.1 - ACKNOWLEDGEMENT BY
COOPERS & LYBRAND
5
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
ACKNOWLEDGMENT
October 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Grupo Iusacell, S.A. de C.V.
Registration on Form F-4
Ladies and Gentlemen:
We are aware that our report dated April 18, 1997 on our review of the interim
financial information of Grupo Iusacell, S.A. de C.V. and subsidiaries as of
March 31, 1997 and 1996 and for the three month periods then ended, is included
in this registration statement.
Pursuant to Rules 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified by
us within the meanings of Section 7 and 11 of that Act.
Very truly yours,
Coopers & Lybrand
Despacho Roberto Casas Alatriste
/s/ Juan Manuel Ferron Solis
--------------------------------------
Juan Manuel Ferron Solis
Public Accountant
6
EXHIBIT 23.1 - CONSENT OF
COOPERS & LYBRAND
9
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
October 27, 1997
We consent to the inclusion in this Registration Statement on Form F-4 of:
(a) our report dated February 21, 1997, June 26, 1997 for Note 20 and
September 30, 1997 for Note 18.b, 18.c and 18.d on our review of the
financial statements and financial statement schedules of Grupo Iusacell,
S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995 and for the
years then ended;
(b) our report dated February 10, 1995 on our audit of the financial
information of Communicaciones Celulares de Occidente, S.A. de C.V. as of
and for the year then ended December 31, 1994;
(a) our report dated July 15, 1997, on our review of the pro forma financial
information of Grupo Iusacell, S.A. de C.V. and subsidiaries; and
We consent to the reference to our firm under the captions "Independent
Accountants", "Summary Historical and Pro Forma Consolidated Financial and
Operating Data," "Selected Historical and Pro Forma Consolidated Financial and
Operating Data" and "Unaudited Pro Forma Consolidated Financial Information."
Very truly yours,
Coopers & Lybrand
Despacho Roberto Casas Alatriste
/s/ Juan Manuel Ferron Solis
--------------------------------------
Juan Manuel Ferron Solis
Public Accountant
10
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENTS SCHEDULES
The Board of Directors of
Grupo Iusacell, S.A. de C.V.:
In connection with our audits of the consolidated financial statements of Grupo
Iusacell, S.A. de C.V. and subsidiaries as of December 31, 1996 and 1995, and
for each of the two years in the period ended December 31, 1996, which financial
statements are included in the Prospectus, we have also audited the financial
statements schedules listed herein.
In our opinion, these financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand
Despacho Roberto Casas Alatriste
/s/ Juan Manuel Ferron Solis
--------------------------------------
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D.F., Mexico
February 21, 1997
EXHIBIT 23.2 - CONSENT OF
MANCERA, S.C., ERNST & YOUNG
11
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions, "Summary Historical
and Pro Forma Consolidated Financial and Operating Data", "Selected Historical
and Pro Forma Consolidated Financial and Operating Date" and "Independent
Accountants", and to the use of our reports dated February 17, 1995, in the
Registration Statement (Form F-4/S-4) and related Prospectus of Grupo Iusacell,
S.A. de C.V. for the registration of 10% Series B Notes due 2004.
/s/ Mancera
-----------------------------
Mancera, S.C.
Members of Ernst & Young International, L.L.P.
Mexico, D.F.
October 24, 1997
EXHIBIT 23.3 - CONSENT OF
PRIETO, RUIZ DE VELASCO Y CIA., S.C.
12
<PAGE>
[LETTERHEAD OF PRIETO, RUIZ DE VELASCO Y CIA., S.C.]
CONSENT OF INDEPENDENT AUDITORS
October 27, 1997
We consent to the inclusion in this Registration Statement on Form F-4 of
our report dated February 10, 1995, on our audit of the financial statements of
SOS Telecomunicaciones, S.A. de C.V. as of December 31, 1994 and for the year
then ended.
We also consent to the reference of our firm under the captions
"Independent Accountants", "Summary Historical and Pro Forma Consolidated
Financial and Operating Data", and "Selected Historical and Pro Forma
Consolidated Financial and Operating Data".
Very truly yours,
Prieto, Ruiz de Velasco y Cia., S.C.
/s/ Ignacio Pineda Luna
------------------------------
Ignacio Pineda Luna CPA
Partner
EXHIBIT 99.1 - FORM OF LETTER
OF TRANSMITTAL FOR THE NOTES
22
<PAGE>
LETTER OF TRANSMITTAL
GRUPO IUSACELL, S.A. DE C.V.
Offer to Exchange All Outstanding
10% Senior Notes Due 2004 (The "Old Notes")
for
10% Senior Notes Due 2004,
Which Have Been Registered Under the Securities Act of 1933 (The "New
Notes") Pursuant to the Prospectus Dated [ ], 1997.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], 1997 OR
SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED BY THE
COMPANY (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
To: FIRST UNION NATIONAL BANK, Exchange Agent
By Hand or Overnight By Registered or Certified Mail:
FIRST UNION NATIONAL BANK FIRST UNION NATIONAL BANK
1525 West W.T. Harris Blvd., 303 1525 West W.T. Harris Blvd., 303
Charlotte, NC 28262 Charlotte, NC 28262
Attn: Mike Klotz Attn: Mike Klotz
By Facsimile:
704-590-7628
Confirm by Telephone:
704-590-7408
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission 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
- ----------------------------------------------------------------------------------------------
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)**
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------
------------------------------------------------
------------------------------------------------
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.
- --------------------------------------------------------------------------------
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated [ ], 1997 (the "Prospectus"), of Grupo Iusacell, S.A. de C.V.,
a Mexican company (the "Company"), and this Letter of
23
<PAGE>
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange up to U.S.$150,000,000 aggregate principal amount
of its 10% Senior Notes due 2004 (the "New Notes"), for a like principal amount
of the Company's issued and outstanding 10% Senior Notes due 2004 (the "Old
Notes").
The undersigned has completed the appropriate boxes above and below and
signed this Letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
This Letter is to be used either if certificates of 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 at The Depository Trust
Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set
forth in "The Exchange Offer--Procedures for Tendering Old Notes" 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__________ |_| The Depository Trust Company
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:
24
<PAGE>
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, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned 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 New 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 purchased 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 New 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 New Notes. The undersigned acknowledges that any holder
of Old Notes using the Exchange Offer to participate in a distribution of the
New 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 letters 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 New 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 New 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 New
Notes. If the undersigned is a broker-dealer that will receive New 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 New 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.
25
<PAGE>
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under "The Exchange Offer -- Procedures for
Tendering Old Notes" 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.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under "The Exchange Offer -- Certain Conditions to the Exchange
Offers," the Company may not be required to accept for exchange any of the Old
Notes tendered. Old Notes not accepted 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 in the box entitled "Special Issuance
Instructions" below, please issue the New 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 New 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.
26
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for New 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: New Notes and/or Old Notes to:
Name(s)...................................
(Please Type or Print)
..........................................
(Please Type or Print)
Address:..................................
..........................................
(Zip Code)
(Complete 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 New Notes are to be 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: New 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 COMPILED 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.
27
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
Dated:........................................................................
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:...............................
(Authorized Signature)
.......................................................
(Title)
.......................................................
(Name and Firm)
Dated:.................................................
- --------------------------------------------------------------------------------
28
<PAGE>
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, be 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 from 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 documents are received by the Exchange Agent within three
business days after the Expiration Date.
See "The Exchange Offer--Procedures for Tendering Old Notes," "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 notice of withdrawal (which may be sent by telegram,
facsimile (receipt confirmed by 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 transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth above. Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn,
29
<PAGE>
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 name 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
identified 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 the Prospectus.
3. Signatures on this Letter, Bond Powers and Endorsements; Guarantee of
Signatures.
If this letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
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
must 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 holders of Old Notes should indicate in the applicable box the
name and address to which New 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 also be
indicated. If no such instructions are given, any New 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 Federal Income Tax Withholding and Substitute Form W-9.
Under the federal income tax laws, payments that may be made by the
Company on account of New 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 and either (a) provide the correct 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 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 and has applied for
30
<PAGE>
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 New 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
taxpayer identification number is the Social Security number of such individual.
If the Exchange Agent or the Company is not provided with the correct taxpayer
identification number, the holder may 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 these backup withholding and reporting
requirements. 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. Such
statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if Old Notes are registered
in more than one name), consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the New Notes. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
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, New 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
payment of 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.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
31
<PAGE>
Neither the Company nor any other person is 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.
32
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: COPAMEX INDUSTRIAS, S.A. DE C.V.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Part I--TAXPAYER IDENTIFICATION
SUBSTITUTE NUMBER
Form W-9
Department of the Treasury ENTER YOUR TAXPAYER IDENTIFICATION
Internal Revenue Service NUMBER IN THE APPROPRIATE BOX. FOR
MOST INDIVIDUALS, THE THIS IS YOUR Social Security Number
SOCIAL SECURITY NUMBER. IF YOU DO
NOT HAVE A NUMBER, SEE HOW TO
Payor's Request for OBTAIN A "TIN" IN THE ENCLOSED
Taxpayer GUIDELINES. or
Identification Number
("TIN") and NOTE: IF THE ACCOUNT IS IN MORE
Certification THAN ONE NAME, SEE THE CHART ON
PAGE 2 OF THE ENCLOSED GUIDELINES
TO DETERMINE WHAT NUMBER TO GIVE. Employer Identification Number
--------------------------------------------------------------------------------------------------
Part II -- For Payees Exempt From Backup Withholding (See Enclosed Guidelines)
--------------------------------------------------------------------------------------------------
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 another notification from the IRS that you are no
longer subject to backup withholding, do not cross out item (2).
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of 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 percent of all payments made to
me on account of the New 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 the New Notes. Please review
the enclosed guidelines for certification of Taxpayer Identification Number on
Substitute Form W-9 for additional details.
- --------------------------------------------------------------------------------
33
EXHIBIT 99.2 - FORM OF NOTICE OF
GUARANTEED DELIVERY
34
<PAGE>
NOTICE OF GUARANTEED DELIVERY
for
Tender of 10% Senior Notes due 2004
in Exchange for
10% Series B Senior Notes due 2004
of
GRUPO IUSACELL, S.A. de C.V.
Pursuant to the Prospectus dated [ ], 1997
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of Grupo Iusacell, S.A. de C.V., a Mexican
corporation (the "Company"), who wishes to tender 10% Senior Notes due 2004 (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 [ ], 1997 (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 [ ], 1997,
UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN THE EXCHANGE
OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
First Union National Bank
<TABLE>
<CAPTION>
By Mail: Telephone Number: By Hand or Overnight Delivery:
<S> <C> <C>
FIRST UNION NATIONAL BANK 704-590-7408 FIRST UNION NATIONAL BANK
1525 West W.T. Harris Blvd., 303 1525 West W.T. Harris Blvd., 303
Charlotte, NC 28262 Charlotte, NC 28262
Attn: Mike Klotz Attn: Mike Klotz
</TABLE>
Facsimile Number:
704-590-7628
-----------------
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.
35
<PAGE>
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
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.:
- ------------------------------------ --------------
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
37
<PAGE>
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.
38
EXHIBIT 99.3 - FORM OF LETTER TO
DTC PARTICIPANTS
39
<PAGE>
GRUPO IUSACELL, S.A. DE C.V.
OFFER TO EXCHANGE ALL OUTSTANDING
10% SENIOR NOTES DUE 2004
FOR
10% SERIES B SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
To: Brokers, Dealer, Commercial Banks
Trust Companies and Other Nominees:
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 [ ], 1997 (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.$150,000,000
of its 10% Series B Senior Notes due 2004 (the "New 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 10% Senior Notes due 2004 (the "Old Notes")
outstanding on the date hereof. The New 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 July 15, 1997 by and among the Company
and Chase Securities Inc. and Salomon Brothers Inc., as representatives of the
initial purchasers referred to herein.
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 [ ], 1997;
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 Exchange Agent prior to the
Expiration Date (as defined below) 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 First Union National Bank, the Exchange
Agent for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
PM, NEW YORK CITY TIME, ON [ ], 1997, UNLESS EXTENDED BY THE COMPANY (THE
"EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY
BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
40
<PAGE>
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 instructions 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
Old Notes" 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 First
Union National Bank, the Exchange Agent for the Old Notes, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
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
41
EXHIBIT 99.4 - FORM OF LETTER
TO CLIENTS
42
<PAGE>
GRUPO IUSACELL, S.A. DE C.V.
Offer to Exchange All Outstanding
10% Senior Notes Due 2004
for
10% Series B Senior Notes Due 2004
Which Have Been Registered Under
The Securities Act of 1933, As Amended
To Our Clients:
Enclosed for your consideration is a Prospectus dated [ ], 1997
(the "Prospectus"), and the related letter of Transmittal (the "Letter of
Transmittal") relating to the offer (the "Exchange Offer") of Grupo Iusacell,
S.A. de C.V. (the "Company") to exchange its 10% Series B Senior Notes Due 2004,
which have been registered under the Securities Act of 1933, as amended (the
"New Notes"), for its outstanding 10% Senior Notes Due 2004 (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 July 15, 1997 by and among the Company and Chase
Securities Inc. and Salomon Brothers 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. The Exchange Offer will expire at 5:00 pm, New
York City time, on [ ], 1997, unless extended by the Company. Any Old Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time before the
expiration date.
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions to
the Exchange "Offer."
3. 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.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on [ ],
1997, 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.
43
<PAGE>
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 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:
Aggregate Principal Amount of Old Notes
10% Senior Notes Due 2004.......... ----------------------------------------
|_| Please do not tender any Old Notes
held by you for my account
Dated: _______________, 1997 ----------------------------------------
----------------------------------------
Signature(s)
----------------------------------------
----------------------------------------
----------------------------------------
Please print name(s) here
----------------------------------------
----------------------------------------
Address(es)
----------------------------------------
Area Code and Telephone Number
----------------------------------------
Tax Identification or Social Security No(s.)
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, you signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
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