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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 20-F
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|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the transition period from to
Commission File Number 1-13120
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GRUPO IUSACELL, S.A. DE C.V.
(Exact name of Registrant as specified in its charter)
IUSACELL GROUP INC. THE UNITED MEXICAN STATES
(Translation of Registrant's (Jurisdiction of incorporation
name into English) or organization)
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Montes Urales 460, 3rd Floor
Col. Lomas de Chapultepec, C.P.
11000 Mexico, D.F., Mexico
(Address of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
American Depositary Shares, each representing New York Stock Exchange
10 Series D Shares
Series D Shares New York Stock Exchange*
American Depositary Shares, each representing New York Stock Exchange
10 Series L Shares
Series L Shares New York Stock Exchange*
- ----------
* Not for trading, but only in connection with the registration of American
Depositary Shares, pursuant to the requirements of the Securities and
Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
NONE
----
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:
NONE
----
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
Series A Capital Stock 428,575,540 Shares
Series B Capital Stock 205,562,450 Shares
Series D Capital Stock 204,920,220 Shares
Series L Capital Stock 142,566,220 Shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark which financial statement item the registrant has
elected to follow:
Item 17|_| Item 18 |X|
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TABLE OF CONTENTS
Page
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS................................. 1
ITEM 2. DESCRIPTION OF PROPERTY................................. 27
ITEM 3. LEGAL PROCEEDINGS....................................... 27
ITEM 4. CONTROL OF REGISTRANT................................... 28
ITEM 5. NATURE OF TRADING MARKET................................ 31
ITEM 6. EXCHANGE CONTROL AND OTHER LIMITATIONS AFFECTING
SECURITY-HOLDERS........................................ 34
ITEM 7. TAXATION................................................ 36
ITEM 8. SELECTED FINANCIAL DATA................................. 39
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 42
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.................... 54
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.................. 61
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES............................................ 61
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.......... 62
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.............. 65
PART III
ITEM 15. DEFAULT UPON SENIOR SECURITIES.......................... 65
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES................................65
PART IV
ITEM 17. FINANCIAL STATEMENTS.................................... 65
ITEM 18. FINANCIAL STATEMENTS.................................... 65
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS....................... 65
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In this Annual Report on Form 20-F (the "Annual Report"), all
references to the "Company" or "Iusacell" are to Grupo Iusacell, S.A., de
C.V. a limited liability stock company (sociedad anonima de capital variable)
organized under the laws of Mexico on October 6, 1992.
Effective January 1, 1996, the Mexican Congress approved the
establishment of a new currency unit, the Peso, which replaced the New Peso
at the rate of one Peso per one New Peso. 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. Pursuant to Mexican GAAP, financial data for
all periods in the financial statements included herein, unless otherwise
indicated elsewhere herein, have been restated in constant December 31, 1996
Pesos. Restatement into constant December 31, 1996 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 December 31, 1996. The inflation index used for 1992 figures is
2.2316, for 1993 figures is 2.0661, for 1994 figures is 1.9300 and for 1995
figures is 1.2700. Certain amounts set forth herein may not add up or may be
slightly inconsistent due to rounding.
Unless otherwise indicated, the U.S. Dollar amounts have been translated
from Pesos at an exchange rate of Ps.7.8810 per U.S. dollar, the exchange rate
at December 31, 1996, reported by the Federal Reserve Bank of
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New York as its noon buying rate for Pesos ("Noon Buying Rate"). Certain
amounts set forth herein may be slightly inconsistent due to rounding.
Currency conversions contained in this Annual Report should not be construed
as representations that the Peso amounts actually represent such Dollar
amounts. Additionally, these conversions should not be construed as
representations that these Peso amounts have been, could have been or could
be converted into Dollars at those or any other rates of exchange.
As used herein, the number of "POPs" for a particular area means the
population of that area based on the 1990 Mexican census. Population figures
have been calculated by applying the official population growth rates as
published by the Instituto Nacional de Estadistica, Geografia e Informatica (the
National Institute of Statistics, Geography and Information, "INEGI") to the
official 1990 census figures. Where population information is set forth without
reference to a year, the information given is as of December 31, 1996. The
Secretaria de Comunicaciones y Transportes (the Ministry of Communications and
Transportation, the "SCT") divides Mexico into nine geographic regions for the
provision of cellular service (individually a "Region" and collectively the
"Regions"). Information regarding the numbers of POPs within a given Region has
been calculated using the national population growth rate, as published by
INEGI. Information regarding the number of POPs within a given city has been
calculated using the growth rate for that city, as published by INEGI, which may
not be the same as the national growth rate published by INEGI. The number of
POPs in any Region or other geographic area should not be confused with the
current number of users of cellular services in that Region or other geographic
area and is not indicative of the number of users of cellular services in the
future.
Exchange Rates
This Annual Report contains translations of certain Peso amounts into
U.S. dollars at specified rates solely for the convenience of the reader. The
following table sets forth, for the periods indicated, the period-end,
average, high and low free market rate, or, as the case may be, Noon Buying
Rate, 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.
Free Market/Noon Buying Rate(1)
-------------------------------------------
Period
Period Ended High Low Average(2) End
- ------------ --------- ------- ---------- --------
December 31, 1992........... 3.183 3.060 3.094 3.183
December 31, 1993........... 3.240 3.102 3.124 3.108
December 31, 1994(3)........ 5.750 3.105 3.385 5.000
December 31, 1995........... 8.050 5.270 6.447 7.740
December 31, 1996........... 8.045 7.325 7.600 7.881
(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.
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The Company will provide without charge to each person to whom this report
is delivered, on the written or oral request of each such person, a copy of any
or all of the documents incorporated herein by reference (other than exhibits,
unless such exhibits are specifically incorporated by reference in such
documents). Written requests for such copies should be directed to Grupo
Iusacell, S.A. de C.V., Montes Urales 460, 3rd Floor, Col. Lomas de Chapultepec,
C.P. 11000 Mexico, D.F., Mexico. Attention: Cynthia Pelini, Vice President of
Investor Relations. Telephone requests may be directed to 011-52-5-104-4147.
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GLOSSARY OF CERTAIN TELECOMMUNICATIONS TERMS
<TABLE>
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Analog: A transmission method employing a continuous electrical
signal that varies in amplitude or frequency in response to
changes in sound, light, position, etc., impressed on a
transducer in the sending device.
Band: A range of frequencies between two defined limits.
Bandwidth: The relative range of frequencies that can be passed through
a transmission medium without distortion. The greater the
bandwidth, the greater the information carrying capacity.
Bandwidth is measured in Hertz.
Base Station: In mobile telecommunications, the central radio
transmitter/receiver that maintains communications with the
mobile radiotelephone sets within range. In cellular and
personal communications applications, each cell or microcell
has its own base station; each base station in turn is
interconnected with other cells' base stations and with the
public switched telephone network.
CDMA: Code Division Multiple Access, a standard of digital
cellular technology which provides more call carrying
capacity than analog or TDMA.
CDPD: Cellular Digital Packet Data, a new packet data network
protocol which offers fast and reliable data transmission
without using large amounts of network capacity.
Cell Site: The location of a transmitting/receiving station serving a
given geographic area in a cellular communications system.
Channel: A pathway for the transmission of information between a
sending point and a receiving point.
Covered POPs: The number of POPs in a defined area for whom a cellular
signal is accessible.
Digital: A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses
that represent the binary digits 0 and 1. Digital
transmission and switching technologies employ a sequence of
discrete, distinct pulses to represent information, as
opposed to the continuous analog signal.
Hand-off: The act of switching a call in progress from one weak-signal
site to a strong-signal site without disrupting the call. In
current cellular systems, this function is performed by the
MSC, which monitors the signal strength of ongoing calls
continuously. In cellular networks, both the MSC and the
user equipment participate in the hand-off process.
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Hertz: The unit measuring the frequency with which an alternating
electromagnetic signal cycles through the zero-value state
between lowest and highest states. One hertz (abbreviated
Hz) equals one cycle per second. KHz (kilohertz) stands for
thousands of hertz; MHz (megahertz) stands for millions of
hertz and GHz (gigahertz) stands for billions of hertz.
IMTS: Improved mobile telephone service; IMTS systems are analog
mobile telephone systems that employ a single powerful radio
base station to communicate with IMTS mobile telephones that
are within approximately a 25-mile-wide radius.
LATA: Local Access and Transport Area; an area in which a local
exchange carrier is permitted to provide service as
designated by the 1982 United States federal court decree
resulting from antitrust litigation brought by the United
States Department of Justice against AT&T Corp.
Mobile Switching Center: The computer-controlled mobile switching center selects the
appropriate path for the transmission of a cellular call and
monitors the hand-off process.
PCS: Personal Communications Services, a wireless communications
service, typically offers such features as voice, video and
data applications, paging, voicemail, caller ID, call
conferencing and call forwarding. PCS suppliers promote this
service on the ability of its features to be customized, or
"bundled," to the needs of the individual customers. PCS is
characterized by the utilization of a digital network and
may operate on an 800 MHz frequency or higher.
Penetration rate: A cellular operator's subscribers within a defined area
divided by total POPs within that area.
POPs: The population of a particular area based on the 1990
Mexican census. Population figures for 1992, 1993, 1994,
1995 and 1996 have been calculated by applying the forecast
annual population growth rate for 1992 and 1995, as
published by the INSTITUTO NACIONAL DE ESTADISTICA,
GEOGRAFIA E INFORMATICA (the National Institute of
Statistics, Geography and Data Processing, "INEGI") to the
official 1990 census figures. Where the population
information is set forth without reference to a year, the
information given is as of December 31, 1996. The number of
POPs in any region or other geographic area should not be
confused with the current number of users of cellular
services in that region or other geographic area and is not
indicative of the number of users of cellular services in
the future.
Region 1: Consists of the states of Baja California Norte and Baja
California Sur. Major cities in the region include Tijuana,
Mexicali and La Paz.
Region 2: Consists of the states of Sonora and Sinaloa. Major cities
in the region include Hermosillo, Ciudad Obregon, Culiacan
and Mazatlan.
Region 3: Consists of the states of Chihuahua and Durango. Major
cities in the region include Ciudad Juarez, Chihuahua,
Durango and Gomez Palacio.
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Region 4: Consists of the states of Tamaulipas, Nuevo Leon and
Coahuila. Major cities in the region include Monterrey,
Saltillo, Ciudad Victoria, Tampico and Reynosa.
Region 5: Consists of the states of Colima, Jalisco, Michoacan and
Nayarit. Major cities in the region include Guadalajara
(population 1.8 million), Mexico's second largest city,
Morelia, Tepic and Manzanillo.
Region 6: Consists of the states of Aguascalientes, Guanajuato,
Queretaro, San Luis Potosi and Zacatecas. Major cities in
the region include Leon, San Luis Potosi, Aguascalientes and
Queretaro.
Region 7: Consists of the states of Guerrero, Oaxaca, Puebla, Tlaxcala
and Veracruz. Major cities in the region include Puebla,
Veracruz, Acapulco and Oaxaca.
Region 8: Consists of the states of Yucatan, Quintana Roo, Campeche,
Chiapas and Tabasco. Major cities in the region include
Merida, Cancun, Villahermosa, Campeche, Tuxtla Gutierrez and
San Cristobal de las Casas.
Region 9: Consists of Mexico City, one of the world's most populous
cities, and the states of Mexico, Hidalgo and Morelos.
Repeater: A device which automatically retransmits received signals on
an outbound circuit, generally in an amplified form.
Roaming: A service offered by mobile communications providers which
allows a subscriber to use his or her telephone while in the
service area of another carrier.
SCT: Secretaria de Comunicaciones y Transportes.
Site Splitting or The process of dividing sites or cells into smaller coverage
Cell Splitting: areas by reducing their power output and the antenna height
of the station transmitter. Site or cell splitting allows
for the further reuse of frequencies by a mobile
communications system.
Switch: A device that opens or closes circuits or selects the paths
or circuits to be used for transmission of information.
Switching is the process of interconnecting circuits to form
a transmission path between users.
TDMA: Time Division Multiple Access, a standard of digital
cellular technology, which provides more call carrying
capacity of analog but less than CDMA.
</TABLE>
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PART 1
ITEM 1. DESCRIPTION OF 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 232,906
cellular subscribers at December 31, 1996, and an average monthly cellular
revenue per subscriber during the year ended December 31, 1996 of Ps. 490
(approximately U.S.$62). 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 Corporation, a diversified
telecommunications company, through certain of its subsidiaries (together
with Bell Atlantic Corporation, "Bell Atlantic"), 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.
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.
Bell Atlantic is one of the largest cellular providers in the United States,
serving over 4.6 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 and Eurotel Bratislava S.R.D. in the Slovak Republic, 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.
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In February 1997, Bell Atlantic assumed control of the Board of Directors
and management of Iusacell from Carlos Peralta Quintero and his affiliated
companies (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 and granted the Peralta Group put options with
respect to all outstanding shares of the Company held by the Peralta Group.
See "Interest of Management in Certain Transactions--Specific Transactions."
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 "Control of Registrant" and "Directors and Officers of Registrant."
Bell Atlantic, one of the largest telecommunications companies in the United
States in terms of revenue and assets, has extensive knowledge of the
telecommunications and wireless businesses. In the District of Columbia and six
states in the mid-Atlantic region of the United States, Bell Atlantic provides
local exchange telephone service to its customers, utilizing over 20.6 million
access lines and employing over 62,600 people. Bell Atlantic had operating
revenues and net income of approximately U.S. $13.0 billion and U.S.$1.9
billion, respectively, for the fiscal year ended December 31, 1996, and total
assets of approximately U.S.$24.9 billion as of the same date.
In April 1996, Bell Atlantic and NYNEX Corporation, a global communications
and media corporation, announced a definitive agreement for a merger of equals.
The merger is expected to close by the third quarter of 1997. NYNEX Corporation
had operating revenues and net income of approximately U.S.$13.5 billion and
U.S.$1.5 billion, respectively, for the fiscal year ended December 31, 1996, and
total assets of approximately U.S.$27.7 billion as of such date. Bell Atlantic
and NYNEX Corporation are reporting companies under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
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.
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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 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 the first quarter of 1998 in order to upgrade its
existing integrated network infrastructure. 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 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
has been reduced by approximately 10% in 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.
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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 cellular-based
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 raised the per minute airtime price on its contract and prepay plans by a
weighted average of 15.0% and has raised the fixed monthly charge on all its
contract plans by a weighted average of 8.3%. Iusacell believes that its recent
price increases will not have a material adverse effect on customer growth,
retention or usage in the near-term, and the Company intends to implement future
price increases to the extent economic and competitive conditions permit.
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 Radio Movil DIPSA, S.A. de C.V. ("Telcel"), a
wholly-owned subsidiary of Telefonos de Mexico ("Telmex"), 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, 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.
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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 residential, business line 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 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.
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
<TABLE>
<CAPTION>
LINES IN SERVICE PER
COUNTRY 100 INHABITANTS(1)
- --------------------------------------------------------------------------------------------- -----------------------
<S> <C>
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
</TABLE>
- ------------------------
(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 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.
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
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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 sector,
although it has recently begun to develop as an automobile manufacturing center.
Region 7 includes Puebla, Veracruz and Acapulco and contains the major
operations of the Mexican petrochemical industry.
Subscribers and System Usage
As of December 31, 1996, Iusacell had a total of 130,318 cellular
subscribers in Region 9. Of this number, approximately 72.3% were contract
plan subscribers and 27.7% were prepay customers. According to Company
customer profiles, professionals comprise a large portion of its Region 9
revenue 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 with a new
distribution contract with Precel which increased the Company's number of
independent distributors in Region 9 by 40%. See "--Marketing
Strategy--Distribution."
As of December 31, 1996, Iusacell had a combined total of 102,588
cellular subscribers in Regions 5, 6 and 7. Of this number, 65.4% were
contract plan subscribers and 34.6% 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.
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<PAGE>
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>
At or For the
Year Ended December 31,
----------------------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Region 9
Total POPs (in millions)....................................... 23.3 23.8 24.3
Covered POPs (in millions)..................................... 19.9 20.3 22.1
Percentage of population covered............................... 85.4% 85.3% 91.0%
Subscribers:
Contract.................................................... 127,138 129,099 94,218
Prepay...................................................... 0 1,399 36,100
Total Subscribers........................................... 127,138 130,498 130,318
Non-wireline penetration(1).................................... 0.55% 0.55% 0.54%
Average monthly MOUs per subscriber(2)......................... 186 154 133
Nominal average monthly cellular revenue per subscriber(3)..... Ps.604 Ps.469 Ps.496
Nominal average monthly cellular revenue per subscriber(4)..... U.S.$ 178 U.S.$ 73 U.S.$ 65
Regions 5, 6 and 7 Combined
Total POPs (in millions)....................................... 38.9 39.7 40.3
Covered POPs (in millions)..................................... 19.6 20.0 23.4
Percentage of population covered............................... 50.4% 50.4% 58.1%
Subscribers:
Contract.................................................... 67,585 79,703 67,059
Prepay...................................................... 0 0 35,529
Total Subscribers........................................... 67,585 79,703 102,588
Non-wireline penetration(1).................................... 0.17% 0.20% 0.25%
Average monthly MOUs per subscriber(2)......................... 165 117 94
Nominal average monthly cellular revenue per subscriber(3)..... Ps. 630 Ps. 457 Ps. 481
Nominal average monthly cellular revenue per subscriber(4)..... U.S.$ 186 U.S.$ 71 U.S.$ 63
</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
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<PAGE>
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 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
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 and, at the same time, allow
customers to reinstate their prior telephone numbers up to 30 days after the
expiration of their Iusacell cards. Iusacell anticipates that this new
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 "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 ("in-roamers") earns usage
revenue. Iusacell bills such other operators (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
8
<PAGE>
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, S.A. de
C.V. ("Infotelecom") as a joint venture to market national and international
paging services. The Company owns 51% of Infotelecom, while Infomin, S.A. de
C.V. ("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.
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.
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 December
31, 1996, Infotelecom had 3,098 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.
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
9
<PAGE>
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 December 31, 1996,
the Company provided long distance service to its approximately 248,000
existing customers for its other services, and anticipates providing service
in at least 60 cities by mid-1998.
The Company's long distance concession provides for certain coverage and
technological investment requirements. If the Company does not satisy 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. The number of radiotelephone subscribers has been declining and
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 areas with little or no basic service. At December 31, 1996, the
Company had 2,133 cellular telephones in service under its public and rural
telephony programs and as of March 31, 1997, Iusacell had 2,630 cellular
telphones in service under these programs.
At December 31, 1996, Iusacell was providing, on a trial basis pending
approval from the SCT, local wireless service in the 450 MHz frequency band
to 15,876 and as of March 31, 1997, the Company was providing such service 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
10
<PAGE>
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" 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 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
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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 lower 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 31% of Iusacell's
subscribers at December 31, 1996. 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
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.
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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 currently includes 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.
DIRECT SALESFORCE. Currently, the Company employs 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
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minimal Company support. Currently, the Company has 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. 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
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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
purchases of Control Plus Ps.500 card) 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 businesspeople who require cellular service for short periods of
time. In addition, prepay plans have no monthly bill and offer customers a
greater degree of flexibility. 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.
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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<PAGE>
Since April 1997, the Company has implemented two price increases for its
cellular plans. On April 1, 1997, the Company raised the per minute airtime
price on all its contract and prepay plans by a weighted average of 15.0%. This
weighted average price increase was calculated by applying the actual price
increases implemented 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 raised the fixed monthly charges on
all its contract plans by a weighted average of 8.3%. This weighted average
price increase was calculated by applying the actual price increases implemented
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.
Since Iusacell implemented 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.
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 accomodate 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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<PAGE>
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. 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.
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<PAGE>
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.
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.
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."
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<PAGE>
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."
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., Comunicacion Dinamica Metropolitana (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.
The Company has filed suit with the 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. In addition,
the Company is currently involved in disputes with Telmex over the rates that
Telmex charges for interconnection services and over billing and collection
services the Company renders on behalf of Telmex. See "--Legal Proceedings."
INTERNATIONAL JOINT VENTURES
Iusacell owns directly 27.3% and, indirectly through its 70.1% interest in a
Colombian holding company, 3.5% of the equity interest in Consorcio Ecuatoriano
de Telecommunicaciones, S.A. ("Conecel"), one of two Ecuadorean cellular
companies. The Peralta Group holds an additional 15.1% of Conecel's equity.
Iusacell's investment in Conecel is passive. Iusacell does not intend to fund
any significant capital calls that may be issued by Conecel in the future. The
Company is currently considering divesting its interest in Conecel.
19
<PAGE>
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.
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.
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<PAGE>
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 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.
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<PAGE>
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.
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:
<TABLE>
<CAPTION>
PERCENT OF GROSS
REVENUES PAYABLE TO
MEXICAN GOVERNMENT
---------------------------
<S> <C>
Comcel................................................................... 8%
Portacel................................................................. 7
Telgolfo................................................................. 8
</TABLE>
22
<PAGE>
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 "--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 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
23
<PAGE>
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. See "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.
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
24
<PAGE>
controlled by, foreign persons. In February 1997, the 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.
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 Jose Ramon Elizondo, a Director of the Company and a Mexican
investor. The Company has petitioned the Foreign Investment Bureau to approve a
capital structure substantially similar to that authorized for Iusatel and
Iusatelecomunicaciones for 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 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.
25
<PAGE>
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.
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
26
<PAGE>
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 December 31, 1996, Iusacell had approximately 2,280 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.
ITEM 2. DESCRIPTION OF PROPERTY
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.
ITEM 3. 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.
The Company is currently involved in a dispute with Telmex over the terms
of Telmex's interconnection agreements with the Company 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 Company has disputed the increases and continues to
pay Telmex the interconnection rate in effect prior to the increases. In
addition, Iusacell's cellular subsidiaries have been offsetting their charges
for the termination of Telmex customers' local calls in their cellular
networks against Telmex's charges for interconnection. The billed, disputed
interconnection charges totalled approximately Ps. 89.4 million (U.S.$11.3
million) as of December 31, 1996, and are continuing to accrue. The Company
also claims to be entitled to a fee for billing and collection services
rendered to Telmex on long distance charges incurred on the Company's network
by the Company's cellular customers. This fee has been deducted from amounts
paid by the Company to Telmex for interconnection services provided to the
Company's cellular customers. The disputed amounts equaled approximately Ps.
29.6 million (U.S.$3.8 million) as of December 31, 1996, and are continuing
to accrue. In addition, Telmex has asserted that Iusacell
27
<PAGE>
owes interest on such disputed charges in the amount of approximately Ps. 29.2
million (U.S. $3.7 million) as of December 31, 1996.
While the Company believes that Telmex's actions are in violation of its
agreement with cellular carriers, that the Company is not obligated 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 Iusacell's cellular customers, there
can be no assurance that the Company will not be required to pay Telmex all or a
portion of the amounts in dispute either on a going-forward basis or
retroactively, or that the Company 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 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. 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 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 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 is still pending. On February 25, 1997, the Ministry of Finance and Public
Credit also notified Comcel of the alleged obligation. The Company believes that
the penalty is unwarranted since the SCT had granted Comcel extensions of the
fee payment in 1991 and 1992. As a result, the Company has not created any
contingency reserves for the penalty.
28
<PAGE>
ITEM 4. CONTROL OF REGISTRANT
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.
<TABLE>
<CAPTION>
IDENTITY OF
TITLE OF CLASS PERSON OR GROUP AMOUNT OWNED PERCENT OF CLASS
- ----------------------------------------------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
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
</TABLE>
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 order to effect this 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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<PAGE>
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, each will have the
right to cause Iusacell to facilitate two registered secondary public offerings
of their 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
their 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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ITEM 5. NATURE OF TRADING MARKET
The Series D and L Common Shares (the "Shares") are listed on the Mexican
Stock Exchange and the American Depositary Shares ("ADSs") representing such
shares are listed on the New York Stock Exchange. The ADSs are evidenced by
American Depositary Receipts ("ADRs") issued by the Bank of New York, as
Depositary under a Deposit Agreement among the Company, the Depositary and the
holders from time to time of ADRs.
The following tables set forth for the period indicated the high, low and
period end sales prices of the Series D and Series L Common Shares on the
Mexican Stock Exchange as reported by the Mexican Stock Exchange, and the high,
low and period end sales price of the Series D and Series L ADSs on the New York
Stock Exchange as reported by the New York Stock Exchange.
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Mexican Stock Exchange (in Ps.)
Period High Low Close
------ ---- --- -----
Series D
First Quarter 1995 7.10 6.70 7.00
Second Quarter 1995 7.50 5.94 6.06
Third Quarter 1995 7.20 5.80 7.20
Fourth Quarter 1995 -- -- --
First Quarter 1996 7.20 6.88 6.88
Second Quarter 1996 7.00 6.60 6.98
Third Quarter 1996 -- -- --
Fourth Quarter 1996 6.98 4.98 5.75
Series L
First Quarter 1995 10.00 5.40 6.80
Second Quarter 1995 8.48 7.00 7.28
Third Quarter 1995 9.18 7.08 8.98
Fourth Quarter 1995 8.80 8.14 7.96
First Quarter 1996 9.60 8.00 8.50
Second Quarter 1996 10.10 8.32 8.34
Third Quarter 1996 8.30 6.00 6.00
Fourth Quarter 1996 7.20 5.25 5.75
New York Stock Exchange (in U.S.$)
Period High Low Close
------ ---- --- -----
Series D
First Quarter 1995 16.00 7.38 10.38
Second Quarter 1995 13.13 9.00 10.50
Third Quarter 1995 12.38 9.50 10.50
Fourth Quarter 1995 10.38 8.00 8.00
First Quarter 1996 11.125 8.000 8.875
Second Quarter 1996 11.875 8.375 8.750
Third Quarter 1996 8.875 6.750 6.750
Fourth Quarter 1996 7.125 5.625 5.750
Series L
First Quarter 1995 18.75 8.75 11.88
Second Quarter 1995 15.88 10.88 12.00
Third Quarter 1995 15.50 11.25 13.00
Fourth Quarter 1995 13.38 9.25 10.13
First Quarter 1996 13.375 10.000 10.875
Second Quarter 1996 14.375 9.375 10.750
Third Quarter 1996 10.875 7.375 7.500
Fourth Quarter 1996 9.500 6.500 7.625
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Trading on the Mexican Stock Exchange
The Mexican Stock Exchange, which was founded in 1894 and has operated
continuously since 1907, is located in Mexico City and is Mexico's only stock
exchange. The Mexican Stock Exchange is organized as a corporation with its
shares being held by 33 brokerage firms.
Equity trading takes place on the Mexican Stock Exchange between 8:30 AM
and 3:00 PM, Mexico City time, each weekday other than public holidays. The
Mexican Stock Exchange operates a system of automatic suspension of trading in
shares of a particular issuer as a means of controlling excessive price
volatility. The automatic suspension system does not apply to equity securities,
such as the Company's shares, which trade, directly or in the form of depositary
shares, in markets other than the Mexican Stock Exchange, including the New York
Stock Exchange and automated quotation systems.
Settlement is effected two trading days after a share transaction on the
Mexican Stock Exchange. Deferred settlements, even if by mutual agreement, are
not permitted without the approval of the Comision Nacional Bancaria y de
Valores (National Banking and Securities Commission) ("CNBV"). Most securities
traded on the Mexican Stock Exchange are on deposit with S.D. Indeval, S.A. de
C.V., Institucion para el Deposito de Valores ("Indeval"), a privately owned
central securities depositary that acts as a clearing house, depositary,
custodian, settlement, transfer and registration institution for Mexican Stock
Exchange transactions, eliminating the need for physical transfer of securities.
As of December 31, 1996, the shares of 158 Mexican companies, excluding
mutual funds, were listed on the Mexican Stock Exchange. In 1996, the ten most
actively traded equity issues represented approximately 71.29% of the total
volume (in terms of Pesos) of equity issues traded on the Mexican Stock
Exchange. There is no active over-the-counter market for equity securities in
Mexico. As of December 31, 1996, the total market value of all shares, excluding
mutual funds, listed on the Mexican Stock Exchange was Ps.838.7 billion.
Registration Standards
In order to offer securities to the public in Mexico, an issuer must meet
certain qualitative and quantitative requirements. The CNBV published general
rules to implement an intermediate securities market in addition to the current
market operated by the Mexican Stock Exchange, in order to permit less liquid
issues and issuers with a lower capitalization to participate in a public
securities market. In essence, the general rules divide the Securities Section
of the Registro Nacional de Valores e Intermediarios (the "National Registry of
Securities and Intermediaries" or "RNVI") into two subsections, Subsection "A"
and Subsection "B." Registration of securities in Subsection "A" enables such
securities to be eligible for certain transactions for which only securities
classified as "high-liquidity" issues by the Mexican Stock Exchange are eligible
(i.e., issuance of warrants). The Company has been classified as a Subsection
"A" issuer.
In general, in order to become registered and maintain such registration
in Subsection "A" of the RNVI, an issuer is required to meet more stringent
qualitative and quantitative requirements than for Subsection "B." For example,
in order to become registered in Subsection "A," an issuer is generally required
to have (i) at least three years of operating history; (ii) shareholders' equity
of at least Ps.100,000,000; (iii) profits for the last three years of operations
taken as a whole; (iv) a public float of at least 15% of the capital stock on a
fully diluted basis; and (v) as a result of the offering, there must be at least
200 shareholders, with diversified individual participation with respect to the
total amount of the offering. To maintain their registration in Subsection "A,"
issuers are required to have (i) a shareholders' equity of at least
Ps.50,000,000; (ii) a public float of at least 12% of the capital stock on a
fully diluted basis; and (iii) at least 100 shareholders, whose individual
participation is diversified with respect to the total capitalization of the
issuer, in accordance with the current market price for the securities. The
amounts mentioned herein are updated on a yearly basis to reflect changes in the
National Consumer Price Index (Indice Nacional de Precios al Consumidor or the
"INPC").
The requirements for Subsection "B" are of the same nature, but the
quantitative requirements are lower. The Mexican Stock Exchange will carry out
on a yearly basis a review of each issuer to determine if it continues
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to meet the requirements to be eligible for registration in Subsection "A." The
registration of the securities will be reclassified to Subsection "B" if (a) the
issuer does not meet the shareholders' equity requirements for subsection "A";
or (b) as a result of a spin-off the issuer (spinning company) does not meet the
requirements for subsection "A." In all other cases, if an issuer does not meet
the requirements for either subsection, such issuer shall be required to submit
to the Mexican Stock Exchange a program to cure such failure. In the event the
issuer fails to submit the program or comply with the same, the issuer's
registration and the listing thereof on the Mexican Stock Exchange may be
cancelled by the CNBV.
Registration with the CNBV does not imply any kind of certification or
assurance related to the merits or the quality of the securities, or the
solvency of the issuer. Issuers of listed securities are required to file
unaudited quarterly financial statements and audited annual financial statements
as well as various other periodic reports with the CNBV and the Mexican Stock
Exchange.
Market Regulation
In 1946, the Comision Nacional de Valores ("CNV"), sometimes referred to
as the "Mexican National Securities Commission," was set up to regulate stock
market activity. The CNV was merged with the Comision Nacional Bancaria (the
National Banking Commission) in April 1995 to form the CNBV. The Ley del Mercado
de Valores (the "Mexican Securities Market Law"), which took effect in 1975,
introduced important structural changes to the Mexican financial system,
including the organization of brokerage houses as corporations. The Mexican
Securities Market Law sets standards for the registration of brokerage houses in
the RNVI, a prerequisite to becoming a member of the Mexican Stock Exchange.
Registration of brokerage houses is granted by the Secretaria de Hacienda y
Credito Publico (the Ministry of Finance and Public Credit) (the "MFPC") upon
the recommendation of the CNBV. Foreign securities firms are not permitted to be
recorded in the Intermediaries Section of the RNVI and, therefore, they are not
allowed to be members of the Mexican Stock Exchange, unless they incorporate an
affiliate brokerage house (as defined in the Securities Market Law). In addition
to setting standards for brokerage houses, the Mexican Securities Market Law
empowers the CNBV to regulate the public offering and trading of securities. The
CNBV regulates the Mexican securities market, the Mexican Stock Exchange and
brokerage houses through a board of governors composed of a President (appointed
by the MFPC) and two Vice Presidents (appointed by the President of the CNBV), 5
members appointed by the MFPC, 3 by Banco de Mexico (the central bank), one by
the Comision Nacional para el Sistema de Ahorro Para el Retiro (the Commission
for the National Retirement Savings System) and one by the Comision Nacional de
Seguros y Fianzas (the National Insurance and Bonding Commission).
Pursuant to the Mexican Securities Market Law, the CNBV must be notified
before shareholders of a company listed on the Mexican Stock Exchange effect one
or more simultaneous or successive transactions resulting in the transfer of ten
or more percent of such company's shares of capital stock, other than on the
Mexican Stock Exchange. The parties involved in the transactions are also
obligated to inform the CNBV of the results of the transactions within three
days of completion of the last transaction, or that the transactions have not
been completed. The CNBV will notify the Mexican Stock Exchange of such
transactions, without specifying the names of the parties involved.
The Mexican Securities Market Law was amended in 1993 to include, among
other things, a chapter regarding the internationalization of the Mexican
securities market. Subject to certain approvals, the offering of securities
issued by non-Mexican companies and trading thereof on the Mexican Stock
Exchange is permitted.
ITEM 6. EXCHANGE CONTROL AND OTHER LIMITATIONS AFFECTING SECURITY-HOLDERS
Mexico abolished its exchange control system on November 11, 1991. Under
the previous Mexican exchange control system established in 1982, Mexican
residents and companies were entitled to purchase, and required to sell, foreign
currencies for certain purposes at a controlled rate of exchange (the
"Controlled Rate") that was established daily by Banco de Mexico. Transactions
to which the Controlled Rate applied included payments
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for virtually all merchandise imports, revenues from virtually all merchandise
exports, royalty payments and payments of principal, interest and related
expenses with respect to indebtedness to foreign creditors registered with the
Mexican government. For all transactions to which the Controlled Rate did not
apply, foreign currencies could also be purchased, if they were available, at
the then prevailing domestic free market rate for the type of transaction (the
"Free Market Rate").
From November 11, 1991 to October 20, 1992, Banco de Mexico permitted the
Free Market Rate to fluctuate according to supply and demand within a moving
band. In late December 1994, the Mexican government responded to exchange rate
pressures first by increasing by 15% the upper limit of the Peso/Dollar exchange
rate band and then, two days later, allowing the Peso to fluctuate freely
against the Dollar. By December 31, 1994, the Peso/Dollar exchange rate, which
had been Ps.3.466 to $1.00 on December 19, 1994, was Ps.5.000 to $1.00. At
December 31, 1996, the Peso/Dollar exchange rate was Ps.7.88 to $1.00.
Fluctuations in the exchange rate between the Peso and the Dollar affect
the Dollar equivalent of the Peso price of securities traded on the Mexican
Stock Exchange, including the Shares and, as a result, are likely to affect the
market price of the ADSs. The Peso devaluation most likely had a direct effect
on the drop in the market price of the ADSs recorded after the devaluation. See
"Nature of Trading Market." Such fluctuations also would affect the Dollar
conversion by the Depositary of any cash dividends paid in Pesos on Shares
represented by ADSs. Fluctuations in the exchange rate can also affect the
Company's operating results depending on the terms of its contractual
arrangements and the effect of the fluctuation on the specific industries served
by the Company.
Except for the period from September through December 1982 during the
Mexican liquidity crisis, Banco de Mexico 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 that foreign
currency needed by the Company to service foreign currency obligations could be
purchased in the open market without substantial additional cost.
Foreign investment in capital stock of Mexican corporations in certain
economic sectors, including cellular telephony, is regulated by the Foreign
Investment Law (the "Foreign Investment Law") and the regulations applicable
thereto (the "Foreign Investment Regulations"). Under the Foreign Investment
Law, foreign investment is defined in general as the participation of foreign
investors in the capital stock of Mexican corporations, or investments made
therein by Mexican corporations in which foreign capital has a majority
participation, and the participation of foreign investors in certain activities
regulated by the Foreign Investment Law. Foreign investors are defined as
non-Mexican individuals, non-Mexican legal entities and foreign entities without
legal personality. The National Commission on Foreign Investment (the "Foreign
Investment Commission") and the National Registry of Foreign Investment are
responsible for the administration of the Foreign Investment Law and Foreign
Investment Regulations. In order to comply with restrictions on the percentage
of their capital stock that may be owned by non-Mexican investors, Mexican
companies typically limit particular classes of their stock to ownership by
Mexican individuals and Mexican corporations in which foreign investment has a
majority participation.
As a general rule, the Foreign Investment Law allows foreign investment in
up to 100% in the capital stock of Mexican companies except for those engaged in
certain specified restricted industries, such as basic telephone service, where
foreign investment control is limited to 49%. Foreign investment may, however,
participate in a proportion in excess of 49% of the capital stock of a Mexican
corporation engaged in the cellular telephone business with the advance approval
of the Foreign Investment Commission. The Company has applied for and obtained
such approval. In addition to the limitations on share ownership, the Foreign
Investment Law and Foreign Investment Regulations require that Mexican
shareholders retain the power to determine the administrative control and the
management of Mexican corporations engaged in industries in which special
restrictions as to foreign investment are applicable. Pursuant to the Mexican
Federal Telecommunications Law, concessions (including a concession for basic
telephone service) may only be granted to Mexican individuals or Mexican
companies where foreign investment does not exceed 49% (except that with respect
to cellular telephony such percentage may be higher when approved by the Foreign
Investment Commission).
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Under the Company's ByLaws, and as permitted by the approval mentioned
above, the Shares of the Company are not restricted to Mexican ownership.
Pursuant to the Company's ByLaws, the Series A shares must always represent at
least 51% of the voting stock of Iusacell.
ITEM 7. TAXATION
General
The following is a general summary of certain anticipated U.S. federal and
Mexican tax consequences of the ownership of Shares or ADSs. The tax treatment
of a holder of the Shares or ADSs may vary depending upon the particular
situation of the holder. The following summary of U.S. federal income tax
consequences is limited to investors who are U.S. Persons (as defined below)
(except as explicitly provided below) who will hold the Shares or ADSs as
"capital assets" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code") and whose "functional currency" within the
meaning of Section 985 of the Code is the Dollar. Certain holders (including,
but not limited to, insurance companies, tax-exempt organizations, financial
institutions, persons subject to the alternative minimum tax, holders that are
not U.S. Persons, brokers-dealers and holders of 10% or more of the voting
shares of the Company) may be subject to special rules not discussed below. The
discussion below also does not address the effect of any United States state or
local tax law on a holder of the Shares or ADSs. As used herein, the term "U.S.
Person" means an individual who is a citizen or resident of the United States, a
corporation organized in or under the laws of the United States or any state
thereof, or an estate or trust that is subject to United States federal income
taxation without regard to the source of its income. In the case of a holder of
shares or ADSs that is a partnership, the taxation in the United States of each
partner on the partner's allocable share of dividends or capital gains realized
by the partnership on such shares or ADSs will depend on the partner's status as
a U.S. person or a non-U.S. person. The summary does not constitute, and should
not be considered as, legal or tax advice to holders of Shares or ADSs.
The summary is for general information purposes only and is based upon the
tax laws of the United States and Mexico as in effect on the date hereof, which
are subject to change. Prospective purchasers of ADSs should consult their own
tax advisers as to the U.S., Mexican or other tax consequences of the purchase,
ownership and disposition of Shares and ADSs, including, in particular, the
effect of any foreign, state or local tax laws.
Mexico and the United States 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 Shares or ADSs are summarized below. Mexico has also executed double
taxation treaties with other countries as well as agreements providing for the
exchange of information with respect to tax matters, some of which are in force.
The following summary does not take into account the effect of any such
treaties. Holders must consult with their tax advisors as to their entitlement
to the benefits afforded by the Tax Treaty.
In general, for U.S. federal income tax purposes, holders of ADRs
evidencing ADSs will be treated as the owners of the Shares represented by those
ADSs.
Taxation of Dividends
U.S. Tax Considerations
Distributions with respect to the L Shares and the B Shares represented by
the Shares or ADSs (other than distributions in redemption of the Shares or the
ADSs subject to Section 302(b) of the Code or in a liquidation of the Company)
will, to the extent made from current or accumulated earnings and profits of the
Company as determined under U.S. federal income tax principles, constitute
dividends for U.S. federal income tax purposes. Whether such current or
accumulated earnings and profits will be sufficient for all such distributions
on the Shares or ADSs to qualify as dividends for U.S. federal income tax
purposes depends on the future profitability of the Company and other factors,
many of which are beyond the control of the Company. To the extent that such a
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distribution exceeds the amount of the Company's earnings and profits, it will
be treated as a non-taxable return of capital to the extent of the holder's
basis in the Shares or ADSs, and thereafter as capital gain (provided the Shares
or ADSs are held as capital assets). As used below, the term "dividend" means a
distribution that constitutes a dividend for U.S. federal income tax purposes.
Dividends paid with respect to the L Shares and B Shares represented by the
Shares or ADSs will be includible in the gross income of a holder that is a U.S.
Person (a "U.S. holder"), as ordinary income when the dividends are received by
the Depositary or by the U.S. holder of a certificated ADR and will not be
eligible for any dividends received deduction otherwise allowable to
corporations under Section 243 of the Code. Dividends paid in Pesos will be
includible in the income of a U.S. holder in a Dollar amount calculated by
reference to the exchange rate in effect on the day the Pesos are received by
the Depositary or by the U.S. holder of a certificated ADR. U.S. holders should
consult their own tax advisers regarding the treatment of any foreign currency
gain or loss on any Pesos received which are not converted into Dollars on the
day the Pesos are received. Dividends generally will constitute foreign source
"passive income" (or in the case of certain holders, "financial services
income") for U.S. foreign tax credit purposes.
Distributions of additional L Shares or B Shares to holders of Shares with
respect to their ADSs that are made as part of a pro rata distribution to all
shareholders of the Company generally will not be subject to U.S.
federal income tax.
A holder of Shares or ADSs that is, with respect to the United States, not
a U.S. holder (a "non-U.S. holder") generally will not be subject to U.S.
federal income or withholding tax on dividends received on Shares or ADSs,
unless such income is effectively connected with the conduct by the holder of a
trade or business in the United States.
Mexican Tax Considerations
Dividends, either in cash or in any other form, paid with respect to the B
Shares and L Shares represented by Shares or ADSs will not be subject to any
Mexican withholding or other tax, if the amount maintained in the "cuenta de
utilidad fiscal neta" or "previously taxed net earnings account" ("CUFIN")
exceeds the dividend payment to be made. However, if the Mexican corporation's
CUFIN balance is less than the dividend payment then the Company will be
required to pay a 34% income tax on the gross amount which exceeds such balance
(calculated as the amount of such excess times 1.515).
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Taxation of Capital Gains
U.S. Tax Considerations
Gain or loss realized by a U.S. holder on the sale or other disposition
of ADSs or Shares will be subject to U.S. federal income taxation as capital
gain or loss in an amount equal to the difference between such holder's basis
in the ADSs or the Shares and the amount realized on the disposition. Such
gain or loss will be treated as a capital gain or loss and will be a
long-term capital gain or loss if the ADSs or Shares are held for more than
one year on the date of such sale or exchange. Gain realized by a U.S. holder
on a sale or other disposition of ADSs or Shares, including gain that arises
because the U.S. holder's basis in the Shares or the ADSs has been reduced
because a distribution is treated as a return of capital rather than as a
dividend, generally will be treated as U.S. source income for foreign tax
credit purposes unless the gain is attributable to an office or other fixed
place of business maintained by the U.S. Holder outside the United States and
certain other requirements are satisfied. Deposits and withdrawals of Shares
by U.S. holders in exchange for ADSs will not result in the realization of
gain or loss for U.S. federal income tax purposes. U.S. holders that withdraw
any Shares should consult their own tax advisers regarding the treatment of
any foreign currency gain or loss on any Pesos received in respect of such
Shares. If a Mexican tax is imposed on the sale or disposition of Shares (see
"Taxation of Capital Gains--Mexican Tax Considerations"), the amount realized
by a U.S. holder will include the gross amount of the proceeds of such sale
or disposition before deduction of the Mexican tax. The availability of U.S.
foreign tax credits for these Mexican taxes is subject to certain limitations
and involves the application of rules that depend on a U.S. holder's
particular circumstances. Thus, a U.S. holder may not be able to use the
foreign tax credit that results from Mexican tax imposed on the gain unless
it can appropriately apply the credit against its tax due on income from
foreign sources. U.S. holders should consult their own tax advisers regarding
the application of the foreign tax credit rules to their investment in, and
disposition of, Shares.
A non-U.S. holder of Shares or ADSs will not be subject to U.S. federal
income or withholding tax on gains realized on the sale of Shares or ADSs,
unless (i) such gain is effectively connected with the conduct by the holder of
a trade or business in the United States or (ii) in the case of gain realized by
an individual holder, the holder is present in the United States for 183 days or
more in the taxable year of the sale and certain other conditions are met.
Mexican Tax Considerations
The sale or other disposition of ADSs by holders who are nonresidents
of Mexico (as described below) will not be subject to Mexican tax. Deposits
of Shares in exchange for ADSs and withdrawals of Shares in exchange for ADSs
will not give rise to Mexican tax. Pursuant to the Tax Treaty, gain realized
by qualifying U.S. Holders from the sale or other disposition of ADSs, even
if the sale is not conducted through a recognized stock exchange or a highly
exchangeable market, will not be subject to Mexican income tax except that
Mexican taxes may apply if (i) 50% or more of the assets of the Company
consist of immovable property situated in Mexico, (ii) such U.S. Holder owned
25% or more of the capital of the Company, directly or indirectly, during the
12-month period preceding such disposition, or (iii) the gain is attributable
to a permanent establishment or fixed base of the U.S. Holder in Mexico.
Gain realized by a nonresident of Mexico on the sale or other disposition
of stock of a Mexican corporation (like the Company) through a recognized stock
exchange or a highly exchangeable market is exempt from Mexican income tax if
the stock is on the list of publicly traded shares published by the Ministry of
Finance in the Official Gazette. The Shares are included on that list.
Accordingly, gain realized by a nonresident holder on the sale or other
disposition of Shares through a recognized stock exchange or a highly
exchangeable market, such as the Mexican Stock Exchange and the New York Stock
Exchange, is exempt from Mexican income tax.
Information Reporting and Backup Withholding
Dividends paid in the United States with respect to ADSs
or Shares, and proceeds on a sale or other disposition of
ADSs or Shares through a United States broker (or certain
brokers having significant connections with the United
States), may be subject to the information reporting
requirements of the Internal Revenue Code. Under existing
regulations, such dividends (and under certain
circumstances proceeds from a sale or other disposition
of Shares or ADSs) are not subject to backup
withholding. Under proposed regulations, however, such
dividends (and proceeds) are subject to backup
withholding at the rate of 31% unless the U.S. holder
provides a taxpayer identification number on a properly
completed Form W-9 or otherwise establishes an exemption.
Non-U.S. Holders of ADSs or Shares generally are exempt
from information reporting and backup withholding, but
may be required to provide a properly completed Form W-8
or otherwise comply with applicable certification and
identification procedures in order to prove their
exemption. Any amounts withheld from payments to a holder
under the backup withholding rules will be refunded (or
credited against such holder's U.S. federal income tax
liability, if any) provided that the required information
is furnished to the Internal Revenue Service.
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Under current law, gains realized by a nonresident holder on the sale or
disposition of Shares not conducted through a recognized stock exchange or a
highly exchangeable market generally are subject to a Mexican tax at a rate of
20% of the gross sale price. However, if the holder is a resident of a country
which is not considered to be a low tax rate country (by reference to a list of
low rate countries published by the Mexican Ministry of Finance and Public
Credit), the holder may elect to designate a resident of Mexico as its
representative, in which case the tax generally would be 30% of the gain on such
disposition. Pursuant to the Tax Treaty, the gain realized by a U.S. holder from
the sale or other disposition of Shares may not be subject to Mexican taxes if
the applicable conditions contemplated by the Tax Treaty are met. Brokerage
commissions paid in connection with transactions on the Mexican Stock Exchange
are subject to a value added tax of 15%.
For purposes of Mexican taxation, an individual is a resident of Mexico if
he or she has established his or her home in Mexico, unless he or she has
resided in another country for more than 183 calendar days during a year and can
demonstrate that he or she had become a resident of that country for tax
purposes, and a legal entity is a resident of Mexico if its principal
administrative office is located in Mexico. A Mexican citizen or a legal entity
with its corporate domicile in Mexico and established under Mexican law is
presumed to be a resident of Mexico unless such person or entity can demonstrate
otherwise. If a legal entity has a permanent establishment in Mexico, such
permanent establishment shall be required to pay taxes in Mexico in accordance
with relevant tax provisions.
Other Mexican Taxes
There are no inheritance or succession taxes applicable to the ownership,
transfer or disposition of ADSs or Shares. There are no Mexican stamp, issuer,
registration or similar taxes or duties payable by holders of ADSs or Shares.
Treaties to prevent double taxation have been executed between Mexico and
several countries. This summary does not discuss the effects of the treaties
entered into by, or effective with respect to, Mexico.
ITEM 8. SELECTED FINANCIAL DATA
The following tables present selected consolidated financial information
for Iusacell and its consolidated subsidiaries. This information has been
derived from, and should be read in conjunction with, the Consolidated Financial
Statements.
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 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 shareholders' equity.
All financial statements included herein were prepared giving effect to
the Third Amendment to Bulletin B-10 (as so amended, "Bulletin B-10") and
Bulletin B-12 ("Bulletin B-12") issued by the Mexican Institute of Public
Accountants, both of which became effective in 1990. Generally, Bulletin B-10 is
designed to provide for the recognition of certain effects of inflation by
requiring companies to restate nonmonetary assets at current replacement cost,
to restate nonmonetary liabilities using the Mexican National Consumer Price
Index (Indice Nacional de Precios al Consumidor or the "INPC"), to restate the
components of shareholders' equity using the INPC and to record gains or losses
in purchasing power from holding monetary assets or liabilities. Bulletin B-10
requires restatement of all financial statements to constant Pesos as of the
date of the most recent balance sheet presented. All data in the financial
statements included herein and the selected financial information derived
therefrom set forth below therefore have been restated in constant December 31,
1996 Pesos. Bulletin B-12 requires that the statement of changes in financial
position reconcile changes from the restated prior year balance sheet to the
current year balance sheet. See Note 4 to the Consolidated Financial Statements.
The effect of inflation accounting under Mexican GAAP has not been eliminated in
the reconciliation to U.S. GAAP. See Note 19 to the Consolidated Financial
Statements.
39
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996
------------- ------------- ------------- ------------- ------------- -------------
(Thousands of constant December 31, 1996 Pesos, except ratios (Thousands of
and subscriber data)((1) U.S. dollars,
except ratios
and subscriber
data)(2)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Services .......................... Ps. 1,088,542 Ps. 1,347,603 Ps. 1,881,985 Ps. 1,517,693 Ps. 1,375,421 U.S.$ 174,524
Telephone equipment sales
and other ....................... 67,832 120,473 256,744 270,425 221,853 28,150
------------- ------------- ------------- ------------- ------------- -------------
Total ........................... 1,156,374 1,468,076 2,138,729 1,788,118 1,597,274 202,674
Cost of sales:
Cost of services .................. 228,723 331,803 546,938 556,425 504,263 63,985
Cost of telephone
equipment and other ............. 57,465 106,449 126,234 150,095 123,686 15,694
------------- ------------- ------------- ------------- ------------- -------------
Total ........................... 286,188 438,252 673,172 706,520 627,949 79,679
Gross profit ........................ 870,186 1,029,824 1,465,557 1,081,598 969,325 122,995
Operating expenses .................. 440,840 590,083 910,495 789,788 691,983 87,804
Depreciation & amortization ......... 116,812 227,128 547,930 629,191 568,021 72,075
Operating profit (loss) ............. 312,534 212,613 7,132 (337,381) (290,679) (36,884)
Integral financing cost (gain):
Interest Expense, net .............. 164,876 277,627 191,680 162,767 264,062 33,506
Foreign exchange (gain)
loss, net ........................ 18,593 17,766 492,904 662,473 (58,357) (7,405)
Gain on net monetary
position .......................... (62,664) (113,726) (46,946) (471,190) (327,220) (41,520)
Financing cost incurred in
the acquisition of Regions
5, 6 and 7 ......................... -- 218,864 -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Total ........................... 120,805 400,531 637,638 354,050 (121,515) (15,419)
Equity participation in net
income (loss) of associated
companies .......................... 10,857 6,888 2,911 (36,773) (5,631) (715)
Other income ........................ 22,035 3,418 -- -- -- --
Income (loss) from continuing
operations before asset tax,
employee profit sharing,
minority interest and
extraordinary item ................. 224,621 (177,612) (627,595) (728,204) (174,795) (22,180)
Provisions for:
Asset tax ......................... 48,814 21,521 30,498 27,333 33,069 4,196
Employee profit sharing ........... 3,541 -- 608 1,956 -- --
------------- ------------- ------------- ------------- ------------- -------------
Total ........................... 52,355 21,521 31,106 29,289 33,069 4,196
Income (loss) before minority
interest and extraordinary
item ............................... 172,266 (199,133) (658,701) (757,493) (207,864) (26,376)
Minority interest ................... -- 6,462 42 34,789 2,987 379
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before
extraordinary item ................. 172,266 (192,671) (658,659) (722,704) (204,877) (25,997)
Extraordinary item(3) ............... 16,520 -- -- -- (136,407) (17,308)
------------- ------------- ------------- ------------- ------------- -------------
Net income (loss) ................... Ps. 188,786 Ps. (192,671) Ps. (658,659) Ps. (722,704) Ps. (341,284) U.S.$ (43,305)
============= ============= ============= ============= ============= =============
U.S. GAAP:(4)
Total revenues ...................... Ps. 1,156,374 Ps. 1,468,076 Ps. 2,138,729 Ps. 1,788,118 Ps. 1,684,755 U.S.$ 213,774
Operating profit (loss) ............. 312,534 212,613 7,132 (337,381) (597,864) (75,861)
Net Income (loss) ................... Ps. 150,731 Ps. (88,502) Ps. (643,633) Ps. (341,265) Ps. (131,661) U.S.$ (16,706)
Other Financial Data and
Ratios:
EBITDA(5) ........................... Ps. 429,346 Ps. 439,741 Ps. 555,062 Ps. 291,810 Ps. 277,342 U.S.$ 35,191
EBITDA (U.S. GAAP)(4) ............... 429,346 439,741 555,062 291,810 140,935 17,883
Capital expenditures ................ 695,171 629,670 1,155,526 442,749 198,466 25,183
Interest Expense, net ............... 164,876 496,491 191,680 162,767 264,062 33,506
Subscriber Data:
POPs ................................ 59,108,617 60,301,858 61,464,945 63,447,714 64,782,192
Subscribers(6)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
-----------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996
------------- ------------- ------------- ------------- ------------- ---------------
(Thousands of constant December 31, 1996 Pesos, except ratios (Thousands of
and subscriber data)((1) U.S. dollars,
except ratios
and subscriber
data)(2)
<S> <C> <C> <C> <C> <C> <C>
Contract plan .................. 114,838 127,361 194,723 208,802 161,277
Prepay ......................... 0 0 0 1,399 71,629
------------- ------------- ------------- ------------- -------------
Total ........................ 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(7) ........... 89,930 121,100 161,042 202,462 221,554
Contract Churn(8) ................ 3.00% 3.66% 2.67% 3.62% 4.28%
Penetration(9) ................... 0.19% 0.21% 0.32% 0.33% 0.36%
Average monthly MOUs per
subscriber(10) ................. 237 211 179 140 117
Nominal average monthly
revenue per subscriber(11) ..... Ps. 736 Ps. 638 Ps. 595 Ps. 464 Ps. 490 U.S.$ 62
Nominal cost to acquire a
new subscriber(12) ............. 3,738 5,808 5,717 6,143 6,076 771
Balance Sheet Data:
Working capital(13) .............. Ps. (437,978) Ps. 184,513 Ps. (358.422) Ps.(1,357,016) Ps.(1,531,167) U.S.$(194,286)
Property & equipment, net ........ 1,913,459 2,699,680 4,205,133 4,026,757 3,107,307 394,278
Total assets ..................... 2,706,058 5,952,465 7,410,677 6,844,797 5,600,380 710,618
Total debt ....................... 1,466,274 1,774,510 1,357,752 1,559,495 1,319,720 167,456
Stockholders' equity ............. 916,793 3,845,114 5,273,656 4,122,484 3,132,193 397,436
U.S. GAAP:(4)
Working capital(13) .............. Ps. N/A Ps. N/A Ps. N/A Ps. 1,570,831 Ps.(1,642,530) U.S.$(208,416)
Property & equipment, net ........ 1,913,459 2,699,680 4,205,133 4,026,757 3,107,307 394,278
Total assets ..................... 2,461,354 5,906,647 7,387,509 7,453,918 6,227,453 789,651
Total debt ....................... 1,466,273 1,774,510 1,357,753 1,559,495 1,319,720 167,456
Stockholders' equity ............. 671,010 3,787,626 5,104,726 3,486,625 2,830,243 359,122
</TABLE>
- ----------
(1) Pursuant to Mexican GAAP, financial data for all periods in the financial
statements included herein have, unless otherwise indicated elsewhere
herein, been restated in constant December 31, 1996 pesos. Restatement
into constant December 31, 1996 Pesos. Restatement into December 31, 1996
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 December 31, 1996. The inflation
index used in this Annual Report for 1992 figures is 2.2316, for 1993
figures is 2.0661, for 1994 figures is 1.9300 and for 1995 figures is
1.2700.
(2) Peso amounts were converted to U.S. dollars at the exchange rate of
Ps.7.8810 per U.S.$1.00 reported by the Federal Reserve Bank of New York
as its noon buying rate for Pesos on December 31, 1996. 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.
(3) 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.
(4) See Note 19 to the Audited Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--U.S. GAAP Reconciliation" for a discussion of certain
differences between U.S. GAAP and Mexican GAAP.
(5) EBITDA represents operating profit (loss) plus depreciation and
amortization. The Company believes that EBITDA provides useful information
regarding the Company's debt service ability and should not be considered
in isolation or as a substitute for the consolidated income statement or
statements of changes in financial position prepared in accordance with
generally accepted accounting principles and included herein.
(6) 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 the period, the customer's card has not yet
expired.
(7) Average subscribers represents the rolling monthly average number of
subscribers for the respective periods.
(8) 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"
(9) Penetration represents the end of period subscribers divided by the end of
period POPs.
(10) Average monthly MOUs (minutes of use) per subscriber is calculated by
dividing the total minutes of use for the respective period by the number
of average subscribers for the respective period dividing the result by
twelve.
(11) Nominal average monthly cellular revenue per subscriber is calculated by
dividing the total cellular service revenue for the respective period
by the average number of subscribers for the respective period and
dividing the quotient by twelve.
(12) 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 gross customer additions for such period.
(13) Working capital represents current assets current liabilities.
41
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ALL PESO AMOUNTS DISCUSSED HEREIN ARE PRESENTED IN THOUSANDS OF CONSTANT
DECEMBER 31, 1996 PESOS IN ACCORDANCE WITH MEXICAN GAAP.
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 Annual Report. 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. 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 Annual Report have been
restated in constant Pesos as of December 31, 1996. References in this Annual
Report 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 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 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 has declined 127.4% from
December 19, 1994 to December 31, 1996.
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.
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:
42
<PAGE>
(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, the carrying value of the Company's assets purchased in
foreign currencies will 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 30.8% at December 31, 1996 and 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 minutes of use 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 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 December 31, 1996, the number of the Company's
prepay customers increased from 2,730 to 71,629. Since the Company's first
Control Plus customers began to turn over, a monthly average of 21% 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. The new operating system is also expected
to allow customers to reinstate their prior telephone numbers up to 30
43
<PAGE>
days after expiration of their Iusacell prepay cards. 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.
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. 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.
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). 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 December 31,
1996, the book value of the fixed assets (including capitalized interest)
deployed in the Company's 450 MHz local wireless service totaled Ps. 547.6
million (U.S.$69.5 million). Assuming that 25% of these fixed assets could not
be sold, the non-cash charge to Iusacell's earnings would be Ps. 136.9 million
(U.S.$17.4 million).
44
<PAGE>
Results of Consolidated Operations
The following table sets forth for the periods indicated the percentage
relationships which certain amounts bear to revenues:
Years ended December 31,
-------------------------
1994 1995 1996
----- ------ ------
Revenues:
Services ......................................... 88.0% 84.9% 86.1%
Telephone equipment sales and other .............. 12.0 15.1 13.9
----- ------ ------
Total ......................................... 100.0% 100.0% 100.0%
Cost of sales ....................................... 31.5 39.5 39.3
----- ------ ------
Gross profit ..................................... 68.5 60.5 60.7
Operating expenses .................................. 42.6 44.2 43.3
Depreciation and amortization ....................... 25.6 35.2 35.6
----- ------ ------
Operating profit (loss) ............................. 0.3 (18.9) (18.2)
Integral financing cost (gain):
Interest expense, net ......................... 9.0 9.1 16.5
Foreign exchange (gain) loss, net ............. 23.0 37.0 (3.7)
Gain on net monetary position ................. (2.2) (26.3) (20.5)
----- ------ ------
Total ........................................ 29.8 19.8 (7.7)
----- ------ ------
Equity 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 items .......................... (29.4) (40.7) (10.9)
Provision for asset tax and
employee profit sharing .......................... 1.4 1.6 2.1
Minority interest ................................... 0.0 1.9 0.1
Extraordinary item .................................. 0.0 0.0 8.5
----- ------ ------
Net income (loss) ................................ (30.8)% (40.4)% (21.4)%
===== ====== ======
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Revenues
The following table sets forth the source of the Company's revenues for
the years ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1996
------------------- ------------------- %
Ps. % Ps. % Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cellular service revenues ............ 1,216.8 68.1% 1,122.1 70.2% (7.8)%
Other service revenues ............... 300.9 16.8 253.3 15.9 (15.8)
------- ------- ------- ------- -------
Total service revenues ............... 1,517.7 84.9 1375.4 86.1 (9.4)
Telephone equipment and other revenues 270.4 15.1 221.9 13.9 (18.0)
------- ------- ------- ------- -------
Total revenues ....................... 1,788.1 100.0% 1,597.3 100.0% (10.7)%
======= ======= ======= ======= =======
</TABLE>
45
<PAGE>
Cellular Services. The table below sets forth the cellular service
revenues by source and operating region for 1995 and 1996.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995(1)
-------------------------------------------------------------
Regions 5, 6
Region 9 and 7 combined Total
----------------- ----------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) .......................... 311.8 39.4% 147.4 34.7% 459.2 37.7%
Monthly fees ........................ 338.8 42.8 188.3 44.3 527.1 43.3
Long distance(3) .................... 50.0 6.3 33.9 8.0 83.9 6.9
Value-added services(4) ............. 65.0 8.2 39.0 9.2 104.0 8.6
In-roaming(5) ....................... 24.8 3.1 14.6 3.4 39.4 3.2
Activation fees ..................... 1.6 0.2 1.6 0.4 3.2 0.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 792.0 100.0% 424.8 100.0% 1,216.8 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996(1)
-------------------------------------------------------------
Regions 5, 6
Region 9 and 7 combined Total
----------------- ----------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) .......................... 247.6 36.1% 144.3 33.0% 391.9 34.9%
Monthly fees ........................ 312.7 45.7 199.0 45.5 511.7 45.6
Long distance(3) .................... 45.7 6.7 38.1 8.7 83.8 7.5
Value-added services(4) ............. 53.9 7.9 29.6 6.7 83.5 7.4
In-roaming(5) ....................... 24.9 3.6 26.2 6.0 51.1 4.6
Activation fees ..................... 0.0 -- 0.1 0.1 0.1 --
------- ------- ------- ------- ------- -------
Total cellular service revenues ..... 684.8 100.0% 437.3 100.0% 1,122.1 100.0%
</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 "Description of Business--Cellular Services--Roaming" for a
discussion of the differences between in-roaming and out-roaming and the
revenues associated therewith. 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 7.8% to Ps.1,122.1 million
(U.S.$142.4 million) from Ps.1,216.8 million (U.S.$154.4 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 in 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 a higher rate per
minute. 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
46
<PAGE>
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 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 "Description of 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.253.3
million (U.S.$32.1 million) in 1996 from Ps. 300.9 million (U.S.$38.2 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 (27.0%) 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.59.7 million (U.S.$7.6 million).
Telephone Equipment and Other. Telephone equipment and other revenues
decreased 18.0% to Ps.221.9 (U.S.$28.2 million) in 1996 from Ps.270.4 million
(U.S.$34.3 million) in 1995. This decline reflected fewer sales
47
<PAGE>
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.627.9 million (U.S.$79.7
million) in 1996 from Ps.706.5 million (U.S.$89.6 million) in 1995. As a
percentage of total revenues, total cost of sales decreased to 39.3% in 1996
from 39.5% in 1995.
Cost of Services. Cost of services decreased by 9.4% to Ps.504.3 million
(U.S.$64.0 million) in 1996 from Ps.556.4 million (U.S.$70.6 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.123.6 million (U.S.$15.7 million) in
1996 from Ps.150.1 million (U.S.$19.0 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.
Operating Expenses
Operating expenses decreased by 12.4% to Ps.691.9 million (U.S.$87.8
million) in 1996 from Ps.789.8 million (U.S.$100.2 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 is
required under U.S. GAAP) expensed. The amount of these pre-operating
expenses (net of pre-operating revenues) that were capitalized instead of
expensed in 1996 and 1995 equalled Ps.60.1 million (U.S.$7.6 million) and
Ps.40.4 million (U.S.$5.1 million), respectively. See Notes 17 and 19 to the
Audited Consolidated Financial Statements. 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.568.0
million (U.S.$72.1 million) in 1996 from Ps.629.2 million (U.S.$79.8 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.
Operating Loss
In 1996, the Company recorded an operating loss of Ps.290.7 million
(U.S.$36.9 million) as compared to an operating loss of Ps.337.4 million
(U.S.$42.8 million) in 1995.
48
<PAGE>
Integral Financing Cost (Gain)
Integral financing gain was Ps.121.5 million (U.S.$15.4 million) in 1996
compared to a cost of Ps.354.1 million (U.S.$44.9 million) in 1995 due
principally to a foreign exchange gain of Ps.58.4 million (U.S.$7.4 million) in
1996 compared to a foreign exchange loss of Ps.662.5 million (U.S.$84.1 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 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 30.6% to Ps.327.2 million (U.S.$41.5 million) in 1996 from Ps.471.2 million
(U.S.$59.8 million) in 1995 reflecting the lower rate of inflation in 1996. Net
interest expense increased 62.3% to Ps.264.1 million (U.S.$33.5 million) in 1996
from Ps.162.7 million (U.S.$20.6 million) in 1995. The increase in interest
expense was due to higher levels of borrowing in 1996.
Equity Participation in Net Loss of Associated Companies
Equity participation in net income (loss) of associated companies
decreased by 84.7% to a loss of Ps.5.6 million (U.S.$0.7 million) in 1996 from a
loss of Ps.36.8 million (U.S.$4.7 million) in 1995. This decrease was due to
operating improvements in the Company's Ecuadorian affiliate. See
"Description of Business--International Joint Ventures."
Extraordinary Item
In 1996, the Company recorded a Ps.136.4 million (U.S.$17.3 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.341.3 million (U.S.$43.3 million) in 1996 from Ps.722.7 million (U.S.$91.7
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, 1995
------------------- ------------------- %
Ps % Ps % Change
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cellular service revenues ............ 1,777.1 83.1% 1,216.8 68.1% (31.5)%
Other service revenues ............... 104.9 4.9 300.9 16.8 187.0
Total service revenues ............ 1,882.0 88.0 1,517.7 84.9 (19.4)
------- ------- ------- ------- -------
Telephone equipment and other revenues 256.7 12.0 270.4 15.1 5.3
------- ------- ------- ------- -------
Total revenues .................... 2,138.7 100.0% 1,788.1 100.0% (16.4)%
======= ======= ======= ======= =======
</TABLE>
49
<PAGE>
Cellular Services. The table below sets forth the cellular service
revenues by source and operating region for 1994 and 1995.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994(1)
---------------------------------------------------------------
Regions 5, 6
Region 9 and 7 combined Total
------------------- ----------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ....................... 558.2 48.5% 265.8 42.6% 824.0 46.4%
Monthly fees ..................... 387.6 33.6 205.3 32.8 592.9 33.3
Long distance(3) ................. 62.1 5.4 59.0 9.4 121.1 6.8
Value-added services(4) .......... 104.9 9.1 52.6 8.4 157.5 8.9
In-roaming(5) .................... 24.0 2.1 34.5 5.5 58.5 3.3
Activation fees .................. 15.2 1.3 7.9 1.3 23.1 1.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 1,152.0 100.0% 625.1 100.0% 1,777.1 100.0%
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995(1)
---------------------------------------------------------------
Regions 5, 6
Region 9 and 7 combined Total
------------------- ----------------- -------------------
Ps. % Ps. % Ps. %
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Airtime(2) ....................... 311.8 39.4% 147.4 34.7% 459.2 37.7%
Monthly fees ..................... 338.8 42.8 188.3 44.3 527.1 43.3
Long distance(3) ................. 50.0 6.3 33.9 8.0 83.9 6.9
Value-added services(4) .......... 65.0 8.2 39.0 9.2 104.0 8.6
In-roaming(5) .................... 24.8 3.1 14.6 3.4 39.4 3.2
Activation fees .................. 1.6 0.2 1.6 0.4 3.2 0.3
------- ------- ------- ------- ------- -------
Total cellular service revenues 792.0 100.0% 424.8 100.0% 1,216.8 100.0%
</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 "Description of Business--Cellular Services--Roaming" for a
discussion of the differences between in-roaming and out-roaming and
the revenues associated therewith. 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.1,216.8 million
(U.S.$154.4 million) from Ps.1,777.1 million (U.S.$225.5 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 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.
50
<PAGE>
Other Services. Other service revenues increased substantially to Ps.300.9
million (U.S.$38.2 million) in 1995 from Ps.104.9 million (U.S.$13.3 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.270.4 million (U.S.$34.3 million) in 1995 from Ps.256.7 million
(U.S.$32.6 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.706.5 million (U.S.$89.6 million)
in 1995 from Ps.673.1 million (U.S.$85.4 million) in 1994.
Cost of Services. Cost of services increased by 1.7% to Ps.556.4 million
(U.S.$70.6 million) in 1995 from Ps.546.9 million (U.S.$69.4 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.150.1 million (U.S.$19.0 million) in 1995
from Ps.126.3 million (U.S.$16.0 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 13.3% to Ps.789.8 million (U.S.$100.2
million) in 1995 from Ps.910.5 million (U.S.$115.5 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. The amount
of pre-operating expenses (net of pre-operating revenues) that were capitalized,
rather than, as is required under U.S. GAAP, expensed, in 1995 equalled Ps.40.4
million (U.S.$5.1 million). No pre-operating expenses were recorded in 1995
or 1994 that under U.S. GAAP would have been required to be expensed, instead
of, as is the case under Mexican GAAP, capitalized.
Depreciation and Amortization
Depreciation and amortization expenses increased to Ps.629.2 million
(U.S.$79.8 million) in 1995 from Ps.547.9 million (U.S.$69.5 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.337.4 million (U.S.$42.8
million) in 1995 as compared to an operating profit of Ps.7.1 million (U.S.$0.9
million) in 1994.
Integral Financing Cost (Gain)
Integral financing cost decreased by 44.5% to Ps.354.1 million (U.S.$44.9
million) in 1995 from Ps.637.6 million (U.S.$80.9 million) in 1994 due
principally to an increase in gains on monetary position to Ps.471.2 million
(U.S.$59.8 million) from Ps.46.9 million (U.S.$6.0 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.162.7 million (U.S.$20.6 million) in 1995 from Ps.191.7
million (U.S.$24.3 million)
51
<PAGE>
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.662.5 million (U.S.$84.1 million) in
1995 from a loss of Ps.492.9 million (U.S.$62.5 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.36.8 million (U.S.$4.7 million) in 1995
from an income of Ps.2.9 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)
As a result of the factors described above, net loss increased 9.7% to
Ps.722.7 million (U.S.$91.7 million) in 1995 from Ps.658.6 million (U.S.$83.6
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.30.5 million (U.S.$3.9 million),
Ps.27.3 million (U.S.$3.5 million) and Ps.33.1 million (U.S.$4.2 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 1996, statutory
profit sharing totalled Ps.0.6 million (U.S.$0.1 million), Ps.2.0 million
(U.S.$0.3 million) and Ps.0.3 million (U.S.$0.0 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 and short-term and long-term
borrowings. Total debt as of December 31, 1996 was Ps.1,319.7 million, a
decrease of Ps.239.8 million, or 15.4%, compared to 1995. Substantially all
of the Company's debt outstanding at December 31, 1996 was dollar-denominated
and unhedged. As of December 31, 1996, the Company's bank debt consisted
primarily of (i) U.S.$65.0 million under a credit agreement with the Chase
Manhattan Bank, (ii) U.S.$47.1 million
outstanding under three credit agreements with Banco Mexicano, S.A. for the
purchase of equipment from Northern Telecom Corporation, (iii) U.S.$32.9
million under credit facilities granted by The Chase Manhattan Bank, N.A. and
supported by an affiliate of Bell Atlantic and (iv) U.S.$45.7 million under
four credit agreements granted by Banco Nacional de Mexico, S.A. ("Banamex")
to two of the Company's subsidiaries.
On February 18, 1997, as part of the transactions relating to the
assumption of management control by Bell Atlantic, the U.S.$32.9 million credit
facilities provided by an affiliate of Bell Atlantic was converted into
approximately 47 million shares of the Company's Common Stock. Simultaneously,
U.S.$37.2 million in loans
52
<PAGE>
from the Peralta Group was converted into approximately 53 million shares of the
Company's Common Stock. These conversions resulted in Bell Atlantic owning 44.4%
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 financing of up to U.S.$150.0 million in exchange for convertible
subordinated debentures. See Notes 5 and 10 to the Audited Consolidated
Financial Statements.
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 flow of its subsidiaries to meet its
obligations. The Company's subsidiaries operating in Regions 5 and 6 are
currently parties to credit agreements that partially restrict their ability to
pay dividends to the Company if certain financial ratios are not met. These two
subsidiaries made up 23.3% and 30.9% of the Company's consolidated revenues and
cash flow, respectively, in 1996.
The Company's principal source of funds in 1996 was resources from
operating activities. In 1996, the Company generated Ps.440.9 million, down from
Ps.523.6 million in 1995, a 15.8% decrease. The 1996 decrease was largely due to
(i) a decrease in depreciation and amortization expense of Ps.66.1 million from
1995 reflecting a lower revaluation of assets due to lower inflation in 1996 as
compared with 1995, (ii) a lower contribution from trade accounts payable
resulting from stricter payment terms imposed by key suppliers and (iii) the
reversal of taxes and other payables from a contribution to resources to a use.
Resources used for financing activities were Ps.328.1 million in 1996,
compared with Ps.201.7 million in resources provided by financing activities in
1995. In 1996 the Company repaid various long-term obligations, offset in part
by a Ps.54.4 million increase in 1996 in notes payable.
The Company's principal uses of funds in 1996 were for the repayment of
debt and for investing activities. In 1996, the Company's investing activities
used resources of Ps.52.8 million, reflecting a decline of 93.4% from Ps.799.8
million in 1995. Uses of investing activities were composed of capital
expenditures requiring outlays of Ps.198.5 million in 1996, a decrease of
Ps.244.2 million from Ps.442.7 million in 1995. As a result of the economic
situation in Mexico, the Company reduced its capital expenditure program with
outlays principally for 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.
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The Company expects to be able to fund future capital expenditures and
meet its other obligations from funds from operations, borrowings under the Bell
Atlantic U.S.$150 million convertible subordinated debenture commitment, foreign
bank lines of credit and other financing facilities, such as trade financing,
import-export bank financing and vendor financing. To the extent such financing
is not available, the Company may have to scale back capital expenditures and
expansion plans.
The Company's principal amortization payments due on its existing
indebtedness at December 31, 1996 total Ps.964.7 million (U.S.$122.4 million) in
1997, Ps.141.1 million (U.S.$17.9 million) in 1998, Ps.130.0 million (U.S.$16.5
million) in 1999 and Ps.2,179.1 million (U.S.$276.5 million) in 2000 and
thereafter.
Limitations on Financings. The Company is party to certain credit
agreements which, directly or indirectly, restrict its ability to incur
additional indebtedness. Pursuant to two credit agreements entered into with
Banco Mexicano, S.A. for a total of U.S.$64.7 million, the Company agreed not
to contract for loans, financing or guarantees, or make advances to third
parties without first obtaining the consent of Banco Mexicano, S.A. Pursuant
to two credit agreements which the Company's subsidiary Comcel entered into
with Banamex for a total aggregate amount up to U.S.$24.5 million, Comcel
agreed not to incur any additional long-term debt without Banamex's consent
and not to incur short-term debt in excess of U.S.$2.0 million in the
aggregate; and pursuant to three credit agreements which the Company's
subsidiary Portacel entered into with Banamex for a total aggregate amount up
to U.S.$35.0 million, Portacel agreed not to incur debt in excess of
U.S.$2,500 per subscriber. Certain of the Company's and subsidiaries' credit
agreements contain debt-coverage and leverage ratios. These restrictions may
effect the Company's ability to access credit or refinance its existing
indebtedness.
Dividend Policy. The Company has not paid and currently has no plans to
initiate dividend payments.
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, deferred employee profit sharing and capitalized interest expense. See
Note 19 to the Audited Consolidated Financial Statements.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
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 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 "Control of Registrant."
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. Even 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:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
------------------------------------------------- ------------- -------------------------------------------------
<S> <C> <C> <C>
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............................. 53 Series A Director
Dennis C. 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
Mack E. Treece................................... 38 Series B Director
Robert Van Brunt................................. 43 Series B Director
Fernando de Ovando............................... 45 Series B Director
Javier Martinez del Campo Lanz................... 38 Series B Director
Ernesto Canales Santos........................... 56 Series D Director
</TABLE>
- ------------------------
(*) Indicates an employee of Bell Atlantic who is currently serving as an
officer of Iusacell pursuant to consulting or secondment arrangements.
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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 January
1995, he was elected 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.
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.
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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. Mr. Albertini
has served as executive vice president of Bell Atlantic since February 1995 and
as chief financial officer of Bell Atlantic since February 1991. 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.
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
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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
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more than four years prior 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. 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
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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 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
"Control of Registrant."
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
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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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ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
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 (U.S.$4.1 million) million. As part of its general compensation policy,
the Company conducts periodic reviews of its management and employees to
determine bonus compensation.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
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 and
June 1997, the Human Resources and Compensation Committee and, in April and June
1997, the Technical Committee of the Company's Board of Directors granted
purchase rights with respect to a total of 7,013,253 Series L Shares to 40
executive employees at a purchase price of Ps.8.48 per Series L Share in April
1997 and 13.82 Pesos per Series L Share in June 1997. All such purchase rights
vest either in three equal annual installments commencing on April 17, 1998 or
June 6, 1998, or in a lump sum on April 17, 1999 or June 6, 1999.
As of June 23, 1997, purchase rights with respect to 6,865,397 Series L
Shares were outstanding, and purchase rights with respect to 147,856 Series L
Shares had been forfeited.
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ITEM 13. INTEREST OF MANAGEMENT IN 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
Bell Atlantic and the Company will enter into a debenture purchase
agreement (the "Bell Atlantic Facility") whereby Bell Atlantic will reaffirm
ite commitment under the 1996 Share Conversion Agreement to purchase an
aggregate principal amount of up to U.S.$150.0 million of convertible
subordinated debentures of Iusacell (the "Debentures"). Any Debentures 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 each year 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 Depository Shares and
Series L American Depository Shares of the Company over 10 trading days
immediately preceding such interest payment date. The Debentures will be
transferable only to affiliates of Bell Atlantic, subject to certain exceptions
to be agreed upon.
Bell Atlantic has agreed to enter into a subordination agreement (the
"Subordination Agreement") with The Chase Manhattan Bank, as administrative
agent under a U.S.$150.0 million five year senior secured term loan facility
and a U.S.$100.0 million five year senior secured revolving credit facility
(collectively, the "Chase Credit Facility"), and the Trustee, on behalf of the
holders of certain Senior Notes that the Company intends to issue (the
"Notes"). The Subordination Agreement will provide that no payments of
principal, cash interest or other amounts may be made with respect to the
Debentures if a default or event of default has occurred and is continuing
under the Chase Credit Facility or the Indenture relating to the Notes (the
"Indenture"). In addition, the Subordination Agreement will also prohibit the
payment of principal, cash interest or other amounts (except for certain
withholding taxes) except to the extent permitted under certain covenants.
The Credit Agreement will contain a similar prohibition on such payments.
Breaches of the Subordination Agreement by Bell Atlantic will constitute a
default under the Chase Credit Facility and the Indenture.
Iusacell intends to satisfy its future funding needs with borrowings
under the Chase 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 million under the Bell Atlantic Facility
for purposes of funding Iusacell's local 450 MHz wireless subsidiary. Any
Debentures issued in connection with such borrowings must be promptly
converted. 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, Bell Atlantic provided an aggregate amount
of U.S.$25.0
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million in Bell Atlantic New Zealand Holdings, Inc. ("BANZHI") Loans, which
are either being repaid with certain of the proceeds from the Credit Chase
Facility, the Notes or will be refinanced by Debentures issued under the Bell
Atlantic Facility and converted into Series A shares of Iusacell.
Specific 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.
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 Bell
Atlantic International Inc. ("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 from Merrill Lynch International Bank Limited, Merchant Bank in August
1996 (plus accrued interest thereon) and U.S.$6 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 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 "Control of Registrant."
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-
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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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<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
Not applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The Company has responded to Item 18 in lieu of responding to this Item.
ITEM 18. FINANCIAL STATEMENTS
See Item 19(a) for a list of financial statements filed under Item 18.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Index to Financial Statements...........................................................F-1
Report of Independent Auditors
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Year Ended December 31, 1996 and 1995........F-2
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Years Ended December 31, 1994................F-3
SOS Telecomunicaciones, S.A. de C.V.--Year Ended December 31, 1994..........................F-4
Comunicaciones Celulares de Occidente, S.A. de C.V.--Years Ended December 31, 1994..........F-5
Consolidated Balance Sheets--December 31, 1996 and 1995.........................................F-6
Consolidated Statements of Operations--Fiscal Years Ended December 31, 1996, 1995, and
1994............................................................................................F-7
Consolidated Statements of Changes in Stockholders' Equity--Fiscal Years Ended December
31, 1996, 1995 and 1994.........................................................................F-8
Consolidated Statements of Changes in Financial Position--Fiscal Years Ended December
31, 1996, 1995 and 1994.........................................................................F-9
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notes to the Consolidated Financial Statements.................................................F-10
Reports of Independent Auditors on Financial Statement Schedules
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Year Ended December 31, 1996 and 1995........S-1
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Years Ended December 31, 1994................S-2
SOS Telecomunicaciones, S.A. de C.V.--Year Ended December 31, 1994..........................S-3
Comunicaciones Celulares de Occidente, S.A. de C.V.--Years Ended December 31, 1994..........S-4
Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts.............................................S-5
(b) List of Exhibits
ByLaws of the Company, as amended..............................................Exhibit A
1996 Share Conversion Agreement dated December 27, 1996.........................Exhibit B
Amended and Restated Shareholders Agreement dated February 18, 1997.............Exhibit C
Long-distance Concession .......................................................Exhibit D
Chase Manhattan Bank, N.A. credit agreement dated February 16, 1996,
as amended ..................................................................Exhibit E
</TABLE>
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all requirements for filing on
Form 20-F and has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GRUPO IUSACELL, S.A. de C.V.
By: /s/ Thomas A. Bartlett
--------------------------
Thomas A. Bartlett
Chief Executive Officer
Date: June 9, 1997
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
<S> <C>
Consolidated Financial Statements of Grupo Iusacell, S.A. de C.V. and Subsidiaries
Reports of Independent Auditors
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Year Ended December 31, 1996 and 1995....................F-2
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Years Ended December 31, 1994............................F-3
SOS Telecomunicaciones, S.A. de C.V.--Year Ended December 31, 1994......................................F-4
Comunicaciones Celulares de Occidente, S.A. de C.V.--Years Ended December 31, 1994......................F-5
Consolidated Balance Sheets--December 31, 1995 and 1996.....................................................F-6
Consolidated Statements of Operations--Fiscal Years Ended December 31, 1994, 1995, and
1996........................................................................................................F-7
Consolidated Statements of Changes in Stockholders' Equity--Fiscal Years Ended December
31, 1996, 1995 and 1994.....................................................................................F-8
Consolidated Statements of Changes in Financial Position--Fiscal Years Ended December
31, 1996, 1995 and 1994.....................................................................................F-9
Notes to the Consolidated Financial Statements..............................................................F-10
Reports of Independent Auditors on Financial Statement Schedules
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Year Ended December 31, 1996 and 1995....................S-1
Grupo Iusacell, S.A. de C.V. and Subsidiaries--Years Ended December 31, 1994............................S-2
SOS Telecomunicaciones, S.A. de C.V.--Year Ended December 31, 1994......................................S-3
Comunicaciones Celulares de Occidente, S.A. de C.V.--Years Ended December 31, 1994......................S-4
Schedule II--Valuation and Qualifying Accounts..............................................................S-5
</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 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
misstatements and are prepared in accordance with generally accepted accounting
principles. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
As of December 31, 1996, the Company established a reserve for restructuring
costs for Ps.136,407,000, which was charged to the income statement as an
extraordinary expense (see Notes 2, 4.d and 8.b to the 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
/s/ Juan Manuel Ferron Solis
Public Accountant
Mexico City, D.F., Mexico.
February 21, 1997.
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 statements of operations, changes in
stockholders' equity, and changes in financial position of Grupo Iusacell, S.A.
de C.V. and subsidiaries for the year ended December 31, 1994. 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
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of operations, and changes in the
consolidated financial position of Grupo Iusacell, S.A. de C.V. and subsidiaries
for the year ended December 31, 1994, 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, and changes
in their 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 21, 1997
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
misstatements 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 consolidated financial statements referred to above present
fairly in all material respects the consolidated financial position of
Comunicaciones Celulares de Occidente, S.A. de C.V. as of
December 31, 1994, and the results of its 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 vary in certain respects from accounting principles generally
accepted in the United States.
Coopers & Lybrand
Despacho Roberto Casas Alatriste
/s/ 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 December 31, 1996)
-----------------------------------------------
ASSETS
1995 1996
----------- ------------
CURRENT:
Cash and cash equivalents Ps. 167,326 Ps. 90,896
Accounts receivable
Trade, net of Ps. 111,311 and
Ps. 93,000 of allowance
for doubtful accounts (Note 4.d) 167,829 131,867
Related parties (Note 5) 31,558 7,067
Recoverable taxes and other 56,991 80,800
------- -------
256,378 219,734
Inventories (Note 6) 152,819 99,997
------- -------
Total current assets 576,523 410,627
INVESTMENT IN ASSOCIATED COMPANIES (Note 7) 81,003 87,858
PROPERTY AND EQUIPMENT, net (Note 8) 4,026,757 3,107,307
OTHER ASSETS, net (Note 9) 699,439 620,785
EXCESS OF COST OF INVESTMENTS IN SUBSIDIARIES
OVER BOOK VALUE, net of accumulated
amortization of $165,600 in 1996 and
$117,202 in 1995 (Note 4.i) 1,461,075 1,373,803
--------- ---------
Total assets Ps.6,844,797 Ps.5,600,380
------------ ------------
------------ ------------
LIABILITIES
1995 1996
------------- --------------
CURRENT:
Notes payable (Note 10) Ps. 644,992 Ps. 699,387
Current portion of long-term debt (Note 10) 132,442 105,536
Trade accounts payable (Note 11) 832,681 433,660
Related parties (Note 5) 66,932 351,429
Taxes and other payables 255,010 345,345
Income tax (Note 12) 1,162 6,113
Employee profit sharing (Note 12) 320 124
--------- ---------
Total current liabilities 1,933,539 1,941,794
LONG TERM DEBT (Note 10) 782,061 514,797
TRADE ACCOUNTS PAYABLE, LONG TERM (Note 11) 4,877 9,703
COMMITMENTS AND CONTINGENCIES (Note 13) 1,836 1,893
--------- ---------
Total liabilities 2,722,313 2,468,187
--------- ---------
STOCKHOLDERS' EQUITY
CONTRIBUTED CAPITAL (Note 14):
Capital Stock:
Nominal 2,356,133 2,356,153
Restatement 2,556,223 2,556,223
--------- ---------
4,912,376 4,912,376
--------- ---------
Capital contributed:
Nominal 18,655 18,655
Restatement 34,280 34,280
--------- ---------
52,935 52,935
--------- ---------
4,965,311 4,965,311
--------- ---------
EARNED CAPITAL (Note 15):
Accumulated losses:
Legal reserve 2,894 2,894
For prior years (306,457) (1,029,161)
For the year (722,704) (341,284)
--------- -----------
(1,026,267) (1,367,351)
(Deficit) excess from restatement 207,512 (470,793)
----------- -----------
Total majority stockholders' equity 4,146,556 3,126,967
MINORITY INTEREST (24,072) 5,226
----------- ----------
Total stockholders' equity 4,122,484 3,132,193
----------- ----------
Total liabilities and stockholders'
equity Ps. 6,944,797 Ps. 5,600,380
------------- -------------
------------- -------------
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
--------------------------
AS OF 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 December 31, 1996)
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Services Ps. 1,881,985 Ps. 1,517,693 Ps. 1,375,421
Telephone equipment sales and other 256,744 270,425 221,853
------------- ------------- -------------
2,138,729 1,788,118 1,597,274
------------- ------------- -------------
COST OF SALES
Cost of services 546,938 556,425 504,263
Cost of telephone equipment and other 126,234 150,095 123,686
------------- ------------- -------------
673,172 706,520 627,949
------------- ------------- -------------
Gross profit 1,465,557 1,081,598 969,325
OPERATING EXPENSES 910,495 789,788 691,983
DEPRECIATION AND AMORTIZATION (Notes 4.h and 8) 547,930 629,191 568,021
------------- ------------- -------------
Operating profit (loss) 7,132 (337,381) (290,679)
------------- ------------- -------------
INTEGRAL FINANCING COST (GAIN) (Notes 4.b and 16)
Interest expense, net 191,680 162,767 264,062
Foreign exchange loss (gain), net 492,904 662,473 (58,357)
Gain on net monetary position (46,946) (471,190) (327,220)
------------- ------------- -------------
637,638 354,050 (121,515)
------------- ------------- -------------
EQUITY PARTICIPATION IN NET (INCOME) LOSS
OF ASSOCIATED COMPANIES (Note 7) (2,911) 36,773 5,631
------------- ------------- -------------
Loss from continuing operations before income
tax employee profit sharing, minority interest
and extraordinary item (627,595) (728,204) (174,795)
------------- ------------- -------------
PROVISIONS FOR (Note 12)
Assets tax 30,498 27,333 33,069
Employee profit sharing 608 1,956 --
------------- ------------- -------------
31,106 29,289 33,069
------------- ------------- -------------
Loss before minority interest and
extraordinary item (658,701) (757,493) (207,864)
MINORITY INTEREST 42 34,789 2,987
------------- ------------- -------------
Loss before extraordinary item (658,659) (722,704) (204,877)
------------- ------------- -------------
EXTRAORDINARY ITEM
Reorganization charge (Notes 2, 4.d and 8.b) -- -- 136,407
------------- ------------- -------------
Net loss for the year (Ps. 658,659) (Ps. 722,704) (Ps. 341,284)
============= ============= =============
</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 December 31, 1996)
-----------------------------------------------
<TABLE>
<CAPTION>
Capital stock subscribed Capital contributions Accumulated losses
(Note 14) (Note 14) (Note 15)
---------------------------- ------------------------- -----------------------------------------
Legal Prior For the
Nominal Restatement Nominal Restatement Reserve years year
------------- -------------- ------------ ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1993 Ps.1,573,306 Ps.1,773,252 Ps. 18,655 Ps.34,280 Ps. 2,894 Ps. 544,872 (Ps. 192,670)
Application of 1993 net loss (192,670) 192,670
Sale of capital stock 856,913 857,049
Costs of stock issuance (74,006) (74,078)
Recognition of the effects of
inflation on the financial
statements
Minority interest for the year
Net loss for the year (658,659)
--------- --------- ------ ------ ----- ------- ---------
Balance as of December 31, 1994 2,356,153 2,556,223 18,655 34,280 2,894 352,202 (658,659)
Application of 1994 net loss (658,659) 658,659
Recognition of the effects of
inflation on the financial
statements
Minority interest for the year
Net loss for the year (722,704)
--------- --------- ------ ------ ----- ------- ---------
Balance as of December 31, 1995 2,356,153 2,556,223 18,655 34,280 2,894 (306,457) (722,704)
Application of 1995 net loss (722,704) 722,704
Recognition of the effects of
inflation on the financial
statements
Minority interest for the year
Net loss for the year (341,284)
--------- --------- ------ ------ ----- ------- ---------
Balance as of December 31, 1996 Ps.2,356,153 Ps.2,556,223 Ps. 18,655 Ps.34,280 Ps. 2,894 (Ps.1,029,161) (Ps. 341,284)
------------ ------------ ---------- --------- --------- -------------- -------------
------------ ------------ ---------- --------- --------- -------------- -------------
<CAPTION>
(Deficit) Total
excess from Minority stockholders'
restatement Interest equity
------------- -------------- --------------
<S> <C> <C> <C>
Balance as of December 31, 1993 Ps. 79,875 Ps. 10,651 Ps.3,845,115
Application of 1993 net loss --
Sale of capital stock 1,713,962
Costs of stock issuance (148,144)
Recognition of the effects of
inflation on the financial
statements 525,226 525,226
Minority interest for the year (3,844) (3,844)
Net loss for the year (658,659)
------- ------ ---------
Balance as of December 31, 1994 605,101 6,807 5,273,656
Application of 1994 net loss --
Recognition of the effects of
inflation on the financial
statements (397,589) (397,589)
Minority interest for the year (30,879) (30,879)
Net loss for the year (722,704)
------- --------- ---------
Balance as of December 31, 1995 207,512 (24,072) 4,122,484
Application of 1995 net loss --
Recognition of the effects of
inflation on the financial
statements (678,305) (678,305)
Minority interest for the year 29,298 29,298
Net loss for the year (341,284)
------- --------- ---------
Balance as of December 31, 1996 (Ps. 470,793) Ps. 5,226 Ps.3,132,193
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the 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 December 31, 1996)
--------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Loss before extraordinary item (Ps.658,659) (Ps.722,704) (Ps.204,877)
Items not requiring the use of resources:
Depreciation and amortization 556,353 634,078 568,021
Equity participation in net loss (income) of
associated companies (2,911) 36,773 5,631
Minority interest (42) (34,789) (2,987)
---------- ---------- ----------
(105,259) (86,642) 365,788
Resources provided by (used for) operating activities:
Trade accounts receivable (66,947) 116,530 35,962
Related parties 93,797 37,464 308,988
Recoverable taxes and other (45,312) 74,397 (23,809)
Inventories (105,294) 44,806 52,822
Trade accounts payable 465,173 256,123 (394,195)
Taxes and other payables (19,548) 80,383 90,535
Income tax -- 1,162 4,951
Employee profit sharing 282 (791) (196)
Other 521 175 57
---------- ---------- ----------
Resources provided by operating activities
before extraordinary item 217,413 523,607 440,903
Extraordinary item
Reorganization charge -- -- 136,407
---------- ---------- ----------
Resources provided by operating activities 217,413 523,607 304,496
FINANCING ACTIVITIES:
(Payments of) proceeds from long-term debt 522,369 26,085 (98,524)
Principal payments on long-term debt (634,569) (411,432) (284,003)
Net change in notes payable (304,556) 587,089 54,395
Proceeds from issuance of common stock, net of costs of issuance 1,565,816 -- --
---------- ---------- ----------
Resources provided by (used for) financing activities 1,149,060 201,742 (328,132)
---------- ---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,155,526) (442,749) (198,466)
Sale (acquisition) of common stock of associated companies (144,482) (48,201) 19,799
Disposal (purchase) of other assets (497,393) (308,863) 125,873
---------- ---------- ----------
Resources used for investing activities (1,797,401) (799,813) (52,794)
---------- ---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (430,928) (74,464) (76,430)
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF THE YEAR 672,718 241,790 167,326
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
THE END OF THE YEAR Ps.241,790 Ps.167,326 Ps. 90,896
========== ========== ==========
</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 the 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 December 31, 1996 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, has
amounted to Ps.799,111, of which Ps.681,708 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.48,706, of which Ps.45,336 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
F-10
<PAGE>
the date of acquisition through December 30, 1993. In December 1993, the Company
reached agreement to purchase the remaining interests in both Comcel and Hermes.
The Company's cost of acquiring Comcel and Hermes totaled Ps. 1,043,474, of
which Ps.845,943 represented the excess of investment cost over the book value.
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.19,194, 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 entered into an agreement to sell its debt and equity
in Iusatel Chile, S.A. de C.V. for U.S.$5 million. 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.30,871, of
which Ps.21,869 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.725. 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.66,683,
of which Ps.12,530 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.$10.5 million; as of December 31, 1996 the Company had invested U.S.$3.3
million 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.
Group Reorganization
In late 1995 and during 1996, the Company's subsidiaries were reorganized.
This reorganization consisted of the following operations:
F-11
<PAGE>
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.136,407 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:
Provision for loss on sale of building Ps.71,700
Employee severance 26,000
Fixed assets obsolescence reserve 33,000
Change in estimate for allowance for doubtful accounts 5,107
Summary
The subsidiary companies which are included within the consolidated
financial statements are as follows (directly or indirectly):
Ownership as of
December 31
---------------
Subsidiary 1995 1996
- ---------- ------- -------
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%
F-12
<PAGE>
Ownership as of
December 31
---------------
Grupo Iusacell Nicaragua, S.A 100% 100%
Infotelecom, S.A. de C.V -- 51%
Rentacell, S.A. de C.V 33% 70%
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 December 31, 1996 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 and 1995, presented in the financial
statements and in the notes have been restated based on the 1996 inflation rate
(27%) in order to present them in pesos of purchasing power as of December 31,
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 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 of the date of the most recent balance sheet presented. Accordingly, the
consolidated financial statements have been restated as follows:
F-13
<PAGE>
- Consolidated income statements for the current and prior year have
been restated to constant 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 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:
1994 1995 1996
---- ---- ----
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%
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 December 31, 1996.
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.
F-14
<PAGE>
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 in estimate was Ps.5,107 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.36,830,
Ps.68,580 and Ps.66,619 respectively. The charge to income for the year, to
increase the allowance for doubtful accounts, amounted to Ps.59,710, Ps.77,580
and Ps.66,619, in 1994, 1995 and 1996, 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. 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 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
F-15
<PAGE>
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.180,204, Ps.102,705 and Ps.106,538, for 1994, 1995 and 1996, respectively.
i) Excess of cost of investment in subsidiaries over book value
The excess of cost over the book value of net assets of acquired
subsidiaries is amortized on a straight-line basis over twenty years.
Amortization expense was Ps.76,636, Ps.76,352 and Ps.87,272 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 recognized when the services
are provided. Other revenue, mainly from paging and long distance services, are
recognized on provision of these services.
F-16
<PAGE>
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 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:
1995 1996
---------- ---------
IUSA and related entities Ps. 27,849 Ps. 4,151
Peralta Family entities 3,709 2,916
---------- ---------
Total Ps. 31,558 Ps. 7,067
========== =========
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:
1995 1996
---------- -----------
IUSA and related entities Ps. 16,862 Ps. 681
Peralta Family entities 20 523
FIUSA Pasteje -- 284,799
Bell Atlantic 50,050 65,426
---------- -----------
Total Ps. 66,932 Ps. 351,429
========== ===========
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.
Following is an analysis of the related party transactions described
above:
1994 1995 1996
----------- ----------- -----------
Service revenue Ps. 6,744 Ps. 10,832 Ps. 9,327
Lease income 400 2,192 1,984
Interest income 9,092 410 --
----------- ----------- -----------
Total income Ps. 16,236 Ps. 13,434 Ps. 11,311
=========== =========== ===========
1994 1995 1996
----------- ----------- -----------
Commission expenses Ps. 9,422 Ps. 15,775 Ps. 3,088
Technical expenses 20,254 34,266 59,477
Lease expenses 2,083 2,456 5,970
Interest expense 6,477 13,839 29,595
Operating expenses -- 11,044 6,333
----------- ----------- -----------
Total expenses Ps. 38,236 Ps. 77,380 Ps. 104,463
=========== =========== ===========
F-17
<PAGE>
6. Inventories
As of December 31, inventories are made up by the following:
1995 1996
----------- -----------
Cellular telephones and accessories Ps. 135,980 Ps. 81,586
Allowance for obsolete and slow-moving inventories 49,019 32,205
----------- -----------
Net 86,961 49,381
Advances to suppliers 65,858 50,616
----------- -----------
Total Inventories Ps. 152,819 Ps. 99,997
=========== ===========
7. Investment in associated companies
As of December 31, the Group's investment in associated companies is as
follows:
1995 1996
--------------------- ---------------------
Entity Ownership Investment Ownership Investment
------ --------- ---------- --------- ----------
Editorial Celular, S.A. de C.V 40.00% Ps. 3,454 40.00% Ps. 2,186
Consorcio Ecuatoriano de
Telecomunicaciones, S.A 27.53% 70,087 27.53% 76,579
Rentacell, S.A. de C.V 33.33% (273) -- --
Other 7,735 9,093
---------- ----------
Total Ps. 81,003 Ps. 87,858
========== ==========
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 for the years ended December 31, 1995 and 1996, is as
follows:
1995 1996
----------- -----------
Total assets Ps. 519,523 Ps. 448,985
Total liabilities 325,853 238,088
Revenues 263,177 244,301
Gross income (loss) (13,103) 12,697
Net income (loss) (50,740) 5,321
Group's share of net loss (36,773) (5,772)
8. Property and equipment
a) At December 31, property and equipment consisted of:
1995 1996
--------------- ---------------
Buildings and facilities Ps. 1,020,636 Ps. 916,497
Communication equipment 3,612,713 3,015,522
Furniture and fixtures 56,102 60,304
Transportation equipment 30,152 34,135
Computer equipment 167,015 166,321
Cellular rental telephones 21,436 23,207
--------------- ---------------
4,908,054 4,215,986
Accumulated depreciation 1,242,328 1,397,939
--------------- ---------------
3,665,726 2,818,047
Land 38,919 32,841
Construction in progress 211,013 147,835
Advances to suppliers 11,099 108,584
--------------- ---------------
Ps. 4,026,757 Ps. 3,107,307
=============== ===============
F-18
<PAGE>
b) Depreciation expense was Ps.160,688, Ps.275,096 and Ps.285,794 for
1994, 1995 and 1996, respectively. In 1996, the Company established an
obsolescence reserve of Ps.33,000 for certain communication equipment, which is
included in the accumulated depreciation and is part of the restructuring
expenses classified as an extraordinary item. The reserve is included in the
balance of accumulated depreciation at December 31, 1996.
9. Other assets
At December 31, other assets consisted of the following:
1995 1996
-------------- -------------
Concessions Ps. 162,336 Ps. 151,931
Cellular telephones to be amortized 244,480 89,177
Prepaid expenses 64,890 43,899
Advertising expenses 55,880 --
Preoperating expenses 142,820 331,094
Other 29,033 4,684
-------------- -------------
Ps. 699,439 Ps. 620,785
============== =============
Cellular telephones amortization expense was Ps.255,656, Ps.274,543 and
Ps.194,955 in 1994, 1995 and 1996, respectively.
Preoperative expenses mainly represent the investment in 450 project (see
Note 17).
10. Notes Payable and Long-Term Debt
At December 31, the notes payable and long-term debt consisted of the
following:
Notes payable at December 31, are as follows:
1995 1996
----------- -----------
Short-term loan of U.S.$24,282 bearing interest at a Ps. -- Ps. 190,188
variable rate of LIBOR plus 5.75% and maturing on
February 28, 1997
Unsecured business short term loan of U.S.$65,000 480,948 509,199
bearing interest at a variable rate of LIBOR plus 4%
and maturity dates from February through March 1997.
Short-term loan of Ps.6,000 bearing interest at a fixed 7,620 --
rate of 57% and maturing on February 23, 1996.
Short-term loan of U.S.$4,842 bearing interest at a 45,907 --
fixed rate of 5.30% and maturing on March 13, 1996.
Short-term loan of U.S.$5,086 bearing interest at a 48,214 --
fixed rate of 10.25% and maturing on March 13, 1996.
Short-term loan of U.S.$6,296 bearing interest at 61,886 --
variable rates that range from 11.09% to 11.8%
and maturity dates from April to November 1996.
Other 417 --
----------- -----------
Total Ps. 644,992 Ps. 699,387
----------- -----------
F-19
<PAGE>
1995 1996
----------- -----------
Long-term debt at December 31, consisted of:
Medium term loan of U.S.$134 bearing interest at a Ps. 2,198 Ps. 1,051
variable rate of LIBOR plus 3% and maturing on
February 18, 1998. Interest and principal are payable
semiannually commencing August 1993.
Long-term loan of U.S.$2,096 bearing interest at a rate 30,903 16,417
of T. Notes plus 5% maturing September 30, 1998.
Interest and principal are payable semiannually
commencing September 1993.
Obligations for equipment under capitalized leases for 8,926 4,644
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.
Long-term loan of U.S.$18,000 bearing interest at a 106,893 140,989
variable rate of LIBOR plus 2.9375% maturing
December 2001. Interest and principal are payable
semiannually commencing June 15, 1994.
Long-term loan of U.S.$3,333 bearing interest at a rate 38,717 26,105
of LIBOR plus 2.4375% maturing April 15, 2002.
Interest and principal are payable semiannually
commencing April 1993.
Long-term loan of U.S.$7,935 bearing interest at a rate 90,997 62,153
of 12.55% maturing on July 15, 2002. Interest and
principal are payable semiannually commencing January
1994.
Long-term loan of U.S.$33,952 bearing interest at a 357,302 265,931
variable rate of LIBOR plus 4% maturing on January 28,
2004. Interest and principal are payable semiannually
commencing June 1994.
Long-term loan of U.S.$13,156 bearing interest at a 23,899 103,043
variable rate of LIBOR plus 3.75% maturing on
November 14, 2004. Interest and principal are payable
semiannually commencing July 1994.
Long-term loan of U.S.$10,726 bearing interest at a 105,425 --
variable rate of LIBOR plus 2.9375% maturing on
December 19, 2001. Interest and principal are payable
semiannually commencing March 1996.
Long-term loan of U.S.$16,445 bearing interest at a 145,476 --
variable rate of LIBOR plus 3.75 % maturing on
November 14, 2004. Interest and principal are payable
semiannually commencing May 1995.
Other 3,767 --
----------- -----------
Total 914,503 620,333
Less current portion 132,442 105,536
----------- -----------
Ps. 782,061 Ps. 514,797
=========== ===========
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.
F-20
<PAGE>
Long term maturities for the years subsequent to December 31, 1996 are as
follows:
Year
-------------------
1998 Ps. 104,603
1999 94,014
2000 94,013
2001 94,013
2002 48,763
2003 and thereafter 79,391
-----------
Ps. 514,797
===========
At December 31, 1996, total 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 the original lease term.
Leased capital assets, included in property and equipment at December 31, 1995
and 1996, are as follows:
1995 1996
--------------- -------------
Communication equipment Ps. 20,279 Ps. 22,740
Transportation equipment 2,327 --
--------------- -------------
Total equipment leased 22,606 22,740
Accumulated depreciation 3,567 4,478
--------------- -------------
Net equipment leased Ps. 19,039 Ps. 18,262
=============== =============
11. Trade Accounts Payable
At December 31, trade accounts payable consisted of the following:
1995 1996
--------------- -------------
Current accounts Ps. 287,783 Ps. 254,463
Notes payable 544,898 179,197
--------------- -------------
Total Ps. 832,681 Ps. 433,660
=============== =============
Long-term notes payable Ps. 4,877 Ps. 9,703
=============== =============
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 had 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
F-21
<PAGE>
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.
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 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:
Year of loss Amount of loss Expiration year
------------ -------------- ---------------
1991 Ps. 17,474 2001
1992 260 2002
1993 388,931 2003
1994 821,344 2004
1995 424,397 2005
1996 28,166 2006
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.222,968 and Ps.148,144 of capital
stock issuance costs expensed for tax purposes in 1993 and 1994. Such amounts
were charged to stockholders' equity in the financial statements.
F-22
<PAGE>
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.1,956.
The effective income tax expense at effective rate calculation as of
December 31, is as follows:
<TABLE>
<CAPTION>
Description 1994 1995 1996
- -------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate Ps.(213,204) Ps.(247,589) Ps.(117,312)
Add (deduct):
Inventory purchases less cost of sales (37,695) (78,465) (31,731)
Depreciation and amortization (18,491) (115,045) (94,576)
Differences between interest and inflationary
gains or losses 24,144 194,021 143,271
Net assets tax 29,521 27,333 33,069
Application of income tax loss carryforwards 180,495 141,857 9,576
Provision for doubtful accounts 12,835 6,300 (1,234)
Telephones to be amortized (22,212) 74,702 50,887
Goodwill amortized 26,055 22,293 24,080
Other 49,050 1,926 17,039
----------- ----------- -----------
Effective income tax expense at effective rate Ps. 30,498 Ps. 27,333 Ps. 33,069
=========== =========== ===========
</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.39,710, Ps.47,840 and Ps.47,018 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 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 or liquidity.
F-23
<PAGE>
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 external
lawyers opinion 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 3
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
bylaws. 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 right 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 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.1,713,962. Capital stock
includes Ps.1,340,070 of amounts paid in excess of nominal value. Fees charged
by outside advisors for assisting in this sale amounted to Ps.148,144 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, 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 bylaws 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).
F-24
<PAGE>
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.720,000 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' meeting decided to
increase the fixed portion of the capital stock of up to Ps.100,000 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 its actual ownership proportion; this right expired fifteen
days after the publication of this resolution 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.
The changes in the number of shares of common stock for the period January
1, 1994 through December 31, 1996 are analyzed as follows:
Number of
shares
-----------
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
===========
At December 31, 1995 and 1996, the authorized and outstanding shares of
common stock, without par value consist of the following:
1995 1996
------------ ------------
Series A 428,575,540 428,575,540
Series B 205,562,450 205,562,450
Series D 204,920,220 204,920,220
Series L 142,566,220 142,566,220
------------ ------------
Total 981,624,430 981,624,430
============ ============
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.
F-25
<PAGE>
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 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.
The earned capital accounts consist of the following:
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------
Accumulated
Historical adjustments
value for inflation Total
------------- ------------- -------------
<S> <C> <C> <C>
Legal reserve Ps. 1,499 Ps. 1,395 Ps. 2,894
Accumulated losses from prior years (325,251) 18,794 (306,457)
Net loss for the year (805,911) 83,207 (722,704)
Excess from restatement -- 207,512 207,512
------------- ------------- -------------
Total (Ps.1,129,663) Ps. 310,908 (Ps. 818,755)
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------
Accumulated
Historical adjustments
value for inflation Total
------------- -------------- -------------
<S> <C> <C> <C>
Legal reserve Ps. 1,499 Ps. 1,395 Ps. 2,894
Accumulated losses from prior years (1,131,162) 102,001 (1,029,161)
Net loss for the year (515,635) 174,351 (341,284)
Deficit from restatement -- (470,793) (470,793)
------------- -------------- -------------
Total (Ps.1,645,298) (Ps. 193,046) (Ps.1,838,344)
============= ============== =============
</TABLE>
16. Foreign Currency Position
The balance sheet as of December 31, includes assets and liabilities
denominated in U.S. dollars as follows:
1995 1996
---------------- ----------------
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
================ ================
F-26
<PAGE>
During 1994, 1995 and 1996, interest expense paid and interest
income collected on assets and liabilities denominated in US 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
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 telephone services (Project 450). At December 31, the
following has been incurred during the start-up phase of the project:
1995 1996
------------ ------------
Fixed assets Ps. 426,607 Ps. 396,850
Capitalized interest 30,351 135,318
Inventory 13,913 19,976
Pre-operating expenses 40,404 60,208
Total 511,275 612,352
------------ ------------
------------ ------------
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
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 to 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 finally 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 bylaws, 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.
F-27
<PAGE>
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 on the weight of available evidence, including cumulative
losses in recent years, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
As described in Note 12, Mexican tax law requires payment of a 1.8% (2% in
1994) tax on the Company's net assets which may be used to offset future income
tax obligations. Under Mexican GAAP, the net asset tax is charged to the
provision for income taxes. Under SFAS 109, such amounts are treated as a
deferred tax benefit and offset by a valuation allowance, if required.
Employee profit sharing expense, which is based on each subsidiary's
taxable income after certain statutory adjustments, is included in the income
tax provision under Mexican GAAP. The provision for employee profit sharing
is charged to operations for U.S. GAAP purposes.
F-28
<PAGE>
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 not adjusted to reconcile with
U.S. GAAP (See Note 19.i). 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 amount to
Ps.28,515 and Ps.150,827 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 preoperating costs related to the project 450 have been capitalized.
Under U.S. GAAP, the amount of these preoperating costs that meet the
definition of deferred start-up costs would be expensed as incurred.
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-29
<PAGE>
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. 136,407 relating to restructuring charges have been classified as
an extraordinary item. Under U.S. GAAP such amounts would be classified as
operating expenses.
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,
------------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net loss as reported under Mexican GAAP (Ps. 658,659) (Ps. 722,704) (Ps. 341,284)
Deferred income taxes 55,787 227,497 168,804
Income tax benefit of stock issuance
costs, recorded in capital (50,369) -- --
Deferred profit sharing 13,166 -- --
Capitalized interest expense (5,118) --
450 Project investment -- -- (60,227)
Gain on net monetary position 1,560 153,942 99,546
------------ ------------- -------------
Net loss under U.S. GAAP (Ps. 643,633) (Ps. 341,265) (Ps. 133,161)
============ ============= =============
Weighted average number of shares
outstanding (thousands) 945,711 981,624 981,624
============ ============= =============
Net loss per share (Ps. 0.68) (Ps. 0.35) (Ps. 0.14)
============ ============= =============
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1994 1995 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Stockholders' equity as reported under
Mexican GAAP Ps. 5,273,656 Ps. 4,122,484 Ps. 3,132,193
Minority interest (6,807) 24,072 (5,226)
Capitalized interest expense 67,443 -- --
Deferred income taxes (229,566) (659,931) (236,497)
Project 450 investment -- -- (60,227)
-------------- ------------- -------------
Stockholders' equity as reported under
U.S. GAAP Ps. 5,104,726 Ps. 3,486,625 Ps. 2,830,243
============== ============= =============
</TABLE>
In 1994 the income tax benefit of Ps.50,369 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 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 flows reconciling items. Other items
have been included based on their cash flows, adjusted by inflation.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1994 1995 1996
-------------- ------------ -------------
<S> <C> <C> <C>
Operating activities:
Net loss under U.S. GAAP (Ps. 643,633) (Ps. 341,265) (Ps. 133,161)
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Depreciation and amortization 553,048 634,078 568,021
Equity in loss (earnings) of associated companies (2,911) 36,773 5,631
Increase in allowance for doubtful accounts 70,817 77,580 66,619
Increase in allowance for obsolete and slow-moving
inventories 31,523 49,019 3,860
Minority interest (42) (34,789) (2,987)
Deferred income taxes and employee profit sharing (18,584) (227,497) (168,804)
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
1994 1995 1996
------------- ----------- -----------
<S> <C> <C> <C>
Gain (loss) on net monetary position and foreign exchange
losses Ps. 44,369 Ps.(625,132) Ps.(571,715)
Group reorganization reserve -- -- 136,407
Other 17,729 -- --
Changes in operating assets and liabilities:
Accounts receivable (112,259) 6,909 (81,575)
Inventories (136,817) (4,213) 48,964
Trade accounts payable and related parties 558,969 459,917 (63,345)
Taxes and other payable (19,548) 192,946 119,990
Income tax 282 371 4,755
Other (3,367) 175 57
------------- ----------- -----------
Net cash provided by operating activities 739,576 224,873 (67,283)
Financing activities: ------------- ----------- -----------
Proceeds from (payments of) long-term debt 533,296 26,085 (98,524)
Principal payments on long-term debt (964,815) (411,432) (284,003)
Net change in notes payable (468,144) 885,823 253,999
Sale of capital stock net of issuance costs 1,516,375 -- --
------------- ----------- -----------
Total cash provided (used) by financing
activities: 616,712 500,476 (128,528)
Investing activities:
Purchase of property and equipment Ps.(1,067,976) Ps.(442,749) Ps.(198,466)
Acquisition of Regions and investment in associated (144,481) (48,201) 19,799
companies, net of cash acquired
Purchase of other assets (574,759) (308,863) 298,048
------------- ----------- -----------
Total cash used in investing activities (1,787,216) (799,813) 119,381
------------- ----------- -----------
Net decrease in cash and cash equivalents (430,928) (74,464) (76,430)
Cash and cash equivalents at beginning of year 672,718 241,790 167,326
------------- ----------- -----------
Cash and cash equivalents at end of year Ps. 241,790 Ps. 167,326 Ps. 90,896
============= =========== ===========
Interest expense paid Ps. 136,482 Ps. 130,472 Ps. 154,481
============= =========== ===========
Income tax paid Ps. 27,419 Ps. 21,156 Ps. 29,681
============= =========== ===========
</TABLE>
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.
F-32
<PAGE>
2) Deferred income taxes and employee profit sharing
Significant components of deferred income taxes under U.S. GAAP are as
follows:
December 31,
------------------------
1995 1996
---------- ----------
Deferred liabilities:
Inventories Ps. 51,958 Ps. 33,999
Property and equipment 1,098,711 844,080
Cellular telephones to be amortized 83,123 30,320
Concessions 35,260 10,398
---------- ----------
Total deferred tax liabilities 1,269,052 918,797
---------- ----------
Deferred assets:
Allowance for doubtful accounts Ps. 36,750 Ps. 31,620
Net operating loss and tax credit carryforward 643,327 654,588
Group reorganization reserve -- 46,378
Allowance for deferred tax assets 70,956 (50,286)
---------- ----------
Total deferred tax assets 609,121 682,300
---------- ----------
Net deferred tax liabilities Ps.659,931 Ps.236,497
========== ==========
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.180,900, Ps.624,169 and (Ps.254,631) for the years ended at
December 31, 1994, 1995 and 1996, respectively.
The Company has recorded a deferred tax asset of Ps.682,300 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
carryforward period 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; and
(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:
F-33
<PAGE>
1995 1996
------------------------------- ------------------------------
Carrying Value Fair Value Carrying Value Fair Value
Ps.973,397 Ps.973,397 Ps.660,281 Ps.660,281
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.
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
operation 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
telephone services. The Company has not made a decision whether to continue
Project 450 or to purchase 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.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENTS SCHEDULES
The Board of Directors
Grupo Iusacell, S.A. de C.V. and Subsidiaries
We have audited the consolidated Financial Statements of Grupo Iusacell, S.A. de
C.V. and subsidiaries as of December 31, 1996 and 1995, and for the year then
ended and have issued our report thereon dated February 21, 1997 (included
elsewhere in this Annual Report 20-F). Our audits also included the financial
schedules listed in Item 19 of this Annual Report 20-F. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit.
In our opinion, based on our audit, the financial statements schedules referred
to above, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
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.
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENTS SCHEDULES
The Board of Directors
Grupo Iusacell, S.A. de C.V. and Subsidiaries
We have audited the consolidated financial statements of Grupo Iusacell, S.A. de
C.V. and subsidiaries as of December 31, 1994, and for the year then ended and
have issued our report thereon dated February 17, 1995 (included elsewhere in
this Annual Report 20-F). Our audit also included the financial statement
schedule listed in Item 19 of this Annual Report 20-F. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. We did not audit the financial statements of two
consolidated subsidiaries 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.
In our opinion, based on our audit and the reports of other auditors, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Mancera, S.C.
A Member of Ernst & Young International, L.L.P.
Mexico City,
February 17, 1995
S-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES
Stockholders
SOS Telecomunicaciones, S.A. de C.V.
We have audited the financial statements of SOS Telecomunicaciones, S.A.
de C.V. as of December 31, 1994, and for the year then ended, and have issued
our report thereon dated February 10, 1995, (included elsewhere in this Annual
Report F-20). Our audit also included the financial statements schedules listed
in Item 19 of this Annual Report F-20. These schedules are the responsiblity of
the Company's management. Our responsibility is to express an opinion based on
our audit.
In our opinion, based on our audit the financial statements schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
Prieto, Ruiz de Velasco y Cia., S.C.
/s/ Ignacio Pineda Luna CPA
-----------------------------
Ignacio Pineda Luna CPA
Partner
Mexico City
February 21, 1997
S-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENTS SCHEDULES
The Board of Directors
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 have issued our report thereon dated
February 10, 1995 (included elsewhere in this Annual Report 20-F). Our audit
also included the financial schedules listed in Item 19 of this Annual Report
20-F. These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, based on our audit, the financial statements schedules referred
to above, when considered in relation to the balance sheets, present fairly in
all material respects the information set forth therein.
Coopers & Lybrand
Despacho Roberto Casas Alatriste
/s/Juan Manuel Ferron Solis
---------------------------
Juan Manuel Ferron Solis
Public Accountant
Mexico City, D.F., Mexico.
February 13, 1995.
S-4
<PAGE>
GRUPO IUSACELL, S.A. DE C.V. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 1994, 1995 AND 1996
(THOUSANDS OF MEXICAN PESOS, WITH PURCHASING POWER
AS OF DECEMBER 31, 1996)
<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>
1994
ALLOWANCE FOR OBSOLETE AND SLOW-
MOVING INVENTORIES................. $ 24,625 $ 31,523 $ -- $ $ 56,148
ALLOWANCE FOR DOUBTFUL ACCOUNTS ... 159,128 59,710 -- 72,670 146,168
1995
ALLOWANCE FOR OBSOLETE AND SLOW-
MOVING INVENTORIES................. 56,148 1,680 -- 8,809 49,019
ALLOWANCE FOR DOUBTFUL ACCOUNTS ... 146,168 77,580 -- 112,438 111,311
1996
ALLOWANCE FOR OBSOLETE AND SLOW-
MOVING INVENTORIES................. 49,019 3,860 -- 20,674 32,205
ALLOWANCE FOR DOUBTFUL ACCOUNTS ... 111,311 66,619 -- 84,930 93,000
ALLOWANCE FOR OBSOLETE FIXED ASSETS -- 104,700 -- -- 104,700
</TABLE>
S-5
<PAGE>
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
- ------- ---------------------- ----
1.A Bylaws of Grupo Iusacell, S.A. de C.V., as amended. 1
2.B 1996 Share Conversion Agreement dated December 27, 1996 among 1
Grupo Iusacell, S.A. de C.V., Alejo Peralta, Carlos Peralta,
Iusa Grupo Comunicaciones S.A. de C.V., Langness Investments
Limited, FIUSA Pasteje, S.A. de C.V. and Bell Atlantic Latin
America Holdings, Inc.
2.C Amended and Restated Shareholders Agreement dated February 18, 1
1997 among Grupo Iusacell, S.A. de C.V., Alejo Peralta, Carlos
Peralta, Iusa Grupo Comunicaciones S.A. de C.V., Langness
Investments Limited, FIUSA Pasteje, S.A. de C.V., Bell Atlantic
Latin America Holdings, Inc., Bell Atlantic New Zealand
Holdings, Inc. and Bell Atlantic International, Inc.
2.D Long-distance Concession 1
2.E Chase Manhattan Bank, N.A. credit agreement dated February 16, 1
1996, as amended.
<PAGE>
EX-1.A
Bylaws
GRUPO IUSACELL, S.A. DE C.V.
CHAPTER I
NAME, PURPOSE, DURATION, DOMICILE
AND NATIONALITY
ARTICLE FIRST. The corporation is named "Grupo Iusacell." This name shall be
followed by the words "Sociedad Anonima de Capital Variable" ("Variable Capital
Stock Company") or the abbreviation thereof, "S.A. de C.V."
ARTICLE SECOND. The purpose of the corporation is:
1. Promotion and industrial and commercial development of companies, both
domestic and foreign;
2. To promote, create, establish, organize, develop, exploit, manage and
represent all kinds of commercial or civil corporations and associations of
other types, including acquiring or subscribing shares and corporate interests
in said enterprises and to acquire its own shares pursuant to the Securities
Market Law ("Ley del Mercado de Valores");
3. Acquisition, negotiation, custody and alienation of any instrument, shares,
bonds, debentures, and generally, credit instruments, securities and corporate
interests in commercial or civil companies or associations of any kind, both
domestic and foreign;
4. To obtain and/or extend loans for the companies in which it participates in
the capital stock and to guarantee them through bonds, surety, mortgages,
chattel mortgages, joint obligations, trusts or any other guaranty.
5. To obtain, under any legal title, all kinds of loans, credits, financing, and
all the other resources necessary for achievement of the corporate purposes,
including but not limited to, bond issues, mortgage guaranty bonds, mortgage or
non-preferential obligations, and commercial paper with participation from the
institutions or authorities that applicable law indicates, as well as to grant,
under any legal title, all kinds of loans, credits, financing and all other
resources necessary, with or without specific surety, in relation to the
corporations or associations in which it owns stock or in which it participates;
6. To issue, draw, endorse, accept, guarantee, discount, subscribe, acquire,
assign, alienate, and generally, negotiate all kinds of credit instruments and
personal securities, including but not limited to, shares, bonds, corporate
interests or
<PAGE>
participation in other companies or businesses;
7. To obtain, acquire, register, negotiate, and grant use and enjoyment of all
kinds of patents, trademarks, and trade names, franchises, inventions,
processes, options, and copyrights; to produce and use works susceptible of
protection by copyright and related rights, as well as to acquire ownership of
rights thereon and undertake any legal act in respect thereto, both in Mexico
and abroad;
8. To provide all kinds of services or consulting of a technical,
administrative, supervisory, organizational, marketing, research, development,
engineering, human resources, legal, public relations character, and generally,
of any kind of services related to the industrial, commercial or service
activities of companies, corporations, and associations, whether in Mexico or
abroad, and to receive such services;
9. To acquire, possess, import, export, alienate, build, lease, buy, sell,
encumber, mortgage, negotiate, take and grant use and enjoyment under any title
allowed by law of personal or real property, as well as real rights thereon and
personal rights which may be necessary or convenient for its corporate purpose
or for the operations of the commercial or civil companies in which the
corporation has an interest or participation;
10. Undertake any kind of acts and execute all kinds of contracts, agreements,
and operations, whether civil or commercial, and realization of all acts
necessary for development of its corporate purpose; and
11. Do and practice all the other acts of commerce in which a Mexican commercial
company may legally engage pursuant to the law.
ARTICLE THIRD. The duration of the corporation is indefinite.
ARTICLE FOURTH. The domicile of the corporation is Mexico City, Federal
District, but the company may establish branches, agencies or offices and
designate contractual domiciles in any other place in Mexico or abroad without
it being deemed to have changed said corporate domicile.
ARTICLE FIFTH. The corporation is Mexican and shall be governed by the
applicable laws of the United Mexican States. Current or future foreign
shareholders of the corporation shall be deemed to have agreed with the Ministry
of Foreign Relations to consider themselves as Mexican nationals with respect to
the shares of the corporation that they may acquire or of which they may be
owners, and not to invoke therefore the protection of their governments with
respect to such shares under penalty, should they do so, of losing to the
benefit of the Nation the shares that they may have acquired.
CHAPTER II
CAPITAL STOCK AND SHARES
<PAGE>
ARTICLE SIXTH. ARTICLE SIXTH. The capital stock is variable and shall be
represented by registered shares without expression of par value.
The fixed corporate capital without right of retirement is $3,082,640,073.74
(Three Billion Eighty-two Million Six Hundred Forty Thousand Seventy-three
74/100) pesos, Mexican currency, and is divided into 1,081,879,369 shares fully
subscribed and paid of which 746,753,410 are Series "A" shares, 5,562,450 are
Series "B" shares, 186,904,725 are Series "D" shares and 142,658,784 are Series
"L" shares. The variable portion of the capital may not exceed ten times the
fixed capital.
Common shares of the capital stock with full rights are divided into the
following Series:
1. Series A, composed of shares that shall represent at least 51% of the
ordinary capital stock and which may be acquired by Mexican and foreign
investors;
2. Series B, composed of shares that shall not exceed 29.1%% of the ordinary
capital stock which may be acquired by Mexican and foreign investors; and
3. Series D, composed of shares that shall not exceed 19.9% of the ordinary
capital stock, which may be acquired by Mexican and foreign investors.
The corporation may also issue Series L shares, with limited voting rights,
which shall not exceed 19% of the capital stock, considered neutral investment
for purposes of determining the amount and proportion of participation of
foreign investment in the capital of the corporation, provided the shares are
quoted on the Securities Exchange pursuant to applicable law.
The Shareholders Meeting that resolves the increase in the capital shall
establish the characteristics of the shares issued for such purpose, being able
to establish sub-series within each series.
The companies in which the corporation holds majority ownership of shares or
corporate interests may not directly or indirectly invest in its shares, nor in
any other company that may be a majority shareholder of the corporation or,
without so being, they have knowledge that it is a shareholder therein.
ARTICLE SEVENTH. Shares are indivisible and, except for the limitations provided
in these corporate by-laws, they shall confer on their holders the same rights
and obligations. With the same exception, each share shall give the right to one
vote in the Shareholders Meetings.
Each Series L share shall give the right to one vote in Extraordinary
Shareholders Meetings that meet to address the following items:
<PAGE>
(i) Transformation of the corporation from one type of corporation to another;
(ii) Merger of the corporation when it is merged, or if the surviving company,
the merged company has a corporate purpose that is unrelated or unconnected to
that of the surviving company;
(iii) Cancellation of the registration of the Series L shares of the corporation
on the Bolsa Mexicana de Valores, S.A. de C.V., or on any other Mexican or
foreign Stock Exchange; and
(iv) In Special Shareholders Meeting, the right to name Directors.
Outstanding stock has the right to participate equally in the payment of
dividends or other distribution including that done as consequence of the
liquidation of the corporation.
Provisional and definitive stock certificates on the shares may represent one or
more shares and shall be signed by two members of the Board of Directors, whose
signatures may be printed in facsimile pursuant to Article 125 (VIII) of the
General Law of Commercial Companies ("Ley General de Sociedades Mercantiles").
Said certificates must satisfy all of the requirements established by said
article. In the case of definitive certificates, these must carry the
nominative, numbered coupons attached which are agreed by the Board of Directors
to represent dividend payments; further, they shall contain the stipulation to
which Article Fifth of these bylaws refers.
In the case of loss, destruction or theft of stock certificates, the owner may
request their replacement subject to the provisions of the General Law of Credit
Instruments and Transactions ("Ley General de Titulos y Operaciones de
Credito"). The costs arising from same shall be for the account of the person
making the request.
ARTICLE EIGHTH. For purposes of Article 128 of the General Law of Commercial
Companies ("Ley General de Sociedades Mercantiles"), the corporation shall keep
a Stock Register in which all operations for subscription, acquisition or
transfer to which the shares representing the capital stock are subject must be
recorded, with expression of the subscriber, acquirer, or prior owner and that
of the new shareholder.
By resolution of the General Extraordinary Shareholders Meeting, the corporation
may acquire the shares representing its capital for their amortization against
distributable profits. The acquisition shall be done pursuant to Article 136 of
the General Law of Commercial Companies ("Ley General de Sociedades
Mercantiles") in accordance with the terms and conditions decided by the
Shareholders Meeting that resolves on the matter.
The certificates of amortized shares shall be annulled. Once the total number of
amortized shares is known, the Board may record in the text of Article Sixth of
these corporate bylaws the new number of shares in which the fixed portion of
the capital
<PAGE>
stock without right of retirement is divided, through a document which shall be
notarized and recorded in the Public Registry of Commerce, together with the
minutes of the Shareholders Meeting that resolved the amortization, without need
of a new resolution by the Shareholders Meeting.
The corporation may acquire shares representing its capital stock through the
stock exchanges in which they are listed, pursuant to Article 14 Bis (I) of the
Securities Market Law ("Ley del Mercado de Valores") and the general provisions
issued for such purpose by the National Banking and Securities Commission, at
the price current in the market, without the prohibition established in the
first paragraph of Article 134 of the General Law of Commercial Companies ("Ley
General de Sociedades Mercantiles") being applicable, provided that the purchase
shall be made with a charge against the capital and, as applicable, a reserve
from net profit called "Reserve for Acquisition of Own Shares".
The Board of Directors has the authority, which may not be delegated, to pass
resolutions on the temporary acquisition of shares in the corporation, as well
as the later placement with the investing public.
The General Ordinary Shareholders Meeting shall determine the amount of capital
that may be applied to the purchase of the corporation's shares, and the amount
of the corresponding reserve which may be created by said Shareholders Meeting,
with the sole limitation that the sum of the resources that can be used for this
purpose may not exceed the total balance of net profit for the corporation.
The corporation's purchase of its own shares shall be done by affecting the
capital account by an amount equal to the par value of the shares acquired. Said
value shall be determined through division of the amount of the paid capital by
the number of shares released by the corporation. The surplus shall be charged
against the Reserve for Acquisition of Own Shares. If the purchase price of the
shares is less than the par value, determined as indicated above, the capital
account will be affected only by the amount equal to the par value of the shares
acquired.
As a consequence of the purchase of its shares, the corporation shall proceed to
reduce its capital on the same date as the acquisition and, as applicable, shall
simultaneously affect the Reserve for Acquisition of Own Shares.
The shares acquired by the corporation shall be converted into treasury stock
and may be placed with the investing public and, in this case, the capital shall
be increased by the amount equal to the par values of the shares multiplied by
the total number of treasury shares placed with the investing public, and the
surplus of the proceeds from the placement, if any, shall be used to
reconstitute the Reserve for Acquisition of Own Shares. The earnings generated
by the difference between the proceeds from the placement and the purchase
price, as applicable, shall be recorded in the account titled "Premium for
Subscription of Shares".
<PAGE>
The reductions and increases of capital derived from purchase and placement of
shares to which this Clause refers shall not require resolution by the
Shareholders Meeting nor resolution by the Board of Directors.
In no case may the transactions conducted by the corporation by reason of
temporary acquisitions of its own shares, result in an excess on the maximum
authorized percentage of restricted vote shares of the corporation, with respect
to said shares.
Transactions on purchase and placement of shares provided for in this Clause,
reports on same that must be submitted to the General Ordinary Shareholders
Meeting, the standards for disclosure of the financial information, as well as
the form and terms by which said transactions shall be notified to the National
Banking and Securities Commission, the Bolsa de Valores, and the investing
public, shall be subject to the general provisions issued by the National
Banking and Securities Commission.
ARTICLE NINTH. The minimum fixed capital of the corporation may only be
increased by resolution of the General Extraordinary Shareholders Meeting.
Increases to the variable portion of the capital may be done by resolution of
the General Ordinary Shareholders Meeting, with no formality other than that the
corresponding minutes by protocolled by a Notary Public, without need of
recorded it with the Public Registry of Commerce.
Increases to the capital based on offer of the shares to which Article 14 Bis
(I) of the Securities Market Law ("Ley del Mercado de Valores") refers shall not
require a resolution by the Shareholders Meeting or by the Board.
No increase whatsoever may be decreed before the shares previously issued are
wholly paid.
Upon adopting a resolution on a capital increase, the respective Shareholders
Meeting or any Shareholders Meeting thereafter shall establish the terms and
bases on which said increase must be carried out.
Capital increases may be done through capitalization of accounting capital
accounts, pursuant to Article 116 of the General Law of Commercial Companies
("Ley General de Sociedades Mercantiles") or through contribution in cash or in
kind.
In capital increases through capitalization of accounting capital accounts, all
shares shall have the right to the proportional part that corresponds to them
from said accounts according to their participation in the stock.
Unless the Shareholders Meeting resolves otherwise, in capital increases, Series
A, B, and D shares must be issued in proportion to those issued for each Series
pursuant to Article Sixth of these bylaws. When the Shareholders Meeting
resolves an increase to issue Series L shares payable through contribution, the
maximum percentage for
<PAGE>
the shares of said Series established in said Article Sixth may not be exceeded.
In capital increases payable through cash or kind contribution, the shareholders
of one Series shall have a preferential right to subscribe the new shares that
are issued for the same Series, in proportion to the number of shares of which
they be holders at the time of the increase.
Shareholders must exercise their preferential rights within the period and under
the conditions established for such purpose by the Shareholders Meeting that
decides the capital increase, on the understanding that the period in no case
will be for less than 15 days and greater than 30 days, and that the same shall
be computed from the date of publication of the corresponding notice in the
Federal Diario Oficial or from the date when the respective Shareholders Meeting
is held if all of the shares into which the capital stock is divided are
represented thereat.
If after expiration of the period during which the shareholders must exercise
the preferential right there are some shares still unsubscribed, they may be
offered by the Board of Directors for subscription and payment to the
individuals or corporate persons that the said Board determines pursuant to the
guidelines that the Shareholders Meeting resolves, provided it be on terms and
conditions that are not more favorable than those under which they were offered
to the corporate shareholders. When the increase is to the variable portion of
the capital stock, and provided the Shareholders Meeting so resolves, the shares
that are not subscribed may be retained in the corporate Treasury for later
placement in the form and on the terms that the same Shareholders Meeting, or
upon its delegation, the Board of Directors, may determine.
Any capital increase must be recorded in the Capital Variations Book which the
corporation shall keep for such purpose.
ARTICLE TENTH. The fixed minimum capital of the corporation may be decreased
only by resolution of the General Extraordinary Shareholders Meeting.
Decreases to the variable portion of the capital may be done by resolution of
the Ordinary Shareholders Meeting with the sole formality that the corresponding
minutes be protocolled by a notary public and without need that they be recorded
in the Public Registry of Commerce.
No resolution by the Shareholders Meeting is required for decreases based on
exercise of the right of retirement and of the purchase of shares done pursuant
to Article 14 Bis (I) of the Securities Market Law ("Ley del Mercado de
Valores").
Capital decreases may be done to absorb losses, make reimbursements to
shareholders, or release them from payments not made, as well as in the
circumstances provided for in Article 14 Bis of the Securities Market Law ("Ley
del Mercado de Valores") and other provisions on the matter.
<PAGE>
The capital reduction caused by losses or reimbursements, in the latter case
except when a reimbursement due to retirement is at issue, shall be done
proportionally with respect to all outstanding shares.
The procedure for exercise of the right of retirement, in addition to observance
of Articles 220 and 221 of the General Law of Commercial Companies ("Ley General
de Sociedades Mercantiles"), is subject to the corresponding reimbursement being
done at the lowest value of the two following: 95% of the value listed on the
Exchange, obtained from the average of operations done during the 30 days during
which the corporation's shares have been quoted prior to the date on which the
retirement becomes effective, or the accounting value of the shares in
accordance with the statement of financial position corresponding at the close
of the fiscal year during which the operation becomes effective, previously
approved by the General Ordinary Shareholders Meeting. The reimbursement shall
be due and payable by the corporation as of the day after the General Ordinary
Shareholders Meeting which approves the statement of financial position
corresponding to the fiscal year when the retirement takes effect.
All capital decreases shall be recorded in the Capital Variations Book kept for
such purpose by the corporation.
CHAPTER III
ADMINISTRATION
ARTICLE ELEVENTH. The administration of the corporation shall be the
responsibility of a Board of Directors composed of 21 members and their
respective alternates as decided by the Shareholders Meeting. Unless the
Shareholders Meeting resolves otherwise, the alternate Directors may only
substitute their respective Directors.
The Directors shall hold office for one year and may be reelected; but in any
event they shall perform their duties until the persons appointed to replace
them have taken office.
Of the directors, 10 shall be appointed by the vote of Series A shareholders in
a Special Shareholders Meeting and shall be acknowledged as Series A Directors;
9 shall be appointed by the vote of Series B shareholders in a Special
Shareholders Meeting and shall be acknowledged as Series B Directors; 1 by the
vote of Series D shareholders in a Special Shareholders Meeting and shall be
acknowledged as the Series D Director. By majority vote, the shareholders of
Series L shares shall have the right to appoint in a Special Shareholders
Meeting 1 Director who shall be acknowledged as Series L Director.
Any shareholder or group of shareholders who holds 10% of the capital stock
shall have the right to appoint one Director and his(her) respective alternate,
as applicable.
Directors elected by minority shareholders shall not be additional to those
referred to
<PAGE>
in the first paragraph of this Article Eleven.
Directors shall guarantee performance of their offices in accordance with the
resolution by the Shareholders Meeting which elects them.
ARTICLE TWELFTH. The persons appointed by the collective majority vote of both
the Series A Directors and the Series B Directors of the Board of Directors
shall act as Chairman and Vice-Chairman of the Board of Directors, or in the
absence of such designation, the persons appointed by the collective majority
vote of both the Series A and Series B shares in the Shareholders Meeting, shall
act in such capacity. In the absence of the Chairman, the Vice-Chairman shall
act as Chairman. In the absence of both, the Directors named by the collective
majority vote of both the Series A directors and Series B Directors shall act as
Chairman and Vice-Chairman.
The Board of Directors, or failing such Board, the Shareholders Meeting, may
also appoint its Secretary and an alternate therefor, who need not be Directors.
It may also appoint the persons who will hold the other offices that may be
created for better performance of their duties.
The copies or records of minutes of the Board and Shareholders Meetings, as well
as entries in the corporate registers and books which are not accounting records
shall be authorized by the Secretary or the alternate Secretary.
The Chairman, Vice-Chairman, the Secretary or the alternate Secretary, are
empowered to effect the protocolling of Board Meeting minutes or Shareholders
Meetings minutes, grant and ratify powers of attorney within their respective
authorities conferred by the Shareholders Meeting or the Board, and, as
applicable, process their registration with the Public Registry of Commerce, as
well as to undertake the other actions that may be necessary or convenient for
formalization of such minutes and for the resolutions adopted and recorded
therein to have full effect.
ARTICLE THIRTEENTH. The Board of Directors shall have the legal representation
of the corporation and, except for the matters that the law or these bylaws
reserve exclusively to the Shareholders Meeting, it shall be invested with the
following powers of attorney:
1. General power of attorney for lawsuits and collections, for acts of
administration, including labor administration, and for acts of dominion, with
all general authorities and the specific authorities that require a specific
clause pursuant to the law, in accordance with Articles 2554, paragraphs first,
second and third, and 2587 of the Civil Code for the Federal District and their
corollaries in the Civil Codes for the States of the Mexican Republic, as well
as for purposes of Articles 11, 46, 47, 134(III), 523, 692 (I), (II), and (III),
687, 876, 878, 883, and 884 of the Federal Labor Law. Therefore, it shall
represent the corporation before all kinds of administrative and judicial
authorities, federal, state, and municipal, before all kinds of conciliation and
conciliation and arbitration boards and other labor authorities, and before
arbiters
<PAGE>
and arbitrators. The foregoing powers of attorney include expressly but are not
limited to filing all kinds of suits and appeals, including constitutional
relief proceedings [amparo], and to withdraw therefrom; to compromise, assume
commitments in arbitration, prepare and respond to depositions, assign property,
file objections and receive payments; to discuss, execute, and revise collective
labor contracts; to represent the corporation before the labor authorities on
labor matters in which the corporation is a party or interested third party,
both at the initial hearing and in any of the phases of the labor law process;
to file criminal complaints and accusations, grant pardon, and assist the public
prosecutor.
2. To subscribe and in any form negotiate credit instruments pursuant to Article
Ninth of the General Law of Credit Instruments and Transactions.
3. To open and cancel bank accounts in the name of the corporation, as well as
to make deposits and draw against them and appoint the persons which draw
against same.
4. To appoint and remove attorneys-in-fact, officers, agents, and employees of
the corporation, and to determine their attributions, guaranties, and
remunerations.
5. To call General Ordinary and Extraordinary Shareholders Meetings, and to
execute their resolutions.
6. To confer general or specific powers of attorney, reserving at all times
exercise thereof, as well as to revoke the powers of attorney conferred.
7. To determine the manner in which the votes corresponding to shares owned by
the corporation should be cast at General Extraordinary and Ordinary
Shareholders Meetings of the corporations in which it owns the majority of the
shares.
8. To appoint the persons who carry out the acquisition of shares of the
corporation and their placement thereafter.
The Board may delegate its authorities to any of the Directors, to the Chairman,
the Vice-Chairman, the Chief Executive Officer or to any of the Officers, or to
attorneys-in-fact or delegates appointed for such purpose, in order that they be
exercised in the business and on the terms and conditions indicated by the
Board, and generally, to undertake the acts and operations that are necessary or
convenient for the purpose of the corporation, with the exception of those
expressly reserved by law or these bylaws to the Shareholders Meeting.
If the shares issued by the corporation are quoted on the Bolsa de Valores, the
Board of Directors shall require prior approval of the General Extraordinary
Shareholders Meeting for: (a) approval of acquisition or sale of the shares
issued by other corporations, provided that the purchase value or, as
applicable, the sale value of the shares
<PAGE>
of one of said corporations, due to one or more acquisitions, whether
simultaneous or successive, exceeds 20% of the accounting capital of the
corporation according to its last financial position statement; and (b) exercise
of the retirement right in any variable capital corporation when it represents,
due to one or several simultaneous or successive acts reimbursement of shares
whose value exceeds 20% of the accounting capital of this corporation according
to its last financial position statement.
ARTICLE FOURTEENTH. The Chairman of the Board of Directors shall preside the
meetings of said Board; he shall carry out the resolutions of the Shareholders
Meetings and of the Board without need for any specific resolution and shall
have the other authorities and obligations established by the General Law of
Commercial Companies ("Ley General de Sociedades Mercantiles") and those which
are expressly conferred on him by the Board of Directors.
ARTICLE FIFTEENTH. The Board shall meet as often as it determines or when it is
called by its Chairman, the Vice-Chairman, any two Directors, the Executive
Committee, the Secretary or the alternate Secretary of the Company.
Calls for meetings of the Board must be sent to the Directors by mail, telegram
or messenger, at least 5 days prior to the date of the meeting. For Directors
who live outside the corporate domicile, the call must be sent to them by
telegram or by telecopier with the same advance.
Meetings may be held without need of said notice if all Directors or their
respective alternates are present.
ARTICLE SIXTEENTH. In order for meetings of the Board of Directors to be
considered legally met, attendance of a majority of the members is required,
including at least one of the Series A Directors and one of the Series B
Directors. Its resolutions shall be valid when approved by a majority of the
vote of the members present, provided there is a favorable vote from one of the
Series A Directors and from one of the Series B Directors. In the event of tie,
the Chairman shall not have a decision-making vote.
Minutes of each meeting of the Board shall be recorded in the book that shall be
kept for such purpose and shall be signed by the Chairman, the Secretary, and
the Statutory Auditor(s) who attend.
Meetings of the Board of Directors must be held at the domicile of the
corporation, unless the Board determines it appropriate to hold them elsewhere.
Pursuant to Article 143 of the General Law of Commercial Companies ("Ley General
de Sociedades Mercantiles"), resolutions of the Board of Directors shall be
validly adopted without need of holding a Board of Directors meeting provided:
i) the affirmative vote of all Directors or their Alternate Directors acting in
the order of their
<PAGE>
appointment is obtained, and ii) the resolutions are confirmed in writing. The
resolution shall be valid from the time when the Secretary receives the written
records of the resolution adopted.
ARTICLE SEVENTEENTH. The General Ordinary Shareholders Meeting may create one or
more Committees of the Board of Directors, composed of the number of members
determined by such Shareholders Meeting, establishing their authorities and
operational rules. The members of the Committees shall be appointed by the
shareholders at Shareholders Meetings, from among the Directors and alternate
Directors of the Corporation. One half of the members of each Committee must be
appointed by Series A shareholders and one half must be appointed by Series B
Shareholders. The members of the Committees shall receive the remuneration
established by the General Ordinary Shareholders Meeting.
The Committees shall invariably act as collegial bodies and may not delegate
their authorities to individuals such as Officers, Managers, Delegate Directors,
attorneys-in-fact, or other similar officers. The Committees may create
Sub-Committees with the authority that the Committees creating them determine,
within the scope of their authorities.
Each Committee shall meet in the manner established by the Shareholders Meeting
that resolves to create it and must report to the Board of Directors on its
activities at the Board meeting immediately following the meeting of the
Committee, or when facts or acts of significance for the Corporation arise
which, in its judgment, merit reporting. The Statutory Auditor(s) shall be
called to all meetings, who will appear at the Committee meetings with the right
to speak but without the right to vote. The Committees shall be deemed legally
installed when the majority of their respective members are present. The
resolutions of the Committees shall be valid when taken by a majority vote of
the members present, provided that said majority includes at least one of the
Series A Directors and one of the Series B Directors.
In any event, resolutions of the Committees shall be validly adopted without
need of holding a meeting provided that: i) the affirmative vote of all members
of the Committee is obtained, and ii) the resolutions are confirmed in writing.
The resolution shall be valid from the time when the Secretary of the
corresponding Committee receives the written records of the resolution adopted.
Until the General Ordinary Shareholders Meeting decides otherwise, the following
Committees are created with the functions indicated hereafter:
Executive Committee: It shall be an administrative and decision making body of
the Board and will have the following authority and any other authority within
the province of the Board of Directors, except the authority which under law,
these bylaws or other provisions are expressly reserved to the Board of
Directors or the Shareholders Meeting.
<PAGE>
1. General power of attorney for lawsuits and collections, for acts of
administration, including labor administration, and for acts of dominion, with
all general authorities and the specific authorities that require a specific
clause pursuant to the law, in accordance with Articles 2554, paragraphs first,
second and third, and 2587 of the Civil Code for the Federal District and their
corollaries in the Civil Codes for the States of the Mexican Republic, as well
as for purposes of Articles 11, 46, 47, 134(III), 523, 692 (I), (II), and (III),
687, 876, 878, 883, and 884 of the Federal Labor Law. Therefore, it shall
represent the corporation before all kinds of administrative and judicial
authorities, federal, state, and municipal, before all kinds of conciliation and
conciliation and arbitration boards and other labor authorities, and before
arbiters and arbitrators. The foregoing powers of attorney include expressly
but are not limited to filing all kinds of suits and appeals, including
constitutional relief proceedings [amparo], and to withdraw therefrom; to
compromise, assume commitments in arbitration, prepare and respond to
depositions, assign property, file objections and receive payments; to discuss,
execute, and revise collective labor contracts; to represent the corporation
before the labor authorities on labor matters in which the corporation is a
party or interested third party, both at the initial hearing and in any of the
phases of the labor law process; to file criminal complaints and accusations,
grant pardon, and assist the public prosecutor.
2. To subscribe and in any form negotiate credit instruments pursuant to Article
Ninth of the General Law of Credit Instruments and Transactions.
3. To open and cancel bank accounts in the name of the corporation, as well as
to make deposits and draw against them and appoint the persons which draw
against same.
4. To appoint and remove attorneys-in-fact, officers, agents, and employees of
the corporation, and to determine their attributions, guaranties, and
remunerations.
5. To call General Ordinary and Extraordinary Shareholders Meetings and Board of
Directors Meetings.
6. To confer general or specific powers of attorney, reserving at all times
exercise thereof, as well as to revoke the powers of attorney conferred.
Finance and Audit Committee: It shall make recommendations to the External
Auditors of the Corporation; review the annual consolidated financial statements
of the Corporation; supervise the audit, accounting, financial reporting and
internal accounting control activities of the Corporation; and review with the
Corporation's administrative officers and the external auditors the plans and
results of audits.
Human Resources and Compensation Committee: It shall review and evaluate the
standards and practices of compensation to high officers of the Corporation,
including salaries, distribution of bonuses and deferred compensations, and it
shall make
<PAGE>
recommendations to the Board of Directors on such matters.
Strategic Planning and Technology Committee: It shall review and advise
administrative officers of the Corporation on long-term business objectives,
strategies and assignment of corporate resources, and shall monitor and assess
the Corporation's technology strategies, policies and investments.
CHAPTER IV
OVERSIGHT
ARTICLE EIGHTEENTH. Oversight of the corporation shall be entrusted to two or
more Statutory Auditors who shall have their respective alternates. One
Statutory Auditor and his Alternate shall be appointed at Special Shareholders
Meeting by majority vote of the Series A shareholders, another Statutory Auditor
and his Alternate shall be appointed at Special Shareholders Meeting by majority
vote of the Series B shareholders and another Statutory Auditor and his
Alternate shall be appointed by the Series D shareholders. If so agreed, all
Series of shares may appoint a Statutory Auditor. The Statutory Auditors need
not be shareholders in the corporation; they shall hold office for one year and
may be reelected; but in any case they shall perform their duties until the
persons appointed to replace them take office.
The Statutory Auditor(s) shall have the attributions and obligations set forth
in Article 166 of the General Law of Commercial Companies ("Ley General de
Sociedades Mercantiles"), as well as all those that are delegated to them by the
General Shareholders Meeting.
The Statutory Auditors shall guarantee performance of their duties as resolved
by the Shareholders Meeting that elects them.
CHAPTER V
SHAREHOLDERS MEETINGS
ARTICLE NINETEENTH. The Shareholders Meeting is the supreme authority of the
corporation and its meetings shall be held at the corporate domicile.
Shareholders Meetings shall be General Extraordinary, General Ordinary and
Special.
Except as provided in these by-laws for increases and decreases to the variable
portion of the capital, General Shareholders Meetings that are called to address
any of the matters included in Article 182 of the General Law of Commercial
Companies ("Ley General de Sociedades Mercantiles") and the matters with respect
to which Series L has voting rights pursuant to Article Seventh of these by-laws
shall be Extraordinary.
General Ordinary Shareholders Meetings shall be held at least once each year
within the 4 months following the close of each fiscal year. In addition to the
items on the
<PAGE>
Agenda, they must address the matters to which Article 181 of the General Law of
Commercial Companies ("Ley General de Sociedades Mercantiles") refers, including
submission to the shareholders of the report referred to in the general title of
Article 172 of said law for the immediately preceding fiscal year of the
corporation, or of the corporations in which it is the majority shareholder,
when the value of the investment in each of them exceeds twenty percent of the
accounting capital according to the statement of financial position of the
corporation at the close of the corresponding fiscal year.
ARTICLE TWENTIETH. Special Shareholders Meetings are those that meet to address
matters relating to the appointment of Directors, Statutory Auditor(s) and
members of Committees of the Corporation of each Series; and those that meet to
resolve regarding the rights of each Series. Such Shareholders Meetings will be
held pursuant to these bylaws and subject to Article 195 of the General Law of
Commercial Companies ("Ley General de Sociedades Mercantiles").
ARTICLE TWENTY-FIRST. Calls for Shareholders Meetings must be made by the Board
of Directors, the Executive Committee or the Statutory Auditors. Further, the
shareholders who represent at least 33% of the capital stock may request in
writing at any time that the Board of Directors or the Statutory Auditor(s) call
a Shareholders Meeting to discuss the matters specified in their request.
Any shareholder who owns one share shall have the same right in any of the cases
to which Article 185 of the General Law of Commercial Companies ("Ley General de
Sociedades Mercantiles") refers, and in accordance with the procedure
established therein.
ARTICLE TWENTY-SECOND. Calls for Shareholders Meetings must be published in the
Federal Diario Oficial and in one of the major circulation daily newspapers for
the corporate domicile at least 15 days prior to the date established for the
Shareholders Meeting. Calls shall include the Agenda and must be signed by the
person(s) making them, and if done by the Board of Directors, the signature of
the Chairman, the Vice-Chairman, the Secretary or the Alternate Secretary shall
be sufficient. Calls for General Shareholders Meetings may include calls for
Special Shareholders Meetings.
Shareholders Meetings may be held without prior call if the capital stock is
fully represented at the time of voting.
ARTICLE TWENTY-THIRD. To attend Shareholders Meetings, the shareholders must
exhibit the corresponding admission ticket which will be issued only on request
of the persons who are recorded as owners of shares in the Stock Register of the
corporation, request that must be presented at least 48 hours prior to the time
set for holding the Shareholders Meeting, and must be accompanied by their stock
certificates or a certificate of deposit of stock issued by an institution
authorized to do so.
<PAGE>
For purposes of attendance at Shareholders Meetings, the Stock Register shall be
closed 48 hours prior to the time established for the Shareholders Meeting in
question.
Shares that are deposited in order to be able to attend the Shareholders Meeting
will not be returned until after the meeting is held, through delivery of the
receipt that was issued against them to the shareholder.
ARTICLE TWENTY-FOURTH. Shareholders may be represented at Shareholders Meetings
by the person(s) they appoint therefor through proxy signed before two
witnesses.
Members of the Board of Directors and the Statutory Auditor(s) may not represent
shareholders at any Shareholders Meeting.
In cases where pursuant to these by-laws the shareholders of shares in only one
Series must vote separately, or their votes must be counted separately, the
respective vote or count may be done within the respective General Shareholders
Meeting.
ARTICLE TWENTY-FIFTH. The Chairman of the Board of Directors or, in his absence,
the Vice-Chairman shall preside at the Shareholders Meetings; in the absence of
both, Shareholders Meetings shall be presided by the person appointed by
majority vote of the holders of the Series A shares and Series B shares present.
The Secretary of the Board of Directors or, in his absence, the alternate
Secretary, shall act as Secretary; and in the absence of both, such office shall
be performed by the person appointed by majority vote of the shareholders
present.
Minutes of the Shareholders Meetings shall be recorded in the relevant book and
shall be signed by the Chairman and Secretary of the Shareholders Meeting.
ARTICLE TWENTY-SIXTH. In order for a General Ordinary Shareholders Meeting to be
legally met on a first call, at least 51% of the outstanding shares with full
voting rights must be represented therein.
In the case of a second call, and except as indicated in the following
paragraph, Ordinary Shareholders Meetings may be validly held regardless of how
many shares with full voting rights are represented.
In order for resolutions of the Ordinary Shareholders Meeting to be validly
adopted as a result of a first or later call, attendance of and favorable vote
of a majority of the Series A shares and by a majority of the Series B shares is
required.
ARTICLE TWENTY-SEVENTH. Except as provided in the following article, in order
for a General Extraordinary Shareholders Meeting to be considered legally met on
a first call, at least 75% of the outstanding shares with voting rights on the
matters to be
<PAGE>
addressed by the Meeting must be represented.
In the case of a second or later call, Extraordinary Shareholders meetings may
be validly held if at least 51% of the outstanding shares with voting rights on
the matters to be addressed by the Meeting are represented.
In order for resolutions of Extraordinary Shareholders Meetings to be validly
adopted as a result of a first or later call, favorable vote of the majority of
the shares with voting rights on matters to be addressed, including a majority
of the Series A shares and a majority of the shares of Series B is required.
ARTICLE TWENTY-EIGHTH. In the event that the registration of the shares of the
corporation in the Securities Section of the National Securities and Brokers
Registry is canceled, whether on request of the corporation or by resolution
adopted by the National Banking and Securities Commission pursuant to the law,
the shareholders with control of the corporation will have the obligation to
make a public offer of purchase, prior to the cancellation and at the higher of
the price that is the average for close of operations effected during the 30
days when the shares were quoted prior to the date of the offer, or the
accounting value of the shares in accordance with the last quarterly report
filed with the National Banking and Securities Commission and the Mexican Stock
Exchange before the offer. This article may only be amended with prior approval
from the National Banking and Securities Commission through resolution of the
General Extraordinary Shareholders Meeting of the corporation, adopted by
favorable vote of the shares representing at least 95% of the capital stock.
CHAPTER VI
FINANCIAL INFORMATION,
PROFITS AND LOSSES
ARTICLE TWENTY-NINTH. Within the 3 months following the close of each fiscal
year, the Board of Directors shall prepare at least the following financial
information:
1. A report from the Board of Directors on the progress of the corporation in
the fiscal year, as well as on the policies followed by the Board and, as
applicable, on the principal existing plans.
2 A report that states and explains the principal accounting criteria and
policies and the information followed in preparing the financial information.
3. A statement that shows the financial position of the corporation on the date
of close of the fiscal year.
4. A statement that shows, with proper explanation and classification, the
profits and losses of the corporation for the fiscal year.
<PAGE>
5. A statement that shows the changes in the corporation's financial position
during the fiscal year.
6. A statement that shows the changes in the entries that compose the corporate
assets which occurred during the fiscal year.
7. The notes that may be necessary to complete or clarify the information
supplied in the foregoing statements.
ARTICLE THIRTIETH. The report to which the preceding article refers, together
with the report from the Statutory Auditor(s), must be finished and made
available to the shareholders, with the evidential documentation, at least 15
days prior to the Shareholders Meeting which is to discuss them. The
shareholders shall have the right to have a copy of the corresponding reports.
ARTICLE THIRTY-FIRST. Once the deductions required by law are made, including
but not limited to that relating to payment of income tax, the annual net
profits that the financial statements approved by the Shareholders Meeting show
will be applied as follows:
1. 5% to the legal reserve fund until it is equal to at least 20% of the
capital;
2. The percentage determined by the Shareholders Meeting to create, increase,
and reconstitute the reserve for acquisition of own shares and the capital
reserves, benefit funds, reinvestment and special reserve funds, as it deems
convenient; and
3. The remainder, if any, for the purpose determined by the Ordinary
Shareholders Meeting.
If there are losses, these shall be distributed by the shareholders in
proportion to the number of their shares and up to the value paid for them.
ARTICLE THIRTY-SECOND. Dividends not collected within the 5 years counted from
the date when their payment began shall be understood as waived and prescribe to
the favor of the corporation in accordance with the laws in effect, and must be
credited to the ordinary reserve fund.
CHAPTER VII
DISSOLUTION AND LIQUIDATION
ARTICLE THIRTY-THIRD. The corporation shall be dissolved in any of the cases set
forth by Article 229 of the General Law of Commercial Companies ("Ley General de
Sociedades Mercantiles").
ARTICLE THIRTY-FOURTH. Once the corporation is dissolved, it shall be placed in
<PAGE>
liquidation, which shall be the responsibility of the person(s) determined by
the General Extraordinary Shareholders Meeting.
ARTICLE THIRTY-FIFTH. The liquidation shall be done pursuant to the resolutions
taken by the shareholders when declaring the dissolution of the corporation. In
the absence of specific resolutions by the Shareholders Meeting, the liquidation
shall be done pursuant to the provisions of the relevant chapter of the General
Law of Commercial Companies ("Ley General de Sociedades Mercantiles").
CHAPTER VIII
FISCAL YEARS
ARTICLE THIRTY-SIXTH. The fiscal year shall be one year counted from the first
of January through the thirty-first of December of each year.
<PAGE>
EX-2.B
1996 Share Conversion Agreement
1996 SHARE CONVERSION AGREEMENT
AGREEMENT entered into this 27th day of December, 1996 among (i)
Bell Atlantic Latin America Holdings, Inc., a Delaware corporation with its
principal office located at 1310 North Court House Road, Arlington, Virginia
22201 ("BALAH"), (ii) Ing. Alejo Peralta y Diaz Ceballos, a Mexican citizen
whose business address is Montes Urales No. 460, 4th Floor, Col. Lomas de
Chapultepec, Mexico, D.F. 11000 ("Alejo Peralta"), (iii) Ing. Carlos Peralta
Quintero, a Mexican citizen whose business address is Montes Urales No. 460,
4th Floor, Col. Lomas de Chapultepec, Mexico, D.F. 11000 ("Carlos Peralta"),
(iv) Iusa Grupo Comunicaciones, S.A. de C.V. (formerly known as Grupo
Industrial Iusa, S.A. de C.V.), a Mexican corporation with its principal
office located at Montes Urales No. 460, 4th Floor, Col. Lomas de
Chapultepec, Mexico, D.F. 11000 ("Grupo Iusa"), (v) Langness Investments
Limited, an Isle of Man corporation with its principal office located at St.
James Chambers, Athol Street, Douglas, Isle of Man ("Langness"), (vi) FIUSA
Pasteje, S.A. de C.V., a Mexican corporation with its principal office
located at Montes Urales No. 460, 4th Floor, Col. Lomas de Chapultepec,
Mexico, D.F. 11000 ("FIUSA", and, together with Alejo Peralta, Carlos
Peralta, Grupo Iusa and Langness, the "Peralta Group"), and (vii) Grupo
Iusacell, S.A. de C.V., a Mexican corporation with its principal office
located at Montes Urales No. 460, 3rd Floor, Col. Lomas de Chapultepec,
Mexico, D.F. 11000 ("Grupo Iusacell"). Capitalized terms used herein shall
have the meanings ascribed to them or referenced in Section 1.1 hereof.
W I T N E S S E T H:
WHEREAS, the Peralta Group owns, beneficially and of record,
428,575,540 Series A Shares, 9,859,110 Series D Shares and 27,834,000 Series
L Shares of Grupo Iusacell (collectively, the "Current Peralta Group
Shares"); and
WHEREAS, BALAH owns, beneficially and of record, 205,562,450
Series B Shares, 166,769,760 Series D Shares and 38,792,690 Series L Shares
of Grupo Iusacell; and
WHEREAS, under the Current Estatutos and the Original
Shareholders Agreement, the shareholders of Grupo Iusacell have the right to
elect seventeen (17) members of the Board of Directors, with the Peralta
Group currently having the beneficial ownership of voting Shares of Grupo
Iusacell that empowers it to elect nine (9) Series A Directors and BALAH
having the beneficial ownership of voting Shares of Grupo Iusacell that
empowers it to elect five (5) Series B Directors and two (2) Series D
Directors; and
WHEREAS, subject to the terms and conditions of this Agreement,
BALAH seeks to have, and the Peralta Group and Grupo Iusacell desire that
BALAH have, the beneficial ownership of a sufficient number of Series A
Shares of Grupo
<PAGE>
Iusacell to ensure that BALAH will have the right and power to elect a
majority of the members of the Board of Directors, including, without
limitation, the Series A Directors and Series B Directors, and, subject to
certain supermajority rights to be held by the Peralta Group, thereby have
management control over Grupo Iusacell; and
WHEREAS, subject to the terms and conditions of this Agreement,
each of the Peralta Group and Grupo Iusacell agrees to take all action
reasonably necessary to enable BALAH to have the beneficial ownership of a
sufficient number of Series A Shares of Grupo Iusacell to ensure that BALAH
will have the right and power to elect a majority of the members of the Board
of Directors, including, without limitation, the Series A Directors and
Series B Directors and, subject to certain supermajority rights to be held by
the Peralta Group, thereby have management control over Grupo Iusacell; and
WHEREAS, subject to the terms and conditions of this Agreement,
FIUSA seeks to convert a direct loan to Grupo Iusacell into Series D Shares
and BALAH or an Affiliate of BALAH designated by BALAH seeks to acquire a
direct loan made to Grupo Iusacell by Chase Manhattan Bank, N.A. supported by
such Affiliate's or another Affiliate's contingent purchase obligation and
convert the loan into Series A Shares, and Grupo Iusacell desires that FIUSA
and BALAH or such BALAH Affiliate convert such loans into Series D Shares and
Series A Shares, respectively; and
WHEREAS, subject to the terms and conditions of this Agreement,
BALAH (or one or more Affiliates of BALAH designated by BALAH) and the
Peralta Group seek to provide pre-Closing short-term financing to Grupo
Iusacell, and BALAH (or one or more Affiliates of BALAH designated by BALAH)
seeks to provide post-Closing medium-term financing to Grupo Iusacell, and
Grupo Iusacell desires to accept and receive such financing.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
Article I: Definitions
1.1 Defined Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms or referenced
in the New Shareholders Agreement. In addition, when used in this Agreement,
the following terms shall have the meanings set forth for them below:
"ACISA" means Administracion y Control de Industrias, S.A. de
C.V., a Mexican corporation and an Affiliate of the Peralta Group.
<PAGE>
"Agreement" means this 1996 Share Conversion Agreement, as the
same may be amended, modified and supplemented from time to time in
accordance with the terms hereof.
"BAFSI" means Bell Atlantic Financial Services, Inc., a Delaware
corporation and an Affiliate of BALAH.
"BALAH/Peralta Group Trust" means that certain trust dated as of
November 30, 1993 created by agreement by and among Grupo Iusacell, BALAH,
Alejo Peralta, Carlos Peralta, Grupo Iusa and Banco del Atlantico, S.A.,
institucion de banca multiple, Grupo Financiero GBM - Atlantico, as trustee.
"BALAH/Peralta Group Trustee" means Banco del Atlantico, S.A.,
institucion de banca multiple, Grupo Financiero GBM - Atlantico, as trustee
of the BALAH/Peralta Group Trust.
"CNBV" means Mexico's Comision Nacional Bancaria y de Valores.
"Current Estatutos" means the estatutos sociales of Grupo
Iusacell as in effect as of the date of this Agreement.
"Estatutos" means the estatutos sociales of Grupo Iusacell as in
effect from time to time.
"Federal Competition Commission" means Mexico's Comision Federal
de Competencia.
"Foreign Investment Commission" means Mexico's Comision Nacional
de Inversiones Extranjeras.
"New Estatutos" means the estatutos sociales of Grupo Iusacell in
the form of Annex A, as may be amended from time to time.
"New Shareholders Agreement" means that certain shareholders
agreement in the form of Annex B, as may be amended from time to time.
"Original Shareholders Agreement" means that certain shareholders
agreement dated as of November 30, 1993 by and among Grupo Iusacell, BALAH,
Alejo Peralta, Carlos Peralta and Grupo Iusa.
"Peralta Group Shares" means the Current Peralta Group Shares,
the FIUSA Conversion Shares and the Peralta Group Interim Financing
Conversion Shares.
"SCT" means Mexico's Secretaria de Comunicaciones y Transportes.
<PAGE>
"Series A Directors" means those members of the Board of
Directors who, pursuant to the Estatutos or the Shareholders Agreement, are
nominated and elected by the beneficial owners of the Series A Shares;
provided, however, that such term does not include the Series B Directors,
the Series D Directors or the Series L Director.
"Series B Directors" means those members of the Board of
Directors who, pursuant to the Estatutos or the Shareholders Agreement, are
nominated and elected by the beneficial owners of the Series B Shares;
provided, however, that such term does not include the Series A Directors,
the Series D Directors or the Series L Director.
"Series D Directors" means those members of the Board of
Directors who, pursuant to the Estatutos or the Shareholders Agreement, are
nominated and elected by the beneficial owners of Series D Shares; provided,
however, that such term does not include the Series A Directors, the Series B
Directors or the Series L Director.
"Series L Director" means that member of the Board of Directors
who, pursuant to the Estatutos or the Shareholders Agreement, is nominated
and elected by the beneficial owners of Series L Shares; provided, however,
that such term does not include the Series A Directors, the Series B
Directors or the Series D Directors.
"Share Purchase Agreement" means that certain Share Purchase
Agreement dated October 10, 1993 by and among Grupo Iusacell, BALAH, Alejo
Peralta, Carlos Peralta and Langness.
"Shareholders Agreement" means the Original Shareholders
Agreement or the New Shareholders Agreement, as may be in effect from time to
time.
"Shares" means, as the context may require, the Series A Shares,
Series B Shares, Series D Shares and/or the Series L Shares.
"SOS" means SOS Telecomunicaciones, S.A. de C.V., a Mexican
corporation and a Subsidiary of Grupo Iusacell.
"Subordinated Chase Note" means that certain subordinated
promissory note dated August 29, 1996 issued by Grupo Iusacell to Chase
Manhattan Bank, N.A.
"Subordinated FIUSA Note" means that certain subordinated
promissory note dated August 29, 1996 issued by Grupo Iusacell to FIUSA.
"Three Way Agreements" means the Agreement dated as of April 6,
<PAGE>
1995 by and among BAFSI, ACISA and Grupo Iusacell, as amended, and the
Agreement dated as of August 29, 1996 by and among BAFSI, FIUSA and Grupo
Iusacell.
<PAGE>
Furthermore, the definitions for the capitalized terms set forth below
are found in the sections of this Agreement identified immediately to the
right of such terms:
Term Section
---- -------
Alejo Peralta Preamble
BALAH Preamble
BEL Interim Financing Conversion Shares 2.1(a)(vi)
Carlos Peralta Preamble
Chase Conversion Shares 2.1(a)(iii)
Claims 6.2
Closing 2.2
Closing Date 2.2
Convertible Debentures 2.1(d)
Current Peralta Group Shares First Recital
FIUSA Preamble
FIUSA Conversion Shares 2.1(a)(iv)
Grupo Iusa Preamble
Grupo Iusacell Preamble
Langness Preamble
Peralta Group Preamble
Peralta Group Interim Financing Conversion Shares 2.1(a)(v)
Put Closing 3.1
Second Closing 2.2
Second Closing Date 2.2
Section 214 Authorization 2.1(f)
1.2 Construction. As used in this Agreement, (i) each term defined in
this Agreement has the meaning assigned to it, (ii) as the context may
require, words in the singular include the plural and words in the plural
include the singular, (iii) as the context may require, words in the
masculine or neuter gender include the masculine, feminine and neuter
genders, (iv) all references to Annexes refer to Annexes delivered herewith
or attached hereto (each of which is deemed to be a part of this Agreement),
(v) all references to Sections or Articles refer to Sections or Articles of
this Agreement, (vi) all references to "U.S.$", "$" or "dollars" refer to
United States dollars, and (vii) the terms "herein," "hereunder," "hereby,"
"hereto" and terms of similar import refer to this Agreement in its entirety,
and not to any particular Article, Section, paragraph or subparagraph. No
provision of this Agreement will be construed in favor of, or against, any of
the parties hereto by reason of the extent to which such party or its counsel
participated in its drafting or by reason of the extent to which this
Agreement or any provision hereof is inconsistent with any prior draft hereof
or thereof. All references in this Agreement to beneficial ownership of
Shares shall be deemed to include the Shares held in the BALAH/Peralta Group
Trust or held of record by BALAH (or any of its
<PAGE>
Affiliates pursuant to Section 7.7 hereunder) or any member of the Peralta
Group (or any of its Affiliates pursuant to Section 7.7 hereunder), and, with
respect to all references to other Persons being a beneficial owner, the
parties agree that such term shall be translated as "beneficiario".
Article II: Agreements, Closing and Closing Deliveries
2.1 Agreements. Subject to the terms and conditions of this Agreement,
and in reliance upon the representations, warranties and agreements contained
herein, the parties hereto hereby agree as follows:
(a) Agreement as to Certain Equity and Debt Conversions. The parties hereto
hereby agree to effect the conversions set forth in clauses (i) and (ii)
immediately below on the Closing Date and hereby agree to effect the
conversions set forth in clauses (iii) through (vi) inclusive immediately
below on the Second Closing Date:
(i) BALAH shall convert 200,000,000 Series B Shares and 166,769,760
Series D Shares beneficially owned by BALAH into 366,769,760 Series A Shares;
(ii) The Peralta Group shall convert 100,000,000 Series A Shares
beneficially owned by the Peralta Group into 100,000,000 Series D Shares;
(iii) BALAH or an Affiliate of BALAH designated by BALAH shall convert
the sum of the principal amount of the Subordinated Chase Note, the accrued
interest thereon and the credit enhancement fee associated therewith pursuant
to the Three-Way Agreements into such number of newly issued Series A Shares
calculated by dividing such sum by 0.7 (representing a conversion price of
U.S.$0.70 per Series A Share) (collectively, the "Chase Conversion Shares");
(iv) FIUSA or its designee shall convert the sum of the principal
amount of the Subordinated FIUSA Note, the accrued interest thereon and the
credit enhancement fee associated therewith pursuant to the Three-Way
Agreements into such number of newly issued Series A Shares and/or Series D
Shares calculated by dividing such sum by 0.7 (representing a conversion
price of U.S.$0.70 per Series D Share) (collectively, the "FIUSA Conversion
Shares"); provided, however, that no Series A Shares shall be issued in
respect of such conversion unless and until the number of Series D Shares
issued in respect of such conversion would cause the aggregate number of
Series D Shares issued and outstanding to exceed 19.9% of the aggregate
number voting Shares;
(v) The Peralta Group shall convert the sum of the principal amount of
any pre-Closing financing provided by the Peralta Group pursuant to the third
paragraph of Section 2.1(d) hereof and the accrued interest thereon into such
number of newly issued Series A Shares and/or Series D Shares calculated by
dividing such sum by 0.7 (representing a conversion price of U.S.$0.70 per
Series
<PAGE>
D Share) (collectively, the "Peralta Group Interim Financing Conversion
Shares"); provided, however, that no Series A Shares shall be issued in
respect of such conversion unless and until the number of Series D Shares
issued in respect of such conversion would cause the aggregate number of
Series D Shares issued and outstanding to exceed 19.9% of the aggregate
number voting Shares;
(vi) BALAH and/or an Affiliate of BALAH designated by BALAH, as the
case may be, shall have the right (if BALAH and/or such Affiliate, as the
case may be, chooses, in its sole discretion, to exercise the conversion
option described in clause (i) of the third paragraph of Section 2.1(d)
hereof), but not the obligation, to convert the sum of the principal amount
of any pre-Closing financing provided by any one or both of them pursuant to
the third paragraph of Section 2.1(d) hereof and the accrued interest thereon
into such number of newly issued Series A Shares calculated by dividing such
sum by 0.7 (representing a conversion price of U.S.$0.70 per Series A Share)
(collectively, the "BEL Interim Financing Conversion Shares");
The parties hereto hereby agree to take any and all action required or
deemed advisable to effect the conversions specified in this Section 2.1(a),
and BALAH and the Peralta Group hereby agree to cause Grupo Iusacell to take
any and all action required or deemed advisable to effect such conversions.
Without limiting the foregoing, Grupo Iusacell hereby agrees to call the
necessary general ordinary, extraordinary, special or other meetings of the
shareholders (or any class of shareholders) of Grupo Iusacell to approve and
enable such conversions, and BALAH and the Peralta Group hereby agree that
they shall vote all of their Shares at any such meeting of the shareholders
(or any class of shareholders) of Grupo Iusacell in which they have the right
to vote in favor of the resolutions required to approve and effect such
conversions.
In addition, (m) BALAH hereby agrees to surrender for conversion and
deliver to Grupo Iusacell on the Closing Date one or more certificates
representing 200,000,000 Series B Shares and 166,769,760 Series D Shares
beneficially owned by it and, in consideration therefor, Grupo Iusacell
hereby agrees to deliver to BALAH on the Closing Date one or more
certificates representing 366,769,760 Series A Shares, (n) BALAH hereby
agrees to acquire (or to cause an Affiliate designated by it to acquire) the
Subordinated Chase Note on or prior to the Second Closing Date and surrender
for conversion and deliver the Subordinated Chase Note to Grupo Iusacell on
the Second Closing Date and, in consideration therefor, Grupo Iusacell hereby
agrees to deliver to BALAH or such Affiliate one or more certificates
representing the number of Series A Shares set forth in clause (iii)
immediately hereinabove, (o) the Peralta Group hereby agrees to surrender for
conversion and deliver to Grupo Iusacell on the Closing Date one or more
certificates representing 100,000,000 Series A Shares beneficially owned by
it and, in consideration therefor, Grupo Iusacell hereby agrees to deliver to
the Peralta Group on the Closing Date one or more certificates representing
100,000,000 Series D Shares,
<PAGE>
(p) the Peralta Group hereby agrees to surrender for conversion and deliver
the Subordinated FIUSA Note and the promissory notes (pagares) representing
any pre-Closing financing provided by the Peralta Group pursuant to the third
paragraph of Section 2.1(d) hereof to Grupo Iusacell on the Second Closing
Date and, in consideration therefor, Grupo Iusacell hereby agrees to deliver
to the Peralta Group one or more certificates representing the number of
Series D Shares and/or Series A Shares set forth in clauses (iv) and (v)
immediately hereinabove and, if BALAH and/or one its Affiliates, as the case
may be, choose, in their sole discretion, to exercise the conversion option
described in clause (i) of the third paragraph of Section 2.1(d) hereof, (q)
BALAH and/or such Affiliate, as the case may be, hereby agree to surrender
for conversion and deliver the promissory notes (pagares) representing any
pre-Closing financing provided by BALAH and/or such Affiliate pursuant to the
third paragraph of Section 2.1(d) hereof to Grupo Iusacell on the Second
Closing Date and, in consideration therefor, Grupo Iusacell hereby agrees to
deliver to BALAH and/or such Affiliate one or more certificates representing
the number of Series A Shares set forth in clause (vi) immediately
hereinabove.
The Peralta Group hereby expressly waives and agrees to waive any
preemptive or preferential rights it may have with respect to the issuance or
delivery as applicable of Series A Shares in connection with the conversions
contemplated by this Section 2.1(a), and BALAH and Langness each hereby
expressly waives and agrees to waive any preemptive or preferential rights it
may have with respect to the issuance or delivery as applicable of Series D
Shares in connection with the conversions contemplated by this Section
2.1(a), in each case, at any meeting of the shareholders (or any class of
shareholders) of Grupo Iusacell which approves such issuances and/or
conversions. Grupo Iusacell hereby agrees (and BALAH and the Peralta Group
hereby agree to cause Grupo Iusacell) to publish in the Diario Oficial de la
Federacion of Mexico any notice required to advise the other shareholders of
Grupo Iusacell of any preemptive or preferential right they may have in
connection with any such issuances of Shares promptly after the general
ordinary, extraordinary, special or other meetings of the shareholders (or
any class of shareholders) of Grupo Iusacell which approved any such
issuances of Shares.
Simultaneously with and in consideration for the conversions and
deliveries set forth in Section 2.1(a)(i) and (ii), BALAH hereby agrees to
pay or cause one of its Affiliates to pay the members of the Peralta Group or
their designees U.S.$50,000,000, which amount shall be reduced by the taxes,
if any, required to be withheld and paid over by BALAH to Mexican tax
authorities (which withheld amounts, if any, BALAH shall pay over to Mexican
tax authorities).
(b) Agreement to Amend and Restate the Current Estatutos. BALAH and the
Peralta Group hereby agree to amend and restate the Current Estatutos in the
form of the New Estatutos set forth in Annex A, and the parties hereby agree
to take any and all action required or deemed advisable to so amend and
restate the Current Estatutos and adopt the New Estatutos. Without limiting
the foregoing,
<PAGE>
Grupo Iusacell hereby agrees to call the necessary general ordinary,
extraordinary, special or other meetings of the shareholders (or any class of
shareholders) of Grupo Iusacell necessary to so amend and restate the Current
Estatutos and adopt the New Estatutos, and BALAH and the Peralta Group hereby
agree that they shall vote all of their Shares at any such meeting of the
shareholders (or any class of shareholders) of Grupo Iusacell in which they
have the right to vote in favor of amending and restating the Current
Estatutos in the form of the New Estatutos. In addition, Grupo Iusacell
hereby agrees to cause the New Estatutos to be protocolized and registered in
the Registro Publico de Comercio of Grupo Iusacell's corporate domicile and
to make and diligently prosecute any appropriate filings with the CNBV with
respect to the New Estatutos.
Except as may otherwise be required by Mexican Governmental Entities,
Grupo Iusacell hereby agrees to amend and restate, and BALAH and the Peralta
Group hereby agree to cause Grupo Iusacell to amend and restate, the
estatutos sociales of the Subsidiaries in order to enable BALAH, through
Grupo Iusacell, to exercise voting and management control over such
Subsidiaries. Grupo Iusacell hereby further agrees, and hereby agrees to
cause its Subsidiaries which hold shares of voting capital stock in other
Subsidiaries, to vote all of their respective shares of capital stock in the
Subsidiaries at any general ordinary, extraordinary, special or other meeting
of the shareholders of the Subsidiaries in favor of so amending and restating
such estatutos sociales. Grupo Iusacell hereby agrees to cause the
Subsidiaries to adopt such amended and restated estatutos sociales, to cause
such amended and restated estatutos sociales to be protocolized and
registered in the appropriate Registro Publico de Comercio, to make and
diligently prosecute any appropriate filings with the CNBV, if required, and
to take any other action that may be required or deemed advisable in
connection with the foregoing.
(c) Agreement to Amend and Restate the Original Shareholders Agreement. The
parties hereby agree to amend and restate on the Closing Date, and BALAH and
the Peralta Group hereby agree to cause Grupo Iusacell to agree to amend and
restate on the Closing Date, the Original Shareholders Agreement in the form
of the New Shareholders Agreement set forth in Annex B. Without limiting the
foregoing, the parties hereby agree to execute and deliver to each other
party, on the Closing Date, the New Shareholders Agreement.
(d) Agreement Regarding Grupo Iusacell Financing. The parties agree that, in
order to meet Grupo Iusacell's capital requirements, Grupo Iusacell shall
issue, from time to time as it shall require, by private placement to BALAH
or one or more BALAH Affiliates designated by BALAH, or by public offering
(including, without limitation, by an offering pursuant to Rule 144A
promulgated under the United States Securities Act of 1933, as amended), as
Grupo Iusacell shall determine from time to time, up to U.S.$150,000,000 of
debentures to be issued by Grupo Iusacell, convertible into Series A Shares,
with the terms set forth in Annex C (the "Convertible Debentures"); provided,
however, that BALAH
<PAGE>
or such BALAH Affiliate or Affiliates, as the case may be, shall have the
right, in their sole discretion, to provide such financing by a direct loan
to Grupo Iusacell or by a guarantee of a direct loan to Grupo Iusacell from a
bank or other financial institution, which loans BALAH or such BALAH
Affiliate or Affiliates in their sole discretion may require Grupo Iusacell
to refinance at any time by the sale of Convertible Debentures by private
placement to BALAH or one or more BALAH Affiliates designated by BALAH, or by
public offering (including, without limitation, by an offering pursuant to
Rule 144A promulgated under the United States Securities Act of 1933, as
amended). The Peralta Group hereby agrees not to (and hereby agrees to cause
its Affiliates and Peralta Family Members not to) acquire any Convertible
Debentures in any public offering (including, without limitation, by an
offering pursuant to Rule 144A promulgated under the United States Securities
Act of 1933, as amended) or upon resale thereof by an acquirer of Convertible
Debentures. The parties hereby agree that BALAH and its Affiliates shall have
the right, in their sole discretion, to acquire Convertible Debentures in any
public offering therefor (including, without limitation, in any offering
pursuant to Rule 144A promulgated under the United States Securities Act of
1933, as amended).
The parties hereby agree to take any and all action required or deemed
advisable to enable Grupo Iusacell to issue the Convertible Debentures.
Without limiting the foregoing, Grupo Iusacell hereby agrees to call the
necessary general ordinary, extraordinary, special or other meetings of the
shareholders (or any class of shareholders) of Grupo Iusacell necessary to
issue the Convertible Debentures, and BALAH and the Peralta Group hereby
agree that they shall vote all of their Shares at any such meeting of the
shareholders (or any class of shareholders) of Grupo Iusacell in which they
have the right to vote in favor of issuing the Convertible Debentures. In
addition, the Peralta Group hereby expressly waives and agrees to waive any
preemptive or preferential rights it may have with respect to the issuance of
additional Series A Shares in connection with the conversion of the
Convertible Debentures at any such meeting of the shareholders (or any class
of shareholders) of Grupo Iusacell which approves the issuance of the
Convertible Debentures.
Prior to the Closing, BALAH (or an Affiliate of BALAH designated by
BALAH) and the Peralta Group hereby agree to lend Grupo Iusacell, in equal
amounts, as Grupo Iusacell may require from time to time, up to
U.S.$10,000,000 each. Any such loans shall bear interest at an annual rate of
LIBOR + 500 basis points, with interest payable at maturity, shall be
subordinated to the U.S.$65,000,000 Chase Manhattan Bank, N.A. credit
facility of Grupo Iusacell and shall be evidenced by a promissory note
(pagare) in the form of Annex D. The parties hereby agree that the Peralta
Group, at the Second Closing, shall convert the outstanding principal amount
of and accrued interest on any such funds borrowed by Grupo Iusacell into
Series A Shares and Series D Shares at a conversion price of U.S.$0.70 per
Series A Share or Series D Share as set forth in Section 2.1(a)(v) hereof.
The parties hereby agree that BALAH or its Affiliate which provided any such
pre-Closing
<PAGE>
funding to Grupo Iusacell under this third paragraph of Section 2(d), at the
Second Closing, shall have the option either to (i) convert the outstanding
principal amount of and accrued interest on any such funds borrowed by Grupo
Iusacell into Series A Shares at a conversion price of U.S.$0.70 per Series A
Share as set forth in Section 2.1(a)(vi) hereof, or (ii) refinance the
outstanding principal amount of and accrued interest on any such funds in
accordance with the financing which BALAH and its Affiliates shall provide
under the first paragraph of this Section 2.1(d). The Peralta Group and BALAH
hereby agree to cause Grupo Iusacell to effect any such conversions at the
Second Closing.
The Peralta Group hereby expressly waives and agrees to waive any
preemptive or preferential rights it may have with respect to the issuance at
the Closing of any BEL Interim Financing Conversion Shares or any Peralta
Group Interim Financing Conversion Shares at the general ordinary,
extraordinary, special or other meetings of the shareholders (or any class of
shareholders) of Grupo Iusacell which approve the issuance of such BEL
Interim Financing Conversion Shares and Peralta Interim Financing Conversion
Shares, and BALAH hereby expressly waives and agrees to waive any preemptive
or preferential rights it may have with respect to the issuance of any BEL
Interim Financing Conversions Shares or any Peralta Group Interim Financing
Conversion Shares at the general ordinary, extraordinary, special or other
meetings of the shareholders (or any class of shareholders) of Grupo Iusacell
which approve the issuance of such BEL Interim Financing Conversion Shares
and Peralta Group Interim Financing Conversion Shares. Grupo Iusacell hereby
agrees (and BALAH and the Peralta Group hereby agree to cause Grupo Iusacell)
to publish in the Diario Oficial de la Federacion of Mexico any notice
required to advise the other shareholders of Grupo Iusacell of any preemptive
or preferential right they may have in connection with any such issuances of
Shares promptly after the general ordinary, extraordinary, special or other
meetings of the shareholders (or any class of shareholders) of Grupo Iusacell
which approved any such issuances of Shares.
(e) Agreement to Implement Trusts for the Fixed Wireless, Long Distance and
Satellite Transmission Businesses. Grupo Iusacell shall, prior to the
Closing, establish, and the Peralta Group and BALAH hereby agree to cause
Grupo Iusacell to establish, one or more trusts for the purpose of holding
and voting 51% of the voting shares of Iusatelecomunicaciones, S.A. de C.V.,
51% of the voting shares of Iusatel, S.A. de C.V., all of the voting shares
in Satelitron, S.A. de C.V. held by Grupo Iusacell, and such other shares of
voting capital stock of other Subsidiaries, provided that Mexican
Governmental Entities so require and, if appropriate, so authorize. The
Peralta Group and BALAH hereby further agree to negotiate in good faith, and
to cause Grupo Iusacell, to establish and adopt, any additional or substitute
arrangements which may be required by Mexican Governmental Entities in
connection with restrictions on ownership of telecommunications properties by
Persons who are not Mexican. Without limiting the foregoing, the Peralta
Group and BALAH hereby agree to cause Grupo Iusacell to take any and all
action that
<PAGE>
may be required or deemed advisable (to the extent Mexican Governmental
Entities so authorize upon application by Grupo Iusacell) to amend the
estatutos sociales of Iusatelecomunicaciones, S.A. de C.V., Iusatel, S.A. de
C.V. and such other Subsidiaries in which non-Mexicans are prohibited from
owning more than 49% of the voting capital stock in order to establish and
implement a capital structure that provides for a neutral investment of up to
80% of the total capital stock thereof (or such lesser percentage of neutral
investment as Mexican Governmental Entities shall authorize).
(f) Agreement With Respect to Section 214 Authority of Iusatel, S.A. de C.V.
Promptly after the execution of this Agreement, Grupo Iusacell shall cause
Iusatel, S.A. de C.V. to request the pro forma transfer of control of the
authorization of Iusatel, S.A. de C.V., under Section 214 of the
Communications Act of 1934, as amended, and Section 63.18 of the rules and
regulations of the United States Federal Communications Commission
promulgated thereunder, to acquire and operate facilities for the provision
of international services between the United States and international
locations (the "Section 214 Authorization") to Grupo Iusa. Subsequent to the
Closing, Grupo Iusacell (for itself and on behalf of Iusatel, S.A. de C.V.),
Grupo Iusa and/or BALAH (or one or more of its Affiliates), as appropriate,
shall seek the authorization of the United States Federal Communications
Commission for a formal transfer of control of the Section 214 Authorization
back to Iusatel, S.A. de C.V. The parties hereto agree to take any and all
action that may be required or deemed advisable in connection with the
foregoing; provided, however, that if the foregoing may cause Grupo Iusa or
Iusatel, S.A. de C.V. to incur any material costs or damages (other than
attorneys' fees and filing fees in connection therewith), the parties hereby
agree to use their commercially reasonable best efforts to explore substitute
arrangements which may achieve the same objective.
(g) Agreement With Respect to Concession of SOS Telecomunicaciones, S.A. de
C.V. Grupo Iusacell shall, prior to the Closing, file an application with the
SCT to partially assign to Iusatelecomunicaciones, S.A. de C.V. certain
rights held by SOS relating to the provision of radiotelephony service on
board of vehicles and certain radioelectric spectrum in order to permit BALAH
and its Affiliates to be legally able to beneficially own, directly or
indirectly, more than 49% of the voting capital stock in or otherwise control
SOS.
2.2 Closing. The closing of the transactions contemplated by Section
2.1 (a) (i) and (ii) and Section 2.1(c) hereof (the "Closing") shall take
place at the offices of Grupo Iusacell as promptly as practicable but in no
event more than three (3) Business Days following the date on which the
conditions set forth in Section 4.1 hereof shall have been satisfied,
discharged or waived, as the case may be, or at such other place or time as
shall be mutually agreed upon in writing by BALAH and the Peralta Group. The
date on which the Closing actually occurs shall be referred to herein as the
"Closing Date." All transactions at the Closing
<PAGE>
shall be deemed to take place simultaneously, and no transaction shall be
deemed to have been consummated and no agreement, document or instrument
shall be deemed to have been delivered until all transactions are consummated
and all agreements, documents and instruments are delivered. The Closing and
the consummation of the transactions contemplated by this Agreement to close
on the Closing Date shall be deemed effective as of the close of business on
the Closing Date.
The closing of the transactions contemplated by Section 2.1 (a) (iii)
through (vi) inclusive and the second paragraph of Section 2.1(b) hereof (the
"Second Closing") shall take place at the offices of Grupo Iusacell as
promptly as practicable but in no event more than three (3) Business Days
following the date on which the conditions set forth in Section 4.2 hereof
shall have been satisfied, discharged or waived, as the case may be, or at
such other place or time as shall be mutually agreed upon in writing by BALAH
and the Peralta Group. The date on which the Second Closing actually occurs
shall be referred to herein as the "Second Closing Date." All transactions at
the Second Closing shall be deemed to take place simultaneously, and no
transaction shall be deemed to have been consummated and no agreement,
document or instrument shall be deemed to have been delivered until all
transactions are consummated and all agreements, documents and instruments
are delivered. The Second Closing and the consummation of the transactions
contemplated by this Agreement to close on the Second Closing Date shall be
deemed effective as of the close of business on the Second Closing Date.
2.3 Closing and Second Closing Deliveries. At the Closing, the
following deliveries shall be made:
(a) BALAH shall surrender for conversion and deliver to Grupo Iusacell one or
more certificates representing 200,000,000 Series B Shares and 166,769,760
Series D Shares.
(b) Grupo Iusacell shall issue and deliver to BALAH or one or more of BALAH's
Affiliates, as the case may be, one or more certificates representing
366,769,760 Series A Shares, registered in the name of BALAH and/or such
BALAH Affiliate or Affiliates.
(c) The Peralta Group shall surrender for conversion and deliver to Grupo
Iusacell one or more certificates representing 100,000,000 Series A Shares.
(d) Grupo Iusacell shall issue and deliver to the Peralta Group one or more
certificates representing 100,000,000 Series D Shares, registered in the name
or names of the members of the Peralta Group who delivered the Series A
Shares identified in Section 2.1(a)(ii) hereof, but only to the extent of the
number of Series A Shares delivered by such members of the Peralta Group.
<PAGE>
(e) Provided that the other actions required for the Closing by this Section
2.3 occur, BALAH shall deliver to the members of the Peralta Group or their
designees U.S.$50,000,000, by wire transfer of immediately available funds to
one or more accounts designated by the Peralta Group in writing three (3)
Business Days prior to the Closing, which amount shall be reduced by the
taxes, if any, required to be withheld and paid over by BALAH to Mexican tax
authorities (which withheld amounts, if any, BALAH shall pay over to Mexican
tax authorities).
(f) Cross-receipts reflecting the deliveries contemplated by Section
2.3(a)-(d) hereof and a receipt reflecting the delivery contemplated by
Section 2.3(e) hereof shall be delivered to the parties involved in the
transactions requiring such receipts.
(g) Grupo Iusacell shall deliver to each of BALAH and the Peralta Group (i) a
copy of the New Estatutos in the form of Annex A, certified by the Notary
Public (notario publico) who formalizes same and by the Secretary or
Assistant Secretary of Grupo Iusacell and (ii) a list, organized by company
and certified by the Secretary or Assistant Secretary of Grupo Iusacell,
identifying each individual who holds a power of attorney to act for and on
behalf of Grupo Iusacell and/or a Subsidiary.
(h) A copy of the New Shareholders Agreement executed by Grupo Iusacell,
BALAH, Alejo Peralta, Carlos Peralta, Grupo Iusa, Langness, FIUSA and any
Affiliate of BALAH which shall hold Shares from and after the Closing Date
shall be delivered to each signatory thereto.
(i) If Mexican Governmental Entities shall have so required and, if
appropriate, authorized, Grupo Iusacell shall deliver to BALAH and the
Peralta Group a copy of the one or more trusts with respect to
Iusatelecomunicaciones, S.A. de C.V., Iusatel, S.A. de C.V., Satelitron, S.A.
de C.V. and any other Subsidiary as described in Section 2.1(e) hereof,
executed by Grupo Iusacell, as grantor, and by a trustee selected by Grupo
Iusacell with the approval of BALAH and the Peralta Group prior to the
Closing Date. Grupo Iusacell shall have delivered to such trustee one or more
certificates representing 51% of the voting shares of Iusatelecomunicaciones,
S.A. de C.V., 51% of the voting shares of Iusatel, S.A. de C.V., 100% of the
voting shares of Satelitron, S.A. de C.V. and/or such other number of voting
shares of such Subsidiaries and such voting shares of other Subsidiaries as
Mexican Governmental Entities shall have required to be placed in such
trust(s) or any other trusts.
(j) A copy of the resolution of the Board of Directors of each of Bell
Atlantic Corporation, BALAH, any BALAH Affiliate receiving Shares at the
Closing, Grupo Iusacell, Grupo Iusa, FIUSA and Langness approving the
transactions contemplated to be consummated at the Closing, in each case,
certified by the Secretary or Assistant Secretary of such corporation, shall
be delivered to each party hereto (other than the party providing such
certified resolution).
<PAGE>
(k) A copy of any and all permits and approvals received from and filings
made with (i) the Foreign Investment Commission, (ii) the Federal Competition
Commission, (iii) the SCT, and (iv) the CNBV, if any, and all other permits
and approvals from any Governmental Entity as may be required for the lawful
consummation of the Closing, shall be delivered to each party hereto.
(l) One or more letters from Carlos Peralta resigning as Vice Chairman of the
Board of Directors and as an officer or employee of each of the Subsidiaries,
in each case, effective as of the Closing shall be delivered to Grupo
Iusacell and BALAH.
(m) A copy of the "actas" of the meetings of the Grupo Iusacell shareholders
referred to in Section 4.1(d) hereof, certified by the Notary Public (notario
publico) who formalizes same and by the Secretary or Assistant Secretary of
Grupo Iusacell, shall be delivered to BALAH and the Peralta Group.
(n) A copy of the joint instructions to the BALAH/Peralta Group Trustee
executed by Grupo Iusacell, BALAH, Alejo Peralta, Carlos Peralta and Grupo
Iusa directing the Trustee to deliver the Shares required to effect the
conversions set forth in Section 2.1(a)(i) and (ii) hereof. In addition, if
BALAH and such members of the Peralta Group determine in good faith that the
BALAH/Peralta Group Trust is no longer required or needs to be modified, such
joint instructions also shall direct the Trustee to terminate the
BALAH/Peralta Group Trust and distribute any Shares remaining therein to the
beneficial holders thereof or to modify the BALAH/Peralta Trust in accordance
with the terms thereof.
(o) The certificates required by Section 4.1(d) and (e) hereof shall be
delivered to each party hereto (other than to the party or parties executing
and delivering such waivers).
(p) Grupo Iusacell shall have furnished to BALAH and the Peralta Group the
opinion of Lic. Carlos Gutierrez in the form of Annex E; BALAH shall have
furnished to Grupo Iusacell and the Peralta Group the opinion of De Ovando y
Martinez del Campo, S.C. in the form of Annex F-1 and the opinion of Ruben G.
Perlmutter in the form of Annex F-2; and the Peralta Group shall have
furnished to Grupo Iusacell and BALAH the opinion of Canales Asesoria
Juridica, S.A. de C.V. in the form of Annex G-1 and the opinion of Isle of
Man counsel, in the form of Annex G-2.
At the Second Closing, the following deliveries shall be made:
(aa) BALAH shall deliver to Grupo Iusacell and/or cause one or more of its
Affiliates to deliver to Grupo Iusacell, as the case may be, (i) the
Subordinated Chase Note for conversion, and (ii) the one or more promissory
notes representing any pre-Closing financing provided pursuant to the third
paragraph of Section
<PAGE>
2.1(d) hereof for conversion or refinancing as described in the third
paragraph of Section 2.1(d) hereof.
(bb) Grupo Iusacell shall issue and deliver to BALAH or one or more of
BALAH's Affiliates, as the case may be, one or more certificates representing
the Chase Conversion Shares registered in the name of BALAH and/or such BALAH
Affiliate or Affiliates and, if any of BALAH or one or more of such
Affiliates exercises the conversion option described in clause (i) of the
third paragraph of Section 2.1(d) hereof, the BEL Interim Financing
Conversion Shares registered in the name of BALAH and/or such BALAH Affiliate
or Affiliates; or, if any of BALAH or one or more of such Affiliates
exercises the refinancing option described in clause (ii) of the third
paragraph of Section 2.1(d) hereof, a new promissory note in a principal
amount equal to the sum of the principal amount and accrued interest through
the Second Closing Date of the refinanced promissory notes.
(cc) The Peralta Group shall surrender for conversion and deliver to Grupo
Iusacell (i) the Subordinated FIUSA Note and (ii) the one or more promissory
notes representing any pre-Closing financing provided by the Peralta Group
pursuant to the third paragraph of Section 2.1(d) hereof.
(dd) Grupo Iusacell shall issue and deliver to the Peralta Group (i) one or
more certificates representing the FIUSA Conversion Shares registered in the
name of FIUSA and (ii) the Peralta Group Interim Financing Conversion Shares
registered in the name or names of the members of the Peralta Group who shall
have provided pre-Closing financing pursuant to the third paragraph of
Section 2.1(d) hereof, pro rata in accordance with the provision of such
financing.
(ee) Cross-receipts reflecting the deliveries contemplated by Section
2.3(aa)-(dd) hereof shall be delivered to the parties involved in the
transactions requiring such receipts.
(ff) Grupo Iusacell shall deliver to each of BALAH and the Peralta Group a
copy of the amended and restated estatutos sociales of each of the
Subsidiaries as described in the last paragraph of Section 2.1(b) hereof,
certified by the Notary Public (notario publico) who formalizes same and by
the Secretary or Assistant Secretary of the relevant Subsidiary, to the
extent that Grupo Iusacell shall have been able to comply with the obligation
to so amend and restate their estatutos sociales (provided that the failure
to deliver one or more of such amended and restated estatutos sociales at the
Second Closing shall not constitute a waiver of the parties' respective
obligations under the last paragraph of Section 2.1(b) hereof).
(gg) The certificates required by Section 4.2(c) and (d) hereof shall be
delivered to each party hereto (other than to the party or parties executing
and delivering such waivers).
<PAGE>
(hh) Grupo Iusacell shall have furnished to BALAH and the Peralta Group the
opinion of Lic. Carlos Gutierrez in the form of Annex EE; BALAH shall have
furnished to Grupo Iusacell and the Peralta Group the opinion of De Ovando y
Martinez del Campo, S.C. in the form of Annex FF-1 and the opinion of Ruben
G. Perlmutter in the form of Annex FF-2; and the Peralta Group shall have
furnished to Grupo Iusacell and BALAH the opinion of Canales Asesoria
Juridica, S.A. de C.V. in the form of Annex GG-1 and, if Langness
participates in any of the transactions consummated at the Second Closing,
the opinion of Isle of Man counsel, in the form of Annex GG-2.
(ii) A copy of the resolution of the Board of Directors of each of Bell
Atlantic Corporation, BALAH, any BALAH Affiliate receiving Shares at the
Second Closing, Grupo Iusacell, Grupo Iusa, FIUSA and Langness approving the
transactions contemplated to be consummated at the Second Closing, in each
case, certified by the Secretary or Assistant Secretary of such corporation,
shall be delivered to each party hereto (other than the party providing such
certified resolution).
Article III: Other Agreements
3.1 Peralta Group Puts. The Peralta Group shall have the right to
require BALAH (or an Affiliate of BALAH designated by BALAH in writing to the
Peralta Group) to purchase the Peralta Group Shares on the following terms
and conditions:
(a) The Peralta Group shall have the right, by written notice to BALAH or
such BALAH designee given between November 15, 1997 and December 15, 1997, to
require BALAH or such BALAH designee to purchase up to that number of Shares
which constitutes one-third of the total number of Peralta Group Shares
(provided that such Shares are Series A Shares that constitute a part of the
Current Peralta Group Shares and/or Series A Shares and Series D Shares that
constitute a part of the FIUSA Conversion Shares or the Peralta Group Interim
Financing Conversion Shares). The purchase price for such Shares shall be
U.S.$0.85 per Share. The closing of such purchase obligation shall occur on
December 31, 1997 or the first Business Day thereafter at the offices of
BALAH or such BALAH designee in Arlington, Virginia, or on such other date
and at such other time as the parties may otherwise agree.
(b) The Peralta Group shall have the right, by written notice to BALAH or
such BALAH designee given between November 15, 1998 and December 15, 1998, to
require BALAH or such BALAH designee to purchase up to that number of Shares
which constitutes one-third of the total number of Peralta Group Shares
(provided that such Shares are Series A Shares that constitute a part of the
Current Peralta Group Shares and/or Series A Shares and Series D Shares that
constitute a part of the FIUSA Conversion Shares or the Peralta Group Interim
Financing Conversion
<PAGE>
Shares). The purchase price for such Shares shall be U.S.$0.96 per Share. The
closing of such purchase obligation shall occur on December 31, 1998 or the
first Business Day thereafter at the offices of BALAH or such BALAH designee
in Arlington, Virginia or on such other date and at such other time as the
parties may otherwise agree.
(c) The Peralta Group shall have the right, by written notice to BALAH or
such BALAH designee given between November 15, 1999 and December 15, 1999, to
require BALAH or such BALAH designee to purchase up to that number of Shares
which constitutes one-third of the total number of Peralta Group Shares;
provided that BALAH or such BALAH designee shall have the right to require
that the Peralta Group deliver any remaining Series A Shares that constitute
a part of the Peralta Group Shares owned by them for purchase prior to
accepting any Series D Shares or Series L Shares for purchase. The purchase
price for such Shares shall be U.S.$1.07 per Share. The closing of such
purchase obligation shall occur on December 31, 1999 or the first Business
Day thereafter at the offices of BALAH or such BALAH designee in Arlington,
Virginia or on such other date and at such other time as the parties may
otherwise agree.
At the closing of any purchase obligation under this Section 3.1 (a
"Put Closing"), BALAH or its designee shall deliver to the Peralta Group the
total purchase price for the Shares it is required to purchase at such Put
Closing by wire transfer of immediately available funds to one or more
accounts designated by the Peralta Group in writing to BALAH or such BALAH
designee three (3) Business Days prior to such Put Closing, which amount
shall be reduced by any taxes required to be withheld and paid over by BALAH
or such BALAH designee to Mexican tax authorities (which withheld amounts
BALAH or such BALAH designee shall pay over to Mexican tax authorities).
In the event a Put Closing cannot take place on or before the date
required under this Agreement (or can only take place for a part of the
Shares BALAH or its designee is required to purchase hereunder), then (i)
BALAH or its designee hereby agrees to pay interest on the unpaid portion of
the total purchase price for the Shares it was required to purchase at such
Put Closing, from such date until such time as such total purchase price is
paid in full, at a rate per annum equal to 15%, payable quarterly in arrears
on March 31, June 30, September 30 and December 31 of each applicable period,
(ii) BALAH or its designee and the Peralta Group hereby agree to negotiate in
good faith any additional or substitute arrangements to enable BALAH or its
designee to consummate all of the transactions required to be consummated at
such Put Closing, and (iii) so long as the Peralta Group shall be paid the
total purchase price for the Shares BALAH or its designee was required to
purchase at such Put Closing, the Peralta Group shall be required to
implement any additional or substitute arrangements proposed by BALAH or its
designee (including, without limitation, the placement of the Shares in a
trust, the conversion of voting Shares into neutral Series L Shares (or other
series of neutral
<PAGE>
capital stock) or the sale of the Shares to other Mexican Persons) which may
be required or otherwise permitted by Mexican Governmental Entities.
The rights of the Peralta Group under this Section 3.1 shall not be
assignable to any Person who is not a member of the Peralta Group, except as
set forth in Section 7.7 hereof. Upon the transfer of any Peralta Group
Shares held by the Peralta Group as of the date hereof to any Person who is
not a member of the Peralta Group (except as set forth in Section 7.7
hereof), the rights under this Section 3.1 with respect to such transferred
Peralta Group Shares shall be terminated automatically. In the event members
of the Peralta Group give notice with respect to a number of Shares in any
notice period which exceeds the total number of Shares BALAH or such BALAH
designee is required to purchase with respect to that period, then BALAH or
such BALAH designee shall purchase from each member of the Peralta Group a
portion of the Shares for which notice has been given, determined by the
ratio of the number of Shares owned by such member to the total number of
Shares owned by the members giving notice, in each case, as shown on the
stock transfer books of Grupo Iusacell, provided that the total number of
Shares purchased from members of the Peralta Group shall not exceed the total
number of Shares BALAH or such BALAH designee is required to purchase with
respect to that period.
In the event Grupo Iusacell shall (i) subdivide its outstanding Series
A Shares, Series D Shares and/or Series L Shares, or (ii) combine its
outstanding Series A Shares, Series D Shares and/or Series L Shares, then the
maximum number of Peralta Group Shares which BALAH or its designee may be
required to acquire on a given date shall be adjusted proportionately and the
purchase price(s) for the Peralta Group Shares payable by BALAH or its
designee as set forth in this Section 3.1 shall be adjusted proportionately
such that the product of the maximum number of Peralta Group Shares which
BALAH or its designee may be required to acquire on a given date and the
purchase price therefor specified in this Section 3.1 shall neither increase
nor decrease from such product as of the date hereof.
3.2 Termination of Certain Agreements. The parties hereto hereby agree
that the following agreements shall terminate on the following dates:
(a) on the Closing Date, the Side Letter dated November 30, 1993 by and among
Grupo Iusacell, BALAH, Alejo Peralta, Carlos Peralta and Grupo Iusa with
respect to common objectives;
(b) on the Closing Date, the agreements dated January 1, 1995 between
Servicios Corporativos Iusa, S.A. de C.V. and Servicios Corporativos
Iusacell, S.A. de C.V. with respect to secretarial and security services;
(c) on the later of the Closing Date or the close of business on December 31,
<PAGE>
1996, any arrangement (whether by contract, resolution of the Board of
Directors or otherwise) between Grupo Iusacell and/or one or more of the
Subsidiaries, on the one hand, and Carlos Peralta, on the other hand, with
respect to compensation for services rendered by Carlos Peralta and the
reimbursement of expenses incurred in connection with such services, in each
case, associated with his position as Vice Chairman of Grupo Iusacell and as
an officer or employee of Grupo Iusacell or of any Subsidiary, including,
without limitation, as an officer or employee of Servicios Corporativos
Iusacell, S.A. de C.V.; and
(d) on the later of the Closing Date or the close of business on December 31,
1996, the Agreement for Technical Assistance and Consulting Services dated
November 30, 1994 between Bell Atlantic Enterprises International, Inc. and
Grupo Iusacell.
With respect to clauses (c) and (d) immediately above, Carlos Peralta shall
receive the aforementioned compensation and reimbursement for services
rendered and expenses incurred on or prior to the later of the Closing Date
or the close of business on December 31, 1996, and Bell Atlantic Enterprises
International, Inc. (or one of its Affiliates) shall receive all required
payments for all periods through and including the later of the Closing Date
or the close of business on December 31, 1996. In the event the Closing Date
is in calendar year 1997, Carlos Peralta and Bell Atlantic Enterprises
International, Inc. or one of its Affiliates, as the case may be, shall
receive only that portion of any annualized compensation or reimbursements
identified in clauses (c) and (d) immediately above determined by multiplying
such annualized compensation or reimbursements by a fraction, the nominator
of which is the total number of days after December 31, 1996 through and
including the Closing Date and the denominator of which is 365.
In addition, if BALAH and the Peralta Group determine in good faith
that the BALAH/Peralta Group Trust is no longer required, the BALAH/Peralta
Group Trust shall be terminated.
To the extent that Grupo Iusacell or any of its Subsidiaries is a party
to any of the arrangements and agreements identified in this Section 3.2,
then BALAH and the Peralta Group hereby agree to cause Grupo Iusacell or such
Subsidiaries to terminate such arrangements and agreements.
3.3 Further Assurances. At any time and from time to time after the
date hereof, each of the parties shall, without further consideration,
execute and deliver such documents, take or cause to be taken such actions,
do or cause to be done such things, and exercise or cause to be exercised all
voting rights conferred upon him or it or any of his or its Affiliates by any
Shares, whether currently beneficially owned by them or acquired subsequent
to the execution of this Agreement, as may be necessary or advisable or as
may be reasonably requested by any other party hereto to ensure that the
provisions, intent and spirit of this Agreement shall
<PAGE>
be complied with and carried into full effect.
3.4 Press Releases. None of the parties shall issue any press
release in connection with the execution of this Agreement or any performance
hereunder unless such press release or letter shall have been approved for
issuance by all of the parties hereto in writing; provided, however, that the
parties may make one or more public announcements relating to this Agreement
to the extent required by law, regulation or stock exchange rule.
ARTICLE IV: Conditions to Closing and Second Closing; Termination
4.1 Conditions to the Closing. Grupo Iusacell, BALAH, Alejo Peralta,
Carlos Peralta, Grupo Iusa, FIUSA and Langness shall enter into and complete
the Closing upon the satisfaction, discharge or waiver, on or prior to the
Closing Date, of the following conditions:
(a) Governmental Approvals. Any and all permits and approvals from and
filings made with any Mexican Governmental Entity required for the lawful
consummation of the Closing and the performance of all of the transactions
contemplated hereby shall have been obtained or made, including, without
limitation, permits or approvals as may be required from the Foreign
Investment Commission, the Federal Competition Commission, the SCT and the
CNBV. In addition, the pro forma transfer of control of the Section 214
Authorization from Iusatel, S.A. de C.V. to Grupo Iusa referred to in Section
2.1(f) hereof shall have been consummated.
(b) Third Person Consents. All material consents, permits and approvals from
parties to any contracts or other agreements with Grupo Iusacell or any of
the Subsidiaries which may be required in connection with the performance by
BALAH and the Peralta Group of their respective obligations under Section
2.1(a)(i) and (ii) and Section 2.1(d) hereof shall have been obtained.
(c) Grupo Iusacell Shareholders Meetings. General ordinary, extraordinary,
special or other meetings of the Grupo Iusacell shareholders (or any class of
Grupo Iusacell shareholders), as appropriate, shall have (i) approved the New
Estatutos of Grupo Iusacell in the form of Annex A; (ii) approved the
conversions set forth in Section 2.1(a)(i) and (ii); (iii) approved the
increase in the number of authorized Series A Shares and Series D Shares in
order to permit the conversions described in Section 2.1(a) (iii) through
(vi) inclusive and Section 2.1(d) hereof; (iv) elected a new Board of
Directors reflecting the change in management control contemplated herein and
in the New Shareholders Agreement as set forth in Annex H; and (v) approved
the issuance by Grupo Iusacell of the Convertible Debentures.
(d) Pre-Closing Performance. Each of the covenants, agreements and
undertakings of the parties to be performed or complied with on or before the
Closing pursuant hereto will have been duly performed or complied with in all
<PAGE>
material respects (unless waived by the party or parties to whom the
performance was due), and each party shall have certified the same to the
other parties in writing through a certificate signed by a duly authorized
officer of such party dated as of the Closing Date.
(e) Accuracy of Representations. All representations and warranties made by a
party in this Agreement shall have been true and correct in all material
respects when made and shall be true and correct in all material respects on
and as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on, as of or with reference to
such date (unless waived by the party or parties to whom the representation
and warranty was made), and each party shall have certified the same to the
other parties in writing through a certificate signed by a duly authorized
officer of such party dated as of the Closing Date.
provided, however, that (i) no action, suit, proceeding, investigation or
arbitration shall have been instituted before any Governmental Entity or
instituted or threatened by any Governmental Entity or other Person to delay,
restrain, prevent or otherwise challenge the carrying out of the transactions
contemplated by the Closing or to seek damages in connection with such
transactions, and (ii) no judgment or injunction shall be in effect delaying,
restraining or preventing the carrying out of the transactions contemplated
by the Closing.
4.2 Conditions to the Second Closing. Grupo Iusacell, BALAH, Alejo
Peralta, Carlos Peralta, Grupo Iusa, FIUSA and Langness shall enter into and
complete the Second Closing upon the satisfaction, discharge or waiver, on or
prior to the Second Closing Date, of the following conditions:
(a) Closing. The Closing shall have been completed or shall be held
simultaneously with the Second Closing.
(b) Third Person Consents. All material consents, permits and approvals from
parties to any contracts or other agreements with Grupo Iusacell or any of
the Subsidiaries which may be required in connection with the performance by
BALAH and the Peralta Group of its obligations under Section 2.1(a) (iii)
through (vi) inclusive and Section 2.1 (d) hereof shall have been obtained.
(c) Pre-Closing Performance. Each of the covenants, agreements and
undertakings of the parties to be performed or complied with on or before the
Second Closing pursuant hereto will have been duly performed or complied with
in all material respects (unless waived by the party or parties to whom the
performance was due); and each party shall have certified the same to the
other parties in writing through a certificate signed by a duly authorized
officer of such party dated as of the Second Closing Date.
<PAGE>
(d) Accuracy of Representations. All representations and warranties made by a
party in this Agreement shall have been true and correct in all material
respects when made and shall be true and correct in all material respects on
and as of the Second Closing Date, with the same force and effect as though
such representations and warranties had been made on, as of or with reference
to such date (unless waived by the party or parties to whom the
representation and warranty was made); and each party shall have certified
the same to the other parties in writing through a certificate signed by a
duly authorized officer of such party dated as of the Second Closing Date.
(e) Expiration of Preemptive Right Period. The period for the exercise by the
shareholders of Grupo Iusacell of any preemptive or preferential right they
may have to subscribe to the issuance of additional Series D Shares and
Series L Shares (other than BALAH and the Peralta Group, which shall have
waived any such right) in connection with the transactions contemplated by
Section 2.1(a) and (d) shall have expired.
4.3 Termination. This Agreement and the transactions contemplated
hereby may be terminated or abandoned at any time at or prior to the Closing
as follows: (a) by mutual written agreement of BALAH and the Peralta Group;
(b) by BALAH or the Peralta Group if the transactions contemplated hereby
will violate any non-appealable final order, decree or judgment of any
Governmental Entity having competent jurisdiction that is binding upon any
party; or (c) automatically, with no further action by any of the parties, if
the Closing shall not have occurred on or before February 28, 1997. In the
event this Agreement is terminated as provided in this Section 4.2, no party
(or any of its officers, directors, employees, agents, representatives or
shareholders) will be liable to the other parties for any costs, expenses,
damages or loss of anticipated profits hereunder; provided, however, that if
such termination results from the willful failure by a party to fulfill a
condition to the performance by any other party, a willful misrepresentation
of a party or willful failure by a party to perform a covenant of this
Agreement or from a willful breach by a party of any term of this Agreement,
the breaching party shall be fully liable for any and all damages, costs and
expenses (including, but not limited to, reasonable attorneys' fees and
expenses) sustained or incurred by any other party.
If the Closing occurs, this Agreement shall at all times thereafter
remain in full force and effect unless all of the parties hereto agree
otherwise in writing. If this Agreement and the transactions contemplated
hereby are terminated or abandoned pursuant to this Section 4.3, the parties
hereby agree to take any and all action necessary or deemed advisable to
rescind the resolutions approved at the meetings of the shareholders of Grupo
Iusacell (and at each of the meetings of the classes of shareholders of Grupo
Iusacell) on December 18, 1996 and otherwise ensure that such resolutions
shall be void and have no force and effect (except for those resolutions
adopted by the shareholders to implement the Plan de Compra de
<PAGE>
Acciones Para Empleados Ejecutivos de la Sociedad).
ARTICLE V: Representations and Warranties
5.1 Representations and Warranties of Grupo Iusacell and its
Subsidiaries. Grupo Iusacell hereby represents to BALAH and the Peralta Group
as follows:
(a) Grupo Iusacell and each Mexican Subsidiary is a sociedad anonima de
capital variable duly organized and validly existing under the laws of the
jurisdiction of its incorporation or organization, with full corporate power
and authority to own, operate, and lease its properties, and to carry on its
business as presently conducted. Grupo Iusacell has full corporate power and
authority to enter into, execute and deliver this Agreement, carry out the
transactions contemplated hereby on its part and perform its obligations
hereunder.
(b) Neither the execution and delivery of this Agreement or the New
Shareholders Agreement by Grupo Iusacell nor the carrying out by Grupo
Iusacell of the transactions contemplated hereby or thereby will (i)
contravene or violate any statute, law, rule, regulation, order, writ,
injunction or decree of any Governmental Entity (assuming the requisite
filings with and approvals from Governmental Entities have been made or
obtained), (ii) violate, conflict with or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under or with respect to, or result in the termination of, the Estatutos or
the estatutos sociales of any Subsidiary or any material telecommunications
concession, permit, license, approval or authorization (assuming the
requisite filings with and approvals from Governmental Entities have been
made or obtained), or (iii) violate or conflict with or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under or with respect to, or result in the termination of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the assets of Grupo Iusacell or any Subsidiary under, any term or
provision of any contract, commitment, license or enforceable understanding
or any restriction of any kind or character to which Grupo Iusacell or any
Subsidiary is a party or by which any of such entities or any of their
respective assets or properties may be bound or affected. All corporate
action required to be taken by Grupo Iusacell to authorize the execution,
delivery and performance of this Agreement and the New Shareholders Agreement
by Grupo Iusacell has been duly and validly taken on or prior to the date
thereof. This Agreement has been duly executed and delivered by Grupo
Iusacell and, assuming the execution and delivery of this Agreement by the
other parties hereto, this Agreement constitutes the valid and binding
obligations of Grupo Iusacell, enforceable against Grupo Iusacell in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the rights and remedies of
creditors generally and the availability of equitable remedies.
<PAGE>
(c) The authorized capital stock of Grupo Iusacell consists of 428,575,540
Series A Shares, 205,562,450 Series B Shares, 204,920,220 Series D Shares and
142,566,220 Series L Shares, all of which are issued and outstanding. No
other shares of capital stock have been issued and are outstanding. There are
no options, warrants, convertible securities or other rights to purchase or
acquire any shares of any class of capital stock of Grupo Iusacell nor any
securities convertible into such shares, and there are no contracts,
commitments, licenses or enforceable understandings pursuant to which Grupo
Iusacell may be required to issue any additional shares of capital stock or
any such options, warrants, convertible securities, rights or securities
(other than as contemplated by this Agreement and by the resolutions adopted
by the shareholders of Grupo Iusacell at the meetings held on December 18,
1996). When issued and delivered to BALAH, a BALAH Affiliate or the Peralta
Group, each of the Shares to be issued pursuant to Section 2.1(a) and (d)
hereof will be duly authorized and validly issued and fully paid and
nonassessable.
5.2 Representations and Warranties of the Peralta Group. Alejo Peralta,
Carlos Peralta, Grupo Iusa, FIUSA and Langness hereby jointly and severally
represent and warrant to Grupo Iusacell and BALAH as follows:
(a) Each of Grupo Iusa and FIUSA is a sociedad anonima de capital variable
and Langness is a corporation, in each case, duly organized and validly
existing under the laws of the jurisdiction of its incorporation or
organization, with full corporate power and authority to own, operate, and
lease its properties, and to carry on its business as presently conducted.
Grupo Iusa, FIUSA and Langness each has full corporate power and authority to
enter into, execute and deliver this Agreement, carry out the transactions
contemplated hereby on its part and perform its obligations hereunder.
(b) Neither the execution and delivery of this Agreement or the New
Shareholders Agreement by any member of the Peralta Group nor the carrying
out by any member of the Peralta Group of the transactions contemplated
hereby or thereby will (i) contravene or violate any statute, law, rule,
regulation, order, writ, injunction or decree of any Governmental Entity
(assuming the requisite filings with and approvals from Governmental Entities
have been made or obtained), (ii) violate, conflict with or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under or with respect to the organizational or
corporate documents of Grupo Iusa, FIUSA and Langness, or (iii) violate or
conflict with or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under or with respect to,
or result in the termination of, or accelerate the performance required by,
any term or provision of any contract, commitment, license or enforceable
understanding or any restriction of any kind or character to which any member
of the Peralta Group is a party or by which any of them or any of their
respective assets or properties may be bound or affected. All corporate
action required to be taken by Grupo
<PAGE>
Iusa, FIUSA and Langness to authorize the execution, delivery and performance
of this Agreement and the New Shareholders Agreement by them has been duly
and validly taken on or prior to the date thereof. This Agreement has been
duly executed and delivered by each member of the Peralta Group and, assuming
the execution and delivery of this Agreement by the other parties hereto,
this Agreement constitutes the valid and binding obligations of each member
of the Peralta Group, enforceable against each member of the Peralta Group in
accordance with its respective terms, except as enforceability may be limited
by bankruptcy, insolvency or similar laws affecting the rights and remedies
of creditors generally and the availability of equitable remedies.
(c) Each member of the Peralta Group has good, valid and marketable title to
the Shares of which it is the beneficial owner that will be delivered to
Grupo Iusacell pursuant to Section 2.1(a) hereof, free and clear of any Lien
other than the Lien created by this Agreement and any preemptive rights
provided in the Estatutos or by law.
(d) No broker, finder, agent or similar intermediary has acted for or on
behalf of any member of the Peralta Group in connection with this Agreement
or the transactions contemplated hereby; and no broker, finder, agent or
similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection herewith or therewith based on any agreement,
arrangement or understanding with any member of the Peralta Group or any
action taken by any member of the Peralta Group, and the Peralta Group shall
be solely responsible for any such fee.
5.3 Representations and Warranties of BALAH. BALAH hereby represents
and warrants to Grupo Iusacell and the Peralta Group as follows:
(a) BALAH is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power
and authority to own, operate, and lease its properties, and to carry on its
business as presently conducted. BALAH has full corporate power and authority
to enter into, execute and deliver this Agreement, carry out the transactions
contemplated hereby on its part and perform its obligations hereunder.
(b) Neither the execution and delivery of this Agreement or the New
Shareholders Agreement by BALAH nor the carrying out by BALAH of the
transactions contemplated hereby or thereby will (i) contravene or violate
any statute, law, rule, regulation, order, writ, injunction or decree of any
Governmental Entity (assuming the requisite filings with and approvals from
Governmental Entities have been made or obtained), (ii) violate, conflict
with or constitute a default (or an event which,
<PAGE>
with notice or lapse of time, or both, would constitute a default) under or
with respect to the certificate of incorporation or bylaws of BALAH, or (iii)
violate or conflict with or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under or with
respect to, or result in the termination of, or accelerate the performance
required by, any term or provision of any contract, commitment, license or
enforceable understanding or any restriction of any kind or character to
which BALAH is a party or by which it or its assets or properties may be
bound or affected. All corporate action required to be taken by BALAH to
authorize the execution, delivery and performance of this Agreement and the
New Shareholders Agreement by it has been duly and validly taken on or prior
to the date thereof. This Agreement has been duly executed and delivered by
BALAH, and, assuming the execution and delivery of this Agreement by the
other parties hereto, this Agreement constitutes the valid and binding
obligations of BALAH, enforceable against BALAH in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the rights and remedies of creditors generally and the
availability of equitable remedies.
(c) BALAH has good, valid and marketable title to the Shares of which it is
the beneficial owner that will be delivered to Grupo Iusacell pursuant to
Section 2.1(a) hereof, free and clear of any Lien other than the Lien created
by this Agreement and any preemptive rights provided in the Estatutos or by
law.
(d) No broker, finder, agent or similar intermediary has acted for or on
behalf of BALAH in connection with this Agreement or the transactions
contemplated hereby and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission in
connection herewith or therewith based on any agreement, arrangement or
understanding with BALAH or any action taken by BALAH; and BALAH shall be
solely responsible for any such fee.
Article VI: Survival; Indemnification
6.1 Survival; Remedy for Breach. For purposes of this Article VI, the
representations and warranties of the parties contained herein shall survive
the Closing and any investigation made by any party hereunder until January
1, 2000; provided, however, that the representations and warranties in
Sections 5.1(c), 5.2(c) and 5.3(c) shall survive until ten (10) years after
the Closing Date; and provided further, however, that if a claim is made in
connection with any representation or warranty prior to the termination of
its period of survival, the termination of such survival period shall be
tolled until the final resolution of such claim.
6.2 Indemnification by Grupo Iusacell. To the full extent permitted by
applicable law and subject to Section 6.1 hereof, Grupo Iusacell hereby
agrees to irrevocably indemnify, defend and hold harmless BALAH, each member
of the Peralta Group and their respective Affiliates (other than Grupo
Iusacell or any Subsidiary), and their respective directors, officers,
stockholders, partners, employees, agents, consultants, representatives,
successors, transferees and
<PAGE>
assigns from, against and in respect of all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and
expenses, and judgments (including, without limitation, interest, penalties
and reasonable attorneys' fees and expenses incurred in connection
therewith), of every type and nature whatsoever (collectively, "Claims")
which arise or result from or relate to the following: (a) the breach of any
representation or warranty of Grupo Iusacell (to the extent the survival of
such representation or warranty has not expired pursuant to the terms of
Section 6.1), (b) the failure of Grupo Iusacell to perform any of its
covenants or obligations under this Agreement (so long as such failure shall
not have been caused by any act or failure to act of a Grupo Iusacell
shareholder and so long as the performance thereof shall not be prohibited by
law), and (c) any Claim based upon any failure by Grupo Iusacell to pay or
withhold any Tax. Any indemnification amount paid by Grupo Iusacell to any
indemnified party shall be increased by the amount necessary to permit the
indemnified party to receive net indemnification proceeds equal to the amount
of gross indemnification proceeds that would otherwise have been paid to the
indemnified party prior to giving effect to any Mexican withholding taxes, if
any.
6.3 Indemnification by the Peralta Group. To the full extent permitted
by applicable law and subject to Section 6.1 hereof, the members of the
Peralta Group hereby jointly and severally agree to irrevocably indemnify,
defend and hold harmless BALAH, Grupo Iusacell and their respective
Affiliates (other than members of the Peralta Group), and their respective
directors, officers, stockholders, partners, employees, agents, consultants,
representatives, successors, transferees and assigns from, against and in
respect of all Claims which arise or result from or relate to the following:
(a) the breach of any representation or warranty of the Peralta Group (to the
extent the survival of such representation or warranty has not expired
pursuant to the terms of Section 6.1), (b) the failure of the Peralta Group
to perform any of its covenants or obligations under this Agreement (so long
as the performance thereof shall not be prohibited by law), and (c) any Claim
based upon any failure by the Peralta Group to pay or withhold any Tax. Any
indemnification amount paid by the Peralta Group to any indemnified party
shall be increased by the amount necessary to permit the indemnified party to
receive net indemnification proceeds equal to the amount of gross
indemnification proceeds that would otherwise have been paid to the
indemnified party prior to giving effect to any Mexican withholding taxes, if
any.
6.4 Indemnification by BALAH. To the full extent permitted by
applicable law and subject to Section 6.1 hereof, BALAH hereby agrees to
irrevocably indemnify, defend and hold harmless Grupo Iusacell, the members
of the Peralta Group and their respective Affiliates, and their respective
directors, officers, stockholders, partners, employees, agents, consultants,
representatives, successors, transferees and assigns from, against and in
respect of all Claims which arise or result from or relate to the following:
(a) the breach of any representation or warranty of BALAH (to the extent the
survival of such
<PAGE>
representation or warranty has not expired pursuant to the terms of Section
6.1), (b) the failure of BALAH to perform any of its covenants or obligations
under this Agreement (so long as the performance thereof shall not be
prohibited by law), and (c) any Claim based upon any failure by BALAH to pay
or withhold any Tax. Any indemnification amount paid by BALAH to any
indemnified party shall be increased by the amount necessary to permit the
indemnified party to receive net indemnification proceeds equal to the amount
of gross indemnification proceeds that would otherwise have been paid to the
indemnified party prior to giving effect to any Mexican withholding taxes, if
any.
6.5 Indemnification; Notice and Settlement. The indemnification
procedures to be followed in the event of an indemnifiable Claim shall be
settled by binding arbitration in accordance with the terms set forth in
Section 13.4 of the Share Purchase Agreement, which are incorporated herein
by reference.
Article VII: Miscellaneous
7.1 Dispute Resolution. Any controversy or claim arising out of or
relating to this Agreement or any document or instrument delivered in
connection herewith, or any breach hereof or thereof, shall be settled by
binding arbitration in accordance with the terms set forth in Section 10.3 of
the New Shareholders Agreement, which are incorporated herein by reference.
7.2 Specific Performance; Remedies Cumulative. Each of the parties
acknowledges and agrees that the obligations of the parties hereto under this
Agreement are unique and that if any party should default in its obligations
under this Agreement, it would be extremely impracticable to measure the
resulting damages. Accordingly, in addition to any other available rights or
remedies available at law or in equity, the nondefaulting party or parties
shall be entitled to apply for and receive from any court of competent
jurisdiction specific performance and each defaulting party expressly waives
the defense that a remedy in damages will be adequate.
The remedies provided in this Agreement shall be cumulative and shall
not preclude assertion by any party hereto of any other rights or the seeking
of any other remedies against any other party hereto.
7.3 Notices. All notices, requests, demands or other communications
provided for in this Agreement shall be given in accordance with the
procedures and shall have the effect set forth in Article IX of the New
Shareholders Agreement; provided, however, that they shall be in the English
language, unless the Parties in any specific case agree otherwise. Any such
communications to Langness and FIUSA shall be sent to Carlos Peralta as
provided in Article IX of the New Shareholders Agreement.
<PAGE>
7.4 Expenses; Taxes. Except as provided herein with respect to any
Mexican taxes required to be withheld and paid over by BALAH to Mexican tax
authorities, each party shall bear its own expenses incurred in negotiating,
executing, delivering or performing its obligations under this Agreement and
shall pay all applicable taxes resulting from performing its obligations
under this Agreement; provided, however, that Grupo Iusacell shall promptly
reimburse Grupo Iusa for any and all documented out-of-pocket costs and
expenses incurred by Grupo Iusa in connection with the transfers of the
Section 214 Authorization described in Section 2.1(f) hereof.
7.5 Entire Agreement; Amendment; Waiver. This Agreement constitutes the
entire and only agreement and understanding among one or more of the parties
with respect to the subject matter hereof and supersedes all prior
understandings, agreements or arrangements, if any, among any one or more of
the parties, whether written or oral. No amendment or modification of this
Agreement or any of its provisions shall be binding upon any party hereto
unless made in writing and signed by all of the parties hereto. No waiver of
any term, condition or obligation of this Agreement shall be valid unless
made in writing and signed by the party or parties to which such performance
is due. No waiver of any one or several of the terms, conditions or
obligations of this Agreement, and no partial waiver thereof, shall be
construed as a waiver of any of the other terms, conditions or obligations of
this Agreement, nor shall any waiver constitute a continuing waiver. No
failure or delay by any party at any time to enforce one or more of the
terms, conditions or obligations of this Agreement or to exercise any right,
power or privilege hereunder shall constitute a waiver of such terms,
conditions, obligations, rights, powers or privileges or shall preclude such
party from requiring performance by another party at any later time or from
exercising any such right, power or privilege at any later time; and no
single or partial exercise of any such right, power or privilege shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
7.6 Severability. All the provisions of this Agreement shall be
considered to be separate terms and conditions. In the event any provision of
this Agreement is determined to be invalid, prohibited or unenforceable by a
court or other body of competent jurisdiction for any reason unless narrowed
by construction or reformed, this Agreement shall be construed as if such
invalid, prohibited or unenforceable provision had been more narrowly drawn
or shall be reformed automatically so as not to be invalid, prohibited or
unenforceable. Notwithstanding the foregoing sentence, in the event that any
provision contained in this Agreement should be determined to be invalid,
prohibited or unenforceable, the validity, legality and enforceability of the
remaining severable provisions contained in this Agreement shall not in any
way be affected or impaired thereby; provided, however, that in the event
that any part or all of the provisions contained in Section 2.1(a), (b) or
(c) of this Agreement should be determined to be invalid, prohibited or
unenforceable, this Agreement shall automatically be null and void and have
no
<PAGE>
further force or effect.
7.7 Parties in Interest; Assignment. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors by operation of law (including, without limitation, any bequest by
will or by laws of intestacy). No Person not a party hereto will have any
rights hereunder, except that any provision hereof which is expressly stated
to be for the benefit or, or in which an obligation is expressly undertaken
to, an Affiliate of a party or a transferee of a party is intended to be
enforceable by them. No party may assign or transfer this Agreement without
the express written consent of the other parties; provided, however, that
BALAH may at any time assign any part or all of its rights and obligations
under this Agreement to any direct or indirect subsidiary of Bell Atlantic
Corporation, and the Peralta Group may at any time assign any part of all of
its rights and obligations under this Agreement to any Mexican Affiliate
thereof (in which case such Affiliate shall become a member of the Peralta
Group as defined herein), in each case, so long as the assignee agrees in
writing to be bound by all of the provisions of this Agreement before such
assignment occurs or is committed to and the assignor remains primarily
liable for its obligations under this Agreement. In the event of any transfer
of Shares beneficially owned by any member of the Peralta Group by bequest by
will or by laws of intestacy, such transferee shall, and the Peralta Group
shall cause such transferee to, agree in writing to be bound by all of the
provisions of this Agreement.
7.8 Choice of Law. This Agreement shall be governed by and construed in
accordance with the internal laws of Mexico applicable to contracts executed
and performed entirely therein.
7.9 English Language Version Controls. The parties acknowledge that any
Spanish language translations of this Agreement or any Annex hereto are made
solely for the convenience of the Peralta Group, and that in the event of any
conflict or divergence between the original English version of this Agreement
or any such Annex and its Spanish translation, the original English version
shall control.
7.10 Recitals and Headings. The recitals and section and subsection
headings contained in this Agreement are solely for the purpose of reference,
are not part of the agreement between the parties and shall not in any way
affect the meaning or interpretation of this Agreement, except to the extent
that definitions may be set out in the recitals.
<PAGE>
7.11 Counterparts. This Agreement may be executed in more than one
counterpart, each of which shall be deemed to be an original, and all of
which, taken together, shall be deemed to constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BELL ATLANTIC LATIN AMERICA HOLDINGS, INC.
By: /s/ Thomas R. McKeough
---------------------------------
Name: Thomas R. McKeough
Title: Vice President
--------------------------------------
ALEJO PERALTA Y DIAZ CEBALLOS
By: Carlos Peralta Quintero, Attorney-in-Fact
/s/Carlos Peralta Quintero
--------------------------------------
CARLOS PERALTA QUINTERO
IUSA GRUPO COMUNICACIONES, S.A. DE C.V.
By: /s/Carlos Peralta Quintero
---------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-Fact
LANGNESS INVESTMENTS LIMITED
By: /s/Carlos Peralta Quintero
---------------------------------
Name: Carlos Peralta Quintero
Title: Director
<PAGE>
FIUSA PASTEJE, S.A. DE C.V.
By: /s/Carlos Peralta Quintero
---------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-Fact
GRUPO IUSACELL, S.A. DE C.V.
By: /s/Guillermo Amore
---------------------------------
Name: Guillermo Amore
Title: Director General
<PAGE>
Index of Annexes
ANNEX A: New Estatutos
ANNEX B: New Shareholders Agreement
ANNEX C: Convertible Debentures
ANNEX D: Form of Promissory Note (Pagare) for Interim Funding
ANNEX E: Opinion of Lic. Carlos Gutierrez
ANNEX EE: Opinion of Lic. Carlos Gutierrez
ANNEX F-1: Opinion of De Ovando y Martinez del Campo, S.C.
ANNEX FF-1: Opinion of De Ovando y Martinez del Campo, S.C.
ANNEX F-2: Opinion of Ruben G. Perlmutter, Esq.
ANNEX FF-2: Opinion of Ruben G. Perlmutter, Esq.
ANNEX G-1: Opinion of Canales Asesoria Juridica, S.A. de C.V.
ANNEX GG-1: Opinion of Canales Asesoria Juridica, S.A. de C.V.
ANNEX G-2: Opinion of Isle of Man Counsel
ANNEX GG-2: Opinion of Isle of Man Counsel
ANNEX H: Directors and Committee Members
<PAGE>
ANNEX H:Directors and Committee Members
The parties acknowledge that Grupo Iusacell called the following
meetings of the shareholders of Grupo Iusacell for December 18, 1996: a
General Ordinary and Extraordinary Meeting of the shareholders of Grupo
Iusacell, a Special Meeting of the holders of the Series A Shares, a Special
Meeting of the holders of the Series B Shares, a Special Meeting of the
holders of the Series D Shares and a Special Meeting of the holders of the
Series L Shares. The parties acknowledge and agree that the following Persons
were elected as directors and members of committees of the Board of Directors
(and, in the event of any other meeting of the shareholders (or any class of
shareholders) of Grupo Iusacell prior to the 1997 Annual Meeting of
Shareholders of Grupo Iusacell, BALAH and the Peralta Group hereby agree that
they shall vote all of their Shares at any such meetings of the shareholders
and any class of shareholders of Grupo Iusacell in which they have the right
to vote, as appropriate, to reaffirm the election of the following Persons as
directors and the election of the following Persons as members of committees
of the Board of Directors):
Board of Directors
Series A Directors Series A Alternates
------------------ -------------------
Alejo Peralta y Diaz Ceballos Victor Barreiro Cortes
Carlos Peralta Quintero Marco Antonio de la Torre Barranco
Lawrence T. Babbio, Jr. Richard Cane
William O. Albertini Pedro Santamarina N.
Manuel Somoza Alonso Antonio Cortina Icaza
Jose Ramon Elizondo Alejandro Portilla Garceran
Rodolfo Garcia Muriel Carlos Garcia Muriel
Gabriel Alarcon Velazquez Gabriel Alarcon Brockmann
Eduardo Rihan Azar Roberto Lebrija Castilla
Javier Martinez del Campo Manuel Romano M.
Series B Directors Series B Alternates
------------------ -------------------
Thomas A. Bartlett Katherine A. Dunne
Thomas R. McKeough Ignacio Gomez Morin
Howard Zuckerman Jose Estandia F.
Noah S. Asher Silvia Malagon Soberanes
Ruben G. Perlmutter Xavier Sanchez Gavito D.
Mack E. Treece Armando Olivares
David A. Riffelmacher Pilar Olmedo Martell
Robert Van Brunt Teresa Gomez Fernandez del Castillo
Fernando de Ovando Ana Maria Fernandez R.
<PAGE>
Series D Director Series D Alternate
----------------- ------------------
Ernesto Canales Santos Luis Felipe Gonzalez Munoz
Series L Director Series L Alternate
----------------- ------------------
Guillermo Amore Edward R. Kingman
Committees of the Board of Directors
Executive Committee
Members Alternates
------- ----------
Carlos Peralta Quintero Victor Barreiro Cortes
Ernesto Canales Santos Rodolfo Garcia Muriel
Lawrence T. Babbio, Jr. K.A. Dunne or D.A. Riffelmacher
William O. Albertini K.A. Dunne or D.A. Riffelmacher
Thomas A. Bartlett K.A. Dunne or D.A. Riffelmacher
Thomas R. McKeough K.A. Dunne or D.A. Riffelmacher
Noah S. Asher K.A. Dunne or D.A. Riffelmacher
Guillermo Amore Edward R. Kingman
Finance and Audit Committee
Members Alternates
------- ----------
Luis Felipe Gonzalez Munoz Eduardo Rihan Azar
Ernesto Canales Santos Rodolfo Garcia Muriel
William O. Albertini K.A. Dunne or N.S. Asher
Thomas R. McKeough K.A. Dunne or N.S. Asher
Mack E. Treece K.A. Dunne or N.S. Asher
Guillermo Amore Edward R. Kingman
Human Resources and Compensation Committee
Members Alternates
------- ----------
Ernesto Canales Santos Victor Barreiro Cortes
Thomas A. Bartlett N.S. Asher or D.A. Riffelmacher
Thomas R. McKeough N.S. Asher or D.A. Riffelmacher
Guillermo Amore Edward R. Kingman
<PAGE>
Strategic Planning and Technology Committee
Members Alternates
------- ----------
Carlos Peralta Quintero Ernesto Canales Santos
Lawrence T. Babbio Richard Cane or D.A. Riffelmacher
Thomas A. Bartlett Richard Cane or D.A. Riffelmacher
Guillermo Amore Edward R. Kingman
<PAGE>
Exhibit 2.C
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT dated as of February
18, 1997 by and among (i) Grupo Iusacell, S.A. de C.V., a corporation
organized under the laws of Mexico with its principal office located at
Montes Urales No. 460 (4th Floor), Colonia Lomas de Chapultepec, Mexico, D.F.
11000 (the "Corporation"), (ii) Bell Atlantic Latin America Holdings, Inc., a
Delaware corporation with its principal office located at 1310 North Court
House Road, Arlington, VA 22201 ("BALAH"), (iii) Bell Atlantic International,
Inc., a Delaware corporation with its principal office located at 1310 North
Court House Road, Arlington, Virginia 22201 ("BAII"), (iv) Ing. Alejo Peralta
y Diaz Ceballos ("Alejo Peralta"), a Mexican citizen whose address is Montes
Urales No. 460 (4th Floor), Colonia Lomas de Chapultepec, Mexico, D.F. 11000,
(v) Ing. Carlos Peralta Quintero ("Carlos Peralta"), a Mexican citizen whose
address is Montes Urales No. 460 (4th Floor), Colonia Lomas de Chapultepec,
Mexico, D.F. 11000, (vi) IUSA Grupo Comunicaciones, S.A. de C.V. (formerly
known as Grupo Industrial Iusa, S.A. de C.V.), a corporation organized under
the laws of Mexico with its principal office located at Montes Urales No. 460
(4th Floor), Colonia Lomas de Chapultepec, Mexico, D.F. 11000 ("Grupo Iusa"),
(vii) FIUSA Pasteje, S.A. de C.V., a Mexican corporation with its principal
office located at Montes Urales No. 460, 4th floor, Col. Lomas de
Chapultepec, Mexico, D.F., 11000 ("FIUSA"), (viii) Langness Investments
Limited, a corporation organized under the laws of the Isle of Man with its
principal office located at St. James Chambers, Athol Street, Douglas, Isle
of Man ("Langness"), (ix) Commander Mexicana, S.A. de C.V., a corporation
organized under the laws of Mexico with its principal office located at
Montes Urales No. 460 (4th Floor), Colonia Lomas de Chapultepec, Mexico, D.F.
11000 ("Commander Mexicana"), (x) Inmobiliaria Reforma Lomas Altas, S.A. de
C.V., a corporation organized under the laws of Mexico with its principal
office located at Montes Urales No. 460 (4th Floor), Colonia Lomas de
Chapultepec, Mexico, D.F. 11000 ("Inmobiliaria Reforma"), (xi) Fraccionadora
y Constructora Mexicana, S.A. de C.V., a corporation organized under the laws
of Mexico with its principal office located at Montes Urales No. 460 (4th
Floor), Colonia Lomas de Chapultepec, Mexico, D.F. 11000 ("FCM"), (xii)
Confecciones Pasteje, S.A. de C.V., a corporation organized under the laws of
Mexico with its principal office located at Montes Urales No. 460 (4th
Floor), Colonia Lomas de Chapultepec, Mexico, D.F. 11000 "Confecciones
Pasteje"), and (xiii) Interelec, S.A. de C.V., a corporation organized under
the laws of Mexico with its principal office located at Montes Urales No. 460
(4th Floor), Colonia Lomas de Chapultepec, Mexico, D.F. 11000 ("Interelec"
and, together with Commander Mexicana, Inmobiliaria Reforma, FCM and
Confecciones Pasteje, the "Grupo Iusa Transferees").
W I T N E S S E T H:
WHEREAS, pursuant to the terms and provisions of the Share Purchase
Agreement (as hereinafter defined), BALAH has subscribed to and purchased
Shares from the Corporation, Administracion y Control de Industrias, S.A. de
C.V. and Langness; and
WHEREAS, because the voting stock of the Corporation was and is
currently beneficially owned by a relatively small group, the parties hereto
(other than BAII, Langness, FIUSA and the Grupo Iusa Transferees) entered
into the Original Shareholders Agreement (as hereinafter defined) to ensure
continuity of, and avoid disruption to, the harmonious and successful
management and control of the Corporation by certain agreements with respect
to the control and management of the Corporation and certain other agreements
set forth therein; and
WHEREAS, on December 27, 1996 the parties hereto (other than BAII and
the Grupo Iusa Transferees) entered into the 1996 Share Conversion Agreement
(as defined herein) pursuant
<PAGE>
to which the BEL Shareholder Group (as defined herein) would acquire the
right to elect a majority of the members of the Board of Directors (as
defined herein); and
WHEREAS, BAII has acquired 5,562,450 Series B Shares by means of a
return of capital from BALAH and pursuant to the provisions of Section 6.9 of
the Original Shareholders Agreement and has acquired Series A Shares pursuant
to the conversion of the Subordinated Chase Note (as such term is defined in
the 1996 Share Conversion Agreement); and
WHEREAS, the Grupo Iusa Transferees, pursuant to the provisions of
Section 6.9 of the Original Shareholders Agreement, have become the direct
beneficial owners of an aggregate of 100,000,000 Series D Shares pursuant to
contributions by Grupo Iusa of Series A Shares to their social capital and
their subsequent conversion into Series D Shares; and
WHEREAS, in order to reflect the enhanced rights of the BEL Shareholder
Group acquired pursuant to the 1996 Share Conversion Agreement, the parties
hereto desire to enter into this Amended and Restated Shareholders Agreement
to set forth herein certain of their amended rights, duties and obligations.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. In addition to the terms defined elsewhere in this
Shareholders Agreement, the following terms shall have the meanings set forth
for them below when used in this Shareholders Agreement:
"1996 Share Conversion Agreement" means that certain agreement dated
December 27, 1996 by the parties hereto (other than BAII and the Grupo Iusa
Transferees) pursuant to which, among other provisions, the BEL Shareholder
Group acquired the right to nominate and elect a majority of the Board of
Directors.
"Accountants" means (whether one or more) such firm or firms of
independent certified public accountants as shall be engaged from time to
time by the Corporation or any Subsidiary.
"Affiliate" means, when used with reference to a specific Person, any
Person that at the time of determination of Affiliate status directly or
indirectly, whether through one or more intermediaries, controls, is
controlled by or is under common control with such specific Person; provided,
however, that, without limiting the foregoing, for purposes of this
Agreement, the Corporation, the Subsidiaries, Alejo Peralta, Carlos Peralta,
Grupo Iusa, FIUSA, Langness, Commander Mexicana, Immobiliaria Reforma, FCM,
Confecciones Pasteje and Interelec are deemed to be Affiliates of each other
and the Corporation, the Subsidiaries, BALAH and BAII are deemed to be
Affiliates of each other. For purposes of this Agreement, the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Amended and Restated Shareholders Agreement, as
<PAGE>
originally executed and as the same may be amended, modified and supplemented
from time to time in accordance with the terms hereof.
"Annual Plan" means, collectively, the annual operating and capital
budgets and business plan of the Corporation and the Subsidiaries.
"BEL/Peralta Trust" means that certain trust dated as of November 30,
1993 created by agreement by and among The Corporation, BALAH, Alejo Peralta,
Grupo Iusa and Banco del Atlantico,S.A., institucion de banca multiple, Grupo
Financiero GBM-Atlantico, as trustee.
"BEL Shareholder Group" means BALAH, BAII, any Affiliate of
BALAH, or BAII who becomes the beneficial owner of Shares pursuant to
the 1996 Share Conversion Agreement or upon conversion of any Indebtedness
issued by the Corporation and any of their respective transferees or
successive transferees, pursuant to the terms of Section 6.2 hereof.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day other than a Saturday, Sunday or federal
holiday for national banks in Mexico.
"Bylaws" means the estatutos sociales of the Corporation in effect from
time to time.
"Concession" means any concession, permit, license, approval or
authorization granted by any Governmental Entity to the Corporation or any of
its Subsidiaries that permits the Corporation or a Subsidiary to engage in
the Telecommunications Business or a related business.
"Contract" means (i) any written lease, agreement, contract, commitment
or license or (ii) any enforceable understanding or enforceable oral lease,
agreement, contract, commitment or license.
"Corporation Officer" means an Officer of the Corporation (including,
without limitation, the Chairman of the Board, the Vice Chairman of the
Board, the Chief Executive Officer, the Chief Operating Officer and the
President of the Corporation). For purposes of this Agreement, an individual
shall be deemed a "Corporation Officer" or an "Officer of the Corporation" if
he meets the definition of "Officer" with respect to the Corporation,
notwithstanding the fact that he is not formally elected as an officer within
the meaning of the Bylaws or the Ley General de Sociedades Mercantiles.
"estatutos sociales" means the corporate organizational and governance
documents bearing such name under Mexican legal principles.
<PAGE>
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis.
"Governmental Entity" means any nation or sovereign entity, or any
state, territory, possession, county, municipality or other subdivision
thereof, or any court, tribunal, department, commission, ministry, agency,
board, bureau, dependency or other instrumentality thereof (including,
without limitation, all functionaries and representatives thereof acting in
their official or authorized capacity).
"Indebtedness" of any Person means all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon a Person's
balance sheet as liabilities and shall include, in any event and without
limitation, (i) indebtedness for borrowed money, (ii) indebtedness incurred
or assumed in connection with the acquisition of assets, (iii) liabilities
secured by any Lien on property owned or acquired by such Person, whether or
not the liability secured thereby shall have been assumed by such Person,
(iv) capitalized lease obligations and (v) all guarantees by such Person of
Indebtedness of another Person.
"Lien" means, whether absolute, accrued, contingent or otherwise, any
mortgage, lien, lease, pledge, encumbrance, charge, restriction, security
interest, judgment lien, claim, license, easement, purchase option, call or
similar right of a third party, preemptive right of a third party, right of a
third party under any voting or shareholder agreement or other restriction,
proxy, limitation on voting rights or adverse claim.
"Material" as to any matter relating to the Corporation or Subsidiaries
means a matter (including, without limitation, any act, omission, occurrence,
transaction, event, obligation, breach of obligation, situation or
governmental action) the effect of which to the Corporation and the
Subsidiaries (taken as a whole, and including the business, assets,
operations, results of operations or financial condition thereof) in the
event of the occurrence or non-occurrence of such matter (whether
individually or together with any related or similar matters) is, or could
reasonably be expected to be, more than U.S.$5,000,000.
"Mexican GAAP" means GAAP, as applied in Mexico.
"Mexico" means the United Mexican States.
"Officer" (whether or not such term is capitalized) means an individual
with significant responsibilities for operations or policy making duties for
any Person that is not an individual.
"Original Shareholders Agreement" means that certain Shareholders
Agreement
<PAGE>
dated November 30, 1993 among the BALAH, Alejo Peralta, Carlos
Peralta, Grupo Iusa and the Corporation.
"Peralta Family Member" means Alejo Peralta, Carlos Peralta and their
respective siblings, spouses, children or grandchildren (whether by birth or
adoption); provided, however, that with respect to Alejo Peralta's
grandchildren, the term "Peralta Family Member" shall only include those
grandchildren who, as of the date of the Original Shareholders Agreement or
at any time thereafter, were employed by Grupo Iusa or any of its corporate
Affiliates.
"Peralta Shareholder Group" means, collectively and individually, Alejo
Peralta, Carlos Peralta, Grupo Iusa, FIUSA, Langness, Commander Mexicana,
Inmobiliaria Reforma, FCM, Confecciones Pasteje, Interelec and any of their
respective transferees or successive transferees pursuant to the terms of
Section 6.2 hereof.
"Peralta Shareholder Group Notice Party" means the Person elected by
the beneficial owners of seventy percent (70%) of the Series A Shares, Series
D Shares and Series L Shares beneficially owned by members of the Peralta
Shareholder Group at the time of such election to serve in such capacity;
provided, however, that such Person shall be Carlos Peralta until such time
as the members of the BEL Shareholder Group and the Corporation each receives
written notice that Carlos Peralta's successor as the Peralta Shareholder
Group Notice Party has been duly elected by the beneficial owners of seventy
percent (70%) of the Series A Shares, Series D Shares and Series L Shares
beneficially owned by members of the Peralta Shareholder Group at the time of
such election and also receives the name and notice address of such successor.
"Person" (whether or not such term is capitalized) means any
individual, partnership, corporation, joint venture, trust, business trust,
Governmental Entity, union, association, instrumentality, commission or other
entity.
"Prospectus" means a prospectus within the meaning of the Securities
Act or its closest equivalent under the securities laws of a country other
than the United States.
"Region" means each of the nine geographic regions in Mexico for
cellular telephony.
"Registrable Securities" means any and all of (i) the Shares
beneficially owned as of the date hereof by the BEL Shareholder Group and the
Peralta Shareholder Group, (ii) the Shares for or into which any of the
Shares referred to in clause (i) immediately above are converted pursuant to
the 1996 Share Conversion Agreement, (iii) any Shares hereafter transferred
by a Shareholder to any transferee or successive transferee who is an
Affiliate of such Shareholder pursuant to Section 6.2 hereof, (iv) the Shares
into which any Indebtedness of the Corporation outstanding as of the date
hereof is converted by the BEL Shareholder Group and/or the Peralta
Shareholder Group pursuant to the agreements contained in the 1996 Share
Conversion
<PAGE>
Agreement, (v) any Shares issued to a Shareholder or an Affiliate of a
Shareholder upon conversion of the debentures of that Corporation may issue
pursuant to the 1996 Share Conversion Agreement, and (vi) other securities
issued or issuable with respect to any such Registrable Securities by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise;
provided, however, that to the extent such securities to be received are
convertible or exercisable into stock of the issuer thereof, then any such
shares of stock as are issued or issuable upon conversion or exercise of said
convertible or exercisable securities also shall constitute Registrable
Securities; and provided further that securities shall cease to be
Registrable Securities when they are transferred pursuant to an effective
Registration Statement or in a public offering.
"Registration Rightsholder" means any beneficial owner of outstanding
Registrable Securities.
"Registration Statement" means a registration statement within the
meaning of the Securities Act or its closest equivalent under the securities
laws of a country other than the United States.
"SEC" means the United States Securities and Exchange Commission, or
any successor agency thereto.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Series A Directors" means those members of the Board of Directors who,
pursuant to the Bylaws or this Agreement, are nominated and elected by the
beneficial owners of Series A Shares; provided, however, that such term does
not include the Series B Directors, Series D Directors or Series L Directors.
"Series A Shares" has the meaning ascribed to the term "New Series A
Shares" in the Share Purchase Agreement.
"Series B Designated Director" means the Series B Director elected by
the beneficial owners of seventy percent (70%) of the Series B Shares
beneficially owned by the BEL Shareholder Group at the time of such election
to serve in such capacity.
"Series B Directors" means those members of the Board of Directors who,
pursuant to the Bylaws or this Agreement, are nominated and elected by the
beneficial owners of Series B Shares; provided, however, that such term does
not include the Series A Directors, Series D Directors or Series L Directors.
"Series B Officers" means the Chief Financial Officer of the
Corporation and the two principal Corporation Officers responsible for
strategic planning and network planning.
"Series B Shares" has the meaning ascribed to the term "New Series B
Shares"
<PAGE>
in the Share Purchase Agreement.
"Series D Directors" means those members of the Board of Directors who,
pursuant to the Bylaws or this Agreement, are nominated and elected by the
beneficial owners of Series D Shares; provided, however, that such term does
not include the Series A Directors, Series B Directors or Series L Directors.
"Series D Shares" has the meaning ascribed to the term "New Series D
Shares" in the Share Purchase Agreement.
"Series L Directors" means those members of the Board of Directors who,
pursuant to the Bylaws or this Agreement, are nominated and elected by the
beneficial owners of Series L Shares; provided, however, that such term does
not include the Series A Directors, Series B Directors or Series D Directors.
"Series L Shares" has the meaning ascribed to the term "New Series L
Shares" in the Share Purchase Agreement.
"Shareholder" means each member of the BEL Shareholder Group and the
Peralta Shareholder Group.
"Share Purchase Agreement" means that certain Share Purchase Agreement
dated October 10, 1993 among BALAH, Alejo Peralta, Carlos Peralta, Langness
and the Corporation.
"Shares" means the Series A Shares, the Series B Shares, the Series D
Shares and/or the Series L Shares.
"Subsidiaries" means the Persons in which the Corporation shall at any
time, directly or indirectly, beneficially own an equity interest equal to or
more than 50%, or which the Corporation shall, at any time, directly or
indirectly control.
"Subsidiary Officer" means an Officer of a Subsidiary.
"Supermajority Vote" means, with respect to action by the Board of
Directors, the affirmative vote of a majority of the Directors, including at
least one Series A Director, one Series B Director and one Series D Director,
and with respect to actions by the Shareholders, the affirmative vote of the
beneficial owners of a majority of the outstanding Series A Shares, a
majority of the outstanding Series B Shares and a majority of the outstanding
Series D Shares. For purposes of calculating any Supermajority Vote, the
votes of directors other than Series A Directors, Series B Directors and
Series D Directors shall be excluded.
"Taxes" means all federal, state, local or foreign net income,
alternative or add-on minimum, assets, gross income, gross receipts, sales,
use, ad valorem, value-added, franchise, profits, license, withholding,
communications, payroll, employment,
<PAGE>
excise, severance, stamp, occupation, premium, profit-sharing payments,
property, social benefits contribution, windfall profits or similar taxes,
duties, assessments, fees, levies or other similar governmental charges of
any kind whatsoever, together with any interest, penalties, additions to tax
or additional amounts imposed thereon or imposed with respect to any such
interest, penalties, additions to tax or other additional amounts.
"Telecom Act" means the Telecommunications Act of 1996 enacted by the
United States Congress.
"Telecommunications Business" means any of the following: (a) the
ownership, management, operation or maintenance of a network for the
transmission, by any means, of data, voice or video signals, (b) the
provision of transmission services, by any means, of data, voice, or video
signals, (c) the provision of customer premises equipment, and (d) the
provision of value added services (including, by way of example and not of
limitation, "intelligent network" services and private lines). The marketing
of such goods and services on a wholesale, retail or reseller basis shall
constitute the operation of the Telecommunications Business.
"Transfer" means any transfer, assignment, sale, pledge, hypothecation
or change of ownership of any kind, including without limitation, by bequest
or intestate succession.
"United States" and "U.S." mean the United States of America.
"U.S. GAAP" means GAAP as applied in the United States.
1.2. Construction. As used in this Agreement, (i) each term defined in
this Agreement has the meaning assigned to it, (ii) each accounting term not
otherwise defined in this Agreement has the meaning assigned to it in
accordance with Mexican GAAP, if any, and if such term has no meaning under
Mexican GAAP, then under U.S. GAAP, (iii) as the context may require, words
in the singular include the plural and words in the plural include the
singular, (iv) as the context may require, words in the masculine or neuter
gender include the masculine, feminine and neuter genders, (v) all references
to Schedules or Exhibits refer to Schedules or Exhibits delivered herewith or
attached hereto (each of which is deemed to be a part of this Agreement),
(vi) all references to Sections or Articles refer to Sections or Articles of
this Agreement, (vii) all references to "U.S. $", "$" or "dollars" refer to
United States dollars, (viii) any amount to be paid in "$" or "dollars" shall
be paid in U.S. dollars, but any amount to be measured for purposes of
determining compliance with a standard set forth in this Agreement in "$" or
"dollars" may be so measured in a foreign currency and shall be translated
into U.S. dollars at the average of the then prevailing free market buy and
sell rates published in the Wall Street Journal or, if not published therein,
in another newspaper of wide circulation in the United States and (ix) the
terms "herein," "hereunder," "hereby," "hereto" and terms of similar import
refer to
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this Agreement in its entirety, and not to any particular Article, Section,
paragraph or subparagraph. No provision of this Agreement will be construed
in favor of, or against, any of the parties hereto by reason of the extent to
which such party or its counsel participated in its drafting or by reason of
the extent to which this Agreement or any provision hereof is inconsistent
with any prior draft hereof or thereof. All references in this Agreement to
the beneficial ownership of Shares shall be deemed to include the Shares
deposited in the BEL/Peralta Trust, or held of record by any member of the
BEL Shareholder Group or by any member of the Peralta Shareholder Group and,
with respect to all references to other Persons being a beneficial owner, the
parties agree that such term shall be translated as "beneficiario". For
purposes of this Agreement, references to the office of President of the
Corporation are deemed to be references to the office of the Corporation
currently held by Guillermo Amore (i.e., the "Director General").
ARTICLE II
ORGANIZATIONAL MATTERS
2.1. Establishment of Amended and Restated Shareholders Agreement. The
Shareholders hereby establish and enter into this Amended and Restated
Agreement for the purpose of revising certain agreements stated in the
Original Shareholders Agreement (including, without limitation, agreements
regarding the governance of the Corporation and the Subsidiaries) to reflect
the enhanced rights of the BEL Shareholder Group acquired pursuant to the
1996 Share Conversion Agreement.
2.2. Term of Agreement. The term of this Agreement shall commence on
the date hereof. The terms of Articles III (other than Section 3.4), IV, V
(other than Section 5.6) and Section 6.2 shall terminate upon the first date
on which either (i) the BEL Shareholder Group in the aggregate beneficially
owns less than twenty-five percent (25%) of the aggregate outstanding Shares
of the Corporation, or (ii) the Peralta Shareholder Group in the aggregate
beneficially owns less than twenty-five percent (25%) of the aggregate
outstanding Shares of the Corporation. The terms of Article VII shall
terminate as to any Registration Rightsholder whose Registrable Securities
represent less than five percent (5%) of the outstanding capital stock
(exclusive of Series L Shares) of the Corporation.
ARTICLE III
GOVERNANCE OF THE CORPORATION
3.1. Board of Directors and Certain Officers.
(a) Subject to the terms of this Section 3.1(a) and Section
3.2(b) and (c), the Board of Directors will consist of twenty-one (21)
Directors, ten (10) of whom shall be Series A Directors nominated and elected
by the holders of a majority of the Series A Shares, and nine (9) of whom
shall be Series B Directors nominated and elected by the holders of a
majority of the Series B Shares. Each of the BEL
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Shareholder Group and the Peralta Shareholder Group shall nominate two (2) of
the ten (10) Series A Directors and their alternates and shall vote their
Series A Shares to elect all such nominees. With respect to the remaining six
(6) Series A Directors and their alternates, the BEL Shareholder Group and
the Peralta Shareholder Group shall meet and attempt to agree upon twelve
(12) Persons of high repute from the Mexican business and financial
communities and, if they are able to agree upon such Persons, the BEL
Shareholder Group and the Peralta Shareholder Group agree to vote their
Series A Shares to elect such Persons as Series A Directors; provided that,
absent such agreement, the majority of the Series A Shares shall nominate and
elect the remaining six (6) Series A Directors and their respective
alternates.
The beneficial owners of the Series B Shares shall be entitled to
nominate and elect nine (9) Series B Directors and their alternates. The
beneficial owners of the Series D Shares shall be entitled to nominate and
elect one (1) Series D Director and such Series D Director's alternate, and
the beneficial owners of the Series L Shares shall be entitled to nominate
and elect one (1) Series L Director and such Series L Director's alternate;
provided, however, that the beneficial owners of the Series D Shares shall be
entitled to nominate and elect two (2) Series D Directors and their
alternates in the event the total number of Series D Shares which are
authorized under the Bylaws or outstanding equals or exceeds 20% of the
number of authorized or outstanding shares of capital stock of the
Corporation, and the beneficial owners of the Series L Shares shall be
entitled to nominate and elect two (2) Series L Directors and their
alternates in the event the total number of Series L Shares which are
authorized under the Bylaws or outstanding equals or exceeds 20% of the
number of authorized or outstanding shares of capital stock of the
Corporation.
The Series A Directors shall serve at the pleasure of the
beneficial owners of the Series A Shares (the majority of which shall have
the right to remove and replace Series A Directors, other than the two (2)
Series A Directors nominated by the Peralta Shareholder Group, who may be
removed and replaced only by the holders of the majority of Series A Shares
held by the Peralta Shareholder Group), and the Series B Directors shall
serve at the pleasure of the beneficial owners of the Series B Shares (the
majority of which shall have the right to remove and replace Series B
Directors). Alternate Directors for each Series shall be appointed as set
forth above (which alternates shall serve in place of any Director or
Directors for whom such alternate has been elected as an alternate) and, in
the event that for any reason whatsoever a Director ceases to or is unable to
continue or perform in his capacity as Director, he will be replaced by an
alternate so appointed. The quorum for meetings of the Board of Directors
held following any call shall be a majority of all Directors, one of whom
must be a Series A Director and one of whom must be a Series B Director.
(b) Subject to the other provisions of this Agreement, the Board
of Directors, by majority vote, shall elect or appoint, or cause to be
elected or appointed, the Corporation Officers, Subsidiary Officers (to the
extent not restricted by law, contract or otherwise) and employees or agents
of the Corporation or any Subsidiary
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in any manner it deems appropriate; provided, however, that (i) the Chairman
of the Board of Directors shall be Alejo Peralta until his resignation or
retirement from such position, disability or death, (ii) the Vice Chairman of
the Board of Directors shall be Lawrence T. Babbio, Jr. until his resignation
or retirement from such position, disability or death (provided that in any
such case a successor shall be nominated by the Series B Directors and
elected by the holders of a majority of the Series A Shares and Series B
Shares and the Peralta Shareholder Group shall vote the Series A Shares
beneficially owned by them in favor of such nominees), or his or one of his
successors' promotion to Chairman of the Board of Directors pursuant to the
next clause (at which time the office of Vice Chairman of the Board of
Directors shall terminate), (iii) in the event Alejo Peralta resigns or
retires from the position of Chairman of the Board of Directors or becomes
disabled or deceased, Lawrence T. Babbio, Jr. or a successor as Vice Chairman
of the Board of Directors shall automatically become Chairman of the Board of
Directors (at which time the office of Vice Chairman of the Board of
Directors shall terminate); and (iv) in the event Lawrence T. Babbio, Jr., or
a successor as Vice Chairman of the Board of Directors shall become Chairman
of the Board of Directors and thereafter resigns or retires from the position
of Chairman of the Board of Directors or becomes disabled or deceased at any
time, his successor shall be nominated by the Series B Directors and elected
by the holders of a majority of the Series A Shares and Series B Shares, and
the Peralta Shareholder Group shall vote the Series A Shares beneficially
owned by them in favor of such nominee. Notwithstanding anything to the
contrary herein or in the Bylaws, neither the Chairman of the Board of
Directors nor the Vice Chairman of the Board of Directors shall have any
right or power to cast any additional vote to break a tie or deadlock. The
number and types of employees hired, retained or dismissed by the Corporation
and the Subsidiaries shall be consistent with the scope of the operations of
the Corporation and the Subsidiaries and the Annual Plan. Subject to the
other provisions of this Agreement, the Board of Directors shall use its best
efforts to elect or appoint, or cause to be elected or appointed, the
Subsidiary Officers of Subsidiaries that are not wholly-owned.
(c) The Shareholders or, if so authorized, the Board of Directors
shall appoint such committees as they deem appropriate, with the authority to
act on all matters delegated to such committee in accordance with the Bylaws.
Such committees shall be comprised of members of the Board or Directors
and/or their alternates who shall be nominated by the majority of the members
of the Board of Directors elected pursuant to Section 3.1(a), and the Peralta
Shareholder Group shall vote the Shares beneficially owned by them in favor
of such nominees; provided, however, that the Peralta Shareholder Group shall
have the right to nominate two (2) members of the Executive Committee and one
(1) member of each other committee and the BEL Shareholder Group shall vote
the Shares beneficially owned by them in favor of such nominees. Committee
action will be effective only if (i) approved by a majority of the members of
such committee present at such meeting and voting thereon, and (ii) at least
one Series A Director and one Series B Director shall have voted to approve
such action as part of said majority; provided, however, where any
<PAGE>
such action would, if considered by the Board of Directors, require a
Supermajority Vote, such action will be effective only if approved by a
Series A Director or Series D Director nominated by the Peralta Shareholder
Group pursuant to Section 3.1(a). The quorum for each committee meeting shall
be a majority of the members of such committee, one of whom must be a Series
A Director and one of whom must be a Series B Director. Such committees shall
include an executive committee, a finance and audit committee, a human
resources and compensation committee, and a strategic planning and technology
committee, the duties and functions of which committees are set forth in the
Bylaws. The Executive Committee shall meet monthly, provided that one out of
every two Executive Committee meetings may be held by telephone conference
call.
(d) The Series A Directors and Series B Directors shall consult
with each other and, when appropriate, with the Corporation's Chief Executive
Officer, President and Chief Operating Officer in connection with the
nomination, hiring, reassignment or dismissal of the other Officers of the
Corporation. The power to appoint and dismiss the Chief Executive Officer,
the President, the Chief Operating Officer and the Director of the Cellular
Division of the Corporation shall reside with Lawrence T. Babbio, Jr. or any
of his successors as Vice Chairman of the Board of Directors or as Chairman
of the Board of Director after Lawrence T. Babbio, Jr. or one of his
successors becomes Chairman of the Board of Directors in accordance with
clause (b) above, provided that the Series B Designated Director must agree
in writing to such appointment or dismissal. The power to dismiss all other
Officers shall reside with the Chief Executive Officer, subject to clause (e)
below.
(e) The Series B Officers shall be nominated by the Series B
Directors and the Series A Directors must vote to elect such nominees. The
power to nominate replacements for any Series B Officer (whether he has been
dismissed, has resigned or his term has expired) shall reside with the Series
B Directors, and the Series B Directors (acting by majority vote) can dismiss
any of the Series B Officers. Any replacement for a Series B Officer who was
dismissed by any Person other than the Series B Directors shall have a
minimum tenure of one year before such replacement may be dismissed by any
Person other than the Series B Directors.
(f) The Peralta Shareholder Group shall be entitled to nominate
one (1) Director of the board of directors of each wholly-owned Subsidiary,
and the BEL Shareholder Group and the Peralta Shareholder Group shall cause
the Corporation to elect each such Person so nominated as a director of the
corresponding wholly-owned Subsidiary; provided, however, that such nominee
shall not be Carlos Peralta.
3.2. Actions of Board of Directors and Shareholders.
(a) Except as otherwise expressly provided herein, by law or in
the Bylaws, all actions of the Board of Directors or shareholders of the
Corporation shall be taken upon or pursuant to a majority vote of the Board
of Directors or of the
<PAGE>
beneficial owners of Shares entitled to vote, respectively.
(b) The Corporation, the Board of Directors and the Shareholders
shall not (and, where specified below, the Corporation shall cause the
wholly-owned Subsidiaries to not, and shall use its best efforts to cause,
subject to the rights of minority shareholders, the Subsidiaries that are not
wholly-owned to not) take any of the actions, enter into any commitment to
take any of the actions, or otherwise agree to take any of the actions,
specified below unless such action has been first approved by a Supermajority
Vote:
(i) the acquisition by the Corporation or any Subsidiary of
any business which is not a Telecommunications Business for a purchase
price in excess of U.S.$30,000,000 in the aggregate;
(ii) the entering into or approval by the Corporation or any
Subsidiary of any joint venture, partnership or merger plan or transaction
within the Telecommunications Business which involves the investment of
more than, or the merger with a business with assets which exceed,
U.S.$100,000,000 in the aggregate (other than any plan to merge or
consolidate with the properties controlled by Affiliates of Motorola, Inc.
in Regions 1, 2, 3 and 4);
(iii) the making by the Corporation or any Subsidiary, within
any twelve month period, of sales of assets (other than sales of inventory
in the ordinary course of business) or businesses for consideration which,
in the aggregate, exceeds U.S.$30,000,000;
(iv) the incurrence, from and after January 1, 1998, in a
single transaction or in a series or related transactions within any
twelve month period, of any Indebtedness by the Corporation or any
Subsidiary in an amount exceeding U.S.$100,000,000 in the aggregate (other
than Indebtedness which constitutes financing for commitments of the
Corporation or any Subsidiary existing as of the date hereof, the
refinancing or successive refinancing of Indebtedness of the Corporation
or any Subsidiary existing as of the date hereof, Indebtedness which
constitutes vendor financing, Indebtedness which constitutes project
financing and the Indebtedness contemplated to be issued by the
Corporation pursuant to the 1996 Share Conversion Agreement);
(v) the issuance of capital stock of the Corporation or any
Subsidiary, in a single transaction or in a series of related transactions
within any twelve month period, in an amount exceeding U.S.$50,000,000 in
the aggregate (other than capital stock of the Corporation issued pursuant
to the 1996 Share Conversion Agreement or any of the transactions
contemplated therein or any plan to merge or consolidate with the
properties controlled by Affiliates of Motorola, Inc. in Regions 1, 2, 3
and 4);
(vi) the Corporation or any Subsidiary's entering into,
amending
<PAGE>
the terms of or terminating Contracts or transactions with or for the
benefit of: (A) any of their respective Affiliates (other than
transactions solely between or among wholly-owned Subsidiaries or solely
between or among the Corporation and one or more of its wholly owned
Subsidiaries); (B) any of the signatories hereto or their Affiliates, or
(C) any Peralta Family Member; provided, however, that no Supermajority
Vote approval shall be required for any renewal, extension, successive
renewal or successive extension, on substantially similar terms and
conditions (provided that the parties thereto may be Affiliates of the
current parties), of (x) the Master Technical Services Agreement by and
between Bell Atlantic International, Inc. and Sistecel, S.A. de C.V.
effective as of January 1, 1994, and (y) 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, 1995; provided further, however, that the
aggregate payments to Bell Atlantic International, Inc. or one of its
Affiliates in any one calendar year under the Master Technical Services
Agreement referred to in clause (x) above or any renewal, extension,
successive renewal or successive extension thereof cannot exceed U.S.
$3,000,000 without a Supermajority Vote and that the aggregate payments to
Bell Atlantic International, Inc. or one of its Affiliates in any one
calendar year under the Agreement for the Reimbursement of Compensation
(Secondment Agreement) referred to in clause (y) above or any renewal,
extension, successive renewal or successive extension thereof cannot
exceed U.S. $10,000,000 without a Supermajority Vote;
(vii) the termination or disposition by the Corporation or any
Subsidiary of the cellular, fixed wireless, long distance or satellite
transmission business in which it is engaged (or the related assets),
including the termination by the Corporation or any Subsidiary of the
provision of cellular, fixed wireless local telephony, long distance or
satellite transmission services in any Region or in any other contiguous
geographic area from which consolidated annual revenues from the service
proposed to be terminated by the Corporation or a Subsidiary in each of
the two most recent fiscal years were more than U.S. $10,000,000; and
(viii) the making by the Corporation or any Subsidiary of any
request or application, or the taking by the Corporation or any Subsidiary
of any other action, to terminate any Concession relating to cellular,
fixed wireless local telephony, long distance or satellite transmission
service, including, without limitation, any application to eliminate radio
spectrum licensed or granted to the Corporation or any Subsidiary for such
services.
(c) The Corporation, the Board of Directors and the Shareholders
shall not (and, where specified below, the Corporation shall cause the
wholly-owned Subsidiaries to not, and shall use its best efforts to cause,
subject to the rights of minority shareholders, the Subsidiaries that are not
wholly-owned to not) take any of
<PAGE>
the actions, enter into any commitment to take any of the actions, or otherwise
agree to take any of the actions, specified below unless such action has been
first approved by the Series B Designated Director:
(i) the issuance of capital stock of the Corporation or any
Subsidiary (other than capital stock of the Corporation issued pursuant to
the Share Purchase Agreement or any of the transactions contemplated
thereby, and the 1996 Share Conversion Agreement or any of the
transactions contemplated thereby), or any recapitalization or other
change in the capital or capital structure of the Corporation or any
Subsidiary (including, without limitation, any stock split or conversion
of stock to another Series or any determination that the Corporation or
any Subsidiary requires additional financial support from the
Shareholders, whether by means of additional capital contributions, loans,
guarantees or otherwise or any granting of registration rights with
respect to the capital stock of the Corporation or any Subsidiary;
(ii) the acquisition by the Corporation or any Subsidiary of
any of its respective securities or any of each other's securities;
(iii) the declaration or payment of dividends or other
distributions to any security holder of the Corporation either (A) in any
fiscal year, in excess of twenty-five percent (25%) of consolidated net
income for the prior fiscal year (consolidated net income shall be
calculated in accordance with Mexican GAAP provided that if such amount is
more than one hundred and ten percent (110%) of consolidated net income
under U.S. GAAP for the same period, then consolidated net income shall be
calculated in accordance with U.S. GAAP for purposes of subclause (A) of
this clause (iii) and for purposes of Section 3.7) or (B) except as
otherwise contemplated in Section 3.7, which would trigger a Mexican tax
upon payment to any Shareholder;
(iv) the declaration or payment of dividends (except as
otherwise required by any Contract listed on Schedule 3.2(b)(iv) of the
Original Shareholders Agreement and any future Contract approved by a
Supermajority Vote or by the Series B Designated Director pursuant to this
Section 3.2(c)) or other distributions to any security holder (other than
the Corporation or a wholly-owned Subsidiary of the Corporation) of any
Subsidiary;
(v) the increase or decrease of the number of Directors
comprising the Board of Directors, or any such change to the board of
directors of any Subsidiary;
(vi) the termination or disposition of a business or a line of
business (or the related assets) of the Corporation or any Subsidiary,
including the termination, by the Corporation or any Subsidiary, of the
provision of goods or services in a geographic area; provided, however,
that the termination of a
<PAGE>
line of business, from which consolidated annual revenues in each of the
two most recent fiscal years of the Corporation were less than
U.S.$1,000,000, shall not require approval of the Series B Designated
Director;
(vii) the commencement of any business or line of business by
the Corporation or any Subsidiary (by start-up, acquisition, expenditure
or otherwise), or the expansion of the scope of any business or line of
business into any country other than Mexico, except for the following
businesses or lines of business in the following countries: (A) the
ownership, management, operation and maintenance of networks for the
transmission by the Corporation or any Subsidiary, wholly within the
national borders of Mexico, of data and voice signals using cellular
technology and spectrum in the 825-835 MHz and 870-880 MHz ranges, (B) any
action or transaction in any country contemplated under an Annual Plan
approved in accordance with clause (xx) of this Section 3.2(c); and (C)
the provision of domestic cellular service and long distance to customers
receiving such cellular service in Ecuador;
(viii) the incurrence, in a transaction or series of related
transactions, of any Material Indebtedness by the Corporation or any
Subsidiary, the incurrence within any twelve-month period of Indebtedness
by the Corporation or the Subsidiaries which in the aggregate exceeds
U.S.$20,000,000, the extension of any loan or guaranty, or series of
related loans or guaranties, by the Corporation or any Subsidiary in an
amount exceeding U.S.$5,000,000 or the extension, within any twelve-month
period, of loans or guaranties by the Corporation or any Subsidiary which
in the aggregate exceed U.S.$20,000,000;
(ix) the making by the Corporation or any Subsidiary, in a
transaction or series of related transactions, of any Material sale of
assets or sale of business or any Material acquisition of or investment in
assets, or a business, or, whether or not Material, any acquisition of or
investment in equity securities (including securities convertible into
equity securities) issued by, or an equity interest in, any Person;
(x) the making by the Corporation or any Subsidiary, within
any twelve-month period, of sales of assets (other than sales of inventory
in the ordinary course of business), or businesses which in the aggregate
exceed U.S.$20,000,000, or of acquisitions of or investments in assets
(other than inventory acquired in the ordinary course of business) or
businesses which in the aggregate exceed U.S.$20,000,000;
(xi) the Corporation's or any Subsidiary's entering into,
amending the terms of or terminating Contracts or transactions with or for
the benefit of (A) any of their respective Affiliates (other than
transactions solely between or among wholly-owned Subsidiaries or solely
between or among the Corporation
<PAGE>
and one or more of its wholly-owned Subsidiaries), (B) any of the
signatories hereto or their Affiliates or (C) any Peralta Family Member;
(xii) the entering into or approval by the Corporation or any
Subsidiary of any transaction or plan of merger, consolidation,
dissolution or liquidation;
(xiii) the subjection of any Concession to any Lien, or,
except in the ordinary course of business to secure an obligation of the
Corporation or a Subsidiary that is not for a Material amount, the
subjection of any other property or assets of the Corporation or any
Subsidiary to any Lien;
(xiv) the making by the Corporation or any Subsidiary of any
request or application to obtain, modify or terminate any Concession
including, without limitation, any application to eliminate, add to or
modify radio spectrum licensed or granted to the Corporation or any
Subsidiary, or the taking of any other action to obtain, modify or
terminate any Concession granted to the Corporation or any Subsidiary or
the willful failure to take any action necessary to maintain or protect
any such Concession;
(xv) the amendment or modification of the Bylaws or the
estatutos sociales of any Subsidiary, or the amendment or modification, or
consent or approval thereto or thereof, to the organizational or governing
documents (including, without limitation, estatutos sociales) of any
Person in which the Corporation or any Subsidiary has a direct or indirect
equity interest (including, without limitation, the amendment or
modification of the stated purpose of any such Person as stated in any
such documents);
(xvi) the appointment, nomination, election, removal,
dismissal or replacement of the Corporation's Officers or any Subsidiary
Officer (subject to the terms of, and except as otherwise provided in,
Section 3.1), or a change in the remuneration of the Chairman of the Board
of Directors, the Vice Chairman of the Board of Directors, the Chief
Executive Officer or any other employee of the Corporation or a Subsidiary
who is a Peralta Family Member and who would be compensated, following the
taking of such action, at a rate in excess of U.S.$50,000 on an annualized
basis (which amount shall be calculated to include the value of any fringe
benefits not given to substantially all employees of the Corporation and
the Subsidiaries);
(xvii) any appointment or removal of Accountants or any
approval of financial statements of the Corporation or any Subsidiary;
(xviii) the entering into of any Material Contract (or series
of related Contracts that together are Material) by the Corporation or any
Subsidiary;
<PAGE>
(xix) the making of any Tax election or the adoption of any
Tax accounting method by the Corporation or any Subsidiary for Tax
purposes, or any agreement or settlement with any Governmental Entity in
connection with the Tax returns or Tax obligations of the Corporation or
any Subsidiary;
(xx) the approval or modification of the annual three-year
strategic plan or the Annual Plan or any deviation from actions required
to be taken under the Annual Plan;
(xxi) (A) the approval of the terms or the making of any
private or public offering or sale by the Corporation or any Subsidiary of
securities of the Corporation or any Subsidiary or (B) the approval of any
documentation or communication prepared or otherwise made by or in the
name of the Corporation or any Subsidiary for any private or public
offering or sale of securities of the Corporation or any Subsidiary;
(xxii) the authorization or granting of any general or limited
power of attorney to any Person by the Corporation or any Subsidiary;
(xxiii) the sharing with any Person or disposition of any
non-public or proprietary technology of the Corporation or any Subsidiary;
(xxiv) except for the gifts and donations set forth in
Schedule 3.2(b)(xxv) of the Original Shareholders Agreement, the making of
any gift or donation, or series of related gifts or donations, in an
amount exceeding U.S.$5,000 in any calendar year to any Person by the
Corporation or any Subsidiary;
(xxv) any institution, settlement or default with regard to
any Material (or potentially Material) litigation involving the
Corporation or any Subsidiary, or any settlement or default with regard to
any litigation (whether or not Material) in which any Shareholder, any of
the signatories hereto or their Affiliates, or any Peralta Family Member
has interests adverse to the Corporation or any Subsidiary; and
(xxvi) the agreement by the Corporation or any Subsidiary to
be bound by any Contract to not compete with another Person or otherwise
not engage in any business.
3.3 Annual Plan and Three-Year Strategic Plan. The Shareholders will
cooperate to cause the majority of the Directors to agree upon an annual
three-year strategic plan and an Annual Plan that is acceptable to the
Shareholders.
An action which requires a Supermajority Vote and/or the approval of the
Series B Designated Director and which is contemplated under an Annual Plan
shall not be deemed to have been approved by Supermajority Vote and/or the
approval of the
<PAGE>
Series B Designated Director, as appropriate, unless (a) the subsection of
Section 3.2(b) and/or Section 3.2(c) which pertains to such action explicitly
states that approval by Supermajority Vote and/or the Series B Designated
Director is unnecessary because of approval of the Annual Plan, (b) the action
was clearly and accurately described in the Annual Plan, and (c) the Annual Plan
presented to the Board of Directors and approved by it explicitly stated that
the particular action, as approved, is a "Supermajority Action Item."
3.4. Contracts with Affiliates. The Corporation will not, and will not
permit any Subsidiary 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), any of the signatories hereto or their
Affiliates, or any Peralta Family Member which is not at prices and on other
terms at least as favorable to the Corporation or the Subsidiary as those which
could be obtained on an arms-length basis from an unaffiliated third party.
3.5. Limitation on Acts of Shareholders. Except to the extent expressly
provided herein, no Shareholder in such capacity shall have the power to bind or
commit the Corporation or any other Shareholder to any obligation or Contract
with any third party.
3.6 Conditions to Offerings. The parties acknowledge and agree that, among
other conditions that the Series B Directors may establish from time to time in
connection with their vote on any matter, the Series B Directors shall have the
right to condition any approval regarding any private or public offering or sale
of securities of the Corporation or any Subsidiary upon the timely receipt prior
to the closing of any such transaction by the BEL Shareholder Group of a
"comfort letter" from the Accountants relating to such transaction in form and
substance reasonably acceptable to the Series B Directors or the BEL Shareholder
Group, and upon the Series B Directors' satisfaction with the form and substance
of any documentation or communication proposed to be used in connection with any
such offering or sale.
3.7 Dividends. Each of the BEL Shareholder Group and the Peralta
Shareholder Group shall have the right to unilaterally require that the
Corporation pay dividends during any fiscal year in an amount of up to twenty
five percent (25%) of the Corporation's consolidated net income (calculated in
accordance with Section 3.2(c)(iii)) for such fiscal year; provided that such
payment of dividends is not prohibited by applicable law or any contract of the
Corporation and does not adversely affect the reasonably foreseeable cash flow
or capital requirements of the Corporation. Each time that the BEL Shareholder
Group or the Peralta Shareholder Group exercises its rights pursuant to this
Section 3.7, the Shareholders shall vote, and shall cause the Series A
Directors, Series B Directors and Series D Directors to vote, in favor of the
prompt payment of the required dividend.
ARTICLE IV
<PAGE>
ACCOUNTS, REPORTS, RIGHT OF INSPECTION
AND OTHER FINANCIAL MATTERS
4.1. Fiscal Year. The fiscal year of the Corporation and each Subsidiary
shall end on December 31 of each year.
4.2. Books, Records and Reports.
(a) The Corporation shall maintain, and shall cause each Subsidiary
to maintain, proper books and accounts on an accrual basis and in accordance
with Mexican GAAP. Such books and records shall also be maintained in such a
manner as to permit the preparation of quarterly and annual reports in
accordance with U.S. GAAP. The books and records of the Corporation and the
Subsidiaries shall be kept in the Spanish language, except that books and
records maintained in a country, other than Mexico, in connection with the
Corporation's or a Subsidiary's conduct of business in such country may be
maintained in the official language of such country. This Agreement, the minute
books, the reports referenced in Section 4.2(b) below, any special reports a
Shareholder shall from time to time request and the Annual Plans and three-year
strategic plans shall be kept in both the Spanish and English languages and as
between the Shareholders, or as between the Shareholders and the Corporation or
any Subsidiary, the English language version of any such documents, other than
the minute books, shall govern and be controlling. As to the minute books, as
between the Shareholders, or as between the Shareholders and the Corporation or
any Subsidiary, the Spanish language version shall govern and be controlling.
Each director and Shareholder shall be permitted to bring an interpreter to any
meeting attended by such director or shareholder. Annually upon the close of the
year (and at such other times as shall be approved by the Board of Directors),
all such books and accounts shall be audited by the Accountants.
(b) Each Shareholder shall be furnished with the following:
(i) within 21 days after the end of each calendar month, an
unaudited monthly consolidated and consolidating statement of income,
sources and uses of cash, and an unaudited consolidated and consolidating
month-end balance sheet for the Corporation and each Subsidiary;
(ii) within 30 days after the end of each of the first three
quarters of each fiscal year, an unaudited consolidated and consolidating
balance sheet of the Corporation and each Subsidiary as of the end of such
quarter and the related unaudited statements of income, shareholders'
equity and changes in financial situation for such quarter and for the
year to date, in each case prepared in accordance with Mexican GAAP,
setting forth all adjustments necessary to convert to U.S. GAAP, and
setting forth in comparative form the figures as at the end of and for the
comparable period in the previous fiscal year and such other unaudited
financial and operating informa-
<PAGE>
tion as may be reasonably requested by any Shareholder;
(iii) within 60 days after the end of each fiscal year,
audited consolidated and consolidating financial statements, including a
consolidated and consolidating balance sheet of the Corporation and each
Subsidiary as at the end of such year, and the related statement of
income, shareholders' equity and changes in financial situation for such
year, in each case prepared in accordance with each of Mexican GAAP and
U.S. GAAP and setting forth in each case in comparative form the figures
as at the end of and for the previous fiscal year, together with all
necessary footnotes, and the report of the Accountants on such financial
statements; and
(iv) promptly after the sending or receipt thereof, copies of
all communications between the Corporation or any Subsidiary and any
Governmental Entity that relate to any Concession or to compliance with
applicable securities laws.
4.3. Right of Inspection. Each of the Shareholders or its duly authorized
representatives shall have full and complete access, at any time during normal
business hours and upon reasonable notice, to the books and records, accounts,
properties and/or operations of the Corporation and each Subsidiary for the
purposes of inspection, examination or copying or for any other purpose
including, without limitation, an audit of the Corporation or any Subsidiary.
The full cooperation of the Corporation, each Subsidiary, its respective
directors, officers and employees and the Accountants will be extended for such
purposes. Such examination and inspection may be conducted by a Shareholder's
employees, by its independent certified public accountants and/or by its other
agents. The Corporation shall also furnish, and shall cause each Subsidiary to
furnish, to each Shareholder such other records, reports and data as such
Shareholder may reasonably require for compliance with legal and contractual
obligations, including Mexican and U.S. tax reporting requirements.
4.4. Financial Policy Control.
(a) Overall Policy. The overall financial policy of the Corporation
and each Subsidiary shall be established by the Board of Directors in accordance
with the provisions of Section 3.2.
(b) Annual Operating and Capital Budgets. The Annual Plan and a
three-year strategic plan forecasting annual financial performance for such
period will be prepared by the President pursuant to policies established by the
Board of Directors and submitted to the Board of Directors for approval pursuant
to Section 3.2. All plans and budgets will be divided by Region for Mexico and
by country elsewhere. The President shall circulate successive drafts of each
year's Annual Plan and three-year strategic plan to the Shareholders for review
prior to submission to the Board of Directors. The President shall submit to the
Board of Directors no later than October
<PAGE>
15 of each year his final proposed Annual Plan and three-year strategic plan for
the period beginning on the next January 1st. The President shall consult with,
and afford all Shareholders reasonable opportunity to comment on, each
successive draft as well as the final version of the Annual Plan and the
three-year strategic plan to be submitted to the Board of Directors.
4.5 Dividend Instructions. The Corporation shall comply with any and all
lawful instructions of any Shareholder as to the method of making any dividend
payment or payments to or on behalf of said Shareholder or of depositing or
utilizing such payment or payments.
ARTICLE V
NON-COMPETITION; CERTAIN CORPORATE
OPPORTUNITIES; CONFIDENTIALITY
5.1 Certain Definitions. For purposes of this Article V only:
(a) The term "Acquisition" means the acquisition, in a single transaction
or series of related transactions, of some or all of the equity securities or
assets of a Person or a Group (as hereinafter defined), if such Person or Group
(in the case of an acquisition of securities) engages in the Telecommunications
Business in Mexico or if such assets (in the case of an acquisition of assets)
are used and/or are contemplated to be used following such acquisition to engage
in the Telecommunications Business in Mexico.
(b) The term "Merger" means the merger or consolidation with or into a
Person or Group if such Person or Group engages in the Telecommunications
Business in Mexico.
(c) The term "Group" means a group of Persons who are Affiliates of each
other.
(d) To "engage in" the Telecommunications Business means: (i) actively
engaging in, supervising or managing such business; or (ii) entering into or
attempting to enter into such business, either alone or with any other Person or
Group.
(e) The term "Publicly Traded" shall mean, as to securities, securities
listed on the Mexican Bolsa de Valores, registered under the Exchange Act, or
listed or traded on any European or Asian stock exchange.
(f) Peralta Family Members shall be considered to be Affiliates of members
of the Peralta Shareholder Group.
5.2. Non-Competition. Except as otherwise set forth in this Section 5.2
and in Section 5.3, each Shareholder covenants and agrees that neither it nor
any of its Affiliates (other than the Corporation and the Subsidiaries) will,
directly or indirectly,
<PAGE>
on behalf of itself or on behalf of any other Person, engage in the
Telecommunications Business in Mexico. Notwithstanding anything to the contrary
contained in this Article V (other than the immediately succeeding paragraph
except for subparagraph (d)), each Shareholder covenants and agrees that neither
it nor any of its Affiliates (other than the Corporation and the Subsidiaries)
shall (i) provide consulting services, advisory services or software with
respect to the Telecommunications Business in Mexico to Telefonos de Mexico,
S.A. de C.V., its successors, or any of its or their subsidiaries, or any other
major direct competitor of the Corporation in Mexico, or (ii) directly or
indirectly market, on a wholesale, retail or reseller basis, any services with
respect to the Telecommunications Business in Mexico provided by Telefonos de
Mexico, S.A. de C.V., it successors, or any of its or their subsidiaries, or any
other major direct competitor of the Corporation in Mexico. Except as stated in
the preceding sentence, nothing in this Section 5.2 shall be deemed to prohibit
a Shareholder or any of its Affiliates from providing consulting services,
advisory services or software with respect to the Telecommunications Business in
Mexico.
The preceding paragraph of this Section 5.2 shall not prohibit the
Shareholders from directly or indirectly engaging in the Telecommunications
Business in the following instances:
(a) A Shareholder and/or any of its Affiliates may own, in the
aggregate, not more than 5% of any Publicly Traded securities of a Person,
provided that such ownership represents a passive investment and neither such
Shareholder nor its Affiliates in any way, either directly or indirectly,
manages or exercises control over any such Person, guarantees any of such
Person's financial obligations, otherwise takes any part in such Person's
business (other than exercising the rights of the Shareholder or Affiliate as a
passive shareholder), or seeks to do any of the foregoing, except as otherwise
permitted under this Article V.
(b) Subject to Section 5.5, a Shareholder or any of its Affiliates
may engage in a Telecommunications Business in Mexico if such engagement in a
Telecommunications Business results from an Acquisition by, or Merger involving,
such Shareholder or any of its Affiliates, unless a significant part of the
assets directly or indirectly acquired in such Acquisition or Merger are used to
engage in Telecommunications Businesses in Mexico. Such test for significance
shall be met only if both of the following conditions are met: (A) the net book
value of any such assets directly or indirectly acquired in such Acquisition or
Merger that are used primarily to engage in Telecommunications Business in
Mexico exceeds ten percent (10%) of the net book value of all assets directly or
indirectly acquired in such Acquisition or Merger; and (B) the total revenues
derived in the calendar year immediately preceding such Acquisition or Merger
primarily from the Telecommunications Business in Mexico acquired in such
Acquisition or Merger exceeds ten percent (10%) of the total revenues during
such year of the Person or Group whose assets or securities the Shareholder (or
any Affiliate) acquired in any such Acquisition or with or into which the
Shareholder (or any Affiliate) merged or consolidated with or into as a result
of such Merger.
<PAGE>
(c) The Shareholders and their respective Affiliates may provide
telecommunications goods in Mexico.
(d) Subject to the first paragraph of this Section 5.2, a
Shareholder or any of its Affiliates may engage in a Telecommunications Business
in Mexico if the Opportunity (as defined below) was brought to the Corporation
in accordance with Section 5.3 and the terms of such Section permit such
Shareholder or Affiliate to engage in such Telecommunications Business.
(e) The Peralta Shareholder Group or its Affiliates may engage in a
Telecommunications Business in Mexico if and to the extent the BEL Shareholder
Group has determined that the Corporation and the Subsidiaries may not engage in
such Telecommunications Business pursuant to Section 10.2(c).
(f) The Shareholders and their Affiliates may provide to, or
purchase from, any Person tariffed services and any other services which must be
provided by virtue of the provider's status as a common carrier or by virtue of
a legal or regulatory requirement.
(g) A Shareholder's Affiliate that, at the time hereof or in the
future, provides telecommunications services in countries outside of Mexico,(i)
may provide transit to or through Mexican carriers, (ii) may provide facilities
for the termination of traffic outside of Mexico that originates within Mexico,
(iii) may provide facilities for the origination of traffic outside of Mexico
that terminates in Mexico and (iv) may freely obtain transit facilities within
Mexico. A Shareholder's Affiliate may also freely contract for and provide
roaming services for its own subscribers in Mexico, and may provide roaming
services within its own service area for subscribers of other cellular carriers.
(h) Subject to Section 5.2(a) and 5.5, a Shareholder and/or any of
its Affiliates may continue to own and hold (and need not Transfer in whole or
in part) any interest in a Person which has Publicly Traded equity securities
if, at the time such interest was acquired, such Person did not engage, and to
the knowledge of the Shareholder or its Affiliates did not intend to engage, in
the Telecommunications Business in Mexico but after such interest was acquired
such Person began to engage in the Telecommunications Business in Mexico.
5.3. Corporate Opportunities. Each Shareholder agrees that it shall bring
to the Corporation any and all opportunities in respect of the
Telecommunications Business in Mexico (each an "Opportunity") available to it or
its Affiliates other than the Opportunities described in Sections 5.2(a)-(c) and
(e)-(h) above.
Once an Opportunity is brought to the Corporation by written notice to the
Chairman of the Board of Directors and the Vice Chairman of the Board of
Directors describing the terms of such Opportunity in reasonable detail, the
Shareholder and/or any Affiliate shall be free to engage in the
Telecommunications Business to which
<PAGE>
such Opportunity relates either (i) to the full extent of such Opportunity, if
the Corporation declines to participate in such Opportunity pursuant to this
Section 5.3 and Section 5.4 or, (ii) in the event the Corporation elects to
participate only in part in such Opportunity, to the extent of any interest the
Corporation does not take pursuant to this Section 5.3 and Section 5.4.
If with respect to an Opportunity that the Shareholder is required to
bring to the Corporation pursuant to this Section 5.3, the investment
Opportunity available to the Shareholder (or Affiliate of the Shareholder) is
not at the corporate or entity level of the Telecommunications Business in
Mexico (but is rather at the parent company level or at another level between
the parent company level and the corporate or entity level of such
Telecommunications Business in Mexico) the Shareholder shall offer to sell the
required interest to the Corporation at the corporate or entity level of such
Telecommunications Business in Mexico unless, in the opinion of the Shareholder,
it is impracticable to make such offer at such level, in which case such offer
shall be made at the level at which the Opportunity is available to the
Shareholder (or Affiliate). If such offer is made at the level at which the
Opportunity is available to the Shareholder (or Affiliate), the offered interest
shall equal 100% of the quotient of the value of such Telecommunications
Business in Mexico divided by the total value of the Opportunity available to
the Shareholder (or Affiliate), determined as of the date of such Acquisition or
Merger. The price to be paid by the Corporation for any such interest offered to
it shall equal the proportional price paid for such Opportunity by the
Shareholder (or Affiliate), if readily determinable from the total Acquisition
or Merger price, or, if not readily determinable therefrom, shall equal the fair
market value of the Opportunity presented to the Corporation.
5.4. Special Vote. The Chairman of the Board of Directors, the Vice
Chairman of the Board of Directors or the Executive Committee shall promptly
call a special meeting of the Board of Directors to be held within 15 days
following written notice of any Opportunity offered by a Shareholder pursuant to
Section 5.3 or any offer pursuant to Section 5.4(a) or (b). At such meeting, the
Board of Directors, acting pursuant to a Special Vote (as hereinafter defined),
shall determine whether the Corporation wishes to pursue such Opportunity (in
whole or in part or not at all) and shall give written notice of such
determination to such Shareholder. If the Corporation gives notice that it does
not wish to pursue such Opportunity or accept such offer, if it gives no notice
within the 15-day period following written notice of any Opportunity, or if it
gives notice of intention to pursue the Opportunity or accept such offer but
then fails to do so within a reasonable period of time, then the Shareholder may
engage in the Telecommunications Business described in its notice without regard
to the terms of Section 5.3. A "Special Vote" means (a) an affirmative vote of
the majority of the Series A Directors and the Series D Directors (not including
the two (2) Series A Directors nominated by the BEL Shareholder Group in
accordance
<PAGE>
with Section 3.1(a)) in the case of Opportunities brought by the BEL Shareholder
Group or an Affiliate thereof or (b) an affirmative vote of the Series B
Directors and the two (2) Series A Directors nominated by the BEL Shareholder
Group in accordance with Section 3.1(a) in the case of Opportunities brought by
the Peralta Shareholder Group, an Affiliate thereof or a Peralta Family Member;
for purposes of this Section, a Special Vote may occur at a meeting of the Board
of Directors that does not meet the quorum requirements if such quorum
requirements are not met due to the absence of (i) any Series B Director and/or
the two (2) Series A Directors nominated by the BEL Shareholder Group in
accordance with Section 3.1 (a) in the case of Opportunities brought by the BEL
Shareholder Group or an Affiliate thereof or (ii) any Series A Director and/or
Series D Director in the case of Opportunities brought by the Peralta
Shareholder Group, an Affiliate thereof or a Peralta Family Member.
5.5 Disposition Requirement. If a Shareholder or any of its Affiliates
shall engage in the Telecommunications Business in Mexico as permitted by
Sections 5.2(b) or 5.2(h) and the Person engaging in such Telecommunications
Business becomes a major direct competitor of the Corporation, the Corporation
may notify the Shareholder of such fact. If such notice is given, the
Shareholder shall, within 60 days of receipt of such notice, either (a) offer
(or cause the relevant Affiliate to offer) the Corporation the opportunity to
purchase a 100% interest in the Shareholder's or such Affiliate's share of such
Telecommunications Business in Mexico at a price equal to 100% of the fair
market value of the Shareholder's (or its Affiliate's) interest and otherwise on
the same terms and conditions as are then applicable to the Shareholder or such
Affiliate, (b) if the Telecommunications Business in Mexico is not at the
corporate or entity level of the Person in whom the Shareholder or its Affiliate
owns an interest, but is rather at a subsidiary level, and it is impractical for
the Shareholder to offer to sell the required interest to the Corporation at the
corporate or entity level of such Telecommunications Business in Mexico, offer
(or cause the relevant Affiliate to offer) the Corporation the opportunity to
purchase an interest at the level at which the opportunity is available to the
Shareholder or Affiliate (in which case the offered interest shall equal 100% of
the quotient of the value of such Telecommunications Business in Mexico divided
by the total value of the interest owned by and opportunity available to the
Shareholder (or Affiliate), determined as of the date of the proposed sale, and
the price shall be the fair market value of the offered interest), or (c) agree
to divest itself of its interest in such Telecommunications Business in Mexico
within one year of the date of the Corporation's notice, or (d) in the case of
the Peralta Shareholder Group, offer to sell to the BEL Shareholder Group or its
designee all of its Shares and, in the case of the BEL Shareholder Group, offer
to sell to any one or more members of the Peralta Shareholder Group all of its
Shares, in each case, at a price equal to the then current market value of such
Shares, or if no market exists for such Shares, at the then fair market value
thereof, in which case the Peralta Shareholder Group or the BEL Shareholder
Group, as the case may be, shall have 15 days following written notice of such
offer to accept such offer. The fair market value of any series of Shares for
which no market exists shall be the average closing market prices on the New
York Stock Exchange of the Series D American Depositary Shares and the Series L
American Depositary Shares, in each case divided by the number of shares
represented by such American Depositary Share, over the ten trading days
immediately preceding the date of the written notice of such offer.
<PAGE>
5.6. Confidentiality.
(a) For purposes of this Agreement, "Confidential Information"
shall mean any financial, technical, operational or other information
(including,without limitation, trade secrets, inventions, processes, customer
lists and know-how) which (i) originates from the Corporation or a Subsidiary in
the course of its business activities and either is conspicuously marked
"confidential", "proprietary" or words of similar meaning, (ii) is provided to
the Corporation or a Subsidiary by a Shareholder or its Affiliates, and is
conspicuously marked "confidential," "proprietary" or words of similar meaning,
(iii) is orally disclosed to a Shareholder or its Affiliates by the Corporation
or a Subsidiary and is identified at the time of disclosure as being
confidential or (iv) is orally disclosed to the Corporation or its Subsidiary by
a Shareholder or its Affiliates and is identified at the time of disclosure as
being confidential.
(b) Any Confidential Information provided to the Corporation or a
Subsidiary by a Shareholder, regardless of whether such information originates
from the Shareholder or any of its Affiliates, shall be and remain the
disclosing Shareholder's exclusive property. For the three (3) year period
following the date of disclosure (or such longer period as the Shareholder
making such disclosure shall reasonably require prior to any such disclosure)
the recipient Shareholder and the Corporation shall (i) keep such Confidential
Information confidential and provide the same to their respective employees and
agents only on a need-to-know basis, (ii) not publish or disclose such
Confidential Information to others without the prior consent of the disclosing
Shareholder, (iii) use such Confidential Information only in connection with the
business of the Corporation and the Subsidiaries, and (iv) promptly return such
Confidential Information to the supplying Shareholder upon the latter's written
request.
(c) For the three-year period after the disclosure by the
Corporation or any Subsidiary of its Confidential Information (or such longer
period as the Corporation shall reasonably require prior to any such disclosure)
the recipient Shareholder and/or its Affiliates, as the case may be, shall (i)
keep such Confidential Information confidential, (ii) not publish or disclose
such Confidential Information to anyone other than its Affiliates without the
prior written consent of the Corporation, and (iii) promptly return such
Confidential Information to the Corporation upon the latter's written request.
(d) The restrictions set forth in clauses (b) and (c) shall cease to
apply or not apply, as the case may be, to any Shareholder, Shareholder's
Affiliate or the Corporation, as the case may be, regarding any Confidential
Information which or whose substance (i) is already in the possession of such
recipient Person without accompanying use or disclosure restrictions prior to
such Person's receipt from the supplying Shareholder, Shareholder's Affiliates
or the Corporation, as the case may be; (ii) becomes or has been made publicly
available by any Person other than the
<PAGE>
recipient Shareholder, Shareholder's Affiliate or the Corporation; or (iii) has
been independently developed by the recipient Shareholder, Shareholder's
Affiliate or the Corporation prior to such Person's receipt of the related
Confidential Information. Additionally, neither any Shareholder or Shareholder's
Affiliate nor the Corporation shall be deemed in breach of this Section 5.6 if
it discloses Confidential Information in the course of any legal or regulatory
proceeding or to any Governmental Entity pursuant to lawful demand made therein
or thereby or if such disclosure is otherwise required by law (including
applicable securities laws); provided however, that if a Shareholder, such
Shareholder's Affiliate or the Corporation receives any such demand or otherwise
believes it is compelled by law to disclose Confidential Information of the
other Shareholder or the Corporation, such recipient shall give written notice
thereof to the party (the Shareholder, Shareholder's Affiliates or the
Corporation) which supplied the Confidential Information sought by such demand,
so as to afford the supplying party an opportunity to contest the demand or
legal requirement.
ARTICLE VI
TRANSFERS OF SHARES
6.1. Prohibited Transfers. Notwithstanding anything to the contrary
herein, no Shareholder may Transfer any Shares to a Governmental Entity that is
not Mexican at any time hereafter if such Transfer is not permissible under
Mexican law or regulations.
6.2 Transfers to Affiliates. The BEL Shareholder Group may at any time
after the date hereof Transfer any of the Shares beneficially owned by it to any
direct or indirect subsidiary of Bell Atlantic Corporation, and the Peralta
Shareholder Group may at any time after the date hereof Transfer any of the
Shares beneficially owned by them to any Affiliate or Peralta Family Member;
provided, however, that any such transferee must agree in writing to be bound by
all of the provisions of this Agreement before such Transfer may occur or be
committed to, and such transferee shall be deemed a Shareholder and a party
hereto immediately upon such Transfer.
ARTICLE VII
REGISTRATION RIGHTS
7.1. Demand Registration.
7.1.1. Demand Registration. Beginning on January 1, 1998, (a)
BALAH or BAII may request on behalf of any member of the BEL Shareholder Group
or any Affiliate of the BEL Shareholder Group beneficially owning Registrable
Securities that the Corporation on two separate occasions file a Registration
Statement with the SEC and/or any other Governmental Entity for a bona-fide
underwritten public offering and on one occasion a "shelf" registration for sale
in a bona-fide public offering for a period not to exceed 180 days and (b) the
Peralta Shareholder Group Notice Party may request on behalf of any member of
the Peralta Shareholder Group or any Affiliate of the Peralta
<PAGE>
Shareholder Group beneficially owning Registrable Securities that the
Corporation on two separate occasions file a Registration Statement with the SEC
and/or any other Governmental Entity for a bona-fide underwritten public
offering and on one occasion a "shelf" registration for sale in a bona-fide
public offering for a period not to exceed 180 days; provided however that an
"occasion" shall be deemed to have occurred for purposes of this sentence only
if such offering went effective and closed or failed to close after going
effective because of the failure by the Registration Rightsholder that requested
the subject registration to satisfy a closing condition that was in its sole
control. In case the Corporation shall receive from either BALAH or BAII
or the Peralta Shareholder Group Notice Party, at any time on or after January
1, 1998, a written request that the Corporation file a Registration Statement
with the SEC and/or any other Governmental Entity and effect any registration,
qualification or compliance with applicable federal, state or other securities
laws, with respect to all or a part of the Registrable Securities, the
Corporation will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all Registration Rightsholders; and
(ii) use its diligent good faith efforts to effect, as soon as
practicable, all such registrations, qualifications and compliances
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under the applicable
state or other securities laws and appropriate compliance with exemptive
regulations issued under any law (including, without limitation, the
Securities Act) and any other governmental requirements or regulations) as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as is
specified in such request, together with all or such portion of the
Registrable Securities of any other Registration Rightsholder or
Registration Rightsholders joining in such request as is specified in a
written request received by the Corporation within 30 days after such
written notice by the Corporation is delivered.
Subject to the foregoing, the Corporation shall prepare and file a
Registration Statement with the SEC and/or any other Governmental Entity
covering the Registrable Securities so requested to be registered as soon as
practicable and, in any event, within 90 days after such request is received.
7.1.2. Underwriting. BALAH, BAII and the Peralta Shareholder
Group Notice Party shall include in each of their respective requests for any
underwritten public offering made pursuant to Section 7.1.1 the name of the
managing underwriter or underwriters that the requesting parties propose to
employ in connection with the public offering proposed to be made pursuant to
the registration requested. The Corporation shall include in the written notice
referred to in paragraph (a) of Section 7.1.1 the name or names of such
underwriter or
<PAGE>
underwriters to be employed. If any sale proposed pursuant to Section 7.1.1 is
to be effected pursuant to an underwritten public offering, the right of any
Registration Rightsholder to registration pursuant to Section 7.1 shall be
conditioned upon such Registration Rightsholder's participation in such
underwriting and the inclusion of such Registration Rightsholder's Registrable
Securities in the underwriting to the extent provided herein. The Corporation
shall (together with all Registration Rightsholders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form (which form must be reasonably acceptable to the Shareholder
Group requesting such registration) with the underwriter or underwriters
selected for such underwriting in the manner set forth above. Notwithstanding
any other provisions of Section 7.1, if the managing underwriter advises the
Corporation in writing that marketing factors require a limitation of the number
of Registrable Securities to be underwritten, then the Corporation shall so
advise all beneficial owners of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated first among the members of the Shareholder Group requesting
such registration in proportion, as nearly as practical, to the respective
amounts of Registrable Securities that were proposed to be sold by such
Registration Rightsholders and second, to the extent that the limitation
established by the managing underwriter is not exhausted by the members of such
Shareholder Group, among the Corporation and other Persons that are not members
of such Shareholder Group in proportion, as nearly as practical, to the
respective amounts of Registrable Securities that were proposed to be sold by
such Persons. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. If any Registration Rightsholder disapproves of the terms of the
underwriting, he may elect to withdraw therefrom by written notice to the
Corporation and the managing underwriter. The Registrable Securities so
withdrawn shall also be withdrawn from registration; provided, however, that, if
--------- -------
by the withdrawal of such Registrable Securities a greater number of Registrable
Securities beneficially owned by other Registration Rightsholders may be
included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Corporation shall offer to all Registration
Rightsholders who have included Registrable Securities in the registration the
right to include additional Shares in the same proportion used in effecting the
limitation referred to above in this Section 7.1. The Corporation shall
undertake any reasonable measures within its control to cause the Registrable
Securities sold in any underwritten public offering to be widely disseminated.
7.2. Piggyback Registration.
7.2.1. Right to Inclusion. If at any time or from time to time on or
after January 1, 1998, the Corporation shall determine to register any of its
equity securities (including securities that are convertible into equity
securities) pursuant to a Registration Statement filed with the SEC and/or any
other Governmental Entity in a bona-fide underwritten public offering, whether
for its own account or the account
<PAGE>
of a security holder or security holders, then the Corporation will:
(i) promptly deliver to each Registration Rightsholder written
notice thereof (which shall include a list of the jurisdictions in which
the Corporation intends to attempt to qualify the offer and sale of such
securities under the applicable state or other securities laws); and
(ii) include in such registration (and any related qualification
under state or other securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in
any written request or requests by any Registration Rightsholder or
Registration Rightsholders received by the Corporation within 30 days
after such written notice by the Corporation is delivered.
7.2.2. Underwriting. If the applicable sale of securities is to be
effected pursuant to an underwritten public offering, the right of any
Registration Rightsholder to registration pursuant to Section 7.2 shall be
conditioned upon such Registration Rightsholder's participation in the
underwriting and the inclusion of such Registration Rightsholder's Registrable
Securities in the underwriting to the extent provided herein. All Registration
Rightsholders proposing to distribute their securities through such underwriting
(together with the Corporation and other beneficial owners distributing their
securities through such underwriting) shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting.
Notwithstanding any other provisions of Section 7.2, if the managing
underwriter advises the Corporation in writing that marketing factors require a
limitation of the number of shares to be underwritten, the Registrable
Securities and the other securities to be included in any registration and
underwriting may be limited. In such event, the Corporation shall so advise all
Registration Rightsholders and all beneficial owners of such other securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities and such other outstanding securities
(if any) that may be included in the registration and underwriting shall be
allocated among all Registration Rightsholders and other beneficial owners
thereof in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities and such other securities that were proposed to be sold
by such Registration Rightsholders and other beneficial owners. In the event of
any conflict between the terms of Section 7.1.2 and the terms of this Section
7.2.2, the terms of Section 7.1.2 shall prevail.
No Registrable Securities excluded from the underwriting by reason of the
managing underwriter's marketing limitation shall be included in such
registration. If any Registration Rightsholder disapproves of the terms of the
underwriting, he may elect to withdraw therefrom by written notice to the
Corporation and the managing underwriter. The Registrable Securities so
withdrawn shall also be withdrawn from
<PAGE>
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities beneficially owned by
other Registration Rightsholders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Corporation
shall offer to all Registration Rightsholders who have included Registrable
Securities in the registration the right to include additional shares in the
same proportion used in effecting the limitation referred to above in this
Section 7.2. The Corporation shall undertake any reasonable measures within its
control to cause the Registrable Securities sold in any underwritten public
offering to be widely disseminated.
7.3. Expenses of Registration. To the fullest extent permitted by law, all
expenses incurred by the Registration Rightsholders in connection with any
registration, qualification or compliance pursuant to this Article VII other
than fees and disbursements of counsel to the Registration Rightsholders,
including, without limitation, all registration, filing and qualification fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Corporation and fees and expenses of accountants incidental to or required by
such registration, shall be borne by the Corporation.
7.4. Registration Procedures. In the case of such registration,
qualification or compliance effected by the Corporation pursuant to this Article
VII, the Corporation will keep each Registration Rightsholder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense,
the Corporation will:
(a) Keep such registration, qualification or compliance pursuant to
Sections 7.1 or 7.2 effective until the Registration Rightsholder or
Registration Rightsholders have completed the distribution described in
the Registration Statement relating thereto or for a period of at least
180 days for any underwritten public offering, whichever occurs first; and
(b) Furnish such number of Prospectuses and other documents incident
thereto as any Registration Rightsholder from time to time may reasonably
request.
7.5. Related Registration Matters. The Corporation shall enter into an
underwriting agreement in connection with any registration of an underwritten
public offering subject to the provisions of Sections 7.1 and 7.2, which
agreement shall contain such terms, provisions and agreements as are customary
and appropriate for such registration. In connection with the registration, to
the extent not provided in the underwriting agreement related to such
registration, the Corporation also shall:
(a) List the Registrable Securities included in such registration on
any national securities exchange on which the Registrable Securities are
approved for listing;
<PAGE>
(b) Engage a bank or other company to act as transfer agent and
registrar for the Registrable Securities;
(c) Cause customary opinions of counsel, comfort letters of
accountants and other appropriate documents to be delivered by
representatives of the Corporation; and
(d) As soon as practicable after the effective date of the
Registration Statement, and, in any event, within 45 days after the end of
the 12-month period beginning with the first day of the Corporation's
first fiscal quarter commencing after the effective date of the
Registration Statement, make "generally available to its security holders"
(within the meaning of Rule 158 under the Securities Act) an earnings
statement complying with Section 11(a) of the Securities Act and covering
the 12-month period set forth above.
7.6. Indemnification and Contribution. In connection with any registration
of Registrable Securities pursuant to this Article VII, the Corporation and each
Registration Rightsholder (and the underwriters, if any) will enter into an
agreement (which shall be the underwriting agreement in the case of an
underwritten offering) containing mutual indemnification and contribution rights
and procedures in form and substance satisfactory to the beneficial owner or
owners of at least a majority of the Registrable Securities to be included in
the registration; provided, however, that in any event the liability of each
seller of Registrable Securities pursuant to such indemnification and
contribution provisions shall be limited to the net proceeds (after all expenses
are paid by such seller) from the disposition of the Registrable Securities
disposed of by such seller pursuant to such registration.
7.7. Information by Registration Rightsholders. Each Registration
Rightsholder requesting to be included in any registration shall furnish to the
Corporation such information regarding such Registration Rightsholder and the
distribution proposed by such Registration Rightsholder as the Corporation may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Article VII.
7.8. Transfer of Registration Rights. The rights to cause the Corporation
to register Registrable Securities under Sections 7.1 and 7.2 may be assigned by
any Registration Rightsholder of Registrable Securities to an Affiliate of such
Registration Rightsholder to whom Registrable Securities are transferred
pursuant to Section 6.2 hereof; provided that the Corporation shall be given
written notice by such Registration Rightsholder of Registrable Securities at
the time of or within 60 days after said Transfer, setting forth the name and
address of said transferee or assignee and identifying the Registrable
Securities with respect to which such registration rights are being assigned.
7.9. Restrictions on Public Sale by the Corporation; Future Rights. The
<PAGE>
Corporation agrees not to effect any public sale or distribution of any
securities similar to those being registered, or any securities convertible into
or exchangeable or exercisable for such securities, during the 21 days prior to,
and during the 90 days following, the effective date of any Registration
Statement in which the Registration Rightsholders are participating (except
pursuant to such Registration Statement). The Registration Rightsholders agree
not to exercise their rights under Section 7.1 for 90 days after the effective
date of any Registration Statement filed by the Corporation pursuant to which
the Corporation is selling shares of its capital stock for its own account and
the gross proceeds to the Corporation exceed, or are expected to exceed,
U.S.$30,000,000.
The Corporation represents and warrants that it has not on or prior to the
date of this Agreement granted any registration rights to any Person (other than
the registration rights granted pursuant to this Article VII) and, after the
date of this Agreement, the Corporation will not grant to any Person any
registration rights with respect to securities of the Corporation other than
registration rights that (a) are subordinate to and of a lesser priority than
the registration rights granted herein, (b) are approved in writing by BALAH,
BAII and the Peralta Shareholder Group Notice Party (on behalf of the
Peralta Shareholder Group) and (c) are not inconsistent with this Agreement.
Additionally, no such future registration rights can be used by any Person
before January 1, 1998.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES; COVENANTS
8.1. The BEL Shareholder Group. Each member of the BEL Shareholder Group
represents and warrants that (i) it is duly organized, validly existing and in
good standing in the jurisdiction of its incorporation and it has full power and
authority to enter into this Agreement and to perform its obligations hereunder,
(ii) the execution of this Agreement by it has been duly authorized by all
necessary action, (iii) this Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with the terms hereof, except
as may be limited by bankruptcy, insolvency and the availability of equitable
remedies and (iv) the execution of this Agreement and performance of its
obligations hereunder will not conflict with, or result in a breach of or
default under, any agreement or instrument to which it is a party or by which it
is bound, or any order, decree or judgment of any Governmental Entity.
8.2. Other Signatories. Each of the signatories hereto other than BALAH
and BAII represents and warrants that (i) if it is a corporation or a
sociedad anonima, it is duly organized, validly existing and in good standing
in the jurisdiction of its incorporation, and, regardless of whether it is a
corporation or a sociedad anonima, it has full power and authority to enter
into this Agreement and to perform its obligations hereunder, (ii) the
execution of this Agreement by it has been duly authorized by all necessary
action, (iii) this Agreement constitutes its legal, valid and
<PAGE>
binding obligation, enforceable against it in accordance with the terms hereof,
except as may be limited by bankruptcy, insolvency and the availability of
equitable remedies, and (iv) the execution of this Agreement and performance of
its obligations hereunder will not conflict with, or result in a breach of or
default under, any agreement or instrument to which it is a party or by which it
is bound, or any order, decree or judgment of any Governmental Entity.
8.3. Covenant. The signatories to this Agreement agree to vote their stock
of the Corporation in a manner consistent with the terms and intent of this
Agreement (including, without limitation, in order to elect a Board of Directors
in accordance with the terms hereof) notwithstanding the terms of the Bylaws. In
connection with Section 3.2(b) and (c), each member of the BEL Shareholder Group
and the Peralta Shareholder Group hereby acknowledges its intention to comply
with the terms of such Section and waives any rights it may have pursuant to
Section 198 of the General Law on Mercantile Companies.
ARTICLE IX
NOTICES
All notices, requests, demands, and other communications (herein
collectively called a "Notice") under this Agreement shall be in writing and
shall be delivered personally, sent by overnight courier or mailed by certified
mail, postage prepaid and return receipt requested, or by telegram or
telecopier, as follows:
To the Corporation: GRUPO IUSACELL, S.A. DE C.V.
Montes Urales 460 (3rd Floor)
Col. Lomas de Chapultepec
Mexico, D.F. 11000
Attn.: Director General
Telecopy No.: (525) 104-4106
With a copy to: ROGERS & WELLS
Two Hundred Park Avenue
New York, N.Y. 10166-0153
Attn.: Sara Hanks, Esq.
Telecopy No.: (212) 878-8375
With a copy to: BELL ATLANTIC LATIN AMERICA HOLDINGS, INC.
1717 Arch Street, 48th Floor
Philadelphia, PA 19103
Attn.: Thomas R. McKeough, Esq.
Telecopy No. (215) 963-9195
With a copy to: ING. CARLOS PERALTA QUINTERO
Montes Urales 460 (4th Floor)
Col. Lomas de Chapultepec
<PAGE>
Mexico, D.F. 11000
Telecopy No.: (525) 104-4045
With a copy to: CANALES ASESORIA JURIDICA, S.A. de C.V.
Av. Vasconcelos No. 204-A Poniente
Col. del Valle
66250 Garza Garcia, N.L. Mexico
Attn: Lic. Ernesto Canales
Telecopy No.: (528)335-8348
To the BEL BELL ATLANTIC LATIN AMERICA HOLDINGS, INC.
Sharholder Group: BELL ATLANTIC INTERNATIONAL, INC.
1717 Arch Street, 48th Floor
Philadelphia, PA 19103
Attn.: Thomas R. McKeough, Esq.
Telecopy No. (215) 963-9195
With a copy to: VINSON & ELKINS L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attn.: William H. Weiland, Esq.
Telecopy No.: (713) 615-5295
To Alejo Peralta: ING. ALEJO PERALTA Y DIAZ CEBALLOS
Montes Urales 460 (4th Floor)
Col. Lomas de Chapultepec
Mexico, D.F. 11000
Telecopy No.: (525) 104-4045
<PAGE>
With a copy to: CANALES ASESORIA JURIDICA, S.A. de C.V.
Av. Vasconcelos No. 204-A Poniente
Col. del Valle
66250 Garza Garcia, N.L., Mexico
Attn: Lic. Ernesto Canales
Telecopy No.: (528)335-8348
With a copy to: CAHILL GORDON & REINDEL
80 Pine Street
New York, New York 10005
Attn. Roger Andrus, Esq.
Telecopy No.: (212)269-5420
To Carlos Peralta: ING. CARLOS PERALTA QUINTERO
Montes Urales 460 (4th Floor)
Col. Lomas de Chapultepec
Mexico, D.F. 11000
Telecopy No.: (525) 104-4045
With a copy to: CANALES ASESORIA JURIDICA, S.A. de C.V.
Av. Vasconcelos No. 204-A Poniente
Col. del Valle
66250 Garza Garcia, N.L., Mexico
Attn: Lic. Ernesto Canales
Telecopy No.: (528)335-8348
With a copy to: CAHILL GORDON & REINDEL
80 Pine Street
New York, New York 10005
Attn.: Roger Andrus, Esq.
Telecopy No.: (212)269-5420
To the corporate IUSA GRUPO COMUNICACIONES, S.A. DE C.V.
members of the LANGNESS INVESTMENTS LIMITED
Peralta Shareholder FIUSA PASTEJE, S.A. DE C.V.
Group: COMMANDER MEXICANA, S.A. DE C.V.
INMOBILIARIA REFORMA LOMAS ALTAS,
S.A. DE C.V.
FRACCIONADORA Y CONSTRUCTORA
MEXICANA, S.A. DE C.V.
CONFECCIONES PASTEJE, S.A. DE C.V
INTERELEC, S.A. DE C.V.
Montes Urales 460 (4th Floor)
Col. Lomas de Chapultepec
Mexico, D.F. 11000
Telecopy No.: (525)104-4045
<PAGE>
With a copy to: CANALES ASESORIA JURIDICA, S.A. de C.V.
Av. Vasconcelos No. 204-A Poniente
Col. del Valle
66250 Garza Garcia, N.L., Mexico
Attn: Lic. Ernesto Canales
Telecopy No.: (528)335-8348
With a copy to: CAHILL GORDON & REINDEL
80 Pine Street
New York, New York 10005
Attn.: Roger Andrus, Esq.
Telecopy No.: (212)269-5420
Notice given by personal delivery, mail or overnight courier shall be
effective upon actual receipt. Notice given by telegram or telecopier shall be
effective upon actual receipt if received before 5:00 p.m., local time, or at
8:00 a.m., local time, on
<PAGE>
the beginning of the next Business Day after receipt if not received before 5:00
p.m. All Notices by telegram or telecopier shall be confirmed promptly after
transmission in writing by certified mail or personal delivery. Any party may
change any address to which Notice is to be given to it by giving Notice as
provided above of such change of address. The above-named counsel for the
parties should be provided with a copy of all Notices given to their respective
clients, but the failure to provide such a copy to counsel does not affect the
validity of any Notice given.
Any notice required or desired to be given under this Agreement shall be
in the English language, unless the parties hereto in any specific case
otherwise agree.
Any Notice required or desired to be given to the Peralta Shareholder
Group or any member thereof shall be deemed to have been duly given if given to
the Peralta Shareholder Group Notice Party pursuant to the terms of this Article
IX; and any such Notice shall initially be given as follows:
To the Peralta Shareholder
Group Notice Party : ING. CARLOS PERALTA QUINTERO
Montes Urales 460 (4th Floor)
Col. Lomas de Chapultepec
Mexico, D.F. 11000
Telecopy No.: (525)104-4045
With a copy to: CANALES ASESORIA JURIDICA, S.A. de C.V.
Av. Vasconcelos No. 204-A Poniente
Col. del Valle
66250 Garza Garcia, N.L., Mexico
Attn: Lic. Ernesto Canales
Telecopy No.: (528)335-8348
ARTICLE X
GENERAL PROVISIONS
10.1. Compliance with Laws - Generally. The signatories to this Agreement
acknowledge that the BEL Shareholder Group is subject to the laws of the United
States and agree to use their reasonable efforts not to cause the BEL
Shareholder Group to fail to be in compliance with the provisions of any
national, federal, state, provincial and local laws, rules, ordinances and
regulations of the United States, including without limitation, all provisions
of the U.S. Foreign Corrupt Practices Act, the U.S. Trading With the Enemy Act,
the U.S. Cuban Democracy Act, the U.S. Cuban Assets Control Regulations, the
Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, the Securities
Act and the Exchange Act (all as amended from time to time), and all U.S. Export
Control regulations and licenses issued thereunder covering, for example, the
export or reexport of technical data. In addition, each party agrees to comply
with the provisions of all applicable national, federal, state,
<PAGE>
provincial and local laws, rules, ordinances and regulations of Mexico, the
United States and any other country in which activities are being carried out
under this Agreement or by the Corporation or any Subsidiary, including without
limitation, all provisions of the Mexican Ley de Competencia Economica, the
Mexican Ley del Mercado de Valores, the U.S. Foreign Corrupt Practices Act, the
U.S. Trading With the Enemy Act, the U.S. Cuban Democracy Act, the U.S. Cuban
Assets Control Regulations, Cuban Liberty and Democratic Solidarity (Libertad)
Act of 1996, the Securities Act and the Exchange Act (all as amended from time
to time), and all U.S. Export Control regulations and licenses issued thereunder
covering, for example, the export or reexport of technical data. Each party
agrees to advise all of its and its Affiliates' employees and representatives
engaged in implementing this Agreement of the terms of such laws, rules,
ordinances and regulations, and to take appropriate steps to ensure that it and
its Affiliates, and their respective employees and representatives, comply with
such laws, rules, ordinances and regulations with respect to the subject matter
of this Agreement and the activities of the Corporation or any Subsidiary.
10.2. Telecommunications Act of 1996.
(a) Each member of the Peralta Shareholder Group and the Corporation
acknowledge that the BEL Shareholder Group and their parent Bell Atlantic
Corporation are subject to the terms of the Telecom Act, and that the activities
of the Corporation, the Subsidiaries, entities in which the Corporation or any
Subsidiary has an equity interest, and entities over which the Corporation or
any Subsidiary has, directly or indirectly, the power or ability to influence or
control the management thereof, may be attributed to the BEL Shareholder Group
and Bell Atlantic Corporation under the Telecom Act. Accordingly, the parties
shall cause the Corporation and each Subsidiary to act in conformity and
compliance with the Telecom Act, and to not undertake any activities, or own any
assets, that would be prohibited to any member of the BEL Shareholder Group
under the Telecom Act.
(b) The BEL Shareholder Group shall provide to the Corporation and
the Subsidiaries advice and direction with respect to compliance with the
Telecom Act. Such advice and direction shall include written guidelines
("Guidelines"), to be provided by BALAH or BAII from time to time,
setting forth a description of those assets in which the Corporation should not
acquire a direct or indirect interest, and those activities in which the
Corporation should not directly or indirectly engage, without first receiving
"Guidance." "Guidance" shall mean (i) a written memorandum, opinion or similar
writing, prepared by counsel to the BEL Shareholder Group, stating that the
Corporation may acquire the asset, or engage in the activity, in question; or
(ii) the affirmative vote by the "Telecom Act Board Member," in his capacity as
a Director, approving the acquisition of the asset, or the undertaking of the
activity, in question, unless he is given inaccurate information with respect to
such acquisition or undertaking in connection with such affirmative vote. The
"Telecom Act Board Member" shall mean a Series B Director who is designated from
time to time by the
<PAGE>
holders of the majority of Series B Shares as the "Telecom Act Board Member."
(c) In the event that any member of the BEL Shareholder Group or
Bell Atlantic Corporation determines that the Corporation or any Subsidiary is
directly or indirectly engaging in any activity or owns any asset which could
cause any member of the BEL Shareholder Group or Bell Atlantic Corporation to
not be in compliance with the Telecom Act, or which could cause a Governmental
Entity to so allege, members of the BEL Shareholder Group may require that the
Corporation's shareholders and Board of Directors cause the Corporation or the
relevant Subsidiary to rescind or otherwise cancel the transaction which
constitutes a violation of the Telecom Act or take such other action as may be
required to assure compliance. Alternatively, if in the BEL Shareholder Group
member's sole discretion, such cancellation or rescission will not adequately
cure the potential or alleged Telecom Act violation, the BEL Shareholder Group
member may require the Corporation or relevant Subsidiary to immediately divest
itself of the Corporation's or Subsidiary's ownership interest in the assets
which gave rise to the potential or actual Telecom Act violation. If immediate
divestiture is not feasible, the members of the BEL Shareholder Group may
require the Peralta Shareholder Group to acquire the prohibited interest at the
then-current net book value of such assets, and to assume the liabilities
associated with such assets. In that event, the Peralta Shareholder Group shall
be indemnified by the Corporation against losses and liabilities it may incur as
a result of such acquisition and assumption. If the Corporation or any
Subsidiary, or any Person in which the Corporation or any Subsidiary owns an
equity interest or has the power to control, shall acquire an asset or engage in
an activity in reliance upon the Guidelines or Guidance, and such Guidelines or
Guidance were in error, the BEL Shareholder Group shall reimburse the
Corporation for any direct damages caused by such a rescission, cancellation or
divestiture described in the preceding two sentences, including any indemnity
payments the Corporation must make to the Peralta Shareholder Group. If two or
more actions that would effect a cure of an actual or potential Telecom Act
violation equally meet the BEL Shareholder Group's needs for speed and
completeness in cure, the action which is in the best economic interest of the
Corporation shall be taken.
If in the written opinion of the General Counsel to Bell Atlantic
Corporation none of the actions set forth in the preceding paragraph would
remedy the alleged Telecom Act violation or satisfy the relevant Governmental
Entities, the BEL Shareholder Group may Transfer the Shares without compliance
with any of the provisions of Article VI. In the event of such a proposed
Transfer, BALAH and BAII shall have the rights set forth in Section 7.1
without regard to whether it shall have already exhausted the number of demand
registrations provided for therein.
10.3. Dispute Resolution. Any controversy or claim arising out of or
relating to this Agreement or any document or instrument delivered in connection
herewith, or any breach hereof or thereof, shall be settled by binding
arbitration as provided for herein. The arbitration shall be held in Paris,
France and, except to the extent
<PAGE>
inconsistent with this Agreement, shall be conducted in accordance with the
Rules of Arbitration of the International Chamber of Commerce in effect at the
time of the arbitration. The arbitration shall be conducted in the English
language, although documentary evidence and/or testimony may be submitted in
either English or Spanish. The arbitration proceedings, all documents and all
testimony, written or oral, produced in connection therewith, and the
arbitration award shall be confidential. The arbitration panel shall consist of
three arbitrators. The party or parties initiating the arbitration (whether one
or more, the "Claimant") shall appoint its or their arbitrator in its or their
demand (the "Demand"). The other party or parties (whether one or more, the
"Respondent") shall appoint its or their arbitrator within thirty (30) days
after receipt of the Demand (whether the Demand is received from the Claimant or
from the International Chamber of Commerce) and shall notify the Claimant of
such appointment in writing. If the Respondent fails to appoint an arbitrator
within such thirty (30) day period, the arbitrator named in the Demand shall
decide the controversy or claim as a sole arbitrator. Otherwise, the two
arbitrators appointed by the parties shall appoint a third arbitrator with
experience in international commecial disputes within forty-five (45) days after
the Respondent has notified the Claimant of the appointment of the Respondent's
arbitrator. When the arbitrators appointed by the Claimant and the Respondent
have appointed a third arbitrator and the third arbitrator has accepted such
appointment, the two arbitrators shall promptly notify the parties and the
International Chamber of Commerce of the appointment of the third arbitrator. If
the two arbitrators appointed by the parties fail or are unable to appoint a
third arbitrator within the time period provided above, they shall so notify the
parties, and any party may request the appropriate official of the International
Chamber of Commerce to appoint an impartial third arbitrator with experience in
international commercial disputes. That official shall appoint the third
arbitrator within thirty (30) days after such request and shall notify the
parties of the appointment. The third arbitrator shall act as chairman of the
panel. In addition to the authority conferred on the arbitrators by the Rules of
the International Chamber of Commerce, which the parties agree governs, the
arbitrators shall have the authority to order such discovery and to make such
orders for interim relief, including temporary and preliminary injunctive
relief, as they may deem just and equitable. The arbitral award may grant any
relief deemed by the arbitrators to be just and equitable, including without
limitation, injunctive relief and/or specific performance, together with
damages. The arbitral award shall state the reasons for the award and relief
granted, shall be final and binding upon the parties to the arbitration, and may
include an award of costs, including reasonable attorney's fees and
disbursements. Any award rendered by the arbitration panel may be confirmed,
judgment upon any award rendered may be entered, and such award of the judgment
thereon may be enforced in any court of any state or country having jurisdiction
over the parties and/or their assets.
10.4. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
<PAGE>
10.5. Severability. If any term or provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect and such invalid, illegal or unenforceable term or provision
shall be reformed automatically so as to comply with the applicable law or
public policy and to effect the original intent of the parties as closely as
possible.
10.6. Specific Performance. The obligations of the parties hereto under
this Agreement are unique. If any party should default in its obligations under
this Agreement, the defaulting party acknowledges that it would be extremely
impracticable to measure the resulting damages. Accordingly, in addition to any
other available rights or remedies, the nondefaulting party or parties may make
a claim in equity for specific performance and each defaulting party expressly
waives the defense that a remedy in damages will be adequate.
10.7. Rights of Parties. No Person not a party hereto will have any rights
hereunder, except that any provision hereof which is expressly stated to be for
the benefit of, or in which an obligation is expressly undertaken to, an
Affiliate of a party, a transferee of a party or a Registration Rightsholder is
intended to be enforceable by them.
10.8. Assignment. The provisions of this Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, that the terms of this Section 10.8 shall not limit or
modify the terms of Section 6.2.
10.9. Headings. The subject headings of the Articles, Sections, paragraphs
and subparagraphs of this Agreement are included for purposes of convenience
only, and shall not affect the construction or interpretation of any of its
provisions.
10.10. Modification and Waiver. This Agreement constitutes the entire
agreement among the parties pertaining to the subject matter contained herein
and supersedes all prior agreements, representations and understandings of the
parties, whether written or oral. No supplement to, or modification, or
amendment of, this Agreement shall be binding unless it is in writing and
executed by all of the parties hereto. No waiver shall be binding unless
executed in writing by the party against whom the waiver is to be effective. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No failure or delay by any party in
exercising any right, power or privilege hereunder will operate as a waiver
thereof nor will any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
10.11. Remedies Cumulative. The remedies provided in this Agreement shall
be cumulative and shall not preclude assertion by any party hereto of any other
rights or the seeking of any other
<PAGE>
remedies against any other party hereto.
10.12. Further Assurances. The signatories hereto shall promptly take the
necessary actions, execute such further or other documents and exercise all
voting rights conferred upon them by any stock of the Corporation, whether
currently beneficially owned by them or acquired subsequent to the execution of
this Agreement, in such manner as to ensure that the provisions, intent and
spirit of this Agreement shall be complied with and carried into full effect.
<PAGE>
10.13. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of Mexico.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date and year first written above.
GRUPO IUSACELL, S.A. DE C.V.
Witness:
/s/ Ruben G. Perlmutter By: /s/ Edward R. Kingman
- ------------------------- --------------------------------
Name: Edward R. Kingman
Title: Senior Vice President and
Chief Financial
BELL ATLANTIC LATIN AMERICA
HOLDINGS, INC.
Witness:
/s/ Ruben G. Perlmutter By: /s/ Thomas R. McKeough
- ------------------------- --------------------------------
Name: Thomas R. McKeough
Title: Vice President
BELL ATLANTIC NEW ZEALAND HOLDINGS, INC.
Witness:
/s/ Ruben G. Perlmutter
- ------------------------ By /s/ Janet M. Garrity
-----------------------
Name: Janet M. Garrity
Title: President
BELL ATLANTIC INTERNATIONAL, INC.
Witness:
/s/ Ruben G. Perlmutter
- ----------------------- By /s/ Thomas R. McKeough
-------------------------
Name: Thomas R. McKeough
Title: Vice President
<PAGE>
Witness:
/s/ Ernesto Canales Santos /s/ Alejo Peralta y Diaz Ceballos
- ------------------------- --------------------------------
ALEJO PERALTA Y DIAZ CEBALLOS
By: Carlos Peralta Quintero, as
Attorney-in-Fact
Witness:
/s/ Ernesto Canales Santos /s/ Carlos Peralta Quintero
- ------------------------- --------------------------------
CARLOS PERALTA QUINTERO
IUSA GRUPO COMUNICACIONES, S.A. DE C.V.
Witness:
/s/ Ernesto Canales Santos By: /s/ Carlos Peralta Quintero
- ------------------------- ------------------------------------
Name: Carlos Peralta Quintero
Title: Vice Chairman
LANGNESS INVESTMENTS LIMITED
Witness:
/s/ Ernesto Canales Santos By: /s/ Carlos Peralta Quintero
- ------------------------- ------------------------------------
Name: Carlos Peralta Quintero
Title: Director
FIUSA PASTEJE, S.A. DE C.V.
Witness:
/s/ Ernesto Canales Santos By: /s/ Carlos Peralta Quintero
- ------------------------- ------------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-fact
COMMANDER MEXICANA, S.A. DE C.V.
Witness:
/s/ Ernesto Canales Santos By: /s/ Carlos Peralta Quintero
- ------------------------- ------------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-fact
<PAGE>
INMOBILIARIA REFORMA LOMAS ALTAS,
S.A. DE C.V.
Witness:
/s/ Ernesto Canales Santos /s/ Carlos Peralta Quintero
- -------------------------- ------------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-fact
FRACCIONADORA Y CONSTRUCTORA
MEXICANA, S.A. DE C.V.
Witness:
/s/ Ernesto Canales Santos /s/ Carlos Peralta Quintero
- -------------------------- ------------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-fact
CONFECCIONES PASTEJE, S.A. DE C.V.
Witness:
/s/ Ernesto Canales Santos /s/ Carlos Peralta Quintero
- -------------------------- --------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-fact
INTERELEC, S.A. DE C.V.
Witness:
/s/ Ernesto Canales Santos By: /s/ Carlos Peralta Quintero
- -------------------------- -------------------------------
Name: Carlos Peralta Quintero
Title: Attorney-in-fact
<PAGE>
EX-2.D
Long-distance Concession
Concession to install, operate and exploit a public telecommunications network,
granted by the Federal Government and through the Ministry of Communications and
Transport, henceforth named the Ministry, in favor of Iusatel, S.A. of C.V.,
henceforth named the Concessionaire in accordance with the following antecedents
and conditions.
ANTECEDENTS
I. The Concessionaire submitted request before the Ministry, dated
September 8, 1995, to obtain a concession to install, operate and
exploit a public telecommunications network, in agreement with the
principles established by Article 24 of the Federal Law of
Telecommunications.
II. The Ministry, once having assessed and evaluated the documentation
corresponding to the Concessionaire's request, resolved that the latter
satisfactorily complied with the requirements demanded by said Law and
other applicable dispositions. Thus, according to the principles described
in Articles 36, Fraction III, of the Organic Law of Federal Public
Administration; 8th. of the Law of General Means of Communication; 11,
Fraction II, 12, 24, 25, 26 and other ones relative to the Federal Law of
Telecommunications, the Ministry grants the Concessionaire the present
concession to install, operate and exploit a public telecommunications
network, which will be subject to the following:
CONDITIONS
First Chapter
General Dispositions
1. Definitions and extent of the concession.
1.1. Definition of terms. In addition to definitions contained in the Federal
Law of Telecommunications, and for the purposes to this Title, it will be
understood that
1.1.1. Concession: The one contained in the present Title to install,
operate and exploit a public telecommunications network,
1.1.2. Law: The Federal Law of Telecommunications, and
1.1.3. Network: The public network of telecommunications, object of the
present Concession.
1.2. Services. The Concessionaire is obliged to installing, operating and
exploit-
<PAGE>
ing the Network, and to rendering the services referred to in the
attachment(s) to the present Title, in the terms and conditions pointed
out there. The Concessionaire will be able to render services additional
to the ones included in the attachment(s) of this Title, with a previous
authorization from the Ministry. For such a purpose, the Concessionaire
will have to submit the request, to the satisfaction of the Ministry, and
it shall fulfill the requirements to Article 24 of the Law and other
applicable dispositions, excepting the prejudice that, should more
concessions of bands of frequencies of the radio electric spectrum be
required, they will be granted by means of the public bidding procedure,
provided in Article 14, as well as other applicable ones by the Law.
In order to obtain the authorization mentioned in the above paragraph, the
Concessionaire's obligations derived from the present Concession shall be
fully updated and fulfilled.
In the terms of Article 33 of the Law, the Concessionaire will be able to
render added-value services, being enough to previously register them
before the Ministry.
1.3. Coverage modification. The Concessionaire, in order to enlarge or reduce
the Network coverage area, will require previous authorization from the
Ministry.
The Ministry will grant authorization to the Concessionaire to enlarge or
reduce the coverage, in a period no longer than 120 natural days, counted
from the date of receiving the request, as long as the Concessionaire's
obligations derived from the present Concession are fully updated and
fulfilled.
1.4. Duration. This Concession will be valid for 30 years, counting from the
date of signature of the present Title, and it will be likely to be
extended in accordance with the terms provided by Article 27 of the Law.
1.5. Applicable Legislation. The installation, operation and exploitation of
the Network and services included in the present concession, will be
subject to the Law, to the Law of General Means of Telecommunications, and
to the treaties, laws, regulations, decrees, Mexican official norms,
agreements, circulars and other administrative dispositions issued by the
Ministry, as well as the conditions established in this Title.
The Concessionaire accepts that if the legal regulations and
administrative dispositions -- referred to in the above paragraph -- this
Concession is subject to were derogated, modified or added to, the
Concessionaire will be subject to the new legislation and administrative
dispositions as their putting
<PAGE>
them into effect.
1.6. Other Concessions. The present Concession does not confer exclusivity
rights to the Concessionaire. Therefore, the Ministry, within the same
geographic area, will be entitled to grant other concessions in favor of
third parties to install, operate or exploit one or more public
telecommunications networks rendering identical of similar services.
1.7. Cession of Rights. The Concessionaire will be entitled to transfer its
Rights and Obligations -- either fully or partially -- established in the
Concession in the terms of Article 35 of the Law.
1.8. Rendering the Services through subsidiaries or branches. With a previous
authorization issued by the Ministry, the Concessionaire will be able to
render the services included in the Concession through subsidiary
companies or branches. Nevertheless, the Concessionaire -- at all times
and before the Ministry -- will be responsible for all obligations derived
from this Concession.
1.9. Proxies or Warrants. Under no circumstance, whatsoever, will the
Concessionaire be able to grant proxies or general warrants to exercise
irrevocable acts of administration or dominion directed towards enabling
the proxy or warrant to exercise the rights and obligations of the present
concession.
1.10. Taxes. Whenever the Concessionaire constitutes any tax on the Concession
or the rights derived from it, the Concessionaire shall carry out the
registration referred to in Article 64 of the Law, within the 30 natural
days following the date of its constitution.
The document where the granted warranty is stated, shall specifically
establish that the execution of the warranty will, under no circumstance
whatsoever, grant the character of concessionaire to the creditor.
In order to have the Concession awarded to a creditor or to a third party,
it will be necessary that the Ministry authorizes the cession of rights,
observing the terms stated in Article 35 of the Law or otherwise, to
obtain the concession in accordance with Article 34 of the same ordinance,
excluding, in this case, frequency bands of the radio electric spectrum.
1.11. Nationality. The Concessionaire, -- regarding this Concession -- will have
no more rights than the ones granted to Mexicans. Consequently, the
partnership and its foreign partners, whenever it is the case, are
committed to neither requesting nor accepting diplomatic intervention of
any given foreign country, under the penalty of loosing -- in favor of the
Mexican Republic -- all the properties and rights acquired to install,
operate and
<PAGE>
exploit the Network.
1.12. Neutral Investment In terms of the Fifth Title of the Law of Foreign
Investment, neutral investment will not be computed to determine the
percentage of foreign investment in the subscribed capital of the
Concessionaire.
1.13. Companies with State participation of foreign countries. It will not be
considered as shareholding the participation of a government or foreign
state, the one executed by companies with State participation of foreign
countries not considered as authorities by the internal legislation of the
country in question, that have judicial category and patrimony of their
own.
1.14. Subscription of Shares. The Concessionaire is obliged to present before
the Ministry, on the 30th of April of every year at the latest, a list of
its ten main shareholders and their respective participation percentages,
which will be accompanied with the information determined by the Ministry.
In the event of any subscription of shares, in an act or succession of
acts representing ten percent or more of the partnership's working
capital, the following regulation shall be observed:
1.14.1. The Concessionaire will notify the Ministry about the intention of
the interested parties on executing the subscription of shares,
being necessary to attach the notification to the information
about the individuals interested in acquiring shares.
1.14.2. The Ministry will have a period of 90 natural days, counted from
the date of presentation of the notification, to present its
objection in a written form and stating the justified cause
regarding the operation in question, and
1.14.3. The operation will be considered as approved by the Ministry, if
said period elapses without objection from the Ministry.
Only the operations not objected by the Ministry will be able -- if so is
the case -- to enroll in the registration book of shareholders of partners
to the moral person, without detriment of the authorizations required from
other authorities in accordance to applicable dispositions. It will not be
required to present the notification referred to on the second paragraph
of this condition, whenever the subscription refers to representative
shares of neutral investment, or when it is the case of increases of
capital subscribed by shareholders themselves, as long as the proportion
of participation of the working capital from each one of them is not
modified.
In the event of a party interested in subscribing shares is a moral
person, in
<PAGE>
the notification referred to in condition 1.14.1 above, the necessary
information will have to be submitted so as to allow the Ministry to know
the identity of the physical persons having patrimonial interests superior
to the ten percent of said moral person's capital.
This condition shall be included within the social statutes, as well as in
the titles or certificates issued by the Concessionaire.
1.15. Training and Technological Development. The Concessionaire will
develop training and instruction programs for its personnel.
In like manner, the Concessionaire will perform research and
development activities in the country. For this purpose, it will be
able to coordinate its activities with the Mexican Institute of
Communications and with other research and technological development
institutions.
1.16. Designation of the technical responsible. The Concessionaire is
obliged to designate -- before the Ministry -- a person responsible
for the Network's technical operation, who will count with the
faculties from the administration, necessary to oblige the
Concessionaire before the Ministry, regarding the technical
operation of the same Network.
Second Chapter
Dispositions Applicable
to the Services
2.1. Quality of the services. The Concessionaire will be committed to rendering
the services included in this Concession in a continuous and efficient
way, in conformity with the applicable legislation and the technical
features established in the present Title and its attachments.
Likewise, the Concessionaire is committed to provide the mechanisms
necessary to perform repairs on the Network and services' failures, within
the first eight working hours of receiving the report.
The Concessionaire will endeavor to render the services included in the
present Concession in the best conditions of price, diversity and quality
to benefit the users, in order to promote an efficient development of
telecommunications. For this purpose, the Concessionaire will submit to
the Ministry -- within the 120 natural days following the signing of this
Concession -- the minimum quality standards of the services, without
detriment to the Ministry issuing general regulations regarding this
matter.
<PAGE>
2.2. Service Interruption. In case of interrupting the rendering of some of the
services during a period longer than 72 consecutive hours, starting from
the date established in the respective report, the Concessionaire will
grant its users a discount on the fee corresponding to the duration of the
interruption.
2.3. System for handling complaints and repairs. The Concessionaire will
establish a system for receiving service complaints and failure repairs.
On a monthly basis, the Concessionaire will produce a report that shall
include the incidence of failures, classified by their type, actions taken
and applied discounts. Said report shall be available upon the Ministry's
request.
The Ministry will be entitled to make said information public, along with
other Concessionaires' rendering similar services in the country or in the
same region.
2.4. Measuring equipment and quality control. The Concessionaire is obliged to
take the necessary measures to ensure the precision and reliability of the
devices used to measure quality and billing systems. For these purposes,
the Concessionaire will have to carry out periodic testing the equipment,
and furnish the Ministry, when required, with the results of the tests in
a quarterly way. And if it is the case, the Concessionaire shall submit
documents certifying that the pertinent adjustments have been performed.
In like manner, the Concessionaire shall keep records of measuring
equipment as determined by the Ministry.
2.5. Commercial Practices Code. The Concessionaire shall integrate -- in
conformity with general rules regarding the matter issued by the Ministry
-- a commercial practices code which shall describe, in a clear and
concise way, the various services it renders, as well as the methodology
used to apply the corresponding fees. Once having such code integrated,
the Concessionaire shall make it available for the public in its
commercial offices and, upon the Ministry's request, it will publish a
summary of the code in major newspapers at national level.
2.6. Emergency Services. The Concessionaire shall put at the Ministry's
disposal -- within the six months following the issuing of the present
Title -- an action plan aimed at preventing service interruptions, as well
as a plan for supplying emergency services in case of fortuitous events.
In the event of an emergency happening within the coverage area, the
Concessionaire shall furnish the indispensable services indicated by the
Ministry, in a free way, only for the time and proportion required by the
emergency.
<PAGE>
The Concessionaire shall notify the Ministry about any event liable to
affect, either generally or significantly, the functioning of the Network.
Third Chapter
Fees
3.1. Undue Charges; Overpayment. Should the Concessionaire charge the users
nonregistered fees or fees differing from the ones established, in its
case, and in conformity with Article 63 of the Law, the Concessionaire
shall reimburse to users the balance regarding registered or established
fees.
The mentioned above must be understood as without prejudice to sanctions
imposed in conformity with the Law and other applicable dispositions.
3.2. Prohibition of crossed subsidies. The Ministry shall be able -- at all
times -- to verify that registered fees do not constitute crossed
subsidies in terms of Article 62 of the Law. For such purpose, the
Concessionaire shall provide corresponding information within the 60
natural days following the date of receiving the Ministry's request.
3.3. Billing. The Concessionaire's billing system must be previously approved
by the Ministry.
Fourth Chapter
Verification and Information
4.1. With no detriment to the Ministry's faculties to request other information
from the Concessionaire, in terms of Article 68 of the Law, the latter
shall furnish the Ministry, within the 150 (One Hundred Fifty) natural
days following the closing of the corresponding exercise:
4.1.1. Its company's audited financial statements, detailing services,
and if it is the case, by geographic area.
4.1.2. A description of the main fixed assets included in the Network, in
conformity with the formats established by the Ministry, and
4.1.3. A report on actions performed regarding training and instruction
programs for its staff, as well as a report on its research and
development activities in the country, as stated in condition 1.15
of this Concession.
4.2. The Concessionaire shall inform the Ministry, by means of a quarterly
report,
<PAGE>
about the advancement of the Network's expansion program.
4.3. The Concessionaire shall put at the disposal of the Ministry, statistic
information concerning traffic, routing, occupation, performance and other
operation parameters generated by the Network, in conformity with general
dispositions issued by the Ministry for this purpose.
Fifth Chapter
Warranty of Formality
5. Guaranty. The Concessionaire shall establish a guaranty within a period no
longer than 30 natural days counted as of the date of signature of the
present Concession, with an institution authorized for the amount of
N$5,000,000.00 New Mexican Pesos (Five Million New Mexican Pesos) issued
in favor of the "Tesoreria de la Federacion" (Federation's Treasure
Department), which will be effective if: a) In case of revocation of the
Concession, and b) It will guarantee the payment of pecuniary sanctions
imposed by the Ministry. The guaranty will be valid during the period of
the Concession.
The amount of the guaranty shall be annually updated, in conformity with
the "Indice Nacional de Precios al Consumidor" (National Index of Prices
to the Consumer), or the substituting Index.
The policy issuing the guaranty shall clearly state that the institution
issuing the guaranty accepts the concepts contained in Articles 95 and 118
of the Federal Law of Guaranty Institutions in effect, and the renounce to
benefit of order and excuse.
Sixth Chapter
Jurisdiction and Competition
6. For all matters relative to the interpretation and complying with the
present Title of Concession, except for the administrative matters having
to be solved by the Ministry, the Concessionaire agrees to be submitted to
the jurisdiction of the federal tribunals of Mexico City, Distrito
Federal, renouncing to the Law that could correspond to it in function of
its present or future domicile.
Mexico, Distrito Federal, October 16, 1995.
MINISTRY OF COMMUNICATIONS AND TRANSPORT
THE SECRETARY
<PAGE>
CARLOS RUIZ SACRISTAN
IUSATEL, S.A. DE C.V.
GUILLERMO AMORE
LEGAL REPRESENTATIVE
Attachment A of the Title of Concession to install, operate and exploit a public
telecommunications Network granted by the Federal Government, through the
Ministry of Communications and Transport, in favor of Iusatel, S.A. of C.V.,
dated October 16, 1995.
A.1. Included Services. In the present attachment, the following services are
included:
A.1.1. The rendering of any service involving emission, transmission or
reception of signs, signals, written documents, images, voice,
sound of information of any kind through its Network.
A.1.2. The sale or leasing of Network's capacity for emission,
transmission, or reception of signs, signals, written documents,
voice, images, sounds or information of any type.
A.1.3. The commercialization of the acquired capacity of other
concessionaires of public telecommunication networks, with whom
the Concessionaire might have made the corresponding deals.
A.1.4. Rendering the public service of basic long distance telephony,
either domestic or international. In conformity with the Seventh
Transitory Article of the Law, the Concessionaire shall be able to
render the public service of basic long distance telephony,
starting as of August 11, 1996.
A.2. Services not included. The services not included in this attachment are:
A.2.1. The ones that require a concession on frequency bands of radio
electric spectrum for determined usage.
A.2.2. The ones requiring a concession to occupy and exploit orbital
geo-stationary positions and satellite orbits assigned to the
country.
A.2.3. The ones requiring a concession to operate a radio system or open
T.V., and
<PAGE>
A.2.4. The cable television service.
In order to be able to render these services, the Concessionaire must
obtain the concession or the respective authorization.
A.3. Time limit to initiate the Network's exploitation. The Concessionaire
shall initiate said exploitation, at the latest, in April 1997.
A.4. Network's Coverage Commitments. The Concessionaire is obliged to link,
with its own infrastructure, the following cities, at the latest, the 31st
of May, 1998:
Aguascalientes, Aguascalientes
Saltillo, Coahuila
Torreon, Coahuila
Durango, Durango
Distrito Federal
Celaya, Guanajuato
Irapuato, Guanajuato
Leon, Guanajuato
Guadalajara, Jalisco
Toluca, Mexico
Cuernavaca, Morelos
Tepic, Nayarit
Monterrey, Nuevo Leon
Puebla, Puebla
Queretaro, Queretaro
Mazatlan, Sinaloa
Reynosa, Tamaulipas
In like manner, the Concessionaire is obliged to cover, through its own
land exchange stations, and using national satellite systems, the
following cities, at the latest on the 31st of May, 1998:
Tijuana, Baja California Norte
Cd. Juarez, Chihuahua
Monclova, Coahuila
Zihuatanejo, Guerrero
Cancun, Quintana Roo
Villahermosa, Tabasco
Nuevo Laredo, Tamaulipas
Merida, Yucatan
The Concessionaire is obliged to link -- with its own infrastructure --
the following cities, at the latest, on the 31st of December, 2000:
<PAGE>
Matamoros, Tamaulipas
Cd. Victoria, Tamaulipas
Tampico, Tamaulipas
Poza Rica, Veracruz
Jalapa, Veracruz
Veracruz, Veracruz
Cordoba, Veracruz
In like manner, the Concessionaire is obliged to cover, through its own
land exchange stations and utilizing the national satellite systems, the
following cities, at the latest on the 31st of December, 2000:
La Paz, Baja California Sur
Los Cabos, Baja California Sur
Piedras Negras, Coahuila
Delicias, Chihuahua
Chihuahua, Chihuahua
Manzanillo, Colima
Colima, Colima
Lazaro Cardenas, Michoacan
Los Mochis, Sinaloa
Culiacan, Sinaloa
Cd.Obregon, Sonora
Hermosillo, Sonora
Guaymas, Sonora
Coatzacoalcos, Veracruz
A.5. Network's Technical Specifications. The Concessionaire is obliged to
install the Network with at least the technical specifications indicated
in numeral 4.3 of its concession application, which is added to the
present attachment and is an integral part of this Concession.
A.6. Coverage of Services. The Concessionaire shall be able to render the
services included in this Concession, in the locations where the coverage
has been authorized, with its own infrastructure and at national level,
using the capacity of other public telecommunication networks. The
Concessionaire will be able to render services interconnecting its Network
to foreign networks in terms of Article 47 of the Law.
A.7. Urban Wiring. In the event that the Concessionaire tried to install wiring
in urban zones in order to render services included in the present
attachment to final users, it shall submit the corresponding application
in terms of condition 1.3 of the present Title, understanding that,
whenever it comes to direct linkages that do not require bands of
frequency from the radio electric spectrum, the Ministry will grant a
convenient resolution, in a time limit of
<PAGE>
twenty natural days, counting from the date of receiving said application.
Technical Specifications of the Application for
a Concession on Public Telecommunications Network
Submitted by Iusatel, S.A. de C.V.
4.3 Technical Description of "Network's" Project for the first five years.
4.3.1 Transmission
Transmission systems of "Iusatel's" transport network are based on "SDH".
The essential architecture of this equipment's operation is distributed in
the form of physical rings and virtual rings, using topologies of maximum
reliability and using the different modules defined for said standard.
The physical rings will be equipped with the highest transmission
velocities technically available and economically permissible (presently
622 Mb/s and 2.5 Gigabits per second "Gb/s"), according to the traffic
requirements of each one of the nodes included in said ring. Virtual
rings' configurations will allow to avoid conflicts generated by
limitations defined in the norms, in addition to providing the
recollection facilities (insertion and extraction) of traffic in low
capacity nodes not included in the physical ring.
Redundancy protection, by definition present in an optic fiber ring, will
be applied in a different way in both rings. Physical rings will use
shared protection -- "Proteccion Compartida" -- which will permit the
elevation of total capacity of the ring's transportation. For the case of
virtual rings, protection will be dedicated -- "Dedicated Protection" --
if which will facilitate to diminish the configuration costs of
recollection in low traffic nodes. The redundancy in virtual rings carried
out through the physical ring's capacity, thus achieving a minimum-cost
configuration and maximum reliability, taking advantage of the benefits of
international norms.
The design basis used for the "Network" are the following:
o Synchronous Transport Module-6 ("STM") multiplexors are used for the
equipping of the high-velocity physical ring.
o Virtual rings with "STM" equipment units. Four of them were
considered in the architecture of the recollecting ring, covering
areas geographically grouped and entering in the end to the
high-capacity ring as a back-up mechanism and to close the rings in
a virtual way.
o In the dimensioning of linkages, the commuted and dedicated
circuits' capacity is included, performing the consolidation
(Grooming) taking
<PAGE>
advantage of the capacities that the "SDH" technology offers in
insertion and extraction points at the level of "E1" linkages.
o The distance between relays for optic fibers was fixed between 70
and 120 kilometers. and for the cases where optical amplifiers are
used, distances over 120 kilometers are achieved.
o The type of optic fibers to be used, utilizes the latest available
technologies, among them, the one of Modified Dispersion-Shifted
Fiber, which involves a higher starting investment, but it creates a
window of opportunity that prevents technological obsolescence and
that will allow, in the future, to increase velocity of transmission
in the rings, only changing the electronics associated to it.
Optic Fiber
The means of transportation proposed for the "Network," is essentially
Optic Fiber. Several types of fiber were considered, according to the
growth plan and the technical features of the various linkages for the
integration of the "Network."
Optic Fibers allow the improvement of communication characteristics,
reducing times of delay, increasing the capacity of transmission and
elevating the reliability and altogether, to improve the quality of
performance of the "Network" itself.
According to worldwide operation statistics, it is reasonable to consider
a possibility of breakage per year for every 4000 kilometers in an optic
fiber cable. Once stated the above, it is possible to anticipate that,
under normal conditions, the "Iusatel" "Network" will have cuts in its
fiber cables, which will not affect the service to the user, thanks to the
mechanism of intrinsic protection in the transmission equipment units
associated to the ring's architecture.
A detailed design of linkages of optic fiber was performed considering the
possibility of migrating transmission equipment units to the next
transmission hierarchy "STM"-64 and/or using the multiplexing systems of
wavelength.
For the design of the "Network," the following requirements and
engineering norms were established:
o The average length of optic fiber's cable coil used in the
construction of the "Network" is of four kilometers.
<PAGE>
o The defined route for the creation of the "Network" considers
covering as many cities as possible and target markets of higher
population density.
o Since the beginning, there are international linkages of high
capacity and reliability, in order to offer users an efficient and
modern telecommunication service in the current environment of
global markets, particularly for corporate users who require
flexibility and ubiquity when handling information.
o The installation of fiber is based on rings' topologies, as to offer
as much quality, reliability and redundancy as possible.
o Several rights of means are used, such as: electric lines, highways
and submarine linkages, performing an estimated combination of
construction time, distance, availability, efficiency and
reliability regarding linkages.
It has been considered that rings' growth will evolve simultaneously
expanding and dividing the existing rings, being able to adapt in a
flexible way to market's evolution and technology.
The use of optic fiber, as well as new types of optic fibers of modified
straight dispersion, that allow growth of capacity and reach by means of
increasing transmission velocity, the use of multiple wavelengths and
optic amplification, will be supported on characteristics recommended by
the "UIT-T" listed as follows:
Straight Dispersion
Optic Characteristics
Window Operation 1,550 nm.
Wavelength 1,120 nm. To 1,350 nm.
Attenuation at 1,300 nm. < = 1.0 dB/km.
at 1,550 nm. < = 0.5 dB/km.
at 1,550 nm. 3.5 ps/(nm.-km.)
Chromatic Dispersion
Physical Characteristics
Modal Camp Diameter 7-8.3 (mu)m + 10%
Concentricity error < m1 (mu)m
<PAGE>
Tolerance of circularity of
the nucleus and sheathing < 2%
Environmental Characteristics
Temperature -60 at +85(degree)C. ((DELTA)(alpha)
< = 0.03 dB/km.)
Humidity < = 98% ((DELTA)(alpha) < = 1.10 dB/km.)
Modified Straight Dispersion ("MSD-LS")
Optic Characteristic
Window Operation 1,550 nm.
Wavelength (lambda)< = 1,260 nm.
Attenuation at 1,310 nm. < = 0.5 dB/km. at 1,550 nm. < =
0.25 dB/km
Chromatic Dispersion at 1,545 nm. 1.5 ps/(nm.-km.)
Physical Characteristics
Modal Camp Diameter 8.4 (mu)m +/- 0.5 (mu)m
Sheathing (coating)
Diameter 125 (mu)m +/- 1.0%
Concentricity Error < = 1 (mu)m
Tolerance of Circularity of the
nucleus and sheathing (coating) < = 1.0%
Environmental Characteristics
Temperature -60 at +85(degree)C ((DELTA)(alpha)
< = 0.05 dB/km)
Humidity < = 98% ((DELTA)(alpha) < = 0.05 dB/km).
Modified Straight Dispersion ("True Wave")
Optical Characteristics
Operation Window 1,550 nm.
Wavelength (lambda)< = 1,260 nm.
Attenuation at 1,550 nm. < = 0.22 - 0.25 dB/km.
Chromatic Dispersion at 1,545 nm. 1.5 ps/(nm.-km.)
Physical Characteristics
Modal Camp Diameter 8.4 (mu)m. +/- 0.5 (mu)m.
<PAGE>
Sheathing (coating) Diameter 125 (mu)m. +/- 1.0%
Concentricity Error < = 1 (mu)m.
Tolerance of Circularity of the
nucleus and sheathing (coating) < 1.0%
Environmental Characteristics
Temperature -60 at +85(degree)C ((DELTA)(alpha)
< = 0.05 dB/km.)
Humidity < = 98% ((DELTA)(alpha) < = 0.05 dB/km.).
Normal Dispersion.
Optical Characteristic.
Operation Window 1,300 nm.
Wavelength 1,270 nm. < = (lambda),
Attenuation at 1,300 nm. < = 1.0 dB/km.
at 1,550 nm. < = dB/km.
Chromatic Dispersion at 1,300 nm. 3.2 ps/(nm.-km.)
at 1,550 nm. 19 ps/(nm.-km.)
Physical Characteristic.
Modal Camp Diameter 9.10 (mu)m. +/- 10%
Sheathing Diameter (coating) 125 (mu)m +/- 2.4%
Concentricity Error < = 1 (mu)m
Tolerance of Circularity in
nucleus and sheathing (coating) < 2%
4.3.2 Commuting and signaling
The "Iusatel" "Network" will count with an intelligent and open
architecture ("UIT-T", Q. 1200 and associated ones) and will supply
in an efficient, simple and fast manner, the design, implantation
and operation startup of new services demanded by the market. The
intelligent network "Iusatel" will by constituted by the following
functional groups:
"SPP" Point of Service Commuting
"STP" Point of Signaling Transference
"SCP" Point of Service Control
"IP" Intelligent Peripheral
Every Long Distance Exchange Station inside the "Network" will have
the
<PAGE>
"SPP" functionality. This means each exchange station will have the
capacity for commuting services by means of different types of
procedures in a way that enables the rendering of the necessary
resources needed to complete the user's service. The "SPP" will have
the capacity of interoperating with other functional groups like the
"STP" and "IP." The interaction of said functional groups will be
carried out by means of the signaling protocols "SS7," specified in
Mexican Norms in progress in the "Part of Messages' Transference"
("PTM"), "PUSI," Part of Control of the Signaling Connection"
("PCCS") and Part of Application of Transactional Capacities
("PACT").
The "Iusatel" "Network" will have two "STP" supply the routing of
signaling messages among the various functional groups from the
"Network" itself and other networks. Two "STP" were considered to
provide redundancy in the signaling paths, in order to be able to
have a better degree of availability in the "Network."
Information about our users and associated services is found
included in the "SCP" functional group. The "SPP" will request "SCP"
for information related to the service, the "SCP" will reply with
the relevant information to "SCP," using the signaling network.
The "Iusatel" "Network" will initiate with two exchange stations;
one in Mexico City and the other one in Monterrey. Capacities of
nominal commuting of exchange stations will be of 800,000 attempts
of calls in peak hours, and a handling of 60,000 ports. Commuting
equipment units will have redundancy in a great part of their
subsystems, as well as commuting matrix without block. In these
exchange stations, there will be detailed registration functionality
of calls that include information about the user, origin,
subscribers who pay, operator attention, etc.
Exchange stations will have the capacity of rendering information
for networks' administration according to international standards.
In addition, every station will have an operation, maintenance and
administration center which will work nonstop, 24 hours a day,
year-round.
Commuting equipment units will have the capacity to operate with the
user's signaling norms: R2 Mexican and Q.931 of the "UIT-T" (for
Primary Access to the Digital Network of Integrated Services
("RDSI"), "PUSI," "PACT," "PCCS" and "PTM" to be interconnected with
other elements inside and outside of the "Network" according to
Official Mexican Norms.
The "Iusatel" "Network" will have a central of operators in Mexico
City, to be able to route traffic of calls requiring this service.
All of the above, according to design standards mentioned as
follows:
<PAGE>
o The point of concentration of traffic to be commuted coming
from every city or interconnection point, is based in a
minimum distance algorithm.
o Commuting capacities were calculated considering 50% of
answered calls (due to several causes attributed to networks
of destination of calls as: users of destination occupied,
user of destination who does not answer, abandoned dialing,
etc.).
o The average time of a domestic Long Distance Call is four
minutes and international ones of six minutes, according to
current behavior of telephone users in Mexico.
o The Degree of Service in the internal transmission network
will have a blocking of less than 1% in the average of the
thirty most used peak hours of the year, superior to
requirements of applicable "UIT-T" international norms.
The operators' center has been designed to handle 95% of all calls
in less than ten seconds.
4.3.3 Synchronization
The "Network" will have primary reference clocks in the D.F.
(Federal District, Mexico City) and Monterrey, with reference of
Global Position System ("GSP"), which complies with recommendation
G.811 of the "UIT-T."
Transit clocks comply with Recommendation G.812 of the "UIT-T,"
requirements of temporization in the outlets of subordinated clocks
adequate for the plesiochronal exploitation of international digital
linkages.
The synchronization network will use facilities of the "SDH"
network, which complies with recommendation G.803 of the "UIT-T,"
that offers the capacity of transport of reference signals of the
high quality clock through the "Network," also counting with
improvements for tracing, recuperation of failures and delivering of
synchrony signal.
The "Network" complies with the objectives in matter of slipping of
an international connection of the "RDSI," as pointed out in
Recommendation G.821.
<PAGE>
Summary of Annexes to Long Distance Concession
A. Annex A
Services Required to be Provided By Iusatel:
Services involving the emission, transmission or reception of signs, signals,
written documents, images, voice, sound or information of any kind through its
network, the sale or leasing of the network capacity therefor, the
commercialization of acquired capacity of other concessionaires, and the
provision of public long distance telephony.
Iusatel shall have the right to render such services in the locations where its
coverage has been authorized with its own infrastructure and on a national level
using the capacity of other public telecommunications networks.
Time Limit to Initiate Network Exploitation: No later than April 1997.
Coverage Commitments:
Iusatel must link with its own infrastructure the following 17 cities no later
than May 31, 1998: Aguascalientes, Saltillo, Torreon, Durango, Distrito Federal,
Celaya, Irapuato, Leon, Guadalajara, Toluca, Cuernavaca, Tepic, Monterrey,
Puebla, Queretaro, Mazatlan and Reynosa.
Iusatel must cover via its own earth stations and using national satelite
systems the following 8 cities no later than May 31, 1998: Tijuana, Ciudad
Juarez, Monclova, Zihuatenejo, Cancun, Villahermosa, Nuevo Laredo and Merida.
Iusatel must link with its own infrastructure the following 7 cities no later
than December 31, 2000: Matamoros, Ciudad Victoria, Tampico, Poza Rica, Jalapa,
Veracruz, Cordoba.
Iusatel must cover via its own earth stations and using national satelite
systems the following 15 cities no later than December 31, 2000: La Paz,
Los Cabos, Piedras Negras, Delicias, Chihuahua, Manzanillo, Colima, Lazaro
Cardenas Los Mochis, Culiacan, Ciudad Obregon, Hermosillo, Guaymas, Nogales and
Coatzacoalcos.
B. Technical Specifications:
Transmission. The transmission systems should be based on "SDH". The fundamental
operational architecture of this equipment will be distributed in the form of
physical and virtual rings. The physical rings will be equipped with the highest
transmission velocities technically available and economically justifiable. The
<PAGE>
virtual rings will be configured to permit the avoidance of conflicts, provide
the facilities of recollection (insertion and extraction) of traffic in the low
capacity nodes not included in the physical ring and provide redundancy
protection.
Transport/Fiber Optics. The means of transport for the network is fundamentally
fiber optic.
Switching and Signaling. Iusatel's network should have an open and intelligent
architecture. Every long distance central office within the Network shall have
SSP functionality, which should have the capacity to interoperate with other
functional groups. The interaction of these functional groups will be
accomplished through signaling protocol SS7. The network will begin with two
central offices, one in Mexico City and one in Monterrey.
Switching equipment will have the capacity to operate with signaling norms of
the user. The point of concentration of switched traffic for each city or point
of interconnection will be based on an algorithm of minimum distance.
Synchronization. The Network will count on reference clocks primarily in Mexico
City and Monterrey with reference to the Global Positioning System.
<PAGE>
EX-2.E
COMPOSITE CONFORMED COPY
(incorporating Amendments 1-9)
*******************************************************************************
GRUPO IUSACELL, S.A. DE C.V.
and
SUBSIDIARY GUARANTORS
------------------------------
CREDIT AGREEMENT
Dated as of February 16, 1996
------------------------------
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
*******************************************************************************
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
Page
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS ............................ 1
1.01 Certain Defined Terms ............................................... 1
1.02 Accounting Terms and Determinations ................................. 12
SECTION 2. THE LOANS, NOTE AND PREPAYMENTS ............................... 13
2.01 The Loans ........................................................... 13
2.02 Applicable Lending Office ........................................... 13
2.03 Notes ............................................................... 13
2.04 Prepayments ......................................................... 14
2.05 Borrowings .......................................................... 14
2.06 Changes of Commitment ............................................... 14
2.07 Several Obligations; Remedies Independent ........................... 15
2.08 Commitment Fee ...................................................... 15
SECTION 3. PAYMENTS OF PRINCIPAL AND INTEREST ............................ 15
3.01 Repayment of the Loans .............................................. 15
3.02 Interest ............................................................ 16
SECTION 4. PAYMENTS; COMPUTATIONS; ETC. .................................. 17
4.01 Payments ............................................................ 17
4.02 Pro Rata Treatment .................................................. 17
4.03 Computations ........................................................ 18
4.04 Minimum Amounts ..................................................... 18
4.05 Certain Notices ..................................................... 18
4.06 Non-Receipt of Funds by the Agent ................................... 18
4.07 Sharing of Payments, Etc. ........................................... 20
SECTION 5. YIELD PROTECTION, ETC. ........................................ 21
5.01 Additional Costs .................................................... 21
5.02 Limitation on LIBO Availability ..................................... 22
5.03 Illegality .......................................................... 23
5.04 Treatment of Affected Loans ......................................... 23
5.05 Compensation ........................................................ 24
5.06 Taxes ............................................................... 24
SECTION 6. GUARANTEE ..................................................... 25
6.01 The Guarantee ....................................................... 25
6.02 Obligations Unconditional ........................................... 25
6.03 Reinstatement ....................................................... 27
6.04 Subrogation ......................................................... 27
6.05 Remedies ............................................................ 27
6.07 Continuing Guarantee ................................................ 28
SECTION 7. CONDITONS PRECEDENT ........................................... 28
<PAGE>
7.01 Initial Loan ........................................................ 28
7.02 Initial Loan and Subsequent Loans ................................... 29
SECTION 8. REPRESENTATIONS AND WARRANTIES ................................ 30
8.01 Corporate Existence ................................................. 30
8.02 Financial Condition ................................................. 30
8.03 Litigation .......................................................... 31
8.04 No Breach ........................................................... 31
8.05 Action .............................................................. 31
8.06 Approvals ........................................................... 31
8.07 Legal Form .......................................................... 32
8.08 Ranking ............................................................. 32
8.09 Commercial Activity; Absence of Immunity ............................ 32
8.10 Taxes ............................................................... 33
8.11 Investment Company Act .............................................. 33
8.12 Public Utility Holding Company Act .................................. 33
SECTION 9. COVENANTS ..................................................... 33
9.01 Financial Statements, Etc. .......................................... 33
9.02 Litigation .......................................................... 35
9.03 Maintenance of Properties ........................................... 35
9.04 Existence ........................................................... 35
9.05 Compliance with Laws and Other Agreements ........................... 35
9.06 Insurance ........................................................... 36
9.07 Restricted Transactions ............................................. 36
9.08 Debt ................................................................ 36
9.09 Investments ......................................................... 36
9.10 Dividend Payments ................................................... 37
9.11 Asset Disposition ................................................... 37
9.12 Negative Pledge ..................................................... 37
9.13 Governmental Approvals; Material Concessions ........................ 39
9.14 Transactions with Affiliates ........................................ 39
9.15 Wireless Gross Revenues ............................................. 39
9.16 Cash Flow ........................................................... 39
9.17 Certain Financial Covenants ......................................... 39
9.18 Limitation on Capital Expenditures by Iusatel S.A. de C.V. .......... 40
SECTION 10. EVENTS OF DEFAULT ............................................ 40
SECTION 11. THE AGENT .................................................... 44
11.01 Appointment, Powers and Immunities ................................. 44
11.02 Reliance by Agent .................................................. 45
11.03 Defaults ........................................................... 45
11.04 Rights as a Bank ................................................... 45
11.05 Indemnification .................................................... 45
11.06 Non-Reliance on Agent and Other Banks .............................. 46
11.07 Failure to Act ..................................................... 46
11.08 Resignation or Removal of Agent .................................... 46
SECTION 12. MISCELLANEOUS ................................................ 47
12.01 Waiver ............................................................. 47
12.02 Notices ............................................................ 47
12.03 Expenses, Etc. ..................................................... 47
<PAGE>
12.04 Amendments, Etc. ................................................... 48
12.05 Successors and Assigns ............................................. 48
12.06 Assignments and Participations ..................................... 49
12.07 Survival ........................................................... 50
12.08 Captions ........................................................... 50
12.09 Counterparts ....................................................... 50
12.10 Governing Law ...................................................... 50
12.11 Jurisdiction, Service of Process and Venue ......................... 50
12.12 Waiver of Jury Trial ............................................... 51
12.13 Waiver of Sovereign Immunity ....................................... 51
12.14 Judgment Currency .................................................. 52
12.15 Use of English Language ............................................ 52
12.16 Treatment of Certain Information; Confidentiality .................. 53
EXHIBIT A -- FORM OF NOTE
EXHIBIT B -- FORM OF OPINION OF SPECIAL NEW YORK COUNSEL TO IUSACELL
EXHIBIT C -- FORM OF OPINION OF SPECIAL MEXICAN COUNSEL TO IUSACELL
EXHIBIT D -- FORM OF PROCESS AGENT ACCEPTANCE
EXHIBIT E -- FORM OF PLEDGE AGREEMENT
EXHIBIT F -- FORM OF SUBORDINATION AGREEMENT
<PAGE>
CREDIT AGREEMENT dated as of February 16, 1996 among GRUPO IUSACELL, S.A.
de C.V., a corporation duly organized and validly existing under the laws of
Mexico ("Iusacell"); each of the subsidiaries of Iusacell that is a signatory
hereto identified under the caption "GUARANTORS" on the signature pages hereto
(individually, a "Guarantor" and, collectively, the "Guarantors"; Iusacell and
the Guarantors are collectively referred to as the "Obligors"); each of the
lenders that is a signatory hereto identified under the caption "BANKS" on the
signature pages hereto or that, pursuant to Section 12.06(b) hereof, shall
become a "Bank" hereunder (individually, a "Bank" and, collectively, the
"Banks"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association, as agent for the Banks (in such capacity, together with its
successors in such capacity, the "Agent").
The parties hereto hereby agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Additional Costs" shall have the meaning assigned to that term in Section
5.01 hereof.
"Advance Date" shall have the meaning assigned to that term in Section
4.06 hereof.
"Annualized Operating Cash Flow" shall mean, at any date of determination
thereof, the product of (a) Operating Cash Flow for the period of the two
immediately preceding fiscal quarters ending on, or most recently ended prior
to, such date of determination and (b) two.
"Applicable Lending Office" shall mean, for each Bank, the "Lending
Office" of such Bank (or of an affiliate of such Bank) designated on the
signature pages hereof or such other office of such Bank (or of an affiliate of
such Bank) as such Bank may from time to time specify to the Agent and Iusacell
as the office by which its Loans are to be made and maintained.
"Applicable Margin" shall mean (a) with respect to Variable Rate Loans, 3%
per annum; and (b) with respect to Eurodollar Loans, 4% per annum.
Credit Agreement
<PAGE>
"Available Commitment" shall mean, for each period set forth below, the
amount set forth below opposite such period:
Period Amount
------ ------
From the date hereof
to and including March 31, 1996 $35,000,000
From and including April 1, 1996
to and including December 15, 1996 $65,000,000 minus the aggregate
outstanding principal amount of
the Loans as of the close of
business on March 31, 1996
"Availability Period" means the period commencing on the date hereof
and ending on the Termination Date.
"Basic Documents" shall mean, collectively, this Agreement, the
Pledge Agreement, the Subordination Agreement and the Notes.
"Business Day" shall mean (a) any day on which commercial banks are
not authorized or required to close in New York City and Mexico City, Mexico and
(b) if such day relates to a payment or prepayment of principal of or interest
on, or an Interest Period for, any Eurodollar Loan or a notice by Iusacell with
respect to any such payment, prepayment or Interest Period for any Eurodollar
Loan, any day on which dealings in Dollar deposits are carried out in the London
interbank market.
"Capital Lease" shall mean a lease that would be capitalized on a
balance sheet of the lessee prepared in accordance with Mexican GAAP.
"Cash Interest Expense" shall mean, for any period, all interest
accrued and paid in cash in respect of Debt of Iusacell and its Consolidated
Subsidiaries (determined on a consolidated basis).
"Change of Control" shall mean: (a) any Person or two or more
Persons acting in concert shall have acquired, directly or indirectly, after the
date hereof beneficial ownership of more than 14% of the outstanding shares of
voting stock of Iusacell; (b) during any period of 12 consecutive months,
commencing before or after the date hereof, individuals who at the beginning of
such 12-month period were directors of Iusacell cease for any reason to
constitute a majority of the board of directors of Iusacell; (c) Mr. Edward R.
Kingman, Jr. shall cease to be the Chief Financial Officer of Iusacell for a
period of 60 days during which no other Person has been elected or appointed to
such office in accordance with the terms of the Shareholders Agreement; or (d)
Mr. Guillermo Amore shall cease to be the General Director of Iusacell for
Credit Agreement
<PAGE>
a period of 60 days during which no other Person has been elected or appointed
to such office in accordance with the terms of the Shareholders Agreement.
"Chase" shall mean The Chase Manhattan Bank (National Association).
"Chief Financial Officer" of any Person shall mean Mr. Edward R.
Kingman, Jr. or any successor approved by the Agent.
"Closing Date" shall mean the date on which this Agreement is
executed by each Obligor, each Bank and the Agent.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral Amount" shall have the meaning assigned to that term in
Section 3.01(b) hereof.
"Commitment" shall mean, for each Bank, the obligation of such Bank
to make Loans in an aggregate principal amount at any one time outstanding up to
but not exceeding the amount set opposite the name of such Bank on the signature
pages hereof under the caption "Commitment" (as the same may be reduced from
time to time pursuant to Section 2.06 hereof).
"Debt" of any Person shall mean, at any date, without duplication,
(a) all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (d) all obligations of such Person as lessee under Capital
Leases, (e) all Debt of others secured by a Lien on any asset of such Person,
whether or not such Debt is assumed by such Person, (f) all obligations of such
Person with respect to product invoices incurred in connection with export
financing, (g) all obligations of such Person under repurchase agreements for
the stock of such Person or another Person, (h) all obligations of such Person
in respect of letters of credit or similar instruments issued or accepted by
banks and other financial institutions for account of such Person, (i) all
obligations of such Person under derivative instruments, however denominated,
identified or documented and (j) all Debt of others guaranteed by such Person
(other than pursuant to endorsements of checks and other instruments in the
ordinary course of business).
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Debt Service" shall mean, for any period, the sum of (a) Cash
Interest Expense for such period and (b) all regularly scheduled payments or
prepayments of principal of Debt of Iusacell and its Consolidated Subsidiaries
(determined on a consolidated basis) made for such period, including without
limitation all such payments in respect of Capital Leases.
Credit Agreement
<PAGE>
"Dividend Payment" shall mean dividends (in cash, property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of Iusacell or of any warrants, options or other rights to
acquire the same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market or equity value of Iusacell or any of its Subsidiaries, (but excluding
any bonus payments made to Guillermo Amore calculated in this manner in
accordance with his employment contract), but excluding dividends payable solely
in shares of common stock of Iusacell.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Eligible Transferee" shall mean any bank or other financial
institution having aggregate assets of $100,000,000 or more.
"Encumbered Asset" shall have the meaning assigned to that term in
Section 9.12(vii) hereof.
"Eurodollar Loans" shall mean Loans that bear interest at rates
based on rates referred to in the definition of "LIBO Base Rate" in this Section
1.01.
"Event of Default" shall have the meaning assigned to such term in
Section 10 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to Chase on such day on such transactions as determined by the
Agent.
"Financing" shall mean: (i) any contribution of capital from any
Person not a member of the Iusacell Group to any Person that is a member of the
Iusacell Group (other than capital that is contributed by shareholders of
Iusacell to fund the 450 Authorization Fee Debt); (ii) any issuance of any
equity shares or securities convertible into or exchangeable for any equity
shares, or granting of any option, warrant or other right to purchase or
subscribe for any such equity shares or any such securities (collectively,
"Equity"), by a member of the Iusacell Group to any Person not a member of the
Iusacell Group (other than issuances of Equity to shareholders of Iusacell to
fund the 450 Authorization Fee Debt); (iii) any sales, pledge or other transfer
of any Equity by a member of the Iusacell Group to any Person not a member of
the Iusacell Group; (iv) any material borrowing or other contracting of
indebtedness by any member
Credit Agreement
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of the Iusacell Group from any Person not a member of the Iusacell Group, and
any sale, pledge or other transfer of assets having similar effect, other than
in the ordinary course of business (other than Northern Telecom Debt); (v) any
issuance of any debt security, or any sale, pledge or other transfer of any such
debt security, by a member of the Iusacell Group to any Person not a member of
the Iusacell Group or (vi) the Offering.
"Financing Proceeds Recipient" shall have the meaning assigned to
that term in Section 3.01(b) hereof.
"450 Authorization Fee" shall mean the payment required to be made
by Iusacell in connection with the approval by the Secretaria de Comunicaciones
y Transportes (the "SCT") of Iusacell's 450 service technical and economic plans
and the authorization by the SCT of Iusacell to provide 450 service
commercially.
"450 Authorization Fee Debt" shall mean Debt of Iusacell owing to
its shareholders in an amount not in excess of $60,000,000 incurred to pay the
450 Authorization Fee that is subordinated and junior in right of payment to
this Agreement and the Notes on terms and conditions satisfactory to the Agent
and the Banks, including without limitation a term and condition that no
payments may be made on such debt until the occurrence of the Termination Date
and all amounts outstanding under this Agreement and the Notes have been paid in
full.
"Gross Revenues" shall mean, for any period, gross revenues
(excluding extraordinary items) of Iusacell and its Subsidiaries (determined on
a consolidated basis) derived in the ordinary course of business as presently
conducted by Iusacell and its Subsidiaries.
"Guarantee" shall have the meaning assigned to that term in Section
10(m)(x) hereof.
"Guaranteed Obligations" shall have the meaning assigned to that
term in Section 6.01 hereof.
"Interest Coverage Ratio" shall mean, as at any date of
determination thereof, the ratio of (a) Operating Cash Flow for the period of
four consecutive fiscal quarters ending on, or most recently ended prior to,
such date of determination and (b) Cash Interest Expense for such period.
"Interest Period" shall mean:
(a) with respect to any Eurodollar Loan:
(i) initially, the period commencing on the date of such Loan and
ending one month thereafter; and
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(ii) thereafter, each period commencing on the last day of the
preceding Interest Period and ending one month thereafter;
(b) with respect to any Variable Rate Loan:
(i) initially, the period commencing on the date of such Loan and
ending 30 days thereafter; and
(ii) thereafter, each period commencing on the last day of the
preceding Interest Period and ending 30 days thereafter.
Notwithstanding the foregoing: (x) any Interest Period which would otherwise end
on a day which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (y) if
any Interest Period would otherwise end after the Termination Date, such
Interest Period shall end on the Termination Date and (z) notwithstanding clause
(y) above, no Interest Period for any Eurodollar Loan shall have a duration of
less than one month and if such Eurodollar Loan would otherwise be a shorter
period, such Eurodollar Loan shall not be available for such shorter period.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such Person), but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days arising
in connection with the sale of inventory or supplies by such Person in the
ordinary course of business; or (c) the entering into of any guarantee of, or
other contingent obligation with respect to, Debt or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person; provided, however, that the 450 Authorization Fee
shall not be deemed to be an Investment.
"Iusacell Group" shall mean Iusacell and each Guarantor.
"judgment currency" shall have the meaning assigned to that term in
Section 12.14 hereof.
"Leverage Ratio" shall mean, at any date of determination thereof,
the ratio of (a) Total Debt on such date of determination to (b) Annualized
Operating Cash Flow on such date of determination.
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"LIBO Base Rate" shall mean, with respect to any Loan for any
Interest Period therefor, the arithmetic mean (rounded upwards, if necessary, to
the nearest 1/16 of 1%), as determined by the Agent, of the rates per annum
quoted by the respective Reference Banks at approximately 11:00 a.m. London time
(or as soon thereafter as practicable) on the date two Business Days prior to
the first day of such Interest Period for the offering by the respective
Reference Banks to leading banks in the London interbank market of Dollar
deposits having a term comparable to such Interest Period and in an amount
comparable to the principal amount of the Loan to be made by the respective
Reference Banks for such Interest Period. If any Reference Bank is not
participating in any Loan during any Interest Period therefor, the LIBO Base
Rate for such Loans for such Interest Period shall be determined by reference to
the amount of such Loans that such Reference Bank would have made or had
outstanding had it been participating in such Loan during such Interest Period.
If any Reference Bank does not timely furnish such information for determination
of any LIBO Base Rate, the Agent shall determine such LIBO Base Rate on the
basis of the information timely furnished by the remaining Reference Banks.
"LIBO Rate" shall mean, for any Loan for any Interest Period, a rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined
by the Agent to be equal to the LIBO Base Rate for such Loan for such Interest
Period divided by 1 minus the Reserve Requirement (if any) for such Loan for
such Interest Period.
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For purposes of this Agreement, Iusacell shall be deemed to own subject
to a Lien any asset that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset or any account receivable
transferred by it with recourse (including any such transfer subject to a
holdback or similar arrangement that effectively imposes the risk of
collectability on the transferor).
"Loans" shall mean Eurodollar Loans, Variable Rate Loans or both.
"Majority Banks" shall mean Banks having at least 51% of the
aggregate amount of the Commitments or, if the Commitments shall have
terminated, Banks holding at least 51% of the Loans.
"Market Exchange Rate" shall mean, for any currency, the rate at
which such currency shall be converted into Dollars (i) on the basis of the noon
buying rate in New York City for cable transfers in such currency as certified
for customs purposes by the Federal Reserve Bank of New York or (ii) in the
event the Federal Reserve Bank of New York does not certify a noon buying rate
for such currency, on the basis of the rate quoted or published in the relevant
central bank or the rate for buying such currency in Dollars or (iii) if no such
rate is quoted or published, the rate determined by the Agent based on a
quotation or an average of quotations given to the Agent by commercial banks
which conduct foreign exchange operations or based on such other method as the
Agent may reasonably determine to calculate a market exchange rate.
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"Material Adverse Change" with respect to any Loan shall mean, (a)
for the period from the date of this Agreement to and including the date of such
Loan and (b) for the period from the date of the most recent financial
statements of Iusacell referred to in Section 8.02 to and including the date of
such Loan, a material adverse change with respect to general market conditions
in the United States or Mexico, including without limitation, changes in general
economic, financial, political or military conditions in the United States or
Mexico, which in the reasonable opinion of the Majority Banks, might result in a
Material Adverse Effect.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the assets, business, operations, financial condition, liabilities or
capitalization of Iusacell and its Subsidiaries taken as a whole, (b) the
ability of Iusacell to perform its obligations under any of the Basic Documents,
(c) the validity or enforceability of any of the Basic Documents or (d) the
rights and remedies of the Agent and the Banks under any of the Basic Documents.
"Material Concessions" shall mean the concessions required to
provide the cellular telephone service and data transmission service in Mexico,
whether on the date hereof or hereafter, including without limitation any
concession relating to 450 service.
"Material Terms and Conditions" shall mean, with respect to any
concession, the terms and conditions of such concession the violation of which,
or non-compliance with, would cause any member of the Iusacell Group to (a) lose
such concession, (b) lose the rights relating to such concession, (c) incur
increased costs to provide the service under such concession or (d) suffer a
restriction of any right to provide service under such concession.
"Mexican GAAP" shall mean Mexican generally accepted accounting
principles as in effect from time to time.
"Mexican Taxes" shall mean 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 or 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
principal, interest, premiums, charges, fees or other amounts made on, under or
in respect of any thereof.
"Mexico" shall mean the United Mexican States.
"Northern Telecom Debt" shall mean the debt of Iusacell in an amount
not in excess of $47,000,000 owing to Northern Telecom International Finance B.
V. as refinanced by Banco del Atlantico, S.A., which amount Iusacell shall have
the right to have refinanced
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pursuant to a guarantee by the Export Development Corporation of Canada,
provided that the principal amount thereof is not increased as a consequence of
such refinancing.
"Note" shall mean each promissory note provided for by Section
2.03(a) hereof 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.
"Offering" shall mean the offering of debt securities by Iusacell in
the United States of America and other markets on substantially the terms and
conditions set forth in the the letter dated January 16, 1996 from [Salomon
Brothers].
"Offering Eurodollar Loans" shall have the meaning assigned to that
term in Section 3.01(b) hereof.
"Offering Proceeds Receipt Date" shall have the meaning assigned to
that term in Section 3.01(b) hereof.
"Officers' Certificate" shall mean a certificate duly executed and
delivered by the general manager and the Chief Financial Officer of Iusacell.
"Operating Cash Flow" shall mean, for any period, the sum of the
following for Iusacell and its Consolidated Subsidiaries (determined on a
consolidated basis): (a) net income for such period plus (b) interest,
depreciation and amortization expense for such period plus (c) all other
non-cash charges and extraordinary items for such period.
"Participant" shall have the meaning assigned to that term in
Section 12.01(c) hereof.
"Payor" shall have the meaning assigned to that term in Section 4.06
hereof.
"Permitted Investments" shall mean: (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any state
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; and (c) commercial paper rated A-1 or better or P-1 by Standard &
Poor's Corporation or Moody's Investors Services, Inc., respectively, maturing
not more than 90 days from the date of acquisition thereof; in each case so long
as the same (x) provide for the payment of principal and interest (and not
principal alone or interest alone) and (y) are not subject to any contingency
regarding the payment of principal or interest.
"Permitted Liens" shall have the meaning assigned to that term in
Section 9.12 hereof.
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"Person" shall mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Pledge Agreement" shall mean a pledge agreement substantially in
the form of Exhibit E.
"Post-Default Rate" shall mean, in respect of any principal of any
Loan or any other amount under this Agreement or any Note during any Default, a
rate per annum equal to the sum of (i) 2% plus (ii) the interest rate for such
Loan as provided in Section 3.02(a) hereof plus the Applicable Margin as in
effect from time to time.
"Prime Rate" shall mean the rate of interest from time to time
announced by the Chase at the Principal Office as its prime commercial lending
rate.
"Principal Office" shall mean the principal office of Chase, located
on the date hereof at 1 Chase Manhattan Plaza, New York, New York 10081.
"Process Agent" shall have the meaning assigned to that term in
Section 12.11(b) hereof.
"Process Agent Acceptance" shall mean a letter from the Process
Agent to the Bank, in substantially the form of Exhibit D hereto.
"Reference Banks" shall mean (a) initially, Chase and (b)
thereafter, such other Banks as the Agent and Iusacell may agree.
"Regulations A and D" shall mean, respectively, Regulations A and D
of the Board of Governors of the Federal Reserve System (or any successor), as
the same may be modified and supplemented and in effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any change
after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Required Payment" shall have the meaning assigned to that term in
Section 4.06 hereof.
"Reserve Requirement" shall mean, for any Interest Period for any
Loan, the average maximum rate at which reserves (including, without limitation,
any marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period
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under Regulation D by member banks of the Federal Reserve System in New York
City with deposits exceeding one billion Dollars against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the Reserve Requirement shall include any other reserves
required to be maintained by such member banks by reason of any Regulatory
Change with respect to (i) any category of liabilities that includes deposits by
reference to which the LIBO Base Rate is to be determined as provided in the
definition of "LIBO Base Rate" in this Section 1.01 or (ii) any category of
extensions of credit or other assets that includes any Loan.
"Shareholders Agreement" shall mean the Shareholders Agreement dated
as of November 30, 1993 by and among (a) Iusacell, (b) Bell Atlantic Latin
American Holdings, Inc., (c) Ing. Alejo Peralta y Diaz Ceballos, (d) Ing. Carlos
Peralta Quintero and (e) Grupo Industrial Iusa, S.A. de C.V., as in effect on
the date hereof.
"Subordination Agreement" shall mean (a) a subordination agreement
substantially in the form of Exhibit F executed by The Chase Manhattan Bank,
Iusacell and the Agent (the "Chase Subordination Agreement") and (b) a
subordination agreement substantially in the form of Exhibit F executed by
FIUSA, S.A. de C.V., Iusacell and the Agent (the "FIUSA Subordination
Agreement").
"Subsidiary" shall mean with respect to any Person (the "parent"),
any other Person a majority of the equity ownership having the right to vote, or
the capital stock (or other equity interest if such Person is not a
corporation), of which is at the time of determination owned, directly or
indirectly, by the parent or by one or more other Subsidiaries, or by the parent
and one or more other Subsidiaries.
"Termination Date" shall mean the earlier of (a) July 31, 1997 and
(b) the date of the termination of the Commitments pursuant to Section 10 or
otherwise.
"Total Debt" shall mean, as at any date of determination thereof,
Debt of Iusacell and its Consolidated Subsidiaries (determined on a consolidated
basis) on such date of determination; provided, however, that (a) Debt of any
member of the Iusacell Group owing to any affiliate of such member that is
subordinated on terms and conditions satisfactory to the Agent and (b) the 450
Authorization Fee Debt, in each case, shall be excluded from any determination
of Total Debt.
"Variable Rate" shall mean, for any day, the higher of (a) the
Federal Funds Rate for such day plus 1/2 of 1% per annum and (b) the Prime Rate
for such day. Each change in any interest rate provided for herein based upon
the Variable Rate resulting from a change in the Variable Rate shall take effect
at the time of such change in the Variable Rate.
"Variable Rate Loans" shall mean Loans that bear interest at rates
based on the Variable Rate.
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1.02 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Bank hereunder shall be prepared, in accordance
with Mexican GAAP as in effect from time to time, applied on a basis consistent
with that used in the financial statements of Iusacell referred to in Section
9.01 hereof. To enable the ready and consistent determination of compliance with
the covenants set forth in Section 9 hereof, Iusacell will not change the last
day of their fiscal year from December 31, or the last days of the first three
fiscal quarters in each of its fiscal years from March 31, June 30 and September
30 of each year, respectively.
Section 2. The Loans, Note and Prepayments.
2.01 The Loans. (a) Each Bank severally agrees, on the terms and
conditions of this Agreement, to make loans to Iusacell in Dollars from time to
time during the Availability Period in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount of the Available Commitment
of such Bank, as in effect from time to time (such loans being herein called the
"Loans").
(b) The Available Commitment of each Bank is not revolving and a Loan may
not be repaid or prepaid and reborrowed unless such borrowing in made in
accordance with Section 2.01(d).
(c) No more than six separate Interest Periods from each Bank may be
outstanding at any time.
(d) Each Bank severally agrees, on the terms and conditions of this
Agreement, to make a new Loan to Iusacell concurrently with any optional
prepayment of the outstanding Loans pursuant to 2.04; provided that (i) the
principal amount of such Bank's new Loan shall not exceed the principal amount
of its outstanding Loan being concurrently prepaid and (ii) no Bank shall make a
new Loan unless its outstanding Loan is concurrently repaid in full. Each
Borrowing under this Section 2.01(d) shall be made from the several Banks
ratably in proportion to their respective Commitments.
2.02 Applicable Lending Office. The Loans of each Bank shall be made
and maintained at the Applicable Lending Office of such Bank.
2.03 Notes.
(a) Each Eurodollar Loan of each Bank shall be evidenced by a
separate promissory note of Iusacell, substantially in the form of Exhibit A-1
hereto, dated the date such Eurodollar Loan is made, payable to such Bank in a
principal amount equal to the amount of such Eurodollar Loan, and issued by
Iusacell and guaranteed, por aval, by each Guarantor.
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(b) Each Variable Rate Loan of each Bank shall be evidenced by a
separate promissory note of Iusacell, substantially in the form of Exhibit A-2
hereto, dated the date such Variable Rate Loan is made, payable to such Bank in
a principal amount equal to the amount of such Variable Rate Loan, and issued by
Iusacell and guaranteed, por aval, by each Guarantor.
(c) Each Bank shall be entitled to have the Notes substituted or
exchanged in connection with a permitted assignment of the Loans and Notes
pursuant to Section 12.06(b) hereof.
2.04 Prepayments. Subject to Section 4.04 hereof, Iusacell shall
have the right to prepay the Loans at any time or from time to time, provided
that: (a) Iusacell shall give the Bank notice of each such prepayment as
provided in Section 4.05 hereof (and, upon the date specified in any such notice
of prepayment, the amount to be prepaid shall become due and payable hereunder);
and (b) upon any prepayment of the Loans other than on the last day of an
Interest Period therefor, Iusacell shall simultaneously make payment of any
amount under Section 5.05 hereof required as a result of such prepayment.
2.05 Borrowings. Iusacell shall give the Agent notice of each
borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m.
New York time on the date specified for each borrowing of Loans hereunder, each
Bank shall make available the amount of the Loan or Loans to be made by it on
such date to the Agent, at account number NYAO-DI-900-9-000002 maintained by the
Agent with Chase at the Principal Office, in immediately available funds, for
account of Iusacell. The amount so received by the Agent shall, subject to the
terms and conditions of this Agreement, be made available to Iusacell by
depositing the same, in immediately available funds, in an account of Iusacell
maintained with Chase at the Principal Office designated by Iusacell.
2.06 Changes of Commitment.
(a) Iusacell shall have the right to terminate or reduce the
Commitments at any time or from time to time, provided that: (x) Iusacell shall
give notice of each such termination or reduction as provided in Section 4.05
hereof; and (y) each partial reduction of the Commitments shall be in an
aggregate amount at least equal to $5,000,000.
(b) The Commitment of each Bank shall be automatically reduced on
the date of each Loan made by such Bank by the amount of such Loan.
(c) The Commitment shall be automatically reduced to zero on the
Termination Date.
(d) The Commitment once terminated or reduced may not be reinstated.
2.07 Several Obligations; Remedies Independent. The failure of any
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Agent shall be
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responsible for the failure of any other Bank to make a Loan to be made by such
other Bank, and (except as otherwise provided in Section 4.06 hereof) no Bank
shall have any obligation to the Agent or any other Bank for the failure by such
Bank to make any Loan required to be made by such Bank. The amounts payable by
Iusacell at any time hereunder and under the Notes to each Bank shall be a
separate and independent debt and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement and the Notes, and it shall not
be necessary for any other Bank or the Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.08 Commitment Fee. Iusacell shall pay to the Agent for account of
each Bank a commitment fee on the daily average unused amount of such Bank's
Available Commitment for the period from and including the date hereof to but
not including the earlier of the date such Available Commitment is terminated
and the Termination Date, at a rate per annum equal to 3/10 of 1%. Accrued
commitment fees shall be payable on March 31, 1996 and the Termination Date.
Section 3. Payments of Principal and Interest.
3.01 Repayment of the Loans. (a) Iusacell hereby promises to pay to
the Agent for the account of each Bank the entire outstanding principal of
amount of the Loans of such Bank, and each Loan shall mature, on the Termination
Date.
(b) The Loans (together with accrued interest thereon) shall be
prepaid in full on the date (the "Offering Proceeds Receipt Date") that any
member of the Iusacell Group (the "Financing Proceeds Recipient") receives the
proceeds of a Financing; provided, however, that if the last day of the Interest
Period for any outstanding Eurodollar Loan is not the Offering Proceeds Receipt
Date, all such Eurodollar Loans (the "Offering Eurodollar Loans") shall not be
prepaid on the Offering Proceeds Receipt Date; provided, further, however, the
Financing Proceeds Recipient shall pay to the Agent on the Offering Proceeds
Receipt Date an amount (the "Collateral Amount") equal to the sum of (x) the
outstanding principal amount of all Offering Eurodollar Loans plus (y) all
interest accrued and unpaid interest from the first day of the Interest Period
for all Offering Eurodollar Loans to the Offering Proceeds Receipt Date and (z)
all interest on all Offering Eurodollar Loans that will accrue from the Offering
Proceeds Receipt Date to the last day of each Interest Period for such Offering
Eurodollar Loans. The Agent shall deposit the Collateral Amount into a
collateral account (bearing interest at such rate as the Agent and Iusacell
shall agree) under the sole control of the Agent. Upon the last day of the
Interest Period for each Offering Eurodollar Loan, the Agent shall use the
Collateral Amount to pay each such Offering Eurodollar Loan. Upon payment in
full of all Offering Eurodollar Loans (together with accrued interest thereon),
the Agent shall pay to Iusacell all remaining proceeds in such collateral
account.
3.02 Interest. (a) Iusacell hereby promises to pay to the Agent for
the account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period from and including the date on which such Loan
is made to but excluding the date such Loan shall be paid in full, at the
following rates per annum: (i) for a variable Rate Loan, at a
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variable rate per annum equal to the Variable Rate plus the Applicable Margin
and (ii) for a Eurodollar Loan, at a fixed rate equal to the LIBO Rate (as in
effect from time to time) plus the Applicable Margin. Notwithstanding the
foregoing, Iusacell hereby promises to pay to the Agent for the account of each
Bank interest at the applicable Post-Default Rate on any principal of any Loan
and on any other amount payable by Iusacell hereunder or under any Note held by
such Bank that shall not be paid in full when due (whether at stated maturity,
by acceleration or otherwise), for the period from and including the due date
thereof to but excluding the date the same is paid in full.
(b) Accrued interest on any Loan shall be payable (i) on the last
day of each Interest Period therefor and (ii) upon the payment or prepayment
thereof (but only on the principal amount so paid or prepaid), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand.
(c) Promptly after the determination of any interest rate provided
for herein or any change therein, the Agent shall give notice thereof to
Iusacell and the Banks.
Section 4. Payments; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and any other amounts to be made by Iusacell under this
Agreement and any Note shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Agent at the Principal
Office, not later than 1:00 p.m. New York time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).
(b) Iusacell shall, at the time of making each payment under this
Agreement or any Note for the account of any Bank, specify to the Agent (which
shall so notify the intended recipient thereof) the Loans or other amounts
payable by Iusacell hereunder to which such payment is to be applied (and in the
event that Iusacell fails to so specify, or if an Event of Default has occurred
and is continuing, the Agent may distribute such payment to the Banks for
application in such manner as it or the Majority Banks, subject to Section 4.02
hereof, may determine to be appropriate).
(c) Each payment received by the Agent under this Agreement or any
Note for account of any Bank shall be paid by the Agent promptly to such Bank,
in immediately available funds, for account of such Bank's Applicable Lending
Office for the Loan or other obligation in respect of which such payment is
made.
(d) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day (unless such Business Day falls in
another calendar month, in which
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case such Interest Period shall end on the next preceding Business Day) and
interest shall be payable for any principal so extended for the period of such
extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing of Loans from the Banks under Section 2.01 hereof
shall be made from the relevant Banks, and each termination or reduction of the
amount of the Commitments under Section 2.06 hereof shall be applied to the
respective Commitments of the relevant Banks, pro rata according to the amounts
of their respective Commitments; (b) each payment or prepayment of principal of
Loans by Iusacell shall be made for account of the relevant Banks pro rata in
accordance with the respective unpaid principal amounts of the Loans held by
them; and (c) each payment of interest on Loans by Iusacell shall be made for
account of the relevant Banks pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Banks.
4.03 Computations. Interest on any Loan shall be computed on the
basis of a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which interest is payable.
4.04 Minimum Amounts. Each borrowing or partial prepayment of
principal of Loans shall be in an amount at least equal to $3,000,000 or a
greater multiple of $1,000,000.
4.05 Certain Notices. Notices by Iusacell to the Agent of
termination or reduction of the Commitments and of borrowings and prepayments of
Loans shall be irrevocable and shall be effective only if received by the Agent
not later than 10:00 a.m. New York time on the number of Business Days prior to
the date of the relevant termination, reduction, borrowing or prepayment
specified below:
Number of
Business
Notice Days Prior
------ ----------
Termination or reduction
of the Commitments 4
Borrowing of Eurodollar Loans
or Variable Rate Loans 4
Prepayment of Eurodollar Loans
or Variable Rate Loans 4
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing or
prepayment shall specify whether Loans comprising such borrowing or prepayment
are Eurodollar Loans or Variable Rate Loans and the amount (subject to Section
4.04 hereof) of each Eurodollar Loan or Variable Rate Loan
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<PAGE>
to be borrowed or prepaid and the date of borrowing or prepayment (which shall
be a Business Day). The Agent shall promptly notify the Banks of the contents of
each such notice.
4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall have
been notified by a Bank or Iusacell (the "Payor") prior to the date on which the
Payor is to make payment to the Agent of (in the case of a Bank) the proceeds of
a Loan to be made by such Bank hereunder or (in the case of Iusacell) a payment
to the Agent for account of one or more of the Banks hereunder (such payment
being herein called the "Required Payment"), which notice shall be effective
upon receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient(s) on such date; and, if the Payor
has not in fact made the Required Payment to the Agent, the recipient(s) of such
payment shall, on demand, repay to the Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to the Federal Funds Rate for such day and, if such recipient(s) shall
fail promptly to make such payment, the Agent shall be entitled to recover such
amount, on demand, from the Payor, together with interest as aforesaid, provided
that if neither the recipient(s) nor the Payor shall return the Required Payment
to the Agent within three Business Days of the Advance Date, then, retroactively
to the Advance Date, the Payor and the recipient(s) shall each be obligated to
pay interest on the Required Payment as follows:
(i) if the Required Payment shall represent a payment to be made by
Iusacell to the Banks, Iusacell and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the Post-Default Rate (without duplication of the
obligation of Iusacell under Section 3.02 hereof to pay interest on the
Required Payment at the Post-Default Rate), it being understood that the
return by the recipient(s) of the Required Payment to the Agent shall not
limit such obligation of Iusacell under said Section 3.02 to pay interest
at the Post-Default Rate in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a Loan to
be made by the Banks to Iusacell, the Payor and Iusacell shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment pursuant to Section 3.02 hereof, it being understood
that the return by Iusacell of the Required Payment to the Agent shall not
limit any claim Iusacell may have against the Payor in respect of such
Required Payment.
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<PAGE>
4.07 Sharing of Payments, Etc.
(a) Iusacell agrees that, in addition to (and without limitation of)
any right of set-off, banker's lien or counterclaim a Bank may otherwise have,
each Bank shall be entitled, at its option (to the fullest extent permitted by
law), to set off and apply any deposit (general or special, time or demand,
provisional or final), or other indebtedness, held by it for the credit or
account of such Obligor at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of the Loans of such Bank
or any other amount payable to such Bank hereunder, that is not paid when due
(regardless of whether such deposit or other indebtedness are then due to
Iusacell), in which case it shall promptly notify Iusacell and the Agent
thereof, provided that such Bank's failure to give such notice shall not affect
the validity thereof.
(b) If any Bank shall obtain from Iusacell payment of any principal
of or interest on any Loan owing to it or payment of any other amount under this
Agreement or any other Basic Document through the exercise of any right of
set-off, banker's lien or counterclaim or similar right or otherwise (other than
from the Agent as provided herein), and, as a result of such payment, such Bank
shall have received a greater percentage of the principal of or interest on the
Loans or such other amounts then due hereunder or thereunder by Iusacell to such
Bank than the percentage received by any other Bank, it shall promptly purchase
from such other Banks participations in (or, if and to the extent specified by
such Bank, direct interests in) such Loans or such other amounts, respectively,
owing to such other Banks (or in interest due thereon, as the case may be) in
such amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Banks shall share the benefit of such excess
payment (net of any expenses that may be incurred by such Bank in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid principal
of and/or interest on the Loans or such other amounts, respectively, owing to
each of the Banks. To such end all the Banks shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored.
(c) Iusacell agrees that any Bank so purchasing such a participation
(or direct interest) may exercise all rights of set-off, banker's lien,
counterclaim or similar rights with respect to such participation as fully as if
such Bank were a direct holder of Loans or other amounts (as the case may be)
owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of Iusacell. If, under any applicable bankruptcy, insolvency or other
similar law, any Bank receives a secured claim in lieu of a set-off to which
this Section 4.07 applies, such Bank shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the
rights of the Banks entitled under this Section 4.07 to share in the benefits of
any recovery on such secured claim.
Credit Agreement
<PAGE>
Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) Iusacell shall pay directly to each Bank from time to time such
amounts as such Bank may determine to be necessary to compensate such Bank for
any costs that such Bank determines are attributable to its making or
maintaining of any Loan or its obligation to make any Loan hereunder, or any
reduction in any amount receivable by such Bank hereunder in respect of any Loan
or such obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), in each case resulting from any
Regulatory Change that:
(i) shall subject such Bank (or the Applicable Lending Office) to
any tax, duty or other charge in respect of any Loan or any Note or
changes the basis of taxation of any amounts payable to such Bank under
this Agreement or any Note in respect of any Loan (excluding changes in
the rate of tax on the overall net income of such Bank or of such
Applicable Lending Office by the jurisdiction in which such Bank has its
principal office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the
determination of the LIBO Rate for such Loan) relating to any extensions
of credit or other assets of, or any deposits with or other liabilities
of, the Bank (including, without limitation, any Loan or any deposits
referred to in the definition of "LIBO Base Rate" in Section 1.01 hereof),
or any commitment of such Bank (including, without limitation, the
Commitment of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or any
Note (or any of such extensions of credit or liabilities) or its
Commitment.
If any Bank requests compensation from Iusacell under this Section 5.01(a),
Iusacell may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank thereafter to make Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), provided that such suspension shall
not affect the right of such Bank to receive the compensation so requested.
(b) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), Iusacell shall pay directly to each Bank
from time to time on request such amounts as such Bank may determine to be
necessary to compensate such Bank (or, without duplication, the bank holding
company of which such Bank is a subsidiary) for any costs that it determines are
attributable to the maintenance by such Bank (or any Applicable Lending Office
or such bank holding company) pursuant to any law or regulation of any
jurisdiction or any interpretation, directive or request (whether or not having
the force of law and whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) enacted after the date hereof of
any court or governmental or monetary authority of capital in
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<PAGE>
respect of any Loan of such Bank or its Commitment hereunder (such compensation
to include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Bank (or any Applicable Lending Office or
such bank holding company) to a level below that which it could have achieved
but for such law, regulation, interpretation, directive or request).
(c) Each Bank shall notify Iusacell of any event occurring after the
date hereof entitling such Bank to compensation under paragraph (a) or (b) of
this Section 5.01 as promptly as practicable, but in any event within 60 days
after it obtains actual knowledge thereof; provided that (i) if such Bank fails
to give such notice within 60 days after it obtains actual knowledge of such an
event, such Bank shall, with respect to compensation payable pursuant to this
Section 5.01 in respect of any costs resulting from such event, only be entitled
to payment under this Section 5.01 for costs incurred from and after the date 60
days prior to the date that such Bank does give such notice and (ii) such Bank
will designate a different Applicable Lending Office if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Bank, be disadvantageous to such Bank, except that such
Bank shall have no obligation to designate an Applicable Lending Office located
in the United States of America. Each Bank will furnish to Iusacell a
certificate setting forth the basis and amount of each request by such Bank for
compensation under paragraph (a) or (b) of this Section 5.01. Determinations and
allocations by any Bank for purposes of this Section 5.01 of the effect of any
Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01 on its
costs or rate of return of maintaining any Loan or its obligation to make any
Loan, or on amounts receivable by it in respect of any Loan, and of the amounts
required to compensate the Bank under this Section 5.01, shall, absent manifest
error, be conclusive, provided that such determinations and allocations are made
on a reasonable basis.
5.02 Limitation on LIBO Availability. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any LIBO Base
Rate for any Interest Period for any Eurodollar Loan:
(a) the Agent determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to in
the definition of "LIBO Base Rate" in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for such Loan as provided
herein; or
(b) the Majority Banks determine, which determination shall be
conclusive, and notify the Agent that the relevant rates of interest
referred to in the definition of "LIBO Base Rate" in Section 1.01 hereof
upon the basis of which the rate of interest for such Loan for such
Interest Period is to be determined are not likely adequately to cover the
cost to such Banks of making or maintaining Loans for such Interest
Period;
then the Agent shall give Iusacell and each Bank prompt notice thereof and, so
long as such condition shall remain in effect, the Banks shall be under no
obligation to make additional Eurodollar Loans, and Iusacell shall on the last
day of the then current Interest Periods for
Credit Agreement
<PAGE>
outstanding Eurodollar Loans, either prepay such Eurodollar Loans or convert
such Eurodollar Loans into Variable Rate Loans.
5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
(and, in the sole opinion of such Bank, the designation of a different
Applicable Lending Office would either not avoid such unlawfulness or would be
disadvantageous to such Bank), then such Bank shall promptly notify Iusacell
thereof (with a copy to the Agent), and so long as such condition shall remain
in effect, interest on each Loan of the obligation of such Bank to make or
maintain Eurodollar Loans shall be suspended (in which case the provisions of
Section 5.04 shall be applicable).
5.04 Treatment of Affected Loans. If the obligation of any Bank to
make or maintain a Eurodollar Loan shall be suspended pursuant to Section 5.01
or 5.03 hereof, such Eurodollar Loan shall automatically be converted into a
Variable Rate Loan on the last day of the then current Interest Period for
Eurodollar Loans (or, in the case of a conversion required by Section 5.03, on
such earlier date as such Bank may specify to Iusacell with a copy to the Agent)
and unless and until such Bank gives notice as provided below that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such
conversion no longer exist:
(a) all payments and prepayments of principal that would otherwise
be applied to such Bank's Eurodollar Loans shall be applied instead to its
Variable Rate Loans; and
(b) all Loans that would otherwise be made by such Bank as
Eurodollar Loans shall be made as Variable Rate Loans.
If such Bank gives notice to Iusacell with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
conversion of such Bank's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's Variable Rate Loans shall be automatically converted,
on the first day of the next succeeding Interest Period for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Banks holding Eurodollar Loans and by such Bank are held
pro rata in accordance with their respective Commitments.
5.05 Compensation. Iusacell shall pay to the Agent for the account
of each Bank, upon the request of such Bank through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense that such Bank determines is
attributable to:
(a) any payment or prepayment of any Eurodollar Loan for any reason
(including, without limitation, the acceleration of any Eurodollar Loan pursuant
to Section 10 hereof) on a date other than the last day of the Interest Period
for such Eurodollar Loan; or
Credit Agreement
<PAGE>
(b) any failure by Iusacell for any reason (including, without
limitation, the failure of any of the conditions precedent specified in Section
7 to be satisfied) to borrow a Eurodollar Loan on the date for such borrowing
specified in the relevant notice of borrowing given pursuant to Section 2.05.
Without limiting the effect of the preceding sentence, such compensation shall
include, with respect to any Eurodollar Loan, an amount equal to the excess, if
any, of (i) the amount of interest that otherwise would have accrued on the
principal amount so paid or prepaid for the period from the date of such payment
or prepayment to the last day of the then current Interest Period for such
Eurodollar Loan at the applicable rate of interest provided for herein over (ii)
the amount of interest that otherwise would have accrued on such principal
amount at a rate per annum equal to the interest component of the amount such
Bank would have bid in the London interbank market for Dollar deposits of
leading banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such Bank).
5.06 Taxes.
(a) All payments on account of the principal of and interest on any
Loan, fees and any and all other amounts payable hereunder or under the Notes by
Iusacell to or for the account of each Bank, including, without limitation,
amounts payable under paragraph (b) of this Section 5.06, shall be made free and
clear of and without reduction or liability for Mexican Taxes. Iusacell will pay
all Mexican Taxes, without charge to or offset against any amount due to any
Bank, prior to the date on which penalties attach thereto.
(b) Iusacell shall indemnify each Bank against, and reimburse each
Bank on demand for, any Mexican Taxes and any loss, liability, claim or expense,
including interest, penalties and legal fees, that any Bank may incur at any
time arising out of or in connection with any failure of Iusacell to make any
payment of Mexican Taxes when due.
(c) In the event that Iusacell is required by applicable law, decree
or regulation to deduct or withhold Mexican Taxes from any amounts payable on,
under or in respect of this Agreement or any Loan, Iusacell shall promptly pay
the Person entitled to such amount such additional amounts as may be required,
after the deduction or withholding of Mexican Taxes, to enable such Person to
receive from Iusacell on the due date thereof, an amount equal to the full
amount stated to be payable to such Person under this Agreement.
(d) Iusacell shall furnish to the Agent, copies certified by the
Chief Financial Officer of Iusacell of official tax receipts in respect of each
payment of Mexican Taxes required under this Section 5.06, within 30 days after
the date such payment is made, and Iusacell shall promptly furnish to the Agent
any other information, documents and receipts that the Agent may reasonably
require to establish to its satisfaction that full and timely payment has been
made of all Mexican Taxes required to be paid under this Section 5.06.
Credit Agreement
<PAGE>
Section 6. Guarantee.
6.01 The Guarantee. Each of the Guarantors hereby jointly and
severally guarantees to each Bank and the Agent and their respective successors
and assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made by
the Banks to, and the Notes held by each Bank of, Iusacell and any and all other
amounts due to the Banks or the Agent by Iusacell under this Agreement and under
the Notes and any of the other Basic Documents, in each case strictly in
accordance with the terms thereof (such obligations being herein collectively
called the "Guaranteed Obligations"). Each of the Guarantors hereby further
jointly and severally agrees that if Iusacell shall fail to pay in full when due
(whether at stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, each of the Guarantors will promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
6.02 Obligations Unconditional. The obligations of the Guarantors
under Section 6.01 hereof are absolute and unconditional, joint and several,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of Iusacell under this Agreement, the Notes or any other
agreement or instrument referred to herein or therein, or any substitution,
release or exchange of any other guarantee of or security for any of the
Guaranteed Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 6.02 that the obligations of the Guarantors
hereunder shall be absolute and unconditional, joint and several, under any and
all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not alter
or impair the liability of the Guarantors hereunder which shall remain absolute
and unconditional as described above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or the Notes or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
Credit Agreement
<PAGE>
(iv) any lien or security interest granted to, or in favor of, the
Agent or any Bank or Banks as security for any of the Guaranteed
Obligations shall fail to be perfected.
The Guarantors hereby expressly waive diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Agent or any
Bank exhaust any right, power or remedy or proceed against Iusacell under this
Agreement or the Notes or any other agreement or instrument referred to herein
or therein, or against any other Person under any other guarantee of, or
security for, any of the Guaranteed Obligations.
Each of the Guarantors hereby waives any right to which it may be entitled so
that:
(a) Iusacell be sued first or claims be exhausted against Iusacell,
prior to a claim against any such Guarantor;
(b) Iusacell's assets be used or applied prior to any rights being
exercised against the assets of any such Guarantor being applied or used in
satisfaction of any claims by the Banks or the Agent; and
(c) Claims against the Guarantors be divided among Guarantors.
6.03 Reinstatement. The obligations of the Guarantors under this
Section 6 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of Iusacell in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise and the Guarantors jointly and severally agree
that they will indemnify the Agent and each Bank on demand for all reasonable
costs and expenses (including, without limitation, fees of counsel) incurred by
the Agent or such Bank in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
6.04 Subrogation. The Guarantors hereby jointly and severally agree
that until the payment and satisfaction in full of all Guaranteed Obligations
and the expiration and termination of the Commitments of the Banks under this
Agreement they shall not exercise any right or remedy arising by reason of any
performance by them of their guarantee in Section 6.01 hereof, whether by
subrogation, contribution or otherwise, against Iusacell or any other guarantor
of any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations. If any amount shall be paid to any Guarantor on account of such
subrogation, contribution or other rights at any time prior to the payment in
full of the Guaranteed Obligations, such amount shall be held in trust for the
benefit of the Banks and shall forthwith be paid to the Agent to be credited and
applied to the Guaranteed Obligations, whether matured or unmatured, in
accordance with the terms of this Agreement or to be held by the Agent as
collateral security for Guaranteed Obligations thereafter arising or coming due.
Credit Agreement
<PAGE>
6.05 Remedies. The Guarantors jointly and severally agree that, as
between the Guarantors and the Banks, the obligations of Iusacell under this
Agreement and the Notes may be declared to be forthwith due and payable as
provided in Section 10 hereof (and shall be deemed to have become automatically
due and payable in the circumstances provided in said Section 10) for purposes
of Section 6.01 hereof notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against Iusacell and that, in the event of such declaration (or
such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by Iusacell) shall forthwith
become due and payable by the Guarantors for purposes of said Section 6.01.
6.06 Instrument for the Payment of Money. Each Guarantor hereby
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Bank or the Agent, at its
sole option, in the event of a dispute by such Guarantor in the payment of any
moneys due hereunder, shall have the right to bring motion-action under New York
CPLR Section 3213.
6.07 Continuing Guarantee. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
Section 7. Conditions Precedent.
Section 7.01. Initial Loan. The obligation of any Bank to make its
initial Loan hereunder is subject to the conditions precedent that (i) such Loan
shall be made on or before February 29, 1996 and (ii) the Agent shall have
received on or before the Closing Date the following documents (with, in the
case of clauses (a), (b) and (c) below, sufficient copies for each Bank), each
of which shall be satisfactory to the Agent (and to the extent specified below,
to each Bank) in form and substance:
(a) Corporate Documents. Certified copies of the estatutos sociales
(or equivalent documents) of each Obligor and of all corporate authority
for each Obligor (including, without limitation, board of directors
resolutions, notarized and certified copies of powers of attorney and
evidence of the incumbency of officers) with respect to the execution,
delivery and performance of each of the Basic Documents to which such
Obligor is a party and each other document to be delivered by such Obligor
from time to time in connection herewith and any Loan hereunder (and the
Agent and each Bank may conclusively rely on such certificate until it
receives notice in writing from Iusacell to the contrary).
(b) Officers' Certificate. An Officers' Certificate from each
Obligor, dated the Closing Date, to the effect set forth in Section
7.02(a), (b) and (c).
(c) Opinions of Counsel to Iusacell. An opinion, dated the Closing
Date, of (i) Rogers & Wells, special New York counsel to the Obligors,
substantially in
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<PAGE>
the form of Exhibit B hereto, and (ii) Mr. Carlos Gutierrez, counsel to
the Obligors, substantially in the form of Exhibit C hereto, and in each
case covering such other matters as the Agent or any Bank may reasonably
request (and each Obligor hereby instructs such counsel to deliver such
opinion to the Agent and each Bank).
(d) Notes. The Note for each Bank evidencing the Loan made by such
Bank, duly completed and executed.
(e) Pledge Agreement. The Pledge Agreement, duly executed and
delivered by Iusacell and the Agent and the certificates identified under
the Schedule thereto. In addition, Iusacell shall have taken such other
action as the Agent shall have requested in order to perfect the security
interests created pursuant to the Pledge Agreement.
(f) Subordination Agreement. The Subordination Agreement, duly
executed and delivered by each Merrill Lynch International Bank, LTD,
Iusacell and the Agent.
(g) Process Agent Acceptance and Power of Attorney. A Process Agent
Acceptance, duly executed and delivered by the Process Agent, in
substantially the form of Exhibit D hereto and a notarized power of
attorney appointing such process agent for each Obligor.
(h) Offering Letter Agreement. A letter agreement, duly executed and
delivered by Iusacell and the Agent, defining material adverse market
conditions with respect to the Offering.
(i) Other Documents. Such other documents as the Agent or any Bank
or special New York counsel to Chase may reasonably request.
The obligation of any Bank to make its initial Loan hereunder is
also subject to the payment by Iusacell of (x) such fees as Iusacell shall have
agreed to pay to any Bank or any affiliate thereof or the Agent in connection
herewith and (y) such out-of-pocket expenses as Iusacell shall have agreed to
pay or deliver to the Agent in connection herewith, including, without
limitation, the reasonable fees and expenses of external legal counsel for Chase
and the allocated costs of its internal legal department in connection with the
negotiation, preparation, execution and delivery of this Agreement (to the
extent that statements for such counsel fees and expenses have been delivered to
Iusacell).
Section 7.02. Initial Loan and Subsequent Loans. The obligation of
any Bank to make any Loan hereunder is also subject to the further conditions
precedent that on the date of such Loan, both immediately prior to the making of
such Loan and also after giving effect thereto and to the intended use thereof:
(a) no Default shall have occurred and be continuing;
(b) the representations and warranties made by each Obligor in
Section 8 hereof shall be true and correct on and as of such date of borrowing
with the same force and effect as
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if made on and as of such date of borrowing (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date);
(c) no Material Adverse Change has occurred with respect to such
Loan; and
(d) such Bank shall have received the Note evidencing such Loan,
duly executed and completed.
Section 8. Representations and Warranties. Each Obligor represents
and warrants to the Agent and each Bank that:
8.01 Corporate Existence. Each of the Obligors and its Subsidiaries:
(a) is a corporation duly organized and validly existing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now
conducted; and (c) is qualified to do business as a foreign corporation and is
in good standing in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify could reasonably be expected (either individually or in the aggregate)
to have a Material Adverse Effect.
8.02 Financial Condition. (a) Iusacell has heretofore furnished to
each of the Banks consolidated and consolidating balance sheets of Iusacell and
its Subsidiaries as at December 31, 1994 and the related consolidated statements
of income, changes in capital accounts and cash flows of Iusacell and its
Subsidiaries for the fiscal year ended on said date, with the opinion thereon
(in the case of said consolidated balance sheet and statements) of Mancera,
S.C., and the unaudited consolidated balance sheets of Iusacell and its
Subsidiaries as at September 30, 1995 (and, separately stated, of Iusacell
alone) and the related consolidated statements of income, changes in capital
accounts and cash flows of Iusacell and its Subsidiaries (and, separately
stated, of Iusacell alone) for the nine-month period ended on such date.
(b) All such financial statements are complete and correct and
fairly present the respective consolidated or individual financial condition of
the respective entities as at said dates and the consolidated or individual
results of operations for the fiscal year and nine-month period ended on said
dates (subject, in the case of such financial statements as at September 30,
1995, to normal year-end audit adjustments), all in accordance with Mexican GAAP
applied on a consistent basis. None of said entities has on the date hereof any
material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance
sheets as at said dates. Since September 30, 1995, there has been no material
adverse change in the consolidated financial condition, operations or business
of Iusacell and its Subsidiaries taken as a whole, from that set forth in said
financial statements as at said date.
8.03 Litigation. There are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of any Obligor) threatened against the Obligors or
any of their Subsidiaries that, if
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adversely determined could (either individually or in the aggregate) reasonably
be expected to have a Material Adverse Effect.
8.04 No Breach. None of the execution and delivery of this Agreement
or any Note, the consummation of the transactions herein and therein
contemplated or compliance with the terms and provisions hereof and thereof will
conflict with or result in a breach of, or require any consent under, the
estatutos sociales (or equivalent documents) of the Obligors, or any applicable
law or regulation (including, without limitation, regulations of the Central
Bank of Mexico), or constitutional provision, or any order, writ, injunction or
decree of any court or governmental authority or agency, or any agreement or
instrument to which any Obligor or any of its Subsidiaries is a party or by
which any of them or any of their assets is bound or to which any of them is
subject, or constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any assets of any Obligor
or any of its Subsidiaries pursuant to the terms of any such agreement or
instrument.
8.05 Action. Each Obligor has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents; the execution, delivery and performance by each
Obligor of each of the Basic Documents to which it is a party have been duly
authorized by all necessary corporate action on its part (including, without
limitation, any required shareholder approvals); and this Agreement has been
duly and validly executed and delivered by each Obligor and constitutes, and
each Note (when executed and delivered for value) will constitute, its legal,
valid and binding obligation, enforceable against each Obligor in accordance
with its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
8.06 Approvals. (a) No authorizations, approvals or consents of
(including any exchange control approval), and no filings or registrations with,
any governmental or regulatory authority or agency (including, without
limitation, the Export-Import Bank of the United States of America), or any
securities exchange, are necessary for the execution, delivery or performance by
any Obligor of the Basic Documents or for the legality, validity or
enforceability hereof or thereof, other than such approvals or consents that
have been already obtained.
(b) The Obligors have obtained all concessions, licenses, permits,
authorizations or other forms of permission which under Mexican law are
necessary or advisable for operating and maintaining a wireless communications
business and no Obligor is in violation of any valid rights of others with
respect to any of the foregoing.
8.07 Legal Form. Each Basic Document is in proper legal form under
the law of Mexico for the enforcement thereof against each Obligor party thereto
under such law, and if such Basic Document were stated to be governed by such
law, it would constitute the legal, valid and binding obligation of each Obligor
party thereto under such law, enforceable in accordance with its terms. All
formalities required in Mexico for the validity and enforceability
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of each Basic Document (including, without limitation, any necessary
registration, recording or filing with any court or other authority in Mexico)
against each Obligor have been accomplished, 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.
8.08 Ranking. Each Basic Document and the obligations evidenced
hereby are and will at all times be direct and unconditional general obligations
of each Obligor party thereto, and rank and will at all times rank in right of
payment and otherwise at least pari passu with all other unsecured Debt of the
Obligors, whether now existing or hereafter outstanding. There exists no Lien
(including any Lien arising out of any attachment, judgment or execution), nor
any segregation or other preferential arrangement of any kind, on, in or of the
assets or revenues of Iusacell, other than (a) Liens set forth in Part B of
Schedule I hereto and (b) Liens of the type permitted under clauses (ii) through
(v), inclusive, of Section 9.09 hereof.
8.09 Commercial Activity; Absence of Immunity. Each Obligor is
subject to civil and commercial law with respect to its obligations under the
Basic Documents to which it is a party. The execution, delivery and performance
by each Obligor of the Basic Documents to which it is a party constitute private
and commercial acts rather than public or governmental acts. None of the
Obligors 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 Obligor under the Basic Documents to which it is a party except that an
investor that is a foreign investor may not hold a majority of the equity
securities of any corporation operating cellular concessions unless such
investor has received the approval of the Mexican government.
8.10 Taxes. (a) Iusacell and its Subsidiaries have filed all
material tax returns that are required to be filed by them and have paid all
taxes due pursuant to such returns or pursuant to any assessment received by
Iusacell or any of its Subsidiaries. The charges, accruals and reserves on the
books of Iusacell and its Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of Iusacell, adequate, except for taxes
and assessments that are being contested in good faith and by proper proceedings
and as to which appropriate reserves are being maintained.
(b) On and as of the date hereof, none of this Agreement or any
Note, or the execution or delivery by Iusacell of this Agreement or any Note, is
subject to any Mexican Taxes, and no payment to be made by Iusacell under this
Agreement or the Notes is subject to any Mexican Taxes, other than withholding
taxes at a rate not exceeding 4.9%.
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8.11 Investment Company Act. None of the Obligors nor any of their
respective Subsidiaries is an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
8.12 Public Utility Holding Company Act. None of the Obligors nor
any of their respective Subsidiaries is a "holding company", or an "affiliate"
of a "holding company" or a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 9. Covenants. Each Obligor covenants and agrees with the
Agent and each Bank that, so long as any Loan is outstanding and until payment
in full of all amounts payable by Iusacell hereunder, such Obligor will perform
such of the following covenants as are applicable to it:
9.01 Financial Statements, Etc. Iusacell shall deliver to each Bank:
(a) as soon as available and in any event within 60 days after the
end of each quarterly fiscal period of each fiscal year of Iusacell
(except that in the case of the fourth quarterly fiscal period of each
fiscal year, such delivery shall be 75 days after the end of such fiscal
period), consolidated and consolidating statements of income, changes in
capital accounts and cash flows of Iusacell and its Subsidiaries (and,
separately stated, of Iusacell alone) for such period and for the period
from the beginning of the respective fiscal year to the end of such
period, and the related consolidated balance sheets of Iusacell and its
Subsidiaries (and, separately stated, of Iusacell alone) as at the end of
such period, setting forth in each case in comparative form the
corresponding consolidated (or, as the case may be, separately stated)
figures for the corresponding periods in the preceding fiscal year (except
that, in the case of balance sheets, such comparison shall be to the last
day of the prior fiscal year), accompanied by a certificate of the Chief
Financial Officer of Iusacell, which certificate shall state that said
financial statements fairly present the consolidated financial condition
and results of operations of Iusacell and its Subsidiaries (or, as the
case may be, the separate unconsolidated financial condition and results
of operations of Iusacell alone), in each case in accordance with Mexican
GAAP, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of Iusacell, consolidated statements of income,
changes in capital accounts and cash flows of Iusacell and its
Subsidiaries (and, separately stated, of Iusacell alone) for such fiscal
year, and the related consolidated balance sheets of Iusacell and its
Subsidiaries (and, separately stated, of Iusacell alone) as at the end of
such fiscal year, setting forth in each case in comparative form the
corresponding consolidated (or, as the case may be, separately stated)
figures for the preceding fiscal year, and accompanied (i) in the case of
said consolidated statements and balance sheets, by an opinion thereon of
independent certified public accountants of recognized national standing,
which opinion shall state that said consolidated financial statements
fairly present the
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consolidated financial condition and results of operations of Iusacell and
its Subsidiaries as at the end of, and for, such fiscal year in accordance
with Mexican GAAP and (ii) in the case of said separately stated
statements and balance sheets, by a certificate of the Chief Financial
Officer of Iusacell, which certificate shall state that said separately
stated financial statements of Iusacell fairly present the unconsolidated
financial condition and results of operations of each Obligor, in each
case in accordance with Mexican GAAP, consistently applied, as at the end
of, and for, such fiscal year;
(c) promptly upon the filing by Iusacell with a securities exchange
on which any debt or equity securities of Iusacell may be listed, copies
of all financial statements, reports and proxy statements so mailed or
filed;
(d) promptly after any Obligor knows or has reason to believe that
any Default has occurred, a notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that such Obligor has taken or
proposes to take with respect thereto; and
(e) from time to time such other information regarding the financial
condition, operations, business or prospects of the Obligors or any of its
Subsidiaries as any Bank or the Agent may reasonably request.
Iusacell will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of
the Chief Financial Officer of Iusacell (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that Iusacell
has taken or proposes to take with respect thereto) and (ii) setting forth in
reasonable detail the computations necessary to determine whether as of the end
of the respective quarterly fiscal period or fiscal year Iusacell is in
compliance with Sections 9.15 and 9.17 hereof.
9.02 Litigation. The Obligors will promptly give to each Bank notice
of all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting any Obligor or any of its
Subsidiaries, except proceedings that, if adversely determined, could not
(either individually or in the aggregate) reasonably be expected to have a
Material Adverse Effect.
9.03 Maintenance of Properties. Each Obligor will cause all
properties used or useful and necessary in the conduct of its business or the
business of any Subsidiary of Iusacell to be maintained and kept in good
condition, repair and working order, ordinary wear and tear excepted.
9.04 Existence. Each Obligor will do or cause to be done all things
necessary to preserve and keep in full force and effect its and each
Subsidiary's respective existence, rights (charter and statutory), franchises;
provided, however, that such Obligor shall not be required
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to preserve any such right or franchise if the failure to do so would not result
in a Material Adverse Effect.
9.05 Compliance with Laws and Other Agreements. Each Obligor will,
and will cause each of its Subsidiaries to, comply with all applicable laws,
rules, regulations, orders and directions of any governmental agency having
jurisdiction over it or its business and all covenants and other obligations
contained in any agreements to which each is a party, except where the failure
to so comply could not reasonably be expected to have a Material Adverse Effect.
9.06 Insurance. Each Obligor will, and will cause each of its
Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies, and with respect to assets and risks of a character usually
maintained by corporations engaged in the same or similar business similarly
situated, against loss, damage and liability of the kinds and in the amounts
customarily maintained by such corporations.
9.07 Restricted Transactions. None of the Obligors will enter into
any transaction of merger or consolidation or amalgamation, or liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution); provided,
however, that (a) Iusacell may merge or consolidate with another Person if,
immediately after giving effect to such consolidation or merger, (i) Bell
Atlantic owns 30% or more of the voting stock of Iusacell; (ii) the
supermajority voting rights of Bell Atlantic with respect to stock of Iusacell
have not been terminated or modified in any respect; and (iii) no Default or
Event of Default shall have occurred or be continuing; (b) Iusacell may merge or
consolidate with a Subsidiary if Iusacell is the surviving entity of such merger
or consolidation and immediately after giving effect to such merger of
consolidation, no Default or Event of Default shall have occurred or be
continuing; and (c) any Guarantor may merge with any other Subsidiary of
Iusacell if a Guarantor is the surviving entity of such merger or consolidation
and immediately after giving effect to such merger of consolidation, no Default
or Event of Default shall have occurred or be continuing.
9.08 Debt. Iusacell will not, nor will it permit any of its
Subsidiaries to, create, incur or suffer to exist any Debt except:
(a) Debt to the Banks hereunder;
(b) Debt outstanding on the date hereof and listed in Part A of
Schedule I hereto;
(c) Debt of Subsidiaries of Iusacell to Iusacell or to other
Subsidiaries of Iusacell;
(d) 450 Authorization Fee Debt;
(e) Northern Telecom Debt; and
(f) Debt secured by Liens permitted by Section 9.12(vii) and (ix).
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9.09 Investments. No Obligor will, nor will it permit any of its
Subsidiaries to, make or permit to remain outstanding any Investments except:
(a) Investments outstanding on the date hereof and identified in
Schedule II hereto;
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) Investments by the Guarantors in Iusacell;
(e) Investments by Iusacell and its Subsidiaries in capital stock of
Subsidiaries of Iusacell to the extent outstanding on the date of the financial
statements of Iusacell and its Subsidiaries referred to in Section 8.02 hereof
and advances by Iusacell and its Subsidiaries to Subsidiaries of Iusacell in the
ordinary course of business (such advances include, without limitation, advances
to finance the Capital Expenditures of Iusatel, S.A. de C.V. and its
Subsidiaries permitted by Section 9.18);
(f) loans or advances by any member of the Iusacell Group in the
ordinary course of business to officers and employees, provided that the
aggregate amount of all such loans and advances outstanding at any time shall
not exceed $550,000;
(g) loans in the ordinary course of business to any Person which is
a customer of Iusacell or any Subsidiary, provided that the aggregate amount of
all such loans outstanding at any time shall not exceed $135,000; and
(h) additional Investments up to but not exceeding $10,000,000 in
the aggregate.
9.10 Dividend Payments. (a) Iusacell will not declare or make any
Dividend Payment at any time.
(b) Nothing in this Section 9.10 shall be deemed to prohibit the
payment of dividends to Iusacell by any Subsidiary of Iusacell.
9.11 Asset Disposition. Iusacell will not, nor will it permit any of
its Subsidiaries to, sell, lease or otherwise dispose of its assets (including
the stock of any Subsidiary), other than (A) between or among Iusacell and one
or more Subsidiaries of Iusacell, (B) inventory, trade receivables or other
assets or properties sold or otherwise transferred in the ordinary course of
business and (C) equipment no longer used or useful and necessary in the conduct
of its business.
9.12 Negative Pledge. Iusacell will not, nor will it permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect
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to any property or asset of Iusacell, whether now owned or held or hereafter
acquired, other than the following Liens ("Permitted Liens"):
(i) Liens in favor of the Agent created pursuant to the Pledge
Agreement;
(ii) any Lien in existence as of the date of this Agreement;
(iii) Liens for taxes, assessments and other governmental charges
the payment of which is being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted and for which such
reserves or other appropriate provisions, if any, as shall be required by
Mexican GAAP, shall have been made;
(iv) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course of
business for sums not yet due or the payment of which is being contested
in good faith by appropriate proceedings promptly initiated and diligently
conducted and for which such reserves or other appropriate provision, if
any, as shall be required by Mexican GAAP, shall have been made;
(v) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(vi) any attachment or judgment Lien, unless the judgment it secures
shall not, within 60 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within 60 days after the expiration of any such stay;
(vii) any Lien on any asset, including, without limitation, capital
stock or other securities (an "Encumbered Asset"), securing Debt incurred
to finance all or any part of the purchase price of such Encumbered Asset
or any portion of the cost of constructing, developing, altering or
improving such Encumbered Asset; provided that such Lien (i) attaches
solely to such Encumbered Asset or an improvement thereon or property
which was acquired for specific use in connection with the Encumbered
Asset and (ii) shall have been created during the period that such
Encumbered Asset was being acquired, constructed, developed, altered or
improved or concurrently with or within 120 days after the acquisition,
construction, development, alteration or improvement thereof;
(viii) any Lien on any property securing an extension, renewal or
refunding of Debt secured by a Lien referred to in (ii) or (vii) above,
provided that such new Lien is limited to the asset which was subject to
the prior Lien immediately before such extension, renewal or refunding
and, provided further, that the principal amount of Debt secured by the
prior Lien is not increased immediately before or in contemplation of or
in connection with such extension, renewal, refunding or replacement; and
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(ix) in addition to the Liens permitted by the foregoing, Liens
securing Debt of Iusacell not in excess of $2,000,000 in aggregate
principal amount outstanding at any time of determination.
9.13 Governmental Approvals; Material Concessions. (a) Iusacell
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 Iusacell to comply with its obligations under the Basic
Documents.
(b) The Iusacell Group shall preserve and keep in full force and
effect all Material Concessions and shall comply with the Material Terms and
Conditions of all Material Concessions.
9.14 Transactions with Affiliates. No Obligor will enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate or permit any of
its Subsidiaries to enter into any transaction, including, without limitation,
the purchase, sale or exchange of property or the rendering of any service, with
any affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of such Obligor's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to such Obligor or such Subsidiary than would
obtain in a comparable arm's length transaction with a Person not an affiliate.
9.15 Wireless Gross Revenues. Iusacell will cause at least 90% of
the Gross Revenues of Iusacell and its Consolidated Subsidiaries (determined on
a consolidated basis) to be derived from its wireless communications business.
9.16 Cash Flow. Iusacell will not, and will not permit any of its
Subsidiaries to, enter into any agreement that would prohibit or otherwise limit
the payment by any Subsidiary of any dividend to, or Investment by any
Subsidiary in, Iusacell.
9.17 Certain Financial Covenants.
(a) Leverage Ratio. Iusacell will not permit the Leverage Ratio at
any time to exceed 7.0 to 1.
(b) Interest Coverage Ratio. Iusacell will not permit the Interest
Coverage Ratio at any time to be less than 1.5 to 1.
(c) Maximum Permitted Indebtedness. Total Debt shall not at any time
exceed $215,000,000.
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9.18 Limitation on Capital Expenditures by Iusatel S.A. de C.V. .
Iusacell shall not permit Iusatel S.A. de C.V. and its Subsidiaries to incur
Capital Expenditures in excess of $28,000,000. For the purposes of this Section
9.18, "Capital Expenditures" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of obligations under
Capital Leases incurred during such period) made by Iusatel S.A. de C.V. or any
of its Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
Section 10. Events of Default. If one or more of the following
events (herein called "Events of Default") shall occur and be continuing:
(a) Iusacell shall (i) default in the payment when due (whether at
stated maturity or upon prepayment) of any principal of any Loan or (ii)
default in the payment when due (whether at stated maturity or upon
prepayment) of any interest on any Loan, any fee or any other amount
payable by it hereunder or under any Note and such default shall continue
for three days; or
(b) Iusacell shall fail to pay when due (whether at maturity, upon
redemption or acceleration or otherwise) the principal of any indebtedness
for money borrowed in excess, individually or in the aggregate, of
$5,000,000 (or the equivalent thereof in other currencies, translated at
the Market Exchange Rate on the date an Event of Default is to be
declared); or any event specified in any note, agreement, indenture or
other document evidencing or relating to any such indebtedness shall occur
if the effect of such event is to cause, or (with the giving of any notice
or the lapse of time or both) to permit the holder or holders of such
indebtedness (or a trustee or agent on behalf of such holder or holders)
to cause, such indebtedness to become due, or to be prepaid in full
(whether by redemption, purchase, offer to purchase or otherwise), prior
to its stated maturity; or
(c) Any representation, warranty or certification made or deemed
made herein (or in any modification or supplement hereto) or any other
Basic Document by any Obligor, or any certificate furnished to the Bank
pursuant to the provisions of any Basic Document, shall prove to have been
false or misleading as of the time made or furnished in any material
respect; or
(d) Iusacell shall default in the performance of any of its
obligations under any of Sections 9.07, 9.08 or 9.09 hereof; or Iusacell
shall default in the performance of any of its other obligations in this
Agreement or any other Basic Document and such default shall continue
unremedied for a period of thirty or more days after notice thereof to
Iusacell by the Agent; or
(e) Any of Iusacell or its Subsidiaries shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due; or
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(f) Any of Iusacell or its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, sindico, examiner or liquidator of itself or of all or
a substantial part of its assets, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Mexican bankruptcy law, (iv) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, suspension of payments, arrangement or
winding-up, or composition or readjustment of debts, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to,
any petition filed against it in an involuntary case under any applicable
bankruptcy law, (vi) take any corporate action for the purpose of
effecting any of the foregoing or (vii) do the equivalent of any of the
foregoing under the laws of the United States of America; or
(g) A proceeding or case shall be commenced, without the application
or consent of Iusacell or any of its Subsidiaries, in any court of
competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, suspension of payments, arrangement or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, sindico, examiner, liquidator or the like of
Iusacell, any of its Subsidiaries or of all or any substantial part of
their respective assets or (iii) similar relief in respect of Iusacell or
any of its Subsidiaries under any law relating to bankruptcy, insolvency,
reorganization, suspension of payments, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 or more days; or an order for relief against Iusacell or any
of its Subsidiaries shall be entered in an involuntary case under any
applicable bankruptcy law; or the equivalent of any of the foregoing shall
occur under the laws of the United States of America; or
(h) Final judgments or orders for the payment of money in excess of,
individually or in the aggregate, $5,000,000 (or the equivalent thereof in
other currencies, translated at the Market Exchange Rate on the date an
Event of Default is to be declared) shall be rendered against Iusacell or
any of its Subsidiaries and such judgment or order shall continue
unsatisfied and not stayed, bonded, vacated or suspended by agreement with
the beneficiary thereof for a period of sixty (60) days; or
(i) Any governmental authority shall take any action to condemn,
seize, nationalize or appropriate any substantial portion of the assets of
Iusacell or any of its Subsidiaries (either with or without payment of
compensation) or shall take any action that, in the opinion of the
Majority Banks, adversely affects the ability of Iusacell to perform its
obligations under this Agreement or any Note; or Iusacell 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); or
(j) After the execution and delivery of this Agreement by Iusacell,
the Agent and the Banks, (i) Mexico or any competent authority thereof
shall declare a moratorium on
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the payment of indebtedness by Mexico or any governmental agency or
authority thereof or corporations therein, or Mexico shall cease to be a
member in good standing of the International Monetary Fund or shall cease
to be eligible to utilize the resources of the International Monetary Fund
under the Articles of Agreement thereof, or the international monetary
reserves of Mexico shall become subject to any Lien and (ii) Iusacell has
not delivered to the Agent evidence in form and substance satisfactory to
the Banks that Iusacell is permitted under all applicable laws, rules and
regulations to pay its obligations under the Basic Documents in accordance
with their respective terms from the assets or revenues of Iusacell and/or
its affiliates which are located in the United States of America and
denominated in Dollars; or
(k) A Change of Control shall occur;
(l) (x) The Pledge Agreement shall at any time after its execution
and delivery and for any reason cease: (A) to create a valid and perfected
Lien on the collateral intended to be covered thereby, free and clear of
all other Liens or it shall be determined that a third party has better
rights with respect to such collateral; or (B) to be in full force and
effect or shall be declared null and void, (y) the validity or the
enforceability of the Pledge Agreement shall be contested by Iusacell or
Iusacell shall deny it has any further liability or obligation under the
Pledge Agreement or (z) Iusacell shall fail to perform any of its
obligations under the Pledge Agreement; or
(m) (x) The guaranty by the Guarantors pursuant to Article 6 (the
"Guarantee") shall at any time after its execution and delivery and for
any reason cease to be in full force and effect or shall be declared null
and void; (y) the validity or the enforceability of the Guarantee shall be
contested by any Guarantor or any Guarantor shall deny it has any further
liability or obligation under the Guarantee or (z) any Guarantor shall
fail to perform any of its obligations under the Guarantee; or
(n) The managing underwriter of the Offering determines that the
Offering should not occur due to the results of its due diligence
investigation and 30 days have elapsed without Iusacell having mandated
another financial institution satisfactory to the Agent as the managing
underwriter for the Offering; or
(o) Bell Atlantic Corporation, directly or indirectly, shall own
less than 30% of the voting stock of Iusacell or Bell Atlantic
Corporation, directly or indirectly, shall suffer a loss or any adverse
modification of any supermajority voting rights with respect to the stock
of Iusacell; or
(p) The Iusacell Group shall lose (by expiration, revocation or
otherwise) the Material Concessions or the right to exploit the Material
Concessions;
(q) (x) The subordination provisions of any Subordination Agreement
shall at any time after its execution and delivery and for any reason
cease to be in full force and effect or shall be declared null and void;
(y) the validity or the enforceability of any Subordination
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Agreement shall be contested by any Subordinated Creditor (as defined in
such Subordination Agreement) or any Subordinated Creditor shall deny it
has any further liability or obligation under its Subordination Agreement
or (z) any Subordinated Creditor shall fail to perform any of its
obligations under its Subordination Agreement;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10, (A) the Agent may, by notice to Iusacell,
terminate the Commitments and they shall thereupon terminate and (B) the Agent
may and, upon the request of the Majority Banks shall, by notice to Iusacell
declare the principal amount then outstanding of, and the accrued interest on,
the Loans and all other amounts payable by Iusacell hereunder and under the
Notes (including, without limitation, any amounts payable under Section 5.04
hereof) to be forthwith due and payable, whereupon such amounts shall be
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by Iusacell;
and (2) in the case of the occurrence of an Event of Default referred to in
clause (f) or (g) of this Section 9, the Commitments shall automatically be
terminated and the principal amount then outstanding of, and the accrued
interest on, the Loans and all other amounts payable by Iusacell hereunder and
under the Notes (including, without limitation, any amounts payable under
Section 5.04 hereof) shall automatically become immediately due and payable
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by Iusacell.
Section 11. The Agent.
11.01 Appointment, Powers and Immunities. Each Bank hereby appoints
and authorizes the Agent to act as its agent hereunder and under the other Basic
Documents with such powers as are specifically delegated to the Agent by the
terms of this Agreement and of the other Basic Documents, together with such
other powers as are reasonably incidental thereto. The Agent (which term as used
in this sentence and in Section 11.05 and the first sentence of Section 11.06
hereof shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those expressly
set forth in this Agreement and in the other Basic Documents, and shall
not by reason of this Agreement or any other Basic Document be a trustee
for any Bank;
(b) shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this Agreement or
in any other Basic Document, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement or any other Basic Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Basic Document or any other document
referred to or provided for herein or therein or for any failure by
Iusacell or any other Person to perform any of its obligations hereunder
or thereunder;
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(c) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder or under any other Basic Document; and
(d) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other Basic Document or under any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or
willful misconduct.
The Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it in good faith. The Agent may deem and treat the payee of a Note
as the holder thereof for all purposes hereof unless and until a notice of the
assignment or transfer thereof shall have been filed with the Agent, together
with the consent of Iusacell to such assignment or transfer (to the extent
provided in Section 11.06(b) hereof).
11.02 Reliance by Agent. The Agent shall be entitled to rely upon
any certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Basic
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks or, if provided herein, in accordance with the
instructions given by all of the Banks as is required in such circumstance, and
such instructions of such Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks.
11.03 Defaults. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default unless the Agent has received notice from
a Bank or Iusacell specifying such Default and stating that such notice is a
"Notice of Default". In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give prompt notice thereof to the
Banks. The Agent shall (subject to Section 11.07 hereof) take such action with
respect to such Default as shall be directed by the Majority Banks, provided
that, unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default as it shall deem advisable in the best
interest of the Banks except to the extent that this Agreement expressly
requires that such action be taken, or not be taken, only with the consent or
upon the authorization of the Majority Banks or all of the Banks.
11.04 Rights as a Bank. With respect to its Commitments and the
Loans made by it, Chase (and any successor acting as Agent) in its capacity as a
Bank hereunder shall have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not acting as the Agent, and the
term "Bank" or "Banks" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. Chase (and any successor acting as Agent)
and its affiliates may (without having to account therefor to any Bank) accept
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deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with Iusacell (and any of its
Subsidiaries or affiliates) as if it were not acting as the Agent, and Chase
(and any such successor) and its affiliates may accept fees and other
consideration from Iusacell for services in connection with this Agreement or
otherwise without having to account for the same to the Banks.
11.05 Indemnification. The Banks agree to indemnify the Agent (to
the extent not reimbursed under Section 12.03 hereof, but without limiting the
obligations of Iusacell under said Section 12.03) ratably in accordance with
their respective Commitments, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Agent (including by any Bank) arising out of or by reason
of any investigation in or in any way relating to or arising out of this
Agreement or any other Basic Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses that Iusacell is
obligated to pay under Section 12.03 hereof) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Bank
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
11.06 Non-Reliance on Agent and Other Banks. Each Bank agrees that
it has, independently and without reliance on the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of Iusacell and its Subsidiaries and decision to enter into
this Agreement and that it will, independently and without reliance upon the
Agent or any other Bank, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or under any other Basic
Document. The Agent shall not be required to keep itself informed as to the
performance or observance by Iusacell of this Agreement or any of the other
Basic Documents or any other document referred to or provided for herein or
therein. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial condition or
business of Iusacell or any of its Subsidiaries (or any of their affiliates)
that may come into the possession of the Agent or any of its affiliates.
11.07 Failure to Act. Except for action expressly required of the
Agent hereunder and under the other Basic Documents, the Agent shall in all
cases be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from the Banks of
their indemnification obligations under Section 11.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
11.08 Resignation or Removal of Agent. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving
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notice thereof to the Banks and Iusacell, and the Agent may be removed at any
time with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within 30 days after the retiring Agent's
giving of notice of resignation or the Majority Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor
Agent, that shall be a bank that has an office in New York, New York with a
combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 11
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.
Section 12. Miscellaneous.
12.01 Waiver. No failure on the part of the Agent or any Bank to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or any Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
12.02 Notices. All notices, requests and other communications
provided for herein (including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopier or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.
12.03 Expenses, Etc. (a) Iusacell agrees to pay or reimburse each of
the Banks and the Agent for: (x) all reasonable out-of-pocket costs and expenses
of the Agent (including, without limitation, the reasonable fees and expenses of
external legal counsel for the Agent and costs allocated by its internal legal
department) in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement and the Notes and closing of the transactions
contemplated hereby in an amount not in excess of $100,000 and (ii) the
negotiation or preparation of any modification, supplement or waiver of any of
the terms of this Agreement or any Note (whether or not consummated); (y) all
reasonable out-of-pocket costs and expenses of the Banks and the Agent
(including, without limitation, the reasonable fees and expenses of internal and
external legal counsel) in connection with (i) any Default and any enforcement
or collection proceedings resulting therefrom, including, without limitation,
all manner of
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participation in or other involvement with (A) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (B) judicial
or regulatory proceedings and (C) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (ii) the enforcement of this Section
12.03; and (z) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any of the other Basic Documents or any other
document referred to herein or therein.
(b) Iusacell hereby agrees to indemnify the Agent and each Bank and
their respective directors, officers, employees, attorneys and agents from, and
hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to any Loan hereunder
(but excluding any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified).
12.04 Amendments, Etc. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by Iusacell, the Agent and the Majority
Banks, or by Iusacell and the Agent acting with the consent of the Majority
Banks, and any provision of this Agreement may be waived by the Majority Banks
or by the Agent acting with the consent of the Majority Banks; provided that:
(a) no modification, supplement or waiver shall, unless by an instrument signed
by all of the Banks or by the Agent acting with the consent of all of the Banks:
(i) increase, or extend the term of any of the Commitments, or extend the time
or waive any requirement for the reduction or termination of any of the
Commitments, (ii) extend the date fixed for the payment of principal of or
interest on any Loan or any fee hereunder, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon
or any fee is payable hereunder, (v) alter the rights or obligations of Iusacell
to prepay Loans, (vi) alter the terms of this Section 12.04, (vii) modify the
definition of the term "Majority Banks", or modify in any other manner the
number or percentage of the Banks required to make any determinations or waive
any rights hereunder or to modify any provision hereof, or (viii) waive any of
the conditions precedent set forth in Section 8.01 hereof; and (b) any
modification or supplement of Section 10 hereof shall require the consent of the
Agent.
12.05 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06 Assignments and Participations.
(a) Iusacell may not assign any of its rights or obligations
hereunder or under any Note without the prior consent of each Bank and the
Agent.
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(b) Each Bank may at any time assign any Loan and any Note without
the consent of Iusacell to any Eligible Transferee. Upon execution and delivery
by the assignor and assignee to Iusacell and Agent of an instrument in writing
pursuant to which the assignee agrees to become the "Bank" hereunder, and to be
bound by the provisions of this Agreement and the other Basic Documents
applicable to a "Bank", the assignee shall have the rights and benefits of a
Bank hereunder in respect of any Loan theretofore held by such Bank. No
assignment by any Bank of any of its rights under a Note shall be made to any
assignee without concurrently assigning to such assignee the related rights
under this Agreement and, upon any such assignment, such Bank shall obtain a
written acknowledgement (and shall supply a copy thereof to Iusacell and the
Agent) from the assignee that such Note is subject to this Agreement. Upon such
assignment, the Agent shall receive an assignment fee of $3,000. No Obligor
shall be responsible for the payment of such assignment fee.
(c) A Bank may sell or agree to sell to one or more Eligible
Transferees a participation in all or any part of any Loan held by it, provided
that no purchaser of a participation (a "Participant") shall have any rights or
benefits under this Agreement or any Note or any other Basic Document (the
Participant's rights against such Bank in respect of such participation to be
those set forth in the agreements executed by such Bank in favor of the
Participant). All amounts payable by Iusacell to any Bank under Section 5 hereof
in respect of any Loan shall be determined as if such Bank had not sold or
agreed to sell any participations in any Loan, and as if such Bank were funding
such Loan in the same way that it is funding the portion of any Loan in which no
participations have been sold. In no event shall any Bank agree with the
Participant to take or refrain from taking any action hereunder or under any
other Basic Document except that such Bank may agree with the Participant that
it will not, without the consent of the Participant, agree to (i) extend the
date fixed for the payment of principal of or interest on the relevant Loan or
any portion of any fee hereunder payable to the Participant, (ii) reduce the
amount of any such payment of principal, (iii) reduce the rate at which interest
is payable thereon, or any fee hereunder payable to the Participant, to a level
below the rate at which the Participant is entitled to receive such interest or
fee or (iv) alter the rights or obligations of Iusacell to prepay any Loan.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.06, any Bank may (without
notice to Iusacell, the Agent or any other Bank and without payment of any fee)
(i) assign and pledge all or any portion of any Loan and any Note to any Federal
Reserve Bank as collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank and (ii) assign all or any portion
of its rights under this Agreement and any Loan and any Note to an affiliate. No
such assignment shall release the assigning Bank from its obligations hereunder.
(e) Subject to Section 12.16(b), a Bank may furnish any information
concerning Iusacell or any of its Subsidiaries in the possession of such Bank
from time to time to Eligible Transferees and participants (including
prospective assignees and participants that are Eligible Transferees).
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12.07 Survival. The obligations of Iusacell under Sections 5.01,
5.04, 5.05 and 12.03 hereof shall survive the repayment of any Loan. In
addition, each representation and warranty made, or deemed to be made, herein or
pursuant hereto shall survive the making of such representation and warranty,
and no Bank shall not be deemed to have waived, by reason of its making any Loan
hereunder, any Default that may arise by reason of such representation or
warranty proving to have been false or misleading, notwithstanding that such the
Bank or the Agent may have had notice or knowledge or reason to believe that
such representation or warranty was false or misleading at the time any Loan was
made.
12.08 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.
12.11 Jurisdiction, Service of Process and Venue.
(a) Each party hereto hereby agrees that any suit, action or
proceeding with respect to this Agreement, any Note, the other Basic Documents
or any judgment entered by any court in respect thereof may be brought in the
Supreme Court of the State of New York, County of New York, in the United States
District Court for the Southern District of New York or in the courts of the
corporate domicile of each of the parties hereto with respect to actions brought
against such party as a defendant; and each party hereto hereby irrevocably
submits to the jurisdiction of such courts for the purpose of any such suit,
action, proceeding or judgment.
(b) Each Obligor hereby agrees that service of all writs, process
and summonses in any such suit, action or proceeding brought in the State of New
York may be made upon CT Corporation, presently located at 1633 Broadway, New
York, New York 10019, U.S.A. (the "Process Agent"), and each Obligor hereby
confirms and agrees that the Process Agent has been duly and irrevocably
appointed as its agent in its name, place and stead to accept such service of
any and all such writs, process and summonses, and agrees that the failure of
the Process Agent to give any notice of any such service of process to each
Obligor shall not impair or affect the validity of such service or of any
judgment based thereon. Each Obligor hereby further irrevocably consents to the
service of process in any suit, action or proceeding in said courts by the
mailing thereof by the Bank by registered or certified mail, postage prepaid, at
its address set forth beneath its signature hereto or such other address as may
from time to time be designated by each Obligor in accordance with the
provisions of Section 12.02.
(c) Nothing herein shall in any way be deemed to limit the ability
of the Agent or any Bank to serve any such writs, process or summonses in any
other manner permitted by
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applicable law or to obtain jurisdiction over Iusacell in such other
jurisdictions, and in such manner, as may be permitted by applicable law.
(d) Each Obligor hereby irrevocably waives any objection that it may
now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Basic
Document brought in the Supreme Court of the State of New York, County of New
York, or in the United States District Court for the Southern District of New
York, and hereby further irrevocably waives any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum or any right to which it may be entitled on account of place of residence
or domicile.
12.12 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE NOTES OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
12.13 Waiver of Sovereign Immunity. Each Obligor 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, or otherwise.
12.14 Judgment Currency. This is an international loan transaction
in which the specification of Dollars and payment in New York City is of the
essence, and the obligations of Iusacell under this Agreement to make payment to
(or for the account of) the Banks and the Agent in Dollars shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any other currency or in another place except to
the extent that such tender or recovery results in the effective receipt by the
Agent in New York City of the full amount of Dollars payable to such Bank under
this Agreement. If for the purpose of obtaining judgment in any court it is
necessary to convert a sum due hereunder in Dollars into another currency (in
this Section 12.14 called the "judgment currency"), the rate of exchange that
shall be applied shall be that at which in accordance with normal banking
procedures the Agent could purchase such Dollars at the Principal Office with
the judgment currency on the Business Day next preceding the day on which such
judgment is rendered. The obligation of Iusacell in respect of any such sum due
from it to such Bank hereunder or under any Note shall, notwithstanding the rate
of exchange actually applied in rendering such judgment, be discharged only to
the extent that on the Business Day following receipt by such Bank of any sum
adjudged to be due hereunder in the judgment currency such Bank may in
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accordance with normal banking procedures purchase and transfer Dollars to New
York City with the amount of the judgment currency so adjudged to be due; and
Iusacell hereby, as a separate obligation and notwithstanding any such judgment,
agrees to indemnify such Bank against, and to pay such Bank on demand, in
Dollars, the amount (if any) by which the sum originally due to such Bank in
Dollars hereunder exceeds the amount of the Dollars so purchased and
transferred.
12.15 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, without limitation, 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.
12.16 Treatment of Certain Information; Confidentiality.
(a) Iusacell acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to Iusacell or
one or more of its Subsidiaries (in connection with this Agreement or otherwise)
by any Bank or by one or more subsidiaries or affiliates of such Bank and
Iusacell hereby authorizes each Bank to share any information delivered to such
Bank by Iusacell and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Bank to enter into this Agreement, to any
such subsidiary or affiliate, it being understood that any such subsidiary or
affiliate receiving such information shall be bound by the provisions of
paragraph (b) below as if it were a Bank hereunder. Such authorization shall
survive the repayment of the Loans and the termination of the Commitments.
(b) Each Bank and the Agent agrees (on behalf of itself and each of
its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by Iusacell pursuant to this Agreement that is identified by such
Person as being confidential at the time the same is delivered to the Banks or
the Agent, provided that nothing herein shall limit the disclosure of any such
information (i) to the extent required by statute, rule, regulation or judicial
process, (ii) to counsel for any of the Banks or the Agent, (iii) to bank
examiners, auditors or accountants, (iv) to the Agent or any other Bank (or to
Chase Securities, Inc.), (v) in connection with any litigation to which any one
or more of the Banks or the Agent is a party, (vi) to a subsidiary or affiliate
of such Bank as provided in paragraph (a) above or (vii) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
to the respective Bank a Confidentiality Agreement substantially in the form of
Exhibit K hereto (or executes and delivers to such Bank an acknowledgement to
the effect that it is bound by the provisions of this Section 12.16(b), which
acknowledgement may be included as part of the
Credit Agreement
<PAGE>
respective assignment or participation agreement pursuant to which such assignee
or participant acquires an interest in the Loans hereunder); provided, further,
that in no event shall any Bank or the Agent be obligated or required to return
any materials furnished by Iusacell. The obligations of any assignee that has
executed a Confidentiality Agreement in the form of Exhibit K hereto shall be
superseded by this Section 12.16 upon the date upon which such assignee becomes
a Bank hereunder pursuant to Section 12.06(b) hereof.
Credit Agreement
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered as of the day and year first above
written.
GRUPO IUSACELL, S.A. de C.V.
By /s/ Edward R. Kingman
----------------------------------------
Title: Senior Vice President and Chief
Financial Official
By /s/ Luis Maldonado
----------------------------------------
Title: Vice President - Administration
Address for Notices: Montes Urales 460 - 3
Mexico 11,000, D.F.
Attention: Javier Pastrana
Telecopier No.:
Telephone No.: (525) 104-4100
Credit Agreement
<PAGE>
GUARANTORS
SOS TELECOMUNICACIONES, S.A. de C.V.
By /s/ Edward R. Kingman
---------------------------------------
Title: Senior Vice President and Chief
Financial Official
By /s/ Luis Maldonado
---------------------------------------
Title: Vice President - Administration
Address for Notices: Montes Urales # 460 - 3
11,000, Mexico D.F.
Attention: Javier Pastrana
Telecopier No.:
Telephone No.: (525) 104-4100
SISTEMAS TELEFONICOS PORTATILES
CELULARES, S.A. de C.V.
By /s/ Edward R. Kingman
---------------------------------------
Title: Senior Vice President and Chief
Financial Official
By /s/ Luis Maldonado
---------------------------------------
Title: Vice President - Administration
Address for Notices: Montes Urales # 460 - 3
11,000, Mexico D.F.
Attention: Javier Pastrana
Telecopier No.:
Telephone No.: (525) 104 - 4100
Credit Agreement
<PAGE>
TELECOMUNICACIONES DEL GOLFO,
S.A. DE C.V.
By /s/ Edward R. Kingman
---------------------------------------
Title: Senior Vice President and Chief
Financial Official
By /s/ Luis Maldonado
---------------------------------------
Title: Vice President - Administration
Address for Notices: Montes Urales # 460 - 3
11,000, Mexico D.F.
Attention: Javier Pastrana
Telecopier No.:
Telephone No.: (905) 104 - 4100
IUSATELECOMUNICACIONES, S.A. de C.V.
By /s/ Edward R. Kingman
---------------------------------------
Title: Senior Vice President and Chief
Financial Official
By /s/ Luis Maldonado
---------------------------------------
Title: Vice President - Administration
Address for Notices: Montes Urales # 460 - 3
11,000, Mexico D.F.
Attention: Javier Pastrana
Telecopier No.:
Telephone No.: (905) 104 - 4100
Credit Agreement
<PAGE>
IUSANET, S.A. de C.V.
By /s/ Edward R. Kingman
---------------------------------------
Title: Senior Vice President and Chief
Financial Official
By /s/ Luis Maldonado
---------------------------------------
Title: Vice President - Administration
Address for Notices: Montes Urales # 460 - 3
11,000, Mexico D.F.
Attention: Javier Pastrana
Telecopier No.:
Telephone No.: (905) 104 - 4100
Credit Agreement
<PAGE>
IUSATEL, S.A. de C.V.
By /s/ Edward R. Kingman
---------------------------------------
Title: Senior Vice President and Chief
Financial Official
By /s/ Luis Maldonado
---------------------------------------
Title: Vice President - Administration
Address for Notices: Montes Urales # 460 - 3
11,000, Mexico D.F.
Attention: Javier Pastrana
Telecopier No.:
Telephone No.: (905) 104 - 4100
Credit Agreement
<PAGE>
BANKS
Commitment THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By /s/ Ana M. Garcia
---------------------------
Title: Assistant Treasurer
Applicable Lending Office:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Attention:
Telecopier No.:
Telephone No.:
with a copy to:
The Chase Manhattan Bank
Montes Urales No. 470
4th Floor
11000
Mexico City, Mexico
Attention: Rafael Villasante
Telephone No.: 540-9715
Telecopier No.: 540-9864
Credit Agreement
<PAGE>
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By /s/ Ana M. Garcia
---------------------------
Title: Assistant Treasurer
Address for Notices to
Chase as Agent:
The Chase Manhattan Bank
(National Association)
4 Chase Metrotech Center-13th Floor
Brooklyn, New York 11245
Attention: New York Agency
Telecopier No.: (718) 242-6910
Telephone No.: (718) 242-7979
<PAGE>
Schedule I
Pari Passu Matters
[See Section 8.08]
Schedule I
<PAGE>
EXHIBIT A
PAGARE
PROMISSORY NOTE
Promissory Note
<PAGE>
U.S. $__________.00 Dollars. E.U.A. $__________.00 Dolares.
For value received, the Por valor recibido, la suscrita,
undersigned, Grupo Iusacell, S.A. Grupo Iusacell, S.A. de C.V. (el
de C.V. (the "Borrower"), by this "Deudor"), por este Pagare promete
Promissory Note, unconditionally incondicionalmente pagar a la orden
promises to pay to the order of de ______________________________
______________________________ (the (el "Banco") la suma principal de
"Bank"), the principal sum of E.U.A.
U.S.$__________.00 (______________ $__________.00 (_______________ DE
DOLLARS OF THE UNITED STATES OF DOLARES DE LOS ESTADOS UNIDOS DE
AMERICA 00/100) payable on June 28, AMERICA 00/100) pagadera el 28
1996. de junio de 1996.
The undersigned also promises to La suscrita promete asi mismo pagar
pay interest on the outstanding and intereses sobre el saldo insoluto
unpaid principal amount of this de principal de este Pagare, desde
Promissory Note, from the date la fecha del presente hasta la
hereof until the date of payment in fecha de pago total de dicho saldo
full of such principal amount, at de principal, a la tasa anual igual
the rate per annum equal to the sum a la suma de la Tasa LIBO (segun se
of the LIBO Rate (as defined below) define mas adelante) mas el Margen
plus the Applicable Margin (the Aplicable (la "Tasa de
"Eurodollar Rate"). Interest shall Eurodolares"). Los intereses seran
be payable in arrears on the last pagaderos en forma vencida, en el
day of each Interest Period and on ultimo dia de cada Periodo de
the date of any payment of the Intereses y en la fecha de pago de
principal amount hereof. principal conforme al presente.
Any principal amount and (to the Cualquier monto de principal y (en
extent permitted by applicable la medida permitida por legislacion
law) interest not paid when aplicable) de intereses que no sea
due under this Promissory Note pagado cuando a su vencimiento
shall bear interest for each day conforme a este Pagare generara
until paid, payable on demand, at a intereses, pagaderos a la vista,
rate per annum equal to the sum of por cada dia hasta que sea pagado a
2.00% plus the Eurodollar Rate una tasa anual igual a la suma de
applicable immediately prior to 2.00% mas la Tasa de Eurodolares
such amount becoming due. aplicable inmediatamente antes de
que dicha suma fuere pagadera.
Interest hereunder shall be Los intereses conforme al presente
calculated on the basis of the seran calculados sobre la base del
actual number of days elapsed numero de dias efectivamente
divided by 360 (including the first transcurridos divididos entre 360
day but excluding the last day). (incluyendo el primer dia pero
excluyendo el ultimo dia).
For purposes of this Promissory Para efectos de este Pagare, los
Note, the following terms shall siguientes terminos tendran los
have the following meanings: siguientes significados:
"Business Day" means any day on "Dia Habil"
significa cualquier dia
Promissory Note
<PAGE>
Mexico, Federal District, _______, 1996
Mexico, D.F. a __ de ______ de 1996
GRUPO IUSACELL, S.A. DE C.V.
By/Por
-------------------------------------
Name/Nombre: Edward R. Kingman
Title/Cargo: Attorney-in-Fact/Apoderado
By/Por
-------------------------------------
Name/Nombre: Carlos Gutierrez Cardona
Title/Cargo: Attorney-in-Fact/Apoderado
Promissory Note
<PAGE>
GUARANTEED BY/POR AVAL
SOS TELECOMUNICACIONES, S.A. DE C.V. COMUNICACIONES CELULARES DE
OCCIDENTE; S.A.DE C.V.
By/Por By/Por
--------------------------------- -------------------------------
Name/Nombre: Edward R. Kingman Name/Nombre: Edward R. Kingman
Title/Cargo: Attorney-in-Fact/Apoderado Title/Cargo: Attorney-in-Fact/
Apoderado
By/Por By/Por
--------------------------------- -------------------------------
Name/Nombre: Carlos Gutierrez Cardona Name/Nombre: Carlos Gutierrez Cardona
Title/Cargo: Attorney-in-Fact/Apoderado Title/Cargo: Attorney-in-Fact/
Apoderado
SISTEMAS TELEFONICOS PORTATILES CELULARES, TELECOMUNICACIONES DEL GOLFO,
S.A. DE C.V. S.A. DE C.V.
By/Por By/Por
--------------------------------- -------------------------------
Name/Nombre: Edward R. Kingman Name/Nombre: Edward R. Kingman
Title/Cargo: Attorney-in-Fact/Apoderado Title/Cargo: Attorney-in-Fact/
Apoderado
By/Por By/Por
--------------------------------- -------------------------------
Name/Nombre: Carlos Gutierrez Cardona Name/Nombre: Carlos Gutierrez Cardona
Title/Cargo: Attorney-in-Fact/Apoderado Title/Cargo: Attorney-in-Fact/
Apoderado
Promissory Note
<PAGE>
EXHIBIT B
[Form of Opinion of Special New York Counsel to Iusacell]
__________, 1996
To the Banks party to the
Credit Agreement referred
to below and
The Chase Manhattan Bank
(National Association), as Agent
1 Chase Manhattan Plaza
New York, New York 10081
Ladies and Gentlemen:
We have acted as special New York counsel to Grupo Iusacell, S.A. de
C.V. ("Iusacell") and the guarantors listed on the signature pages thereof in
connection with the Credit Agreement (the "Credit Agreement") dated as of
February , 1996 among Iusacell, such guarantors and the banks listed on the
signature pages thereof and The Chase Manhattan Bank (National Association), as
Agent. Terms defined in the Credit Agreement are used herein as defined therein.
This opinion is being delivered pursuant to Section 7(c)(i) of the Credit
Agreement.
In rendering the opinions expressed below, we have examined the
following agreements, instruments and other documents:
(a) the Credit Agreement;
Opinion of Special New York Counsel to Iusacell
<PAGE>
(b) the Notes;
(c) the Pledge Agreement;
(d) the Subordination Agreement; and
(e) such records of Iusacell and such other documents as we have
deemed necessary as a basis for the opinions expressed below.
The agreements, instruments and other documents referred to in the foregoing
lettered clauses (other than clause (e) above) are collectively referred to as
the "Loan Documents".
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with authentic original documents of all documents submitted to
us as copies. When relevant facts were not independently established, we have
relied upon statements of governmental officials and upon representations made
in or pursuant to the Credit Agreement and certificates of appropriate
representatives of Iusacell.
In rendering the opinions expressed below, we have assumed, with
respect to all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of, all of the parties to
such documents (other than the Obligors);
(ii) all signatories to such documents have been duly authorized
(other than the signatories acting on behalf of the Obligors);
and
(iii) all of the parties (other than the Obligors) to such documents
are duly organized and validly existing and have the power and
authority (corporate or other) to execute, deliver and perform
such documents.
Promissory Note
<PAGE>
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. Each Loan Document constitutes the legal, valid and binding
obligation of each Obligor party thereto, enforceable against such Obligor
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting the rights of creditors generally and except as the
enforceability of the Loan Documents is subject to the application of
general principles of equity (regardless of whether considered in a
proceeding in equity or at law), including, without limitation, (a) the
possible unavailability of specific performance, injunctive relief or any
other equitable remedy and (b) concepts of materiality, reasonableness,
good faith and fair dealing.
2. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency of
the United States of America or the State of New York is required on the
part of any Obligor for the execution, delivery or performance by any
Obligor of any of the Loan Documents to which it is a party or for the
incurrence of indebtedness by Iusacell under the Credit Agreement or the
creation of the guarantee by any other Obligor under the Credit Agreement.
3. The execution, delivery and performance by each Obligor of, and
the consummation by each Obligor of the transactions contemplated by, the
Loan Documents to which such Obligor is a party do not and will not (a)
violate any applicable Federal or New York law, rule or regulation, (b)
violate any order, writ, injunction or decree of any court or governmental
authority or agency or any arbitral award applicable to Iusacell or any of
its Subsidiaries of which we have knowledge (after due inquiry) or (c)
result in a breach of, constitute a default under, require any consent
under, or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any agreement or instrument of
which we have knowledge (after due inquiry) to which Iusacell or any of
its Subsidiaries is a party or by which any of them is bound or to which
any of them is subject, or result in the creation or imposition of any
Lien upon any assets of Iusacell pursuant to, the terms of any such
agreement or instrument.
4. We have no knowledge (after due inquiry) of any legal or arbitral
proceedings, or any proceedings by or before any governmental or
regulatory authority or agency, pending or threatened against or affecting
Iusacell or any of its Subsidiaries or any of their respective assets
that, if adversely determined, could have a Material Adverse Effect.
Promissory Note
<PAGE>
The foregoing opinions are subject to the following comments and
qualifications:
(A) The enforceability of Sections 5.03 and 12.03 of the Credit
Agreement may be limited by (i) laws rendering unenforceable
indemnification contrary to Federal or state securities laws and the
public policy underlying such laws and (ii) laws limiting the
enforceability of provisions exculpating or exempting a party, 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.
(B) The enforceability of provisions in the Loan Documents to the
effect that terms may not be waived or modified except in writing may be
limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than the State of New
York) that limit the interest, fees or other charges such Bank may impose,
(ii) the second sentence of Section 12.11(a) of the Credit Agreement,
insofar as Section relates to the subject matter jurisdiction of the
United States District Court for the Southern District of New York to
adjudicate any controversy related to the Loan Documents, and (iii) the
waiver of inconvenient forum set forth in Section 12.11(d) of the Credit
Agreement with respect to proceedings in the United States District Court
for the Southern District of New York.
The foregoing opinions are limited to matters involving the Federal
laws of the United States and the law of the State of New York, and we do not
express any opinion as to the laws of any other jurisdiction.
At the request of our clients, this opinion letter is, pursuant to
Section 7(c)(i) of the Credit Agreement, provided to you by us in our capacity
as special New York counsel to Iusacell and may not be relied upon by any Person
for any purpose other than in connection with the transactions contemplated by
the Credit Agreement without, in each instance, our prior written consent.
Very truly yours,
Promissory Note
<PAGE>
EXHIBIT C
[Form of Opinion of Mexican Counsel to the Obligors]
__________, 1996
To the Banks party to the
Credit Agreement referred
to below and
The Chase Manhattan Bank
(National Association), as Agent
1 Chase Manhattan Plaza
New York, New York 10081
Ladies and Gentlemen:
We have acted as Mexican counsel to Grupo Iusacell, S.A. de C.V.
("Iusacell") and the guarantors referred to below in connection with the Credit
Agreement (the "Credit Agreement") dated as of February , 1996 among Iusacell,
the guarantors listed on the signature pages thereof, the banks listed on the
signature pages thereof and The Chase Manhattan Bank (National Association), as
Agent. Terms defined in the Credit Agreement are used herein as defined therein.
This opinion is being delivered pursuant to Section 7.01(c)(ii) of the Credit
Agreement.
In rendering the opinions expressed below, we have examined the
following agreements, instruments and other documents:
Opinion of Mexican Counsel to the Obligors
<PAGE>
(a) the Credit Agreement;
(b) the Notes;
(c) the Pledge Agreement;
(d) the Subordination Agreement;
(e) seven notarized special powers-of-attorney granted to CT
Corporation System dated February __, 1996 (collectively, the
"Appointments");
(f) the powers of attorney authorizing officers of Iusacell and
the Guarantors to act on their behalf and to enter into and
perform the Basic Documents to which each is a party; and
(g) such records of Iusacell and such other documents, agreements,
concessions and instruments, and such treaties, laws, rules
and regulations as we have deemed necessary or appropriate as
a basis for the opinions expressed below.
The agreements, instruments and other documents referred to in the foregoing
lettered clauses (other than clause (e) above) are collectively referred to as
the "Loan Documents".
In our examination, we have assumed the genuineness of all
signatures (other than signatories acting on behalf of the Obligors), the
authenticity of all documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as copies.
When relevant facts were not independently established, we have relied upon
statements of governmental officials and upon representations made in or
pursuant to the Credit Agreement and certificates of appropriate representatives
of Iusacell.
In rendering the opinions expressed below, we have assumed, with
respect to all of the documents referred to in this opinion letter, that:
Opinion of Mexican Counsel to the Obligors
<PAGE>
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid,
binding and enforceable obligations of, all of the parties to
such documents (other than the Obligors);
(ii) all signatories to such documents have been duly authorized
(other than signatories acting on behalf of the Obligors); and
(iii) all of the parties (other than the Obligors) to such documents
are duly organized and validly existing and have the power and
authority (corporate or other) to execute, deliver and perform
such documents.
Based upon and subject to the qualifications set forth below, and
having considered such questions of law as we have deemed necessary as a basis
for the opinions expressed below, we are of the opinion that:
1. Each of the Obligors is a corporation duly organized and validly
existing under the laws of Mexico.
2. Each of the Obligors has all requisite corporate power and
authority to execute and deliver, and to perform its obligations under,
the Loan Documents. Each of the Obligors has all requisite power to incur
or guarantee indebtedness under the Loan Documents.
3. The execution, delivery and performance by each of the Obligors
of the Loan Documents have been duly authorized by all necessary corporate
or other action on the part of each Obligor.
4. The Credit Agreement, each Note, the Pledge Agreement, the
Subordination Agreement and the Appointments have been duly executed and
delivered by each of the Obligors.
5. The choice of New York law to govern the Credit Agreement, each
Note, the Pledge Agreement and the Subordination Agreement and the
construction thereof is, under the laws of Mexico, a valid and binding
choice to which a court in Mexico would recognize and give effect in a
proceeding brought before a Mexican court (except that,
Opinion of Mexican Counsel to the Obligors
<PAGE>
as provided in the Notes in any action or proceeding to enforce the Notes
in Mexico, the Notes will be construed in accordance with and be governed
by the laws of Mexico).
6. No authorization, approval or consent of (including any exchange
control approval), and no filing or registration with, any governmental or
regulatory authority or agency of Mexico (including, without limitation,
the Central Bank of Mexico) is required (i) to enable each Obligor
lawfully to enter into and perform its obligations under the Loan
Documents to which it is a party, (ii) to ensure that the obligations of
each Obligor thereunder are legal, valid and enforceable, (iii) to make
the Loan Documents admissible as evidence in Mexico, (iv) to perfect the
security interest contemplated under the Pledge Agreement or (v) to
enforce the Agent's rights under the Pledge Agreement.
7. The execution, delivery and performance by each Obligor of, and
the consummation by each Obligor of the transactions contemplated by, the
Loan Documents to which it is a party do not and will not (a) violate any
provision of the estatutos sociales of any Obligor, (b) violate any
applicable Mexican law, rule or regulation (including, without limitation,
of the Central Bank of Mexico), (c) violate any order, writ, injunction or
decree of any court or governmental authority or agency or any arbitral
award applicable to Iusacell or any of its Subsidiaries of which we have
knowledge (after due inquiry) or (d) result in a breach of, constitute a
default under, require any consent under, or result in the acceleration or
required prepayment of any indebtedness pursuant to the terms of, any
agreement, license, concession or instrument of which we have knowledge
(after due inquiry) to which Iusacell or any of its Subsidiaries is a
party or by which any of them is bound or to which any of them is subject,
or result in the creation or imposition of any Lien upon any assets of any
Obligor pursuant to, the terms of any such agreement or instrument.
8. We have no knowledge (after due inquiry) of any legal or arbitral
proceedings, or any proceedings by or before any governmental or
regulatory authority or agency, pending or threatened against or affecting
Iusacell or any of its Subsidiaries or any of their respective properties
that, if adversely determined, could have a Material Adverse Effect.
9. The Loan Documents are direct and unconditional general
obligations of each Obligor a party thereto and rank in right of payment
at least pari passu with all other unsecured Debt of any Obligor of which
we are aware after due inquiry.
Opinion of Mexican Counsel to the Obligors
<PAGE>
10. Each Obligor is subject to civil and commercial law with respect
to its obligations under the Loan Documents. The execution, delivery and
performance by each Obligor of the Loan Documents to which it is a party
constitute private and commercial activities rather than public or
governmental acts. Neither Obligor nor any of its assets or revenues
enjoys any right of immunity 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 any Obligor under the Loan Documents to which it is a
party.
11. Each Loan Document is in proper legal form under the law of
Mexico for the enforcement thereof against each Obligor under such law.
All formalities required in Mexico for the validity and enforceability of
the Loan Documents (including, without limitation, any necessary
registration, recording or filing with any court or other authority in
Mexico) have been accomplished, and no Mexican Taxes are required to be
paid and no notarization is required, for the validity and enforceability
thereof.
12. Neither the Loan Documents, nor the execution or delivery
thereof by any Obligor, is subject to any Mexican Taxes, and no payment to
be made by any Obligor under any Loan Document is subject to any Mexican
Taxes except for the withholding taxes on payment of interest made by any
Obligor under the Loan Documents and for Mexican income taxes payable by
Iusacell in connection with the sale of the Pledged Collateral as therein
contemplated.
13. Under the laws of Mexico the courts of Mexico have jurisdiction
to adjudicate any action relating to the Loan Documents brought against
any Obligor in such courts by the Bank.
14. Under the laws of Mexico the submission by each Obligor to the
jurisdiction of the courts specified in the Loan Documents is valid and
binding upon it and not subject to revocation.
15. A final judgment of any of the New York courts to the
jurisdiction of which each Obligor has submitted under the Loan Documents
rendered in an action brought in any such courts, to enforce the
obligations of any such person under the Loan Documents to claim any sum
due thereunder for any reason, would be enforced by the courts of Mexico
without a retrial on the merits, provided certain procedural requirements
are met.
Opinion of Mexican Counsel to the Obligors
<PAGE>
16. Neither the execution, delivery and performance of the Loan
Documents, nor the enforcement thereof, will (without more) cause any Bank
to be deemed to be a resident domiciled, subject to taxation or doing
business in Mexico.
17. Each note is a negotiable instrument that may be enforced
through executory proceedings (accion ejecutive mercantil). The
Appointments are valid notarial special powers-of-attorney in favor of the
Process Agent in accordance with the requirements of Mexican law.
18. Messrs. [______] and [Edward R. Kingman] have the right, power
and authority to sign and deliver the Loan Documents on behalf of each of
the Obligors. Each of the powers-of-attorney authorizing Messrs. [______]
and [Edward R. Kingman] has been duly registered with the relevant public
registries.
The foregoing opinions are limited to matters involving the law of
Mexico, and we do not express any opinion as to the laws of any other
jurisdiction.
At the request of the Obligors, this opinion letter is, pursuant to
Section 7.01(c)(ii) of the Credit Agreement, provided to you by us in our
capacity as Mexican counsel to the Obligors and may not be relied upon by any
Person for any purpose other than in connection with the transactions
contemplated by the Credit Agreement without, in each instance, our prior
written consent.
Very truly yours,
Opinion of Mexican Counsel to the Obligors
<PAGE>
EXHIBIT D
[Form of Process Agent Acceptance]
The Chase Manhattan Bank
(National Association), as Agent
1 Chase Manhattan Plaza
New York, New York 10081
Ladies and Gentlemen:
Reference is made to the Credit Agreement (the "Credit Agreement")
dated as of February __, 1996 among Grupo Iusacell, S.A. de C.V., a Mexican
corporation ("Iusacell"), the guarantors listed on the signature pages thereof
(the "Guarantors"), the banks listed on the signature pages thereof and The
Chase Manhattan Bank (National Association), as Agent, providing for loans in an
aggregate principal amount not exceeding $65,000,000.
Pursuant to Section 12.11(b) of the Credit Agreement Iusacell and
the Guarantors have appointed the undersigned (at the undersigned's office
located at 1633 Broadway, New York, New York 10019) as its agent in its name,
place and stead to accept service of any writ, process or summons in respect of
any legal actions or proceedings in New York arising out of or in connection
with the Credit Agreement or any Note (as defined in the Credit Agreement).
The undersigned hereby (a) informs you that it accepts such
appointment by Iusacell and the Guarantors as set forth in Section 12.11(b) of
the Credit Agreement and (b) agrees with you that (i) it will not terminate such
agency relationship prior to February , 1997, (ii) it will maintain an office in
New York, New York, U.S.A. at all times to and including said date and will give
you prompt notice of any change of its address during such period and (iii) it
will promptly forward to Iusacell any summons, complaint or other legal process
that the undersigned receives in connection with its appointment as such agent
of Iusacell and the Guarantors.
Very truly yours,
Process Agent Acceptance
<PAGE>
CT CORPORATION SYSTEM
By
-----------------------------------
Title:
Process Agent Acceptance
<PAGE>
EXHIBIT E
[Form of Pledge Agreement]
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated February , 1996, between GRUPO IUSACELL S.A.
DE C.V., a corporation organized under the laws of the United Mexican States
(the "Pledgor"), and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association organized under the laws of the United States of America, as
agent (the "Agent") for the Banks parties to the Credit Agreement referred to
below.
PRELIMINARY STATEMENTS:
The Pledgor is the owner of the shares (the "Pledged Shares") of
stock described in the Schedule hereto and issued by the corporations named
therein.
The Banks and the Agent have entered into a Credit Agreement dated
as of February , 1996 (said Credit Agreement, as it may hereafter be amended or
otherwise modified from time to time, being the "Credit Agreement," the terms
defined therein and not otherwise defined herein being used herein as therein
defined) with the Pledgor and certain guarantors. It is a condition precedent to
the making of the Loans by the Banks under the Credit Agreement that the Pledgor
shall have made the pledge contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Banks to make the Loans under the Credit Agreement, the Pledgor
hereby agrees as follows:
ARTICLE 1. THE PLEDGE.
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Section 1.01. Pledge. The Pledgor hereby pledges to the Agent for
the ratable benefit of the Banks, and grants to the Agent for the ratable
benefit of the Banks a security interest in, the following (the "Pledged
Collateral"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all dividends, cash, instruments and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares; and
(b) all additional shares of stock of any issuer of the Pledged Shares
from time to time acquired by the Pledgor in any manner, and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares.
Section 1.02. Security for Obligations. This Agreement secures the
payment of all obligations of the Pledgor and the Obligors now or hereafter
existing under the Basic Documents whether for principal, interest, fees,
expenses or otherwise (all such obligations being the "Obligations").
Section 1.03. Endorsements and Delivery of Pledged Collateral. (a)
All certificates or instruments representing or evidencing the Pledged
Collateral shall be endorsed to, delivered to and held by or on behalf of the
Agent pursuant hereto and shall be in suitable form for transfer by subsequent
endorsement and delivery; it being understood that the legend included in the
endorsement and the form and substance of the share certificates evidencing the
Pledged Shares shall be acceptable to the Agent. In addition, the Agent shall
have the right, at any time, upon the occurrence and continuance of a Default,
to exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
(b) Simultaneously with the endorsement and delivery specified in
(a) above, the Pledgor shall provide to the Agent evidence, satisfactory to the
Agent, of a notation relating to the pledge herein contained, made in the stock
registry of each of the issuers of the Pledged Shares and duly signed by the
secretary or other authorized officers of the relevant issuer.
Section 1.04. Continuing Agreement. This Agreement shall create a
continuing security interest in the Pledged Collateral and shall remain in full
force and effect until payment in full of the Obligations and until the
Commitments shall no longer be in effect. Upon the payment in full of the
Obligations and when the Commitments are no longer in effect, the Pledgor shall
be entitled to the return, upon its request and at its expense, of such of the
Pledged Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof.
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ARTICLE 2. REPRESENTATIONS AND WARRANTIES.
The Pledgor hereby represents and warrants as follows:
Section 2.01. Issuance, Etc. The Pledged Shares have been duly
authorized and validly issued and are fully paid and non-assessable.
Section 2.02. Ownership and Liens. The Pledgor is the legal and
beneficial owner of the Pledged Collateral free and clear of any Lien, except
for the security interest created by this Agreement and no first refusal, option
or other rights exist with respect to the Pledged Collateral.
Section 2.03. Perfection. The pledge and delivery of the Pledged
Shares pursuant to this Agreement creates a valid and perfected first priority
security interest in the Pledged Collateral, securing the payment of the
Obligations.
Section 2.04. No Authorization Required. No authorization, approval,
or other action by, and no notice to or filing with, any governmental authority
or regulatory body is required either (a) for the pledge by the Pledgor of the
Pledged Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by the Pledgor or (b) for the exercise by the
Agent of the voting or other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Agreement (except
as may be required in connection with such disposition by laws affecting the
offering and sale of securities generally).
Section 2.05. No Conflicts. The entering into this Agreement does
not conflict with any agreement, concession or law, of any nature, applicable to
or binding the Pledgor.
Section 2.06. Percentages. The Pledged Shares constitute 100% of the
issued and outstanding shares of stock of the respective issuers thereof.
ARTICLE 3. COVENANTS.
Section 3.01. Further Assurances. The Pledgor agrees that at any
time and from time to time, at the expense of the Pledgor, the Pledgor will
promptly execute and deliver all
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further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Agent to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.
Section 3.02. Transfers and Other Liens. The Pledgor agrees that it
will not (i) sell or otherwise dispose of, or grant any option with respect to,
any of the Pledged Collateral, or (ii) create or permit to exist any Lien upon
or with respect to any of the Pledged Collateral, except for the security
interest under this Agreement.
ARTICLE 4. THE AGENT.
Section 4.01. Agent Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Agent the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Agent's discretion to take any action and
to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
receive, indorse and collect all instruments made payable to the Pledgor
representing any dividend, interest payment or other distribution in respect of
the Pledged Collateral or any part thereof and to give full discharge for the
same and to sell and transfer the Pledged Collateral.
Section 4.02 Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor under Section 6.02.
Section 4.03. Reasonable Care. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which it accords its own property, it being
understood that neither the Agent nor any Bank shall have responsibility
for (a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Agent or any Bank has or is deemed to have
knowledge of such matters, or (b) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
ARTICLE 5. DEFAULT.
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Section 5.01. Voting Rights; Dividends; Etc. (a) So long as no
Default or Event of Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the Credit
Agreement; provided, however, that the Pledgor shall not exercise or refrain
from exercising any such right if, in the Agent's judgment, such action would
have a material adverse effect on the value of the Pledged Collateral or any
part thereof, and, provided, further, that the Pledgor shall give the Agent at
least five days' written notice of the manner in which it intends to exercise,
or the reasons for refraining from exercising, any such right.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Pledged Collateral, provided,
however, that any and all
(A) dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable in cash in respect
of any Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of principal
of, or in redemption of, or in exchange for, any Pledged Collateral, shall
be, and shall be forthwith delivered to the Agent to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust for
the benefit of the Agent, be segregated from the other property or funds
of the Pledgor, and be forthwith delivered to the Agent as Pledged
Collateral in the same form as so received (with any necessary
indorsement).
(iii) The Agent shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) above and to receive the dividends or interest payments which
it is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of a Default or
Event of Default:
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(i) All rights of the Pledgor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise pursuant to
Section 5.01(a)(i) and to receive the dividends and interest payments
which it would otherwise be authorized to receive and retain pursuant to
Section 5.01(a)(ii) shall cease, and all such rights shall thereupon
become vested in the Agent who shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive and hold
as Pledged Collateral such dividends and interest payments.
(ii) All dividends which are received by the Pledgor contrary to the
provisions of paragraph (i) of this Section 5.01(b) shall be received in
trust for the benefit of the Agent, shall be segregated from other funds
of the Pledgor and shall be forthwith paid over to the Agent as Pledged
Collateral in the same form as so received (with any necessary
indorsement).
Section 5.02. Remedies upon Default. If any Event of Default shall
have occurred and be continuing:
(a) Subject to Section 5.02(c), the Agent may exercise in respect of the
Pledged Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Uniform Commercial Code (the "UCC") in
effect in the State of New York at that time, and the Agent may also,
without notice except as specified below, sell the Pledged Collateral or
any part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Agent' offices or elsewhere, for
cash, on credit or for future delivery, and at such price or prices and
upon such other terms as the Agent may deem commercially reasonable. The
Pledgor agrees that, to the extent notice of sale shall be required by
law, at least 10 days' notice to the Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be obligated to
make any sale of Pledged Collateral regardless of notice of sale having
been given. The Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was
so adjourned.
(b) Any cash held by the Agent as Pledged Collateral and all cash proceeds
received by the Agent in respect of any sale of collection from or other
realization upon all or any part of the Pledged Collateral may, in the
discretion of the Agent, be held by the Agent as collateral for, and/or
then or at any time thereafter applied (after payment of any amounts
payable to the Agent pursuant to Section 6.02) in whole or in part by the
Agent for the ratable benefit of the Banks against, all or any part of the
Obligations in such order as the Agent shall elect. Any surplus of such
cash or cash proceeds held by the Agent and
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remaining after payment in full of all the Obligations shall be paid over
to the Pledgor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) Prior to the sale of any Pledged Collateral, the Agent will:
(i) send a notice (the "Foreclosure Notice") to the Foreclosure
Representative setting forth:
(A) its intent to sell such Pledged Collateral;
(B) the outstanding amount of the Obligations as of the date of
the Foreclosure Notice;
(C) the per diem interest rate on the Obligations;
(D) wire transfer instructions for the payment of the Obligations;
and
(E) the name of an officer of the Agent with whom the Foreclosure
Representative may discuss the purchase of the Obligations as
set forth below.
(ii) allow the Foreclosure Representative, for a period of ten days
from the date of delivery of the Foreclosure Notice to the Foreclosure
Representative (the "Purchase Period"), to purchase the Obligations, on behalf
of the Peralta Group and/or BALAH, as the case may be, no later than the last
day of the Purchase Period at a price equal to the aggregate outstanding amount
of the Obligations (including without limitation accrued and unpaid interest
thereon) on the date of such purchase; provided, however, that if the last day
of the Purchase Period is not a Business Day, such last day shall be extended to
the next succeeding Business Day.
For the purposes of this Section 5.02(c), the following terms have
the following meanings:
(A) "BALAH" shall mean Bell Atlantic Latin American Holdings, Inc.
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(B) "Foreclosure Representative" shall mean a financial institution
or law firm in New York, New York engaged by the Peralta Group and BALAH, and
which is reasonably acceptable to the Agent, which shall (i) receive and forward
the Foreclosure Notice to the Peralta Group and BALAH and (ii) receive and
forward to the Agent, in accordance with the procedures established in an
agreement with the Peralta Group and BALAH, and which is reasonably acceptable
to the Agent, any amounts received in respect of the exercise by the Peralta
Group and/or BALAH of its rights to purchase the Obligations in accordance with
this Section 5.01(c).
(C) "Peralta Group" shall mean Alejo Peralta y Diaz Ceballos and
Carlos Peralta Quintero.
(d) Nothing in this Section 5.02(c) shall be deemed to affect any
other right or remedy of the Agent or any right of The Chase Manhattan Bank,
N.A. under the U.S.$10,000,000 principal amount demand note issued by Iusacell
in favor The Chase Manhattan Bank, N.A.
ARTICLE 6. MISCELLANEOUS.
Section 6.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
Section 6.02. Expenses. The Pledgor will upon demand pay to the
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which the Agent
may incur in connection with (a) the administration of this Agreement, (b) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (c) the exercise or enforcement
of any of the rights of the Agent or the Banks hereunder or (d) the failure by
the Pledgor to perform or observe any of the provisions hereof.
Section 6.03. Notices. Unless the party to be notified otherwise
notifies the other party in writing, notices shall be given by ordinary mail or
telex, addressed to such party at its address on the signature page of the
Credit Agreement.
Section 6.04. Transfer of Facility Documents. This Agreement shall
(a) be binding upon the Pledgor, its successors and assigns, and (b) inure,
together with the rights and remedies of the Agent hereunder, to the benefit of
the Agent, the Bank and their respective
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successors, transferees and assigns. Without limiting the generality of the
foregoing clause (b), any Bank may assign or otherwise transfer the Credit
Agreement, or grant participations therein held by any other person or entity,
and such other person or entity shall thereupon become vested with all the
benefits in respect thereof granted to such Bank herein or otherwise, subject,
however, to the provisions of Section 11 (concerning the Agent) of the Credit
Agreement.
Section 6.05. Governing Law; Terms. This Agreement shall be governed
by and the construed in accordance with the laws of the State of New York.
Section 6.06. Submission to Jurisdiction. For the interpretation,
performance and enforcement or this Agreement, each of the parties hereto
expressly and irrevocably submits to the Federal and state courts located in the
City of New York, State of New York, United States of America and to the courts
of its own corporate domicile, with respect to actions brought against it as a
defendant, and waives any right to be sued in any other jurisdiction to which it
may be entitled, by reason of its present future domicile or otherwise.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
GRUPO IUSACELL, S.A. DE C.V.
By
---------------------------------
Name:
Title
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
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By
________ ---------------------------------
Name:
Title
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SCHEDULE to PLEDGE AGREEMENT
Stock Certificate Number
Stock Issuer Class of Stock No(s). Par Value of Shares
- ------------ -------------- ----------------- -------------------
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EXHIBIT F
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT, dated February 27, 1996, between MERRILL
LYNCH INTERNATIONAL BANK LIMITED (MERCHANT BANK), a corporation organized and
existing under the laws of the United Kingdom (the "Subordinated Creditor") and
GRUPO IUSACELL, S.A. DE C.V., a corporation organized and existing under the
laws of Mexico (the "Borrower") and THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION) as Agent for the Banks under the Credit Agreement referred to below
(the "Agent").
PRELIMINARY STATEMENTS:
(1) The Agent has entered into a Credit Agreement dated as of
February 16, 1996 with the Borrower, certain guarantors and other financial
institutions (said Agreement, as it may hereafter be amended or otherwise
modified from time to time, being the "Credit Agreement", the terms defined
therein and not otherwise defined herein being used herein as therein defined).
(2) The Borrower is now indebted to the Subordinated Creditor and
may hereafter from time to time become indebted or otherwise obligated to the
Subordinated Creditor in further amounts (all such indebtedness and other
obligations now or hereafter existing, whether created directly or acquired by
assignment or otherwise, and interest and premiums, if any, thereon and other
amounts payable in respect thereof, are hereinafter referred to as the
"Subordinated Debt").
(3) It is a condition precedent to the making of Loans by the Banks
under the Credit Agreement that the Subordinated Creditor shall have executed
and delivered this Agreement.
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NOW THEREFORE, in consideration of the premises and in order to
induce the Banks to make Loans under the Credit Agreement, the Subordinated
Creditor and the Borrower each hereby agrees as follows:
ARTICLE 1. THE SUBORDINATION.
Section 1.01. Agreement to Subordinate. The Subordinated Creditor
and the Borrower each agrees that the Subordinated Debt is and shall be
subordinate, to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all indebtedness of the Borrower now or
hereafter existing under the Credit Agreement and the Notes, whether for
principal, interest (including, without limitation, interest, as provided in the
Notes, accruing after the filing of a petition initiating any proceeding
referred to in Section 1.03(a)), fees, expenses or otherwise (such indebtedness
being the "Senior Debt").
Section 1.02. No Payment by the Borrower on the Subordinated Debt.
The Subordinated Creditor agrees not to ask, demand, sue for, take or receive
from the Borrower, directly or indirectly, in cash or other property or by
set-off or in any other manner (including, without limitation, from or by way of
collateral), payment of all or any of the Subordinated Debt unless and until the
Senior Debt shall have been paid in full; provided, however, that the
Subordinated Creditor may at any time, including, but not limited to, prior to
the payment in full of the Senior Debt, ask, demand, sue for, take and/or
receive for its own benefit payment from, and exercise remedies against, FIUSA
PASTEJE, S.A. de C.V. (as successor to ADMINISTRACION y CONTROL de INDUSTRIAS,
S.A. de C.V.) and BELL ATLANTIC FINANCIAL SERVICES, INC., as contingent
purchasers (collectively, the "Contingent Purchasers") under that certain
Contingent Purchase Agreement dated as of April 6, 1995 (the "Contingent
Purchase Agreement") between the Contingent Purchasers and the Subordinated
Creditor. For the purposes of this Agreement, the Senior Debt shall not be
deemed to have been paid in full until the fulfillment of the following
conditions: (a) the Termination Date shall have elapsed or the Credit Agreement
shall have been terminated and (b) the Banks shall have received payment of the
Senior Debt in cash.
Section 1.03. In Furtherance of Subordination. The Subordinated
Creditor agrees as follows:
(a) Upon any distribution of all or any of the assets of the
Borrower to creditors of the Borrower upon the dissolution, winding up,
liquidation, arrangement, reorganization, adjustment, protection, relief
or composition of the Borrower or its debts, whether in any bankruptcy,
insolvency, arrangement, reorganization, receivership, relief or similar
proceedings or upon an assignment for the benefit of creditors or any
other marshalling of the assets and liabilities of the Borrower or
otherwise, any payment or distribution of any kind (whether in cash,
property or securities) which otherwise would be payable or
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deliverable upon or with respect to the Subordinated Debt shall be paid or
delivered directly to the Agent for application (in the case of cash) to
or as collateral (in the case of non-cash property or securities) for the
payment or prepayment of the Senior Debt until the Senior Debt shall have
been paid in full.
(b) All payments or distributions upon or with respect to the
Subordinated Debt which are received by the Subordinated Creditor contrary
to the provisions of this Agreement shall be received in trust for the
benefit of the Agent on behalf of the Banks, shall be segregated from
other funds and property held by the Subordinated Creditor and shall be
forthwith paid over to the Agent in the same form as so received (with any
necessary indorsement) to be applied (in the case of cash) to or held as
collateral (in the case of non-cash property or securities) for the
payment or prepayment of the Senior Debt in accordance with the terms of
the Credit Agreement.
(c) The Agent is hereby authorized to demand specific performance of
this Agreement, whether or not the Borrower shall have complied with any
of the provisions hereof applicable to it, at any time when the
Subordinated Creditor shall have failed to comply with any of the
provisions of this Agreement applicable to it. The Subordinated Creditor
hereby irrevocably waives any defense based on the adequacy of a remedy at
law, which might be asserted as a bar to such remedy of specific
performance.
Section 1.04. No Commencement of Any Proceeding. The Subordinated
Creditor agrees that, so long as any of the Senior Debt shall remain unpaid, it
will not commence, or join with any creditor other than the Agent on behalf of
the Banks in commencing, any proceeding referred to in Section 1.03(a) with
respect to the Borrower.
Section 1.05. Rights of Subrogation. The Subordinated Creditor
agrees that no payment or distribution to the Banks pursuant to the provisions
of this Agreement shall entitle the Subordinated Creditor to exercise any rights
of subrogation in respect thereof until the Senior Debt shall have been paid in
full.
Section 1.06. Subordination Legend; Further Assurances. The
Subordinated Creditor and the Borrower will cause each instrument, if any,
evidencing Subordinated Debt to be endorsed with the following legend:
"The indebtedness evidenced by this instrument is subordinated to
the prior payment in full of the Senior Debt (as defined in the
Subordination Agreement referred to below) pursuant to, and to the extent
provided in, the Subordination Agreement dated
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February , 1996 by the maker hereof and payee named herein in favor of The
Chase Manhattan Bank (National Association), as Agent."
The Subordinated Creditor and the Borrower each will further mark its books of
account in such a manner as shall be effective to give proper notice of the
effect of this Agreement. So long as the Subordinated Creditor holds the
Subordinated Debt, the Subordinated Creditor and the Borrower each will, at the
expense of the Borrower, and at any time and from time to time, promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Agent may reasonably request, in
order to protect any right or interest granted or purported to be granted hereby
or to enable the Agent to exercise and enforce its rights and remedies
hereunder.
Section 1.07. No Change in or Disposition of Subordinated Debt. The
Subordinated Creditor will not:
(a) Cancel or otherwise discharge any of the Subordinated Debt
(except upon payment in full thereof paid to the Banks as contemplated by
Section 1.02 or subordinate any of the Subordinated Debt to any
indebtedness of the Borrower other than the Senior Debt;
(b) Sell, assign, pledge, encumber or otherwise dispose of any of
the Subordinated Debt unless such sale, assignment, pledge, encumbrance or
disposition is made expressly subject to this Agreement; or
(c) Release any Guarantor of the Subordinated Debt from all or any
portion of its guarantee of the Subordinated Debt. For purposes of this
parragraph the term "Guarantor" shall mean: FIUSA PASTEJE, S.A. de C.V.
(as successor to ADMINISTRACION y CONTROL de INDUSTRIAS, S.A. de C.V.) and
BELL ATLANTIC FINANCIAL SERVICES, INC.
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Section 1.08. Agreement by the Borrower. The Borrower agrees that it
will not make any payment of any of the Subordinated Debt, or take any other
action, in contravention of the provisions of this Agreement.
Section 1.09. Obligations Hereunder Not Affected. All rights and
interests of the Banks hereunder, and all agreements of the Subordinated
Creditor and the Borrower under this Agreement, shall remain in full force and
effect irrespective of:
(a) any lack of validity or enforceability of the Credit Agreement,
the Notes or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Senior Debt, or any other amendment or
waiver of or any consent to departure from the Notes or the Credit
Agreement;
(c) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Senior Debt; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Borrower or a subordinated
creditor.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Senior Debt is rescinded or must
otherwise be returned by the Banks upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
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Section 1.10. Subordinated Creditor's Rights Against Other Persons
Not Affected. Nothing in this Subordination Agreement shall in any way diminish,
restrict or impair the ability of the Subordinated Creditor to accept any
payment from, or exercise remedies against, any Person other than the Borrower
and its Subsidiaries in respect of the Subordinated Debt, whether pursuant to
the Contingent Purchase Agreement or otherwise.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES.
Section 2.01. Subordinated Debt. (a) The Borrower hereby represents
and warrants that (i) the Subordinated Debt now outstanding, true and complete
copies of instruments evidencing which have been furnished to the Banks, has
been duly authorized by the Borrower, has not been amended or otherwise
modified, and constitutes the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms and (ii)
there exists no default in respect of any of the Subordinated Debt.
(b) The Subordinated Creditor hereby represents and warrants that
the Subordinated Creditor owns the Subordinated Debt now outstanding free and
clear of any lien, security interest, charge or encumbrance or any rights of
others (including the rights of any other subordinated creditor).
ARTICLE 3. MISCELLANEOUS
Section 3.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Subordinated
Creditor or the Borrower therefrom shall in any event be effective unless the
same shall be in writing and signed by the Banks, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of the Agent in any Bank to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 3.02. Formalities. The Subordinated Creditor and the
Borrower each hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Senior Debt and this Agreement and any
requirement that the Banks protect, secure, perfect or insure any security
interest or lien or any property subject thereto or exhaust any right or take
any action against the Borrower or any other person or entity or any collateral.
Subordination Agreement
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Section 3.03. Expenses. The Borrower agrees to pay, upon demand, to
the Agent and/or the Subordinated Creditor, as the case may be, the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel, which the Agent or the Subordinated Creditor may incur in
connection with the exercise or enforcement of any of the Agent's rights or
interests hereunder.
Section 3.04. Notices. All demands, notices and other communications
provided for hereunder shall be in writing (including telegraphic communication)
and, if to the Subordinated Creditor, mailed or telegraphed or delivered to it,
addressed to it at Merrill Lynch International Bank Limited (Merchant Bank), 2
Raffles Link, Marina Bayfront, Singapore 039392 with a copy to Richard Mumford
or Private Banking Counsel, Office of the General Counsel, Merrill Lynch & Co.,
World Financial Center, North Tower, New York, New York 10281-1323; if to the
Borrower or the Agent, mailed or telegraphed or delivered to it, addressed to it
at the address of the Borrower or the Agent (as the case may be) specified in
the Credit Agreement; or as to each party at such other address as shall be
designated by such party in a written notice to each other party complying as to
delivery with the terms of this Section. All such demands, notices and other
communications shall, when mailed or telegraphed, be effective when deposited in
the mails or delivered to the telegraph company, as the case may be, addressed
as aforesaid.
Section 3.05. Continuing Agreement; Transfer of Notes. This
Agreement is a continuing agreement and shall (i) remain in full force and
effect until the Senior Debt shall have been paid in full, (ii) be binding upon
the Subordinated Creditor, the Borrower and their respective successors and
assigns, and (iii) inure to the benefit of and be enforceable by the Agent and
the Banks and their respective successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), the Bank may assign or
otherwise transfer its Note to any other person or entity, and such other person
or entity shall thereupon become vested with all the rights in respect thereof
granted to such Bank herein or otherwise.
Section 3.06. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Subordinated Creditor, the Borrower and the
Bank each has caused this Agreement to be duly executed and delivered by its
officer thereunto duly authorized as of the date first above written.
MERRILL LYNCH INTERNATIONAL BANK
LIMITED (Merchant Bank)
By
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Name:
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By
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Name:
Title:
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GRUPO IUSACELL, S.A. DE C.V.
By
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Name:
Title:
